Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendments No. 1 and 2 Thereto Regarding NYSE Rule 619 To Clarify That Failure To Appear or Produce Documents in Arbitration May Be Deemed Conduct Inconsistent With Just and Equitable Principles of Trade, 48961-48963 [E6-13811]

Download as PDF Federal Register / Vol. 71, No. 162 / Tuesday, August 22, 2006 / Notices contained in SR–NASD–2006–055 was subsequently amended by SR–NASD– 2005–087.9 In addition, in light of the changes implemented as part of SR– NASD–2005–087, the transactions that are subject to a regulatory transaction fee pursuant to Section 3 of Schedule A to NASD By-Laws will no longer be reported to the Nasdaq Market Center as originally proposed in NASD Rule 6120(g), but to another NASD facility, either the Trade Reporting Facility or the OTC Reporting Facility, as defined in NASD Rule 6110. As a result, NASD is proposing changes to the rule text approved pursuant to SR–NASD–2006– 055 to conform it to the recently approved rule changes as part of SR– NASD–2005–087. In addition, SR– NASD–2006–055 proposed amendments to NASD Rule 4642, which was subsequently deleted in SR–NASD– 2005–087, and therefore these rule changes are no longer necessary. NASD has filed the proposed rule change for immediate effectiveness. The implementation date will be the implementation date of SR–NASD– 2006–055, which is anticipated to be December 1, 2006. 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,10 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 enhance the integrity of the market by increasing the consistency and clarity of its rules. B. Self-Regulatory Organization’s Statement on Burden on Competition C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others cprice-sewell on PROD1PC66 with NOTICES Written comments were neither solicited nor received. 9 The amendments to Section 3 of Schedule A to NASD By-Laws and NASD Rules 6420, 6620, and 6130A were unaffected by SR–NASD–2005–087. Accordingly, these amendments will become effective in accordance with SR–NASD–2006–055 and the corresponding Notice to Members that will announce the effective date of the amendments, which is anticipated to be December 1, 2006. 10 15 U.S.C. 78o–3(b)(6). 15:34 Aug 21, 2006 Jkt 208001 Because the foregoing proposed rule change does not: (1) Significantly affect the protection of investors or the public interest; (2) impose any significant burden on competition; and (3) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, provided that the Exchange has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the filing date of the proposal.11 At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. 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 rulecomments@sec.gov. Please include File Number SR–NASD–2006–098 on the subject line. Paper Comments NASD does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. VerDate Aug<31>2005 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASD–2006–098. 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 11 As required under Rule 19b–4(f)(6)(iii), NASD provided the Commission with notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposal. PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 48961 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. Copies of such filing also will be available for inspection and copying at the principal office of the 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 File Number SR–NASD–2006–098 and should be submitted on or before September 12, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.12 Nancy M. Morris, Secretary. [FR Doc. E6–13816 Filed 8–21–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54320; File No. SR–NYSE– 2005–18] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendments No. 1 and 2 Thereto Regarding NYSE Rule 619 To Clarify That Failure To Appear or Produce Documents in Arbitration May Be Deemed Conduct Inconsistent With Just and Equitable Principles of Trade August 15, 2006. I. Introduction On February 17, 2005, the New York Stock Exchange, Inc. (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 amend Rule 619 to clarify that it may be deemed conduct or proceeding inconsistent with just and equitable principles of trade for purposes of NYSE Rule 476(a)(6) for a member, member 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\22AUN1.SGM 22AUN1 48962 Federal Register / Vol. 71, No. 162 / Tuesday, August 22, 2006 / Notices organization, allied member, approved person, registered or non-registered employee of a member or member organization or person otherwise subject to the jurisdiction of the Exchange (each, a ‘‘responsible party’’) to fail to appear or fail to produce any document in its possession or control as directed pursuant to applicable provisions of the NYSE Arbitration Rules. On July 27, 2005, the Exchange filed Amendment No. 1 to the proposed rule change.3 On February 15, 2006, the Exchange filed Amendment No. 2 to the proposed rule change.4 The proposed rule change was published for comment in the Federal Register on April 11, 2006.5 The Commission received five comment letters on the proposal.6 This order approves the proposed rule change as amended. cprice-sewell on PROD1PC66 with NOTICES II. Description of the Proposal NYSE Rule 476 allows disciplinary sanctions to be imposed upon a responsible party who is adjudged guilty of certain enumerated offenses, including ‘‘conduct or proceeding inconsistent with just and equitable principles of trade.’’ The proposal would amend Rule 619 to clarify that it may be deemed conduct or proceeding inconsistent with just and equitable principles of trade for purposes of NYSE Rule 476(a)(6) for a responsible party to fail to appear or fail to produce any document in its possession or control as directed pursuant to provisions of the NYSE Arbitration Rules. The Exchange is aware of allegations that member organizations have not fulfilled their discovery obligations as prescribed by NYSE Arbitration Rules. The NYSE believes that the express authority for the NYSE to bring a disciplinary action under NYSE Rule 476(a)(6) will improve the efficacy of the arbitration process by facilitating the Exchange’s ability to ensure more fully and forcefully the cooperation of a 3 In Amendment No. 1, which replaced the original filing, the Exchange clarified that Rule 619 also applies to a ‘‘person otherwise subject to the jurisdiction of the Exchange.’’ 4 Amendment No. 2, which replaced the first amended rule filing, conformed the proposed rule to reflect the list of persons subject to disciplinary action under NYSE Rule 476. 5 See Exchange Act Release No. 53599 (Apr. 4, 2006), 71 FR 18401 (Apr. 11, 2006). 6 See E-mail from David Plimpton, Plimpton & Esposito, to rule-comments@sec.gov, dated April 27, 2006 (‘‘Plimpton’’); letter from Robert S. Banks, Jr., Public Investors Arbitration Bar Association, dated April 25, 2006 (‘‘PIABA’’); E-mail from A. Daniel Woska, A. Daniel Woska & Associates, P.C., to rulecomments@sec.gov, dated April 23, 2006 (‘‘Woska’’); E-mail from Les Greenberg, Law Offices of Les Greenberg, to rule-comments@sec.gov, dated April 20, 2006 (‘‘Greenberg’’); letter from Steven B. Caruso, Maddox Hargett Caruso, P.C., dated April 11, 2006 (‘‘Caruso’’). VerDate Aug<31>2005 15:34 Aug 21, 2006 Jkt 208001 responsible party who is a party to an arbitration proceeding. By explicitly providing that the failure to appear or to produce documents in one’s possession or control may be deemed conduct or proceeding inconsistent with just and equitable principles of trade, the NYSE believes that the proposed amendment would provide the Exchange with a clear mechanism to pursue disciplinary action pursuant to NYSE Rule 476 in response to such conduct. III. Summary of Comments The Commission received five comment letters on the proposal.7 Commenters generally supported the proposal.8 As discussed below, however, some raised concerns with certain aspects of it. Proposed Rule 619(h) states in relevant part that ‘‘[i]t may be deemed conduct or proceeding inconsistent with just and equitable principles of trade for purposes of Rule 476(a)(6) [for a responsible party] to fail to appear or to produce any document in their possession or control as directed pursuant to provisions of the NYSE Arbitration Rules.’’ (Emphasis added.) One commenter stated that the emphasized language could be misconstrued to require the prior direction or an order of an arbitration panel before the NYSE could charge the party with a violation of Rule 476.9 The commenter also suggested that the proposed rule be amended to clarify that it does not affect an arbitrator’s current authority under Rules 604 (dismissal of proceedings) and 621 (enforcement of rulings).10 Two commenters believed that the proposed rule does not adequately address what the commenters’ view are ongoing problems with arbitrator conflicts of interest.11 One of these commenters stated that a securities arbitrator may be reluctant to impose sanctions on a party for fear that the party may not select the arbitrator to 7 See id. example, one commenter supported the proposed rule because, in the commenter’s view, members that violate discovery rules do not regard their conduct as serious unless sanctions are imposed. PIABA. See also Woska. 9 See Caruso. 10 Id. Two commenters stated that arbitrators need to better enforce existing procedures, particularly Rule 604(b), which allows an arbitrator to impose sanctions against a party that willfully and intentionally fails to comply with an arbitrator’s order if lesser sanctions have proven ineffective. Greenberg and PIABA. 11 See Greenberg (stating that monetary sanctions on attorneys might be a more effective deterrent) and Plimpton (questioning whether NYSE arbitrators are independent enough to take action to curb discovery abuse). 8 For PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 serve on future NYSE arbitration panels.12 IV. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the Act and, in particular, with Section 6(b)(5) of the Act, which requires, among other things, that the NYSE’s rules 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.13 The Commission also finds that the proposal is consistent with Section 6(b)(6) 14 of the Act, which requires, among other things, that the rules of an exchange provide that members and persons associated with its members be appropriately disciplined for violating the Act, the rules or regulations under the Act, or the rules of the exchange. In particular, the Commission believes that by expressly authorizing the NYSE to bring an action against a member under Rule 476 for failing to appear or to produce any document in its possession or control in an arbitration proceeding, the proposal will enable NYSE to appropriately discipline such members. Moreover, the Commission believes the proposed rule could reduce discovery abuses by alerting parties to the importance of complying with NYSE Rule 619. One commenter stated that the proposal could be misconstrued to require an order of an arbitration panel before NYSE could charge a party with violating Rule 476.15 NYSE staff confirms that the proposed rule does not require an arbitration panel to issue an order before the NYSE could bring an action under Rule 476. Indeed, the proposal does not require any action from the arbitration panel before the NYSE may bring such an action. Moreover, the proposal authorizes the NYSE to bring an action under Rule 476 against a party during an arbitration proceeding if the NYSE believes such action is warranted.16 12 See Greenberg. To address concerns about arbitrator reluctance to sanction a party, the commenter suggested that the proposal require arbitrators to refer all contested discovery orders to NYSE. 13 15 U.S.C. 78f(b)(5). 14 15 U.S.C. 78f(b)(6). 15 Caruso. 16 Telephone conversation between Karen Kupersmith, Director of Arbitration, NYSE, and Richard Strasser, Attorney Fellow, SEC (Aug. 1, 2006). The commenter also suggested that the proposed rule be amended to clarify that it does not affect the power of an arbitrator to impose sanctions under Rules 604 (dismissal of proceedings) and 621 E:\FR\FM\22AUN1.SGM 22AUN1 Federal Register / Vol. 71, No. 162 / Tuesday, August 22, 2006 / Notices Some commenters raised broader concerns about arbitrator conflicts of interest and the need for arbitrators to better enforce existing arbitration procedures.17 The Commission believes these comments are beyond the scope of the current proposal. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act 18 that the proposed rule change (SR–NYSE–2005– 18), as amended, be, and hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.19 Nancy M. Morris, Secretary. [FR Doc. E6–13811 Filed 8–21–06; 8:45 am] BILLING CODE 8010–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10567 and # 10568] Texas Disaster # TX–00195 U.S. Small Business Administration. ACTION: Notice. AGENCY: cprice-sewell on PROD1PC66 with NOTICES SUMMARY: This is a Notice of the Presidential declaration of a major disaster for the State of Texas (FEMA— 1658—DR), dated 08/15/2006. Incident: Flooding. Incident Period: 07/31/2006 and continuing. Effective Date: 08/15/2006. Physical Loan Application Deadline Date: 10/16/2006. Economic Injury (Eidl) Loan Application Deadline Date: 05/15/2007. ADDRESSES: Submit completed loan applications to : U.S. Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President’s major disaster declaration on 08/15/2006, applications for disaster loans may be filed at the address listed above or other locally announced locations. (enforcement of rulings). In the telephone call referenced above, NYSE staff stated that nothing in the proposal is intended to affect arbitrators’ current authority under existing NYSE arbitration rules. 17 See, e.g., Greenberg and Plimpton. 18 15 U.S.C. 78s(b)(2). 19 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 15:34 Aug 21, 2006 Jkt 208001 The following areas have been determined to be adversely affected by the disaster: Primary Counties (Physical Damage and Economic Injury Loans): El Paso Contiguous Counties (Economic Injury Loans Only): Texas Hudspeth, New Mexico, Dona Ana Otero The Interest Rates are: Percent For Physical Damage: Homeowners with credit available elsewhere ...................... Homeowners without credit available elsewhere ............... Businesses with credit available elsewhere .............................. Other (including non-profit organizations) with credit available elsewhere ...................... Businesses and non-profit organizations without credit available elsewhere ...................... For Economic Injury: Businesses & small agricultural cooperatives without credit available elsewhere ............... 6.250 3.125 48963 Interested parties may comment on this notice by either telefaxing to (410) 965–8582 or by writing to the Associate Commissioner, Office of Income Security Programs, 252 Altmeyer Building, 6401 Security Boulevard, Baltimore, MD 21235–6401. All comments received will be available for public inspection at this address. ADDRESSES: FOR FURTHER INFORMATION CONTACT: The Associate Commissioner for Income Security Programs as shown above. SUPPLEMENTARY INFORMATION: A. General The Computer Matching and Privacy Protection Act of 1988 (Pub. L. 100– 503), amended the Privacy Act (5 U.S.C. 5.000 552a) by describing the manner in which computer matching involving Federal agencies could be performed 4.000 and adding certain protections for individuals applying for, and receiving, Federal benefits. Section 7201 of the 4.000 Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101–508) further amended The number assigned to this disaster for the Privacy Act regarding protections for physical damage is 10567 6 and for economic such individuals. The Privacy Act, as injury is 10568 0. amended, regulates the use of computer (Catalog of Federal Domestic Assistance matching by Federal agencies when Numbers 59002 and 59008) records in a system of records are Herbert L. Mitchell, matched with other Federal, State, or Associate Administrator, for Disaster local government records. Assistance. It requires Federal agencies involved [FR Doc. E6–13852 Filed 8–21–06; 8:45 am] in computer matching programs to: BILLING CODE 8025–01–P (1) Negotiate written agreements with the other agency or agencies participating in the matching programs; SOCIAL SECURITY ADMINISTRATION (2) Obtain the Data Integrity Boards’ Privacy Act of 1974 as Amended; approval of the match agreements; Computer Matching Program (SSA/ (3) Publish notice of the computer Department of the Treasury, Internal matching program in the Federal Revenue Service (IRS))—Match 1310 Register; AGENCY: Social Security Administration (4) Furnish detailed reports about (SSA). matching programs to Congress and ACTION: Notice of a new computer OMB; matching program, which is expected to (5) Notify applicants and beneficiaries begin October 1, 2006. that their records are subject to matching; and SUMMARY: In accordance with the provisions of the Privacy Act, as (6) Verify match findings before amended, this notice announces a reducing, suspending, terminating, or computer matching program that SSA denying an individual’s benefits or plans to conduct with the IRS. payments. DATES: SSA will file a report of the B. SSA Computer Matches Subject to subject matching program with the the Privacy Act Committee on Homeland Security and Governmental Affairs of the Senate, the We have taken action to ensure that Committee on Government Reform of all of SSA’s computer matching the House of Representatives, and the programs comply with the requirements Office of Information and Regulatory of the Privacy Act, as amended. Affairs, Office of Management and Budget (OMB). The matching program will be effective as indicated below. PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 7.934 E:\FR\FM\22AUN1.SGM 22AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 71, Number 162 (Tuesday, August 22, 2006)]
[Notices]
[Pages 48961-48963]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-13811]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54320; File No. SR-NYSE-2005-18]


 Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendments No. 1 and 2 Thereto 
Regarding NYSE Rule 619 To Clarify That Failure To Appear or Produce 
Documents in Arbitration May Be Deemed Conduct Inconsistent With Just 
and Equitable Principles of Trade

August 15, 2006.

I. Introduction

    On February 17, 2005, the New York Stock Exchange, Inc. (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 amend Rule 619 to clarify that 
it may be deemed conduct or proceeding inconsistent with just and 
equitable principles of trade for purposes of NYSE Rule 476(a)(6) for a 
member, member

[[Page 48962]]

organization, allied member, approved person, registered or non-
registered employee of a member or member organization or person 
otherwise subject to the jurisdiction of the Exchange (each, a 
``responsible party'') to fail to appear or fail to produce any 
document in its possession or control as directed pursuant to 
applicable provisions of the NYSE Arbitration Rules. On July 27, 2005, 
the Exchange filed Amendment No. 1 to the proposed rule change.\3\ On 
February 15, 2006, the Exchange filed Amendment No. 2 to the proposed 
rule change.\4\ The proposed rule change was published for comment in 
the Federal Register on April 11, 2006.\5\ The Commission received five 
comment letters on the proposal.\6\ This order approves the proposed 
rule change as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, which replaced the original filing, the 
Exchange clarified that Rule 619 also applies to a ``person 
otherwise subject to the jurisdiction of the Exchange.''
    \4\ Amendment No. 2, which replaced the first amended rule 
filing, conformed the proposed rule to reflect the list of persons 
subject to disciplinary action under NYSE Rule 476.
    \5\ See Exchange Act Release No. 53599 (Apr. 4, 2006), 71 FR 
18401 (Apr. 11, 2006).
    \6\ See E-mail from David Plimpton, Plimpton & Esposito, to 
rule-comments@sec.gov, dated April 27, 2006 (``Plimpton''); letter 
from Robert S. Banks, Jr., Public Investors Arbitration Bar 
Association, dated April 25, 2006 (``PIABA''); E-mail from A. Daniel 
Woska, A. Daniel Woska & Associates, P.C., to rule-comments@sec.gov, 
dated April 23, 2006 (``Woska''); E-mail from Les Greenberg, Law 
Offices of Les Greenberg, to rule-comments@sec.gov, dated April 20, 
2006 (``Greenberg''); letter from Steven B. Caruso, Maddox Hargett 
Caruso, P.C., dated April 11, 2006 (``Caruso'').
---------------------------------------------------------------------------

II. Description of the Proposal

    NYSE Rule 476 allows disciplinary sanctions to be imposed upon a 
responsible party who is adjudged guilty of certain enumerated 
offenses, including ``conduct or proceeding inconsistent with just and 
equitable principles of trade.'' The proposal would amend Rule 619 to 
clarify that it may be deemed conduct or proceeding inconsistent with 
just and equitable principles of trade for purposes of NYSE Rule 
476(a)(6) for a responsible party to fail to appear or fail to produce 
any document in its possession or control as directed pursuant to 
provisions of the NYSE Arbitration Rules.
    The Exchange is aware of allegations that member organizations have 
not fulfilled their discovery obligations as prescribed by NYSE 
Arbitration Rules. The NYSE believes that the express authority for the 
NYSE to bring a disciplinary action under NYSE Rule 476(a)(6) will 
improve the efficacy of the arbitration process by facilitating the 
Exchange's ability to ensure more fully and forcefully the cooperation 
of a responsible party who is a party to an arbitration proceeding. By 
explicitly providing that the failure to appear or to produce documents 
in one's possession or control may be deemed conduct or proceeding 
inconsistent with just and equitable principles of trade, the NYSE 
believes that the proposed amendment would provide the Exchange with a 
clear mechanism to pursue disciplinary action pursuant to NYSE Rule 476 
in response to such conduct.

III. Summary of Comments

    The Commission received five comment letters on the proposal.\7\ 
Commenters generally supported the proposal.\8\ As discussed below, 
however, some raised concerns with certain aspects of it.
---------------------------------------------------------------------------

    \7\ See id.
    \8\ For example, one commenter supported the proposed rule 
because, in the commenter's view, members that violate discovery 
rules do not regard their conduct as serious unless sanctions are 
imposed. PIABA. See also Woska.
---------------------------------------------------------------------------

    Proposed Rule 619(h) states in relevant part that ``[i]t may be 
deemed conduct or proceeding inconsistent with just and equitable 
principles of trade for purposes of Rule 476(a)(6) [for a responsible 
party] to fail to appear or to produce any document in their possession 
or control as directed pursuant to provisions of the NYSE Arbitration 
Rules.'' (Emphasis added.) One commenter stated that the emphasized 
language could be misconstrued to require the prior direction or an 
order of an arbitration panel before the NYSE could charge the party 
with a violation of Rule 476.\9\ The commenter also suggested that the 
proposed rule be amended to clarify that it does not affect an 
arbitrator's current authority under Rules 604 (dismissal of 
proceedings) and 621 (enforcement of rulings).\10\
---------------------------------------------------------------------------

    \9\ See Caruso.
    \10\ Id. Two commenters stated that arbitrators need to better 
enforce existing procedures, particularly Rule 604(b), which allows 
an arbitrator to impose sanctions against a party that willfully and 
intentionally fails to comply with an arbitrator's order if lesser 
sanctions have proven ineffective. Greenberg and PIABA.
---------------------------------------------------------------------------

    Two commenters believed that the proposed rule does not adequately 
address what the commenters' view are ongoing problems with arbitrator 
conflicts of interest.\11\ One of these commenters stated that a 
securities arbitrator may be reluctant to impose sanctions on a party 
for fear that the party may not select the arbitrator to serve on 
future NYSE arbitration panels.\12\
---------------------------------------------------------------------------

    \11\ See Greenberg (stating that monetary sanctions on attorneys 
might be a more effective deterrent) and Plimpton (questioning 
whether NYSE arbitrators are independent enough to take action to 
curb discovery abuse).
    \12\ See Greenberg. To address concerns about arbitrator 
reluctance to sanction a party, the commenter suggested that the 
proposal require arbitrators to refer all contested discovery orders 
to NYSE.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the Act and, in particular, with 
Section 6(b)(5) of the Act, which requires, among other things, that 
the NYSE's rules 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.\13\ The 
Commission also finds that the proposal is consistent with Section 
6(b)(6) \14\ of the Act, which requires, among other things, that the 
rules of an exchange provide that members and persons associated with 
its members be appropriately disciplined for violating the Act, the 
rules or regulations under the Act, or the rules of the exchange.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

    In particular, the Commission believes that by expressly 
authorizing the NYSE to bring an action against a member under Rule 476 
for failing to appear or to produce any document in its possession or 
control in an arbitration proceeding, the proposal will enable NYSE to 
appropriately discipline such members. Moreover, the Commission 
believes the proposed rule could reduce discovery abuses by alerting 
parties to the importance of complying with NYSE Rule 619.
    One commenter stated that the proposal could be misconstrued to 
require an order of an arbitration panel before NYSE could charge a 
party with violating Rule 476.\15\ NYSE staff confirms that the 
proposed rule does not require an arbitration panel to issue an order 
before the NYSE could bring an action under Rule 476. Indeed, the 
proposal does not require any action from the arbitration panel before 
the NYSE may bring such an action. Moreover, the proposal authorizes 
the NYSE to bring an action under Rule 476 against a party during an 
arbitration proceeding if the NYSE believes such action is 
warranted.\16\
---------------------------------------------------------------------------

    \15\ Caruso.
    \16\ Telephone conversation between Karen Kupersmith, Director 
of Arbitration, NYSE, and Richard Strasser, Attorney Fellow, SEC 
(Aug. 1, 2006). The commenter also suggested that the proposed rule 
be amended to clarify that it does not affect the power of an 
arbitrator to impose sanctions under Rules 604 (dismissal of 
proceedings) and 621 (enforcement of rulings). In the telephone call 
referenced above, NYSE staff stated that nothing in the proposal is 
intended to affect arbitrators' current authority under existing 
NYSE arbitration rules.

---------------------------------------------------------------------------

[[Page 48963]]

    Some commenters raised broader concerns about arbitrator conflicts 
of interest and the need for arbitrators to better enforce existing 
arbitration procedures.\17\ The Commission believes these comments are 
beyond the scope of the current proposal.
---------------------------------------------------------------------------

    \17\ See, e.g., Greenberg and Plimpton.
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\18\ that the proposed rule change (SR-NYSE-2005-18), as amended, be, 
and hereby is, approved.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).

Nancy M. Morris,
Secretary.
[FR Doc. E6-13811 Filed 8-21-06; 8:45 am]
BILLING CODE 8010-01-P

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