Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to the Delivery of Customer Agreements Containing Predispute Arbitration Clauses, 20407-20410 [E5-1818]
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Federal Register / Vol. 70, No. 74 / Tuesday, April 19, 2005 / Notices
Commission sua sponte review of
portions of the Licensing Board’s
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security contention (Tentative).
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call (recording)—(301) 415–1292.
Contact person for more information:
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Dated: April 14, 2005.
Dave Gamberoni,
Office of the Secretary.
[FR Doc. 05–7847 Filed 4–15–05; 9:47 am]
BILLING CODE 7590–01–M
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon written request, copies available
from: Securities and Exchange
Commission, Office of Filings and
Information Services, Washington, DC
20549.
Extension: Rule 18f–1 and SEC File No. 270–
187; OMB Control No. 3235–0211; Form
N–18F–1; SEC File No. 270–187; OMB
Control No. 3235–0211.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
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(44 U.S.C. 3501–3520), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Rule 18f–1 [17 CFR 270.18f–1]
enables a registered open-end
management investment company
(‘‘fund’’) that may redeem its securities
in-kind, by making a one-time election,
to commit to make cash redemptions
pursuant to certain requirements
without violating section 18(f) of the
Investment Company Act of 1940 (15
U.S.C. 80a–18(f)). A fund relying on the
rule must file Form N–18F–1 (17 CFR
274.51) to notify the Commission of this
election. The Commission staff
estimates that approximately 38 funds
file Form N–18F–1 annually, and that
each response takes approximately one
hour. Based on these estimates, the total
annual burden hours associated with
the rule is estimated to be 38 hours.
The estimate of average burden hours
is made solely for the purposes of the
Paperwork Reduction Act, and is not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules. An agency
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless it
displays a currently valid OMB control
number.
Written comments are invited on: (a)
Whether the collection of information is
necessary for the proper performance of
the functions of the Commission,
including whether the information has
practical utility; (b) the accuracy of the
Commission’s estimate of the burden of
the collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information collected; and (d)
ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
Please direct your written comments
to R. Corey Booth, Director/Chief
Information Officer, Office of
Information Technology, Securities and
Exchange Commission, 450 5th Street,
NW., Washington, DC 20549.
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20407
Dated: April 11, 2005.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–1816 Filed 4–18–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51526; File No. SR–NASD–
2005–045]
Self-Regulatory Organizations; Notice
of Filing and Order Granting
Accelerated Approval of Proposed
Rule Change by the National
Association of Securities Dealers, Inc.
Relating to the Delivery of Customer
Agreements Containing Predispute
Arbitration Clauses
April 12, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on April 4, 2005, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by NASD. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons. For the reasons
discussed below, the Commission is
approving the proposal on an
accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASD is proposing to amend NASD
Rule 3110(f) to: (1) Amend NASD Rule
3110(f)(2)(B) to conform to the SEC’s
recordkeeping rules, in particular,
Exchange Act Rule 17a–
3(a)(17)(i)(B)(1),3 by extending the time
period for delivery of a copy of a
customer account agreement containing
a predispute arbitration clause from the
time of signing to within 30 days of
signing; (2) extend the compliance date
of the recent amendments to NASD Rule
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 240.17a–3(a)(17)(i)(B)(1). This rule
requires a broker-dealer, among other things, to
keep a record indicating that the broker-dealer has
furnished to each customer within 30 days of
opening the account a copy of the account record,
or alternate document, containing the customer’s
name, address, telephone number, date of birth,
employment status, annual income, net worth, the
account’s investment objectives, and other
information.
2 17
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Federal Register / Vol. 70, No. 74 / Tuesday, April 19, 2005 / Notices
3110(f)(1) 4 to June 1, 2005; and (3) make
technical corrections to the numbering
in NASD Rule 3110(f)(4), as recently
amended, to conform to existing NASD
rule format. Below is the text of the
proposed rule change. Proposed new
language is in italics; proposed
deletions are in brackets.
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*
*
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item III below. NASD has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
3110. Books and Records
(a) through (e) No change.
(f) (1) No change.
(2) (A) No Change.
(B) [At the time] Within thirty days of
signing, a copy of the agreement
containing any such clause shall be
given to the customer who shall
acknowledge receipt thereof on the
agreement or on a separate document.
(3) (A) A member shall provide a
customer with a copy of any predispute
arbitration clause or customer
agreement executed between the
customer and the member, or inform the
customer that the member does not have
a copy thereof, within ten business days
of receipt of the customer’s request. If a
customer requests such a copy before
the member has provided the customer
with a copy pursuant to subparagraph
(2)(B) of this Rule, the member must
provide a copy to the customer by the
earlier date required by this
subparagraph (3)(A) or by subparagraph
(2)(B).
(B) No change.
(4) No predispute arbitration
agreement shall include any condition
that:
(A) [(i)] limits or contradicts the rules
of any self-regulatory organization;
(B) [(ii)] limits the ability of a party to
file any claim in arbitration;
(C) [(iii)] limits the ability of a party
to file any claim in court permitted to
be filed in court under the rules of the
forums in which a claim may be filed
under the agreement;
(D) [(iv)] limits the ability of
arbitrators to make any award.
(5) through (7) No Change.
(g) through (h) No change.
*
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASD included statements concerning
4 See Exchange Act Rel. No. 50713 (Nov. 22,
2004), 69 FR 70293 (Dec. 3, 2004) (Order Granting
Approval to Proposed Rule Change as Amended
and Notice of Filing and Order Granting
Accelerated Approval to Amendment No. 5 by the
National Association of Securities Dealers, Inc.,
Regarding NASD Rule 3110(f) Governing Predispute
Arbitration Agreements With Customers) (SR–
NASD–98–74).
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1. Purpose
(a) Delivery of Customer Agreements
The purpose of the proposed rule
change regarding the delivery of
customer agreements is to conform the
time period for the delivery of copies of
any customer agreement containing a
predispute arbitration clause to
customers in NASD Rule 3110(f) with
the SEC recordkeeping rules, in
particular, Exchange Act Rule 17a–
3(a)(17)(i)(B)(1).
On November 22, 2004, the
Commission approved changes (the
‘‘Rule 3110 changes’’) to NASD Rule
3110(f), which governs the use of
predispute arbitration agreements with
customers. The primary purposes of the
Rule 3110 changes were to require
enhanced disclosure to customers about
the arbitration process and to clarify the
prohibition against inserting provisions
in predispute arbitration agreements
that limit rights or remedies that parties
have (for example, the ability of a party
to file any claim in arbitration). The
Rule 3110 changes also require that
firms provide a copy of any customer
agreement containing a predispute
arbitration clause to the customer, who
must acknowledge receipt thereof on the
agreement or on a separate document, at
the time of signing.5 The proposed rule
change would amend the time
requirement for delivery of a copy of the
customer agreement from the time of
signing to within 30 days of signing.6
5 Prior to the Rule 3110 changes, firms were
required to provide copies of predispute arbitration
agreements to customers; however, the rule did not
specify when they must do so.
6 The changes made to NASD Rule 3110(f)(3)(A)
by the Rule 3110 changes require firms to provide
customers who request a copy of any predispute
arbitration clause or client agreement with a copy
within ten business days of the request. Thus, if the
rule changes proposed in this release are adopted,
customers wishing to have a copy of the customer
agreement sooner than the specified 30 days can
request one. For example, if a customer requests a
copy of the agreement on the date of signing, the
firm must provide the copy to the customer within
ten business days of receiving that request. In
addition, firms may not extend the 30-day time
period for compliance with the delivery
requirement in NASD Rule 3110(f)(2)(B), even
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This change would conform the delivery
requirement in NASD Rule 3110(f)(2)(B)
to that in the SEC’s recordkeeping
rules.7
(b) Extension of Compliance Date
The Rule 3110 changes are scheduled
to become effective on May 1, 2005.8 To
give firms more time to amend their
customer agreements to comply with the
changes to NASD Rule 3110(f)(1), the
proposed rule change will extend the
compliance date by which firms must
begin using the disclosure required by
the changes to NASD Rule 3110(f)(1)
from May 1, 2005 until June 1, 2005.9
This will give firms six months (rather
than five) to implement the changes
required by the Rule 3110 changes with
respect to NASD Rule 3110 (f)(1).10
However, the other requirements of the
Rule 3110 changes (i.e., subparagraphs
(f)(2) through (f)(7)) as well as the
amendments set forth in this proposed
rule change will apply to all predispute
though the Rule 3110 changes allow a firm ten
business days in which to provide a copy of the
agreement to a customer upon request. For example,
if a customer requested a copy of the customer
agreement 25 days after signing, the firm still would
be required to provide the customer with the copy
within 30 days of the signing date (rather than
within ten business days of the date the firm
received the request). Proposed language has been
added to NASD Rule 3110(f)(3)(A) to address this
situation.
7 See Exchange Act Rule 17a–3(a)(17)(i)(B)(1);
Exchange Act Rel. No. 44992 (Oct. 26, 2001), 66 FR
55817 (Nov. 2, 2001). The Rule 3110 changes were
first filed in 1998, prior to the adoption of the Rule
17a–3(a)(17)(i)(B)(1). See 69 FR at 70293.
8 The Notice announcing the Commission’s
approval of the Rule 3110 changes noted that ‘‘the
proposed rule change would take effect 90 days
after NASD publishes a Notice to Members within
60 days of publication of the Commission’s
approval * * *.’’ 63 FR at 70295. Notice to
Members 05–09, which announced the approval,
was published on January 31, 2005.
9 The effective date of the Rule 3110 changes was
originally linked to the effective date of
amendments to NASD Rule 10304, governing time
limits on filing claims in arbitration, which will
also take effect on May 1, 2005. See Exchange Act
Rel. No. 50714 (Nov. 22, 2004), 69 FR 69971 (Dec.
1, 2004) (Order Granting Approval to Proposed Rule
Change, and Notice of Filing and Order Granting
Accelerated Approval to Amendments No. 1 and 2
Thereto Relating to Time Limits for Submission of
Claims in Arbitration) (SR–NASD–2003–101). The
two rule filings are related because both include
provisions restricting the ability of member firms to
bifurcate customer claims between court and
arbitration, and because the enhanced disclosure in
NASD Rule 3110(f)(1) states that some firms have
time limits for the filing of claims in arbitration.
Extension of the compliance date for NASD Rule
3110(f)(1) would not extend the effective date of the
bifurcation provision in NASD Rule 3110(f)(5),
which would remain the same (May 1, 2005) as the
amendments to NASD Rule 10304, or the
applicability of any provision in NASD Rule 10304.
10 Firms would be permitted to use customer
agreements containing the new disclosure language
required by the Rule 3110 changes before June 1,
2005.
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Federal Register / Vol. 70, No. 74 / Tuesday, April 19, 2005 / Notices
arbitration agreements signed on or after
May 1, 2005.
(c) Technical Amendments
The purpose of the proposed rule
change renumbering the four
subparagraphs in NASD Rule 3110(f)(4)
is to conform the numbering in those
subparagraphs to existing NASD rule
format.
(d) Effective Dates and Compliance
Dates
The proposed rule change will
become effective upon approval by the
Commission, and the compliance date
of the proposed rule change will be May
1, 2005, except that firms will not be
required to use the disclosure required
by the changes to NASD Rule 3110(f)(1)
until June 1, 2005. NASD will announce
the proposed rule change in a Notice to
Members to be published no later than
30 days following Commission
approval.
2. Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of section 15A(b)(6) of the Act, which
requires, among other things, that NASD
rules must be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest.
NASD believes that the proposed rule
change will continue to ensure that
customers receive certain information
regarding arbitration and predispute
arbitration agreements in a timely
fashion; however, the proposed rule
change will conform the delivery
requirements of NASD Rule 3110(f) with
the requirements in the SEC’s
recordkeeping rules.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASD does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
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20409
that the rules of a national securities
association be designed in part to
promote just and equitable principles of
Electronic Comments
trade, to foster cooperation and
• Use the Commission’s Internet
coordination with persons engaged in
comment form (https://www.sec.gov/
regulating, clearing, settling, processing
rules/sro.shtml); or
information with respect to, and
• Send an e-mail to rulefacilitating transactions in securities,
comments@sec.gov. Please include File
and, in general, to protect investors and
Number SR–NASD–2005–045 on the
the public interest. The Commission
subject line.
believes that the proposed rule change
requiring members to provide customers
Paper Comments
with executed customer agreements in a
• Send paper comments in triplicate
time period consistent with the
to Jonathan G. Katz, Secretary,
Commission’s recordkeeping rules, in
Securities and Exchange Commission,
particular, Exchange Act Rule 17a–
450 Fifth Street, NW., Washington, DC
3(a)(17)(i)(B)(1), fosters cooperation and
20549—0609.
coordination with persons engaged in
All submissions should refer to File
regulating transactions in securities. The
Number SR–NASD–2005–045. This file
Commission finds that the proposed
number should be included on the
rule change balances the need for
subject line if e-mail is used. To help the protecting investors with the need for
Commission process and review your
minimizing the administrative burden
comments more efficiently, please use
on members and is consistent with the
only one method. The Commission will requirements of the Act. The
post all comments on the Commission’s Commission notes that NASD Rule
Internet Web site (https://www.sec.gov/
3110(f)(3)(A) protects investors by
rules/sro.shtml). Copies of the
requiring members to provide customers
submission, all subsequent
with a copy of the executed customer
amendments, all written statements
agreement within 30 days of execution,
with respect to the proposed rule
whether or not the customer requests a
change that are filed with the
copy. If a customer requests a copy
Commission, and all written
before the end of the 30-day period, the
communications relating to the
member must provide such copy within
proposed rule change between the
ten business days or before the end of
Commission and any person, other than the 30-day period, whichever date is
those that may be withheld from the
earlier. The Commission notes that
public in accordance with the
under the proposed rule change,
provisions of 5 U.S.C. 552, will be
members also are required to provide
available for inspection and copying in
customers with additional copies of the
the Commission’s Public Reference
executed agreement within ten business
Room, 450 Fifth Street, NW.,
days if a customer requests it.
Washington, DC 20549. Copies of such
The Commission believes that the
filing also will be available for
proposed rule change to extend the
inspection and copying at the principal
compliance date for NASD Rule
office of NASD. All comments received
3110(f)(1) from May 1, 2005, to June 1,
will be posted without change; the
2005 is designed to foster cooperation
Commission does not edit personal
and coordination with persons engaged
identifying information from
in regulating transactions in securities
submissions. You should submit only
and is consistent with the Act. The
information that you wish to make
Commission notes that the compliance
available publicly. All submissions
date for NASD Rule 3110(f)(2) through
should refer to the File Number SR–
(f)(7) remains May 1, 2005.
NASD has requested that the
NASD–2005–045 and should be
Commission find good cause pursuant
submitted on or before May 10, 2005.
to section 19(b)(2) of the Act for
IV. Commission’s Findings and Order
approving the proposed rule change
Granting Accelerated Approval of
prior to the 30th day after publication in
Proposed Rule Change
the Federal Register. The Commission
The Commission has reviewed
believes that granting accelerated
carefully the proposed rule change and
approval for the proposed rule change
finds that it is consistent with the
will permit NASD to provide its
requirements of the Act and the rules
members with notice of the revised
and regulations thereunder applicable to customer agreement delivery
a national securities association and, in
requirement and staggered compliance
particular, the requirements of section
dates in timely manner. The
Commission therefore finds good cause
15A(b)(6) of the Act and the rules and
for approving the proposed rule change
regulations thereunder. Section
prior to the 30th day after the date of
15A(b)(6) requires, among other things,
Comments may be submitted by any of
the following methods:
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Federal Register / Vol. 70, No. 74 / Tuesday, April 19, 2005 / Notices
publication of notice of filing thereof in
that accelerated approval will benefit
NASD members and the investing
public.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act, that the
proposed rule change (SR–NASD–2005–
045) be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–1818 Filed 4–18–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51539; File No. SR–NYSE–
2004–59]
Self-Regulatory Organizations; Order
Approving Proposed Rule Change by
the New York Stock Exchange, Inc. To
Adopt a New Rule (NYSE Rule 401A)
Requiring Members and Member
Organizations To Respond to
Customer Complaints, and Adding
Failure To Acknowledge Customer
Complaints to the Minor Fine
Provisions of NYSE Rule 476A
April 13, 2005.
I. Introduction
On October 21, 2004, the New York
Stock Exchange, Inc. (‘‘NYSE’’ or ‘‘the
Exchange’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to adopt a new
rule, denoted NYSE Rule 401A, to
require its members and member
organizations (‘‘members’’) to respond
to customer complaints, and to add
failure to acknowledge customer
complaints to the minor fine provisions
of NYSE Rule 476A. The proposed rule
change was published for comment in
the Federal Register on March 7, 2005.3
The Commission received no comments
in response to the proposed rule change.
For the reasons discussed below, the
Commission is approving the proposed
rule change.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 51276 (Feb.
28, 2005), 70 FR 11040 (Mar. 7, 2005) (‘‘Notice’’).
II. Description of the Proposed Rule
Change
NYSE Rule 351(d) requires NYSE
members to ‘‘report to the Exchange
statistical information regarding
customer complaints relating to such
matters as may be specified by the
Exchange.’’ Pursuant to this Rule, the
NYSE currently requires reporting of
statistical information relating to
complaints by customers involving,
inter alia, sales practices, unauthorized
trading and misappropriation of funds.4
The reporting obligation applies to ‘‘[a]ll
complaints, regardless of how delivered
(oral, written, e-mail or fax) * * *.’’ 5
The NYSE now proposes to adopt a
new Rule, designated 401A, to require
its members to acknowledge and
respond to customer complaints.
Specifically, Rule 401A(a) would
require NYSE members to acknowledge
receipt of every customer complaint that
is subject to the reporting requirements
of Rule 351(d) within 15 business days
of receipt, and to respond to the issues
raised in such complaint within a
reasonable period of time. Rule 401A(b)
would mandate specific methods of
delivery for acknowledgements and
responses. Written acknowledgements
and responses mailed to the
complaining customer’s last known
address would suffice in all cases.
However, where a complaint was
electronically transmitted, members
would be permitted to acknowledge and
respond to it by electronic transmission
to the e-mail address from which the
complaint was sent. The Exchange
would also permit verbal
acknowledgements and responses to
verbal complaints, provided that they
are recorded in a log of such actions.
Paragraph (c) of the proposed rule
would require members to keep written
records of all such acknowledgements,
responses, and logs in accordance with
NYSE Rule 440 (‘‘Books and Records’’).
Finally, the Exchange proposes to add
failures to acknowledge customer
complaints within 15 days of receipt to
the list of violations in NYSE Rule 476A
(‘‘Imposition of Fines for Minor
Violations of Rules’’). Rule 476A
provides that the Exchange may impose
fines, not to exceed $5,000, on any
member for a minor violation of the
Exchange rules specified therein.
III. Discussion and Findings
The Commission finds the proposed
rule change is consistent with the Act,
and in particular with section 6(b)(5) of
the Act, which requires, among other
things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest.6 The Commission
further finds that the proposal is
consistent with section 6(b)(6) of the
Act,7 which requires that members be
appropriately disciplined for violations
of Exchange rules. Finally, the
Commission finds the proposal is
consistent with Rule 19d–1(c)(2) under
the Act,8 which governs minor rule
violation plans.
As the Exchange stated in its
proposal, no current NYSE rule requires
members to acknowledge or respond to
complaints from customers.9 The
proposal will require NYSE members to
acknowledge and respond to any and all
customer complaints that must be
reported to the Exchange under NYSE
Rule 351(d). Indeed, under proposed
Rule 401A, ignoring or neglecting a
customer complaint would constitute a
violation of NYSE rules. The
Commission believes that the new Rule
is consistent with the protection of
investors and the public interest
because, by requiring members to
review and respond to customer
complaints, and by requiring records to
be kept with respect to such actions, the
Rule should encourage NYSE members
to attend to complaints that may alert
them to potential abuses and to take
corrective action, where appropriate.
The Commission also believes that the
new required procedures should foster
an awareness within NYSE member
firms of the volume and specific types
of complaints they receive, thereby
promoting appropriate preventive or
supervisory action by the member’s
compliance personnel. Specifically,
requiring firms to review and respond to
customer complaints should enhance a
member’s ability to supervise its
personnel by drawing attention to any
that may require additional training or
monitoring. Exposure to an aggregation
of complaints should also alert NYSE
members to systemic problems with
registered representatives, products, and
services and should allow the member
to identify areas where it, or its
personnel, could improve compliance.
Further, the Commission believes that
the proposed new Rule should serve to
protect investors because it will require
NYSE members to notify them when
11 17
1 15
VerDate jul<14>2003
18:06 Apr 18, 2005
Jkt 205001
4 NYSE Information Memo Number 03–39 (Sep.
19, 2003).
5 NYSE Information Memo Number 03–38 (Sep.
19, 2003).
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
6 15
U.S.C. 78f(b)(5).
U.S.C. 78f(b)(6).
8 17 CFR 240.19d–1(c)(2).
9 Notice at 11041.
7 15
E:\FR\FM\19APN1.SGM
19APN1
]]>Agencies
[Federal Register Volume 70, Number 74 (Tuesday, April 19, 2005)]
[Notices]
[Pages 20407-20410]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1818]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51526; File No. SR-NASD-2005-045]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the National
Association of Securities Dealers, Inc. Relating to the Delivery of
Customer Agreements Containing Predispute Arbitration Clauses
April 12, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 4, 2005, the National Association of
Securities Dealers, Inc. (``NASD'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by NASD. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons. For the
reasons discussed below, the Commission is approving the proposal on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to amend NASD Rule 3110(f) to: (1) Amend NASD
Rule 3110(f)(2)(B) to conform to the SEC's recordkeeping rules, in
particular, Exchange Act Rule 17a-3(a)(17)(i)(B)(1),\3\ by extending
the time period for delivery of a copy of a customer account agreement
containing a predispute arbitration clause from the time of signing to
within 30 days of signing; (2) extend the compliance date of the recent
amendments to NASD Rule
[[Page 20408]]
3110(f)(1) \4\ to June 1, 2005; and (3) make technical corrections to
the numbering in NASD Rule 3110(f)(4), as recently amended, to conform
to existing NASD rule format. Below is the text of the proposed rule
change. Proposed new language is in italics; proposed deletions are in
brackets.
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\3\ 17 CFR 240.17a-3(a)(17)(i)(B)(1). This rule requires a
broker-dealer, among other things, to keep a record indicating that
the broker-dealer has furnished to each customer within 30 days of
opening the account a copy of the account record, or alternate
document, containing the customer's name, address, telephone number,
date of birth, employment status, annual income, net worth, the
account's investment objectives, and other information.
\4\ See Exchange Act Rel. No. 50713 (Nov. 22, 2004), 69 FR 70293
(Dec. 3, 2004) (Order Granting Approval to Proposed Rule Change as
Amended and Notice of Filing and Order Granting Accelerated Approval
to Amendment No. 5 by the National Association of Securities
Dealers, Inc., Regarding NASD Rule 3110(f) Governing Predispute
Arbitration Agreements With Customers) (SR-NASD-98-74).
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* * * * *
3110. Books and Records
(a) through (e) No change.
(f) (1) No change.
(2) (A) No Change.
(B) [At the time] Within thirty days of signing, a copy of the
agreement containing any such clause shall be given to the customer who
shall acknowledge receipt thereof on the agreement or on a separate
document.
(3) (A) A member shall provide a customer with a copy of any
predispute arbitration clause or customer agreement executed between
the customer and the member, or inform the customer that the member
does not have a copy thereof, within ten business days of receipt of
the customer's request. If a customer requests such a copy before the
member has provided the customer with a copy pursuant to subparagraph
(2)(B) of this Rule, the member must provide a copy to the customer by
the earlier date required by this subparagraph (3)(A) or by
subparagraph (2)(B).
(B) No change.
(4) No predispute arbitration agreement shall include any condition
that:
(A) [(i)] limits or contradicts the rules of any self-regulatory
organization;
(B) [(ii)] limits the ability of a party to file any claim in
arbitration;
(C) [(iii)] limits the ability of a party to file any claim in
court permitted to be filed in court under the rules of the forums in
which a claim may be filed under the agreement;
(D) [(iv)] limits the ability of arbitrators to make any award.
(5) through (7) No Change.
(g) through (h) No change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item III below. NASD has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
(a) Delivery of Customer Agreements
The purpose of the proposed rule change regarding the delivery of
customer agreements is to conform the time period for the delivery of
copies of any customer agreement containing a predispute arbitration
clause to customers in NASD Rule 3110(f) with the SEC recordkeeping
rules, in particular, Exchange Act Rule 17a-3(a)(17)(i)(B)(1).
On November 22, 2004, the Commission approved changes (the ``Rule
3110 changes'') to NASD Rule 3110(f), which governs the use of
predispute arbitration agreements with customers. The primary purposes
of the Rule 3110 changes were to require enhanced disclosure to
customers about the arbitration process and to clarify the prohibition
against inserting provisions in predispute arbitration agreements that
limit rights or remedies that parties have (for example, the ability of
a party to file any claim in arbitration). The Rule 3110 changes also
require that firms provide a copy of any customer agreement containing
a predispute arbitration clause to the customer, who must acknowledge
receipt thereof on the agreement or on a separate document, at the time
of signing.\5\ The proposed rule change would amend the time
requirement for delivery of a copy of the customer agreement from the
time of signing to within 30 days of signing.\6\ This change would
conform the delivery requirement in NASD Rule 3110(f)(2)(B) to that in
the SEC's recordkeeping rules.\7\
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\5\ Prior to the Rule 3110 changes, firms were required to
provide copies of predispute arbitration agreements to customers;
however, the rule did not specify when they must do so.
\6\ The changes made to NASD Rule 3110(f)(3)(A) by the Rule 3110
changes require firms to provide customers who request a copy of any
predispute arbitration clause or client agreement with a copy within
ten business days of the request. Thus, if the rule changes proposed
in this release are adopted, customers wishing to have a copy of the
customer agreement sooner than the specified 30 days can request
one. For example, if a customer requests a copy of the agreement on
the date of signing, the firm must provide the copy to the customer
within ten business days of receiving that request. In addition,
firms may not extend the 30-day time period for compliance with the
delivery requirement in NASD Rule 3110(f)(2)(B), even though the
Rule 3110 changes allow a firm ten business days in which to provide
a copy of the agreement to a customer upon request. For example, if
a customer requested a copy of the customer agreement 25 days after
signing, the firm still would be required to provide the customer
with the copy within 30 days of the signing date (rather than within
ten business days of the date the firm received the request).
Proposed language has been added to NASD Rule 3110(f)(3)(A) to
address this situation.
\7\ See Exchange Act Rule 17a-3(a)(17)(i)(B)(1); Exchange Act
Rel. No. 44992 (Oct. 26, 2001), 66 FR 55817 (Nov. 2, 2001). The Rule
3110 changes were first filed in 1998, prior to the adoption of the
Rule 17a-3(a)(17)(i)(B)(1). See 69 FR at 70293.
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(b) Extension of Compliance Date
The Rule 3110 changes are scheduled to become effective on May 1,
2005.\8\ To give firms more time to amend their customer agreements to
comply with the changes to NASD Rule 3110(f)(1), the proposed rule
change will extend the compliance date by which firms must begin using
the disclosure required by the changes to NASD Rule 3110(f)(1) from May
1, 2005 until June 1, 2005.\9\ This will give firms six months (rather
than five) to implement the changes required by the Rule 3110 changes
with respect to NASD Rule 3110 (f)(1).\10\ However, the other
requirements of the Rule 3110 changes (i.e., subparagraphs (f)(2)
through (f)(7)) as well as the amendments set forth in this proposed
rule change will apply to all predispute
[[Page 20409]]
arbitration agreements signed on or after May 1, 2005.
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\8\ The Notice announcing the Commission's approval of the Rule
3110 changes noted that ``the proposed rule change would take effect
90 days after NASD publishes a Notice to Members within 60 days of
publication of the Commission's approval * * *.'' 63 FR at 70295.
Notice to Members 05-09, which announced the approval, was published
on January 31, 2005.
\9\ The effective date of the Rule 3110 changes was originally
linked to the effective date of amendments to NASD Rule 10304,
governing time limits on filing claims in arbitration, which will
also take effect on May 1, 2005. See Exchange Act Rel. No. 50714
(Nov. 22, 2004), 69 FR 69971 (Dec. 1, 2004) (Order Granting Approval
to Proposed Rule Change, and Notice of Filing and Order Granting
Accelerated Approval to Amendments No. 1 and 2 Thereto Relating to
Time Limits for Submission of Claims in Arbitration) (SR-NASD-2003-
101). The two rule filings are related because both include
provisions restricting the ability of member firms to bifurcate
customer claims between court and arbitration, and because the
enhanced disclosure in NASD Rule 3110(f)(1) states that some firms
have time limits for the filing of claims in arbitration. Extension
of the compliance date for NASD Rule 3110(f)(1) would not extend the
effective date of the bifurcation provision in NASD Rule 3110(f)(5),
which would remain the same (May 1, 2005) as the amendments to NASD
Rule 10304, or the applicability of any provision in NASD Rule
10304.
\10\ Firms would be permitted to use customer agreements
containing the new disclosure language required by the Rule 3110
changes before June 1, 2005.
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(c) Technical Amendments
The purpose of the proposed rule change renumbering the four
subparagraphs in NASD Rule 3110(f)(4) is to conform the numbering in
those subparagraphs to existing NASD rule format.
(d) Effective Dates and Compliance Dates
The proposed rule change will become effective upon approval by the
Commission, and the compliance date of the proposed rule change will be
May 1, 2005, except that firms will not be required to use the
disclosure required by the changes to NASD Rule 3110(f)(1) until June
1, 2005. NASD will announce the proposed rule change in a Notice to
Members to be published no later than 30 days following Commission
approval.
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of section 15A(b)(6) of the Act, which requires, among other
things, that NASD rules must be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. NASD believes that the proposed rule change will
continue to ensure that customers receive certain information regarding
arbitration and predispute arbitration agreements in a timely fashion;
however, the proposed rule change will conform the delivery
requirements of NASD Rule 3110(f) with the requirements in the SEC's
recordkeeping rules.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASD does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2005-045 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549--0609.
All submissions should refer to File Number SR-NASD-2005-045. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room, 450 Fifth
Street, NW., Washington, DC 20549. Copies of such filing also will be
available for inspection and copying at the principal office of NASD.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to the File Number SR-NASD-2005-
045 and should be submitted on or before May 10, 2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission has reviewed carefully the proposed rule change and
finds that it is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
association and, in particular, the requirements of section 15A(b)(6)
of the Act and the rules and regulations thereunder. Section 15A(b)(6)
requires, among other things, that the rules of a national securities
association be designed in part to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, and, in general, to protect investors and the public
interest. The Commission believes that the proposed rule change
requiring members to provide customers with executed customer
agreements in a time period consistent with the Commission's
recordkeeping rules, in particular, Exchange Act Rule 17a-
3(a)(17)(i)(B)(1), fosters cooperation and coordination with persons
engaged in regulating transactions in securities. The Commission finds
that the proposed rule change balances the need for protecting
investors with the need for minimizing the administrative burden on
members and is consistent with the requirements of the Act. The
Commission notes that NASD Rule 3110(f)(3)(A) protects investors by
requiring members to provide customers with a copy of the executed
customer agreement within 30 days of execution, whether or not the
customer requests a copy. If a customer requests a copy before the end
of the 30-day period, the member must provide such copy within ten
business days or before the end of the 30-day period, whichever date is
earlier. The Commission notes that under the proposed rule change,
members also are required to provide customers with additional copies
of the executed agreement within ten business days if a customer
requests it.
The Commission believes that the proposed rule change to extend the
compliance date for NASD Rule 3110(f)(1) from May 1, 2005, to June 1,
2005 is designed to foster cooperation and coordination with persons
engaged in regulating transactions in securities and is consistent with
the Act. The Commission notes that the compliance date for NASD Rule
3110(f)(2) through (f)(7) remains May 1, 2005.
NASD has requested that the Commission find good cause pursuant to
section 19(b)(2) of the Act for approving the proposed rule change
prior to the 30th day after publication in the Federal Register. The
Commission believes that granting accelerated approval for the proposed
rule change will permit NASD to provide its members with notice of the
revised customer agreement delivery requirement and staggered
compliance dates in timely manner. The Commission therefore finds good
cause for approving the proposed rule change prior to the 30th day
after the date of
[[Page 20410]]
publication of notice of filing thereof in that accelerated approval
will benefit NASD members and the investing public.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change (SR-NASD-2005-045) be, and hereby is,
approved on an accelerated basis.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1818 Filed 4-18-05; 8:45 am]
BILLING CODE 8010-01-P
