Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Representation of Parties in Arbitration and Mediation, 18703-18707 [E7-7008]

Download as PDF Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices 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 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.15 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–6961 Filed 4–12–07; 8:45 am] 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: BILLING CODE 8010–01–P Electronic Comments Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Representation of Parties in Arbitration and Mediation pwalker on PROD1PC71 with NOTICES • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–ISE–2007–19 on the subject line. 17:52 Apr 12, 2007 Jkt 211001 (‘‘Code’’) to address representation of parties in arbitration and mediation.5 Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions are in brackets. * * * * * Customer Code SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55604; File No. SR–NASD– 2006–109] April 9, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 Paper Comments (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that the National • Send paper comments in triplicate Association of Securities Dealers, Inc. to Nancy M. Morris, Secretary, (‘‘NASD’’), through its wholly owned Securities and Exchange Commission, subsidiary, NASD Dispute Resolution, 100 F Street, NE, Washington, DC Inc. (‘‘NASD Dispute Resolution’’) filed 20549–1090. with the Securities and Exchange All submissions should refer to File Commission (‘‘SEC’’ or ‘‘Commission’’) Number SR–ISE–2007–19. This file on September 14, 2006, and amended number should be included on the on November 9, 2006 (Amendment No. subject line if e-mail is used. To help the 1) 3 and February 23, 2007 (Amendment Commission process and review your No. 2),4 the proposed rule change as comments more efficiently, please use described in Items I, II, and III below, only one method. The Commission will which Items have been prepared by post all comments on the Commission’s NASD Dispute Resolution. The Commission is publishing this notice to Internet Web site (http://www.sec.gov/ solicit comments on the proposed rule rules/sro.shtml). Copies of the change, as amended, from interested submission, all subsequent persons. amendments, all written statements with respect to the proposed rule I. Self-Regulatory Organization’s change that are filed with the Statement of the Terms of Substance of Commission, and all written the Proposed Rule Change communications relating to the NASD Dispute Resolution is proposed rule change between the proposing to amend the Code of Commission and any person, other than Arbitration Procedure for Customer those that may be withheld from the Disputes (‘‘Customer Code’’), the Code public in accordance with the of Arbitration Procedure for Industry provisions of 5 U.S.C. 552, will be Disputes (‘‘Industry Code’’), and the available for inspection and copying in NASD Code of Arbitration Procedure the Commission’s Public Reference Room. Copies of the filing also will be 15 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). available for inspection and copying at 2 17 CFR 240.19b–4. the principal office of ISE. All 3 Amendment No. 1 makes clarifying changes to comments received will be posted the rule text emphasizing that attorneys may without change; the Commission does represent parties in NASD’s forum, unless state law not edit personal identifying prohibits such representation. Amendment No. 1 also makes several clarifying and technical changes information from submissions. You to the proposed rule filing. should submit only information that 4 Amendment No. 2 makes clarifying changes to you wish to make available publicly. All the rule text concerning restrictions on non-attorney submissions should refer to File representation. Amendment No. 2 also includes Number SR–ISE–2007–19 and should be minor organizational changes to a paragraph and footnotes describing the American Bar Association submitted on or before May 4, 2007. Model Rule of Professional Conduct 5.5. VerDate Aug<31>2005 18703 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 12208. Representation of Parties (a) Representation by a Party Parties may represent themselves in an arbitration held in a United States hearing location. A member of a partnership may represent the partnership; and a bona fide officer of a corporation, trust, or association may represent the corporation, trust, or association. (b) Representation by an Attorney At any stage of an arbitration proceeding held in a United States hearing location, [All] all parties shall have the right to be represented by [counsel during any stage of an arbitration] an attorney at law in good standing and admitted to practice before the Supreme Court of the United States or the highest court of any state of the United States, the District of Columbia, or any commonwealth, territory, or possession of the United States, unless state law prohibits such representation. (c) Representation by Others Parties may be represented in an arbitration by a person who is not an attorney, unless: • state law prohibits such representation, or • the person is currently suspended or barred from the securities industry in any capacity, or • the person is currently suspended from the practice of law or disbarred. 5 The proposed rule change contemplates changes to Rules 12208 and 13208 of the Customer and Industry Codes, which restate old Rule 10316. See Securities Exchange Act Release No. 55158 (Jan. 24, 2007); 72 FR 4574 (Jan. 31, 2007) (File Nos. SR– NASD–2003–158 and SR–NASD–2004–011) (Order Approving Proposed Rule Change and Amendments 1, 2, 3, and 4 to Amend NASD Arbitration Rules for Customer Disputes and Notice of Filing and Order Granting Accelerated Approval of Amendments 5, 6, and 7 Thereto; Order Approving Proposed Rule Change and Amendments 1, 2, 3, and 4 to Amend NASD Arbitration Rules for Industry Disputes and Notice of Filing and Order Granting Accelerated Approval of Amendments 5, 6, and 7 Thereto). The changes to Proposed Rule 10407 reflect changes to the new NASD Code of Mediation Procedure. See Securities Exchange Act Rel. No. 52705 (Oct. 31, 2005); 70 FR 67525 (Nov. 7, 2005) (SR–NASD–2004–013). The new NASD Code of Mediation Procedure is currently included in the Code, but will be removed and renumbered as a separate Code now that the Customer and Industry Codes have been approved. E:\FR\FM\13APN1.SGM 13APN1 18704 Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices (d) Qualifications of Representative (a) Representation by Party Issues regarding the qualifications of a person to represent a party in arbitration are governed by applicable law and may be determined by an appropriate court or other regulatory agency. In the absence of a court order, the arbitration proceeding shall not be stayed or otherwise delayed pending resolution of such issues. * * * * * Parties may represent themselves in mediation held in a United States hearing location. A member of a partnership may represent the partnership; and a bona fide officer of a corporation, trust, or association may represent the corporation, trust, or association. Industry Code 13208. Representation of Parties (a) Representation by a Party Parties may represent themselves in an arbitration held in a United States hearing location. A member of a partnership may represent the partnership; and a bona fide officer of a corporation, trust, or association may represent the corporation, trust, or association. (b) Representation by an Attorney At any stage of an arbitration proceeding held in a United States hearing location, [All] all parties shall have the right to be represented by [counsel during any stage of an arbitration] an attorney at law in good standing and admitted to practice before the Supreme Court of the United States or the highest court of any state of the United States, the District of Columbia, or any commonwealth, territory, or possession of the United States, unless state law prohibits such representation. (c) Representation by Others Parties may be represented in an arbitration by a person who is not an attorney, unless: • state law prohibits such representation, or • the person is currently suspended or barred from the securities industry in any capacity, or • the person is currently suspended from the practice of law or disbarred. pwalker on PROD1PC71 with NOTICES (d) Qualifications of Representative Issues regarding the qualifications of a person to represent a party in arbitration are governed by applicable law and may be determined by an appropriate court or other regulatory agency. In the absence of a court order, the arbitration proceeding shall not be stayed or otherwise delayed pending resolution of such issues. * * * * * Code of Arbitration Procedure 10407. Representation of Parties VerDate Aug<31>2005 17:52 Apr 12, 2007 Jkt 211001 (b) Representation by an Attorney At any stage of a mediation proceeding held in a United States hearing location, all parties shall have the right to be represented by an attorney at law in good standing and admitted to practice before the Supreme Court of the United States or the highest court of any state of the United States, the District of Columbia, or any commonwealth, territory, or possession of the United States, unless state law prohibits such representation. (c) Representation by Others Parties may be represented in mediation by a person who is not an attorney, unless: • state law prohibits such representation, or • the person is currently suspended or barred from the securities industry in any capacity, or • the person is currently suspended from the practice of law or disbarred. (d) Qualifications of Representatives Issues regarding the qualifications of a person to represent a party in mediation are governed by applicable law and may be determined by an appropriate court or other regulatory agency. In the absence of a court order, the mediation proceeding shall not be delayed pending resolution of such issues. [10407] 10408. Mediator Selection (a)–(d) No change. [10408] 10409. Limitation on Liability No change. [10409] 10410. Mediation Ground Rules (a)–(g) No change. [10410] 10411. Mediation Fees (a)–(c) 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 IV below. NASD has prepared PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 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 Background NASD Dispute Resolution believes a rule is needed to clarify the issue of representation of parties in dispute resolution. NASD Rule 10316 states that all parties shall have the right to representation by counsel at any stage of the proceedings. The rule provides no guidance on the kind of representatives who are permitted to practice in the NASD dispute resolution forum, or on the qualifications those representatives must have to participate in the forum. Moreover, Rule 10316 does not address a growing trend in American jurisprudence, the multi-jurisdictional practice of law. The multi-jurisdictional practice of law occurs when attorneys, licensed in one United States (U.S.) jurisdiction, practice law in a jurisdiction in which they are not licensed. In the area of dispute resolution, for example, it is common for an attorney licensed to practice law in one state to represent a client in a dispute resolution proceeding in another state in which the attorney is not licensed. Although this practice is permitted in many jurisdictions, it may be a violation of certain other states’ unauthorized practice of law provisions. Until recent years, most states had taken no action against this practice. However, two state courts have found that out-ofstate attorneys must meet certain conditions in order to participate in a dispute resolution proceeding in their jurisdictions.6 In light of these developments, the American Bar Association (ABA) amended its Model Rule of Professional Conduct 5.5 (ABA Model Rule 5.5) to promote the multijurisdictional practice of law.7 6 See Birbrower, Montalbano, Condo & Frank v. Superior Court, 949 P.2d 1 (Cal. 1998); see also Florida Bar v. Rapoport, 845 So. 2d 874, 2003 Fla. LEXIS 250 (Fla. 2003). 7 ABA Model Rule 5.5, as amended, would allow a United States lawyer, admitted in one United States jurisdiction, to engage in certain types of legal activity in another United States jurisdiction where he is not licensed to practice, without being deemed to be engaging in the unauthorized practice of law. For purposes of the dispute resolution forum, ABA Model Rule 5.5, as amended, states, in relevant part, that a lawyer may provide legal services on a temporary basis in an out-of-state jurisdiction that are in or reasonably related to a pending or potential arbitration, mediation, or other alternative dispute resolution proceeding in the jurisdiction or another jurisdiction, if the services E:\FR\FM\13APN1.SGM 13APN1 Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices Accordingly, NASD proposes to codify its current practice of permitting the multi-jurisdictional practice of law in NASD’s dispute resolution forum to the extent permitted under applicable state law. NASD also proposes to codify its current practice which allows nonattorney representatives to represent parties in arbitration or mediation. Previous Proposal Relating to Representation in Arbitration and Mediation pwalker on PROD1PC71 with NOTICES On February 9, 2005, NASD filed a proposed rule change with the Commission to address attorney representation in arbitration and mediation.8 The proposed rule change would have: • Allowed parties to represent themselves in an arbitration or mediation; • Allowed parties to be represented by an attorney at law admitted to practice before a U.S. jurisdiction at any stage of the proceeding; and • Deferred to the states any issues regarding qualifications of a person to represent a party. NASD amended this proposal on July 8, 2005 to clarify that it was intended to address the issue of multi-jurisdictional practice of law by attorneys, and was not intended to address the issue of representation by non-attorneys in arbitration or mediation proceedings.9 As amended, the attorney representation proposal was published in the Federal Register on July 21, 2005.10 The SEC received fifteen comments, which primarily focused on two issues: Whether the rule should preempt state law regarding attorney licensing, and whether the rule should prohibit non-attorneys from practicing in NASD’s forum. The comments and arise out of or are reasonably related to the lawyer’s practice in a jurisdiction in which the lawyer is admitted to practice and are not services for which the forum requires pro hac vice admission. This rule is sometimes referred to as the temporary practice rule. Twenty-seven states have either adopted ABA Model Rule 5.5 or a similar version of the rule or currently have a temporary practice rule in effect. American Bar Association, Charts on State Adoption of MJP Proposals (visited Aug. 23, 2006) http://www.abanet.org/cpr/mjp/ state_adoption.html. Other states have adopted a temporary practice rule that, like ABA Model Rule 5.5, allows an attorney not licensed in a state to provide certain types of legal services in the state on a limited basis. The laws of Michigan and Virginia specifically authorize occasional or incidental practice by out-of-state lawyers. See Mich. Comp. Law Ann. sec. 600.916 and Va. State Bar Rule, Pt. 6, sec. 1(C). 8 See File No. SR–NASD–2005–023. 9 Id. at Amendment No. 1. 10 See Securities Exchange Act Rel. No. 34–52045 (July 15, 2005); 70 FR 42123 (July 21, 2005) (File No. SR–NASD–2005–023). VerDate Aug<31>2005 17:52 Apr 12, 2007 Jkt 211001 NASD’s response are discussed in subsection C below. Based on the comments received on the attorney representation proposal, as amended, NASD recognized that the proposal may have been ambiguous. NASD did not intend to change current practice in the forum regarding representation of parties by nonattorneys, or to preempt state law on the issue of attorney licensing. Because the comments indicated that these positions were unclear, NASD withdrew its proposal. The current proposed rule change addresses representation of parties by themselves, by attorneys and by non-attorneys in arbitration and mediation. Representation of Parties by Themselves, Attorneys and NonAttorneys in Arbitration and Mediation NASD is proposing to amend Rules 12208 and 13208 of the Customer and Industry Codes, respectively, and Rule 10407 of the Code to clarify that in both arbitration and mediation: (1) Parties may represent themselves; (2) parties may be represented by an attorney, provided certain criteria are met; (3) parties may be represented by a person who is not an attorney, unless state law prohibits such representation or the person is currently suspended or barred from the securities industry in any capacity or is an attorney who is currently suspended from the practice of law or disbarred; and (4) issues regarding qualifications of a representative are governed by applicable law. First, the proposed rule change codifies current practice by explicitly stating that parties may represent themselves in arbitration. Second, the proposed rule change codifies current practice permitting the multi-jurisdictional practice of law by attorneys in the NASD dispute resolution forum to the extent permitted by state law. In addition, the proposed rule change states that if a party chooses to be represented by an attorney, the attorney must be licensed to practice in a U.S. jurisdiction and be in good standing in that jurisdiction.11 NASD believes that requiring an attorney to be licensed in a U.S. jurisdiction and to be in good standing in that jurisdiction will protect investors by prohibiting 11 The requirement to be licensed to practice in a U.S. jurisdiction and be in good standing in that jurisdiction is in addition to and not in lieu of the requirement that an attorney must comply with applicable laws of the relevant jurisdiction. As previously noted, while the multi-jurisdictional practice of law may be permitted in many jurisdictions, it may constitute a violation of certain states’ unauthorized practice of law provisions. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 18705 individuals who have been suspended from the practice of law or disbarred from representing parties in the NASD forum. Further, the requirement that an attorney must be licensed to practice in a U.S. jurisdiction sets a standard of practice for the arbitration forum that is consistent with the other rules and proceedings of NASD. In particular, Rule 9141(b) of the NASD Code of Procedure states, in relevant part, that a person may be represented in any disciplinary proceeding by an attorney at law admitted to practice before the highest court of any state of the United States, the District of Columbia, or any commonwealth, territory, or possession of the United States.12 The proposed rule change also is consistent with Rule 102(b) of the SEC Rules of Practice, which states that, ‘‘[i]n any proceeding, a person may be represented by an attorney at law admitted to practice before the Supreme Court of the United States or the highest court of any State * * *’’ 13 Third, the proposed rule change addresses the representation of parties by non-attorneys in the NASD forum. Under the proposed rule change, parties may be represented in an arbitration or mediation by a person who is not an attorney, unless state law prohibits such representation or the person is currently suspended or barred from the securities industry in any capacity or is an attorney who is currently suspended from the practice of law or disbarred. This provision would be applicable to all arbitration claims. NASD understands, however, that it may be difficult for investors with claims of less than $100,000 to retain an attorney on a contingency-fee basis because the attorney may believe that the attorney’s share of the award might be too small to justify the effort. In these circumstances, NASD believes that investors should be able to seek other assistance to resolve their arbitration or mediation claims for a more affordable fee.14 At the same time, NASD believes 12 This rule has been enforced in NASD Enforcement proceedings. In two similar cases, a respondent’s answer was stricken from the record because the respondent’s representative had not indicated that he was a licensed attorney. See NASDR Office of the Hearing Officers, OHO Order 97–15 (C01970032) (visited Aug. 24, 2006), available at: http://www.nasd.com/web/groups/ enforcement/documents/oho_disciplinary_orders/ nasdw_007839.pdf; see also OHO Order 98–10 (C10970176) (visited Aug. 24, 2006), available at: http://www.nasd.com/web/groups/enforcement/ documents/oho_disciplinary_orders/ nasdw_007695.pdf. 13 See SEC Rules of Practice, 17 CFR § 201.102(b) (2004). 14 Consistent with current practice, the proposed rule would allow a relative, friend or associate to E:\FR\FM\13APN1.SGM Continued 13APN1 18706 Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices that such non-attorney representatives should not be persons who have been found by a regulatory body in essence to be unfit to represent clients or to conduct securities business with the public. Thus, to protect investors, the rule would prohibit non-attorney representatives who are currently suspended or barred from the securities industry, or attorneys who are currently suspended from the practice of law or disbarred, from representing parties in the NASD dispute resolution forum. While NASD remains concerned about some aspects of non-attorney representation, NASD does not wish to prohibit investors from retaining a nonattorney representative if that person is the only affordable representation available, and the requirements of the proposed rule are met. Last, the proposed rule change would allow an attorney to represent a client in an NASD arbitration or mediation held in any U.S. hearing location, regardless of the jurisdiction in which the attorney is licensed. An attorney’s ability to represent clients in a jurisdiction in which he or she is not licensed, however, would be subject to the applicable law of that jurisdiction. The proposed rule change is not intended to preempt state law; it is intended to reflect current practice in the forum which, based on experience, indicates that the outcome of a dispute resolution proceeding depends more on the level of knowledge, training and skill of the attorneys, rather than the jurisdiction from which the attorneys received their license to practice. pwalker on PROD1PC71 with NOTICES 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,15 which requires, among other things, that NASD’s 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 balances the needs of investors to have access to representation, particularly in small represent or assist a person (e.g., an elderly or disabled person) with his or her arbitration or mediation. In addition, law school securities arbitration clinics can provide investors with affordable legal representation. NASD notes that a securities arbitration clinic also can help an investor who has a smaller claim but is unable to hire an attorney, provided the investor qualifies for assistance. See How to Find an Attorney (for more information on clinic locations and eligibility requirements) (visited Sept. 13, 2006), available at: <http://www.nasd.com/ArbitrationMediation/ StartanArbitrationorMediation/ HowtoFindanAttorney/index.htm>. 15 15 U.S.C. 78o–3(b)(6). VerDate Aug<31>2005 17:52 Apr 12, 2007 Jkt 211001 cases, with NASD’s responsibility to protect investors, the integrity of its forum, and the public interest. 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 by NASD. The SEC received fifteen comments on the attorney representation proposal that it published for comment on July 21, 2005.16 Commenters primarily focused on two issues: Whether the rule should preempt state law regarding attorney licensing, and whether the rule should prohibit non-attorneys from practicing in NASD’s forum. With respect to the state preemption issue, several commenters agreed that state law should control whether attorneys may participate in arbitrations in a state in which they are not licensed.17 These commenters stated that representatives should be licensed legal practitioners who are regulated and have demonstrated a minimum level of competence required to represent clients. Several other commenters opposed the provision of the proposal that would allow state law to control attorney-licensure issues, 16 Comments were submitted by Timothy A. Canning, Esq., Law Offices of Timothy A. Canning, dated February 11, 2005 (‘‘Canning I Letter’’); Albert A. Rapoport, Esq., dated June 20, 2005 (‘‘Rapoport Letter’’); Joseph C. Korsak, Esq., Law Office of Joseph C. Korsak, dated July 22, 2005 (‘‘Korsak Letter’’); Michael Firestein, Esq. and Navid Yadegar, Esq., Proskauer Rose LLP, dated August 1, 2005 (‘‘Firestein Letter’’); Rodney J. Heggy, Esq., Heggy & Associates, LLC, dated August 4, 2005 (‘‘Heggy Letter’’); Richard L. Sacks, Securities Arbitration Consultant, dated August 9, 2005 (‘‘Sacks Letter’’); Rosemary Shockman, President, Public Investors Arbitration Bar Association, dated August 9, 2005 (‘‘PIABA Letter’’); Joseph O’Donnell, dated August 10, 2005 (‘‘O’Donnell Letter’’); Irwin G. Stein, dated August 10, 2005 (‘‘Stein Letter’’); Montgomery G. Griffin, Esq., Securities Arbitration Offices of Montgomery G. Griffin, dated August 10, 2005 (‘‘Griffin Letter’’); Timothy A. Canning, Esq., Law Offices of Timothy A. Canning, dated August 10, 2005 (‘‘Canning II Letter’’); Kevin P. Takacs, CCO, Dominion Investor Services, Inc., dated August 11, 2005 (‘‘Takacs Letter’’); Jill I. Gross, Director of Advocacy and Barbara Black, Director of Research, Pace Investor Rights Project, dated August 11, 2005 (‘‘Pace Letter’’); and Stephen C. Krosschell, Esq., Goodman & Nekvasil, P.A., dated August 11, 2005 (‘‘Krosschell Letter’’). The letter received from Marie W. Hayes, dated March 25, 2005, does not comment on the proposed rule change. 17 See Firestein Letter, Heggy Letter, Pace Letter, PIABA Letter and Rapoport Letter. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 stating that the provision could result in delays in arbitration proceedings as representatives make the qualifications of an out-of-state representative the focus of the proceedings.18 Other commenters addressed whether the proposal would prohibit, in effect, non-attorneys from practicing in NASD’s forum. Several commenters contended that the proposal should address non-attorney representation and should allow non-attorneys to practice in the forum.19 These commenters argued that the proposal attempted to deny investors access to qualified nonattorney representatives who have securities industry experience and are willing to accept cases that are too small to enable investors to retain a securities attorney. Other commenters contended that the proposal should prohibit compensated non-attorney representation in securities arbitration, stating that the lack of legal training makes non-attorneys less knowledgeable or competent to deal fully with the laws and issues that arise in an arbitration proceeding.20 As noted above, based on the disparate comments received on the proposal, NASD recognized that the proposal may not have been clear. NASD did not intend to change current practice in the forum regarding representation of parties by nonattorneys; nor did it intend to preempt state law on the issue of attorney licensing. Because the comments indicated that these positions were unclear, NASD has withdrawn the attorney representation proposal and is filing this new proposal to replace it. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: A. By order approve such proposed rule change, or B. Institute proceedings to determine whether the proposed rule change should be disapproved. 18 See Canning I & II Letters, Korsak Letter, Krosschell Letter, Sacks Letter and Stein Letter. 19 See, Griffin Letter, O’Donnell Letter, Rapoport Letter, Sacks Letter, Stein Letter and Takacs Letter. 20 See Firestein Letter, Heggy Letter, Korsak Letter, Pace Letter and PIABA Letter. E:\FR\FM\13APN1.SGM 13APN1 Federal Register / Vol. 72, No. 71 / Friday, April 13, 2007 / Notices IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASD–2006–109 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. pwalker on PROD1PC71 with NOTICES For the Commission, by the Division of Market Regulation, pursuant to delegated authority.21 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–7008 Filed 4–12–07; 8:45 am] [Release No. 34–55590; File No. SR–NYSE– 2007–29] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to Rules 13 (‘‘Definitions of Orders’’) and 17 (‘‘Use of Exchange Facilities’’) April 5, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 16, 2007, the New York Stock Exchange All submissions should refer to File LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with Number SR–NASD–2006–109. This file the Securities and Exchange number should be included on the subject line if e-mail is used. To help the Commission (‘‘Commission’’) the proposed rule change as described in Commission process and review your Items I and II below, which Items have comments more efficiently, please use only one method. The Commission will been substantially prepared by the post all comments on the Commission’s Exchange. On April 5, 2007, NYSE filed Amendment No. 1 to the proposed rule Internet Web site (http://www.sec.gov/ change. The Exchange has filed the rules/sro.shtml). Copies of the proposal as a ‘‘non-controversial’’ rule submission, all subsequent change pursuant to Section 19(b)(3)(A) amendments, all written statements of the Act 3 and Rule 19b–4(f)(6) with respect to the proposed rule thereunder,4 which renders it effective change that are filed with the upon filing with the Commission. The Commission, and all written Commission is publishing this notice to communications relating to the solicit comments on the proposed rule proposed rule change between the change, as amended, from interested Commission and any person, other than persons. those that may be withheld from the I. Self-Regulatory Organization’s public in accordance with the Statement of the Terms of Substance of provisions of 5 U.S.C. 552, will be the Proposed Rule Change available for inspection and copying in the Commission’s Public Reference The Exchange is proposing to amend Room. Copies of such filing will also be Exchange Rules 13 (‘‘Definitions of Orders’’) and 17 (‘‘Use of Exchange available for inspection and copying at Facilities’’) in order to establish a the principal office of NASD. All mechanism to route orders to away comments received will be posted market centers when that market center without change; the Commission does is displaying the national best bid and not edit personal identifying offer in accordance with Exchange Rules information from submissions. You and Regulation NMS under the Act 5 should submit only information that you wish to make available publicly. All (‘‘Reg. NMS’’). The Exchange further proposes to have its order router submissions should refer to the File facilitate the acceptance of executions Number SR–NASD–2006–109 and that result in an odd-lot or a sub-penny should be submitted on or before May 4, 2007. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 5 17 CFR 242.600 et seq. 3 15 21 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 17:52 Apr 12, 2007 Jkt 211001 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 18707 execution. The text of the proposed rule change is available at NYSE, the Commission’s Public Reference Room, and www.nyse.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NYSE 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 IV below. NYSE 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 The Exchange is proposing to amend Exchange Rules 13 and 17 to establish a mechanism to route orders to away market centers (‘‘Routing Broker’’) when that market center is displaying the national best bid and offer in accordance with Exchange Rules and Reg. NMS. Through this filing the Exchange further proposes to have its Routing Broker facilitate the acceptance of executions that result in an odd-lot 6 or a sub-penny 7 execution after the Routing Broker routed an Exchange order to an away market center. The Exchange intends to use its broker-dealer affiliate,8 Archipelago Securities LLC (‘‘ArcaSec’’), as its 6 Odd-lot orders are orders for a size less than the standard unit (round lot) of trading, which is 100 shares for most stocks, although some stocks trade in 10 share units. 7 The Exchange notes that trading centers that provide sub-penny executions are currently developing order types that allow market participants to request a non-sub-penny execution. The Exchange states that the Routing Broker will perform this function only until such time as needed for the creation of these new order types and the completion of any systems modifications associated with the handling of the new order types. 8 On February 27, 2006, the Commission approved the Exchange’s business combination with Archipelago Holdings, Inc. (‘‘Merger’’). See Securities Exchange Act Release No. 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR–NYSE–2005–77). Pursuant to the Merger, NYSE Group, Inc. became the overall parent company of the Exchange and Archipelago Holdings, Inc. NYSE Group, Inc. operates two securities exchanges: The Exchange and NYSE Arca, Inc. (formerly known as the Archipelago Exchange, or ArcaEx, and the Pacific Exchange). ArcaSec remains a wholly owned subsidiary of Archipelago Holdings, Inc. and is therefore an affiliate of the Exchange. E:\FR\FM\13APN1.SGM 13APN1

Agencies

[Federal Register Volume 72, Number 71 (Friday, April 13, 2007)]
[Notices]
[Pages 18703-18707]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-7008]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55604; File No. SR-NASD-2006-109]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto Relating to Representation of Parties in 
Arbitration and Mediation

 April 9, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
the National Association of Securities Dealers, Inc. (``NASD''), 
through its wholly owned subsidiary, NASD Dispute Resolution, Inc. 
(``NASD Dispute Resolution'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') on September 14, 2006, and 
amended on November 9, 2006 (Amendment No. 1) \3\ and February 23, 2007 
(Amendment No. 2),\4\ the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by NASD Dispute 
Resolution. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 makes clarifying changes to the rule text 
emphasizing that attorneys may represent parties in NASD's forum, 
unless state law prohibits such representation. Amendment No. 1 also 
makes several clarifying and technical changes to the proposed rule 
filing.
    \4\ Amendment No. 2 makes clarifying changes to the rule text 
concerning restrictions on non-attorney representation. Amendment 
No. 2 also includes minor organizational changes to a paragraph and 
footnotes describing the American Bar Association Model Rule of 
Professional Conduct 5.5.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD Dispute Resolution is proposing to amend the Code of 
Arbitration Procedure for Customer Disputes (``Customer Code''), the 
Code of Arbitration Procedure for Industry Disputes (``Industry 
Code''), and the NASD Code of Arbitration Procedure (``Code'') to 
address representation of parties in arbitration and mediation.\5\ 
Below is the text of the proposed rule change. Proposed new language is 
in italics; proposed deletions are in brackets.
---------------------------------------------------------------------------

    \5\ The proposed rule change contemplates changes to Rules 12208 
and 13208 of the Customer and Industry Codes, which restate old Rule 
10316. See Securities Exchange Act Release No. 55158 (Jan. 24, 
2007); 72 FR 4574 (Jan. 31, 2007) (File Nos. SR-NASD-2003-158 and 
SR-NASD-2004-011) (Order Approving Proposed Rule Change and 
Amendments 1, 2, 3, and 4 to Amend NASD Arbitration Rules for 
Customer Disputes and Notice of Filing and Order Granting 
Accelerated Approval of Amendments 5, 6, and 7 Thereto; Order 
Approving Proposed Rule Change and Amendments 1, 2, 3, and 4 to 
Amend NASD Arbitration Rules for Industry Disputes and Notice of 
Filing and Order Granting Accelerated Approval of Amendments 5, 6, 
and 7 Thereto). The changes to Proposed Rule 10407 reflect changes 
to the new NASD Code of Mediation Procedure. See Securities Exchange 
Act Rel. No. 52705 (Oct. 31, 2005); 70 FR 67525 (Nov. 7, 2005) (SR-
NASD-2004-013). The new NASD Code of Mediation Procedure is 
currently included in the Code, but will be removed and renumbered 
as a separate Code now that the Customer and Industry Codes have 
been approved.
---------------------------------------------------------------------------

* * * * *

Customer Code

12208. Representation of Parties

(a) Representation by a Party

    Parties may represent themselves in an arbitration held in a United 
States hearing location. A member of a partnership may represent the 
partnership; and a bona fide officer of a corporation, trust, or 
association may represent the corporation, trust, or association.

(b) Representation by an Attorney

    At any stage of an arbitration proceeding held in a United States 
hearing location, [All] all parties shall have the right to be 
represented by [counsel during any stage of an arbitration] an attorney 
at law in good standing and admitted to practice before the Supreme 
Court of the United States or the highest court of any state of the 
United States, the District of Columbia, or any commonwealth, 
territory, or possession of the United States, unless state law 
prohibits such representation.

(c) Representation by Others

    Parties may be represented in an arbitration by a person who is not 
an attorney, unless:
     state law prohibits such representation, or
     the person is currently suspended or barred from the 
securities industry in any capacity, or
     the person is currently suspended from the practice of law 
or disbarred.

[[Page 18704]]

(d) Qualifications of Representative

    Issues regarding the qualifications of a person to represent a 
party in arbitration are governed by applicable law and may be 
determined by an appropriate court or other regulatory agency. In the 
absence of a court order, the arbitration proceeding shall not be 
stayed or otherwise delayed pending resolution of such issues.
* * * * *

Industry Code

13208. Representation of Parties

(a) Representation by a Party

    Parties may represent themselves in an arbitration held in a United 
States hearing location. A member of a partnership may represent the 
partnership; and a bona fide officer of a corporation, trust, or 
association may represent the corporation, trust, or association.

(b) Representation by an Attorney

    At any stage of an arbitration proceeding held in a United States 
hearing location, [All] all parties shall have the right to be 
represented by [counsel during any stage of an arbitration] an attorney 
at law in good standing and admitted to practice before the Supreme 
Court of the United States or the highest court of any state of the 
United States, the District of Columbia, or any commonwealth, 
territory, or possession of the United States, unless state law 
prohibits such representation.

(c) Representation by Others

    Parties may be represented in an arbitration by a person who is not 
an attorney, unless:
     state law prohibits such representation, or
     the person is currently suspended or barred from the 
securities industry in any capacity, or
     the person is currently suspended from the practice of law 
or disbarred.

(d) Qualifications of Representative

    Issues regarding the qualifications of a person to represent a 
party in arbitration are governed by applicable law and may be 
determined by an appropriate court or other regulatory agency. In the 
absence of a court order, the arbitration proceeding shall not be 
stayed or otherwise delayed pending resolution of such issues.
* * * * *

Code of Arbitration Procedure

10407. Representation of Parties

(a) Representation by Party

    Parties may represent themselves in mediation held in a United 
States hearing location. A member of a partnership may represent the 
partnership; and a bona fide officer of a corporation, trust, or 
association may represent the corporation, trust, or association.

(b) Representation by an Attorney

    At any stage of a mediation proceeding held in a United States 
hearing location, all parties shall have the right to be represented by 
an attorney at law in good standing and admitted to practice before the 
Supreme Court of the United States or the highest court of any state of 
the United States, the District of Columbia, or any commonwealth, 
territory, or possession of the United States, unless state law 
prohibits such representation.

(c) Representation by Others

    Parties may be represented in mediation by a person who is not an 
attorney, unless:
     state law prohibits such representation, or
     the person is currently suspended or barred from the 
securities industry in any capacity, or
     the person is currently suspended from the practice of law 
or disbarred.

(d) Qualifications of Representatives

    Issues regarding the qualifications of a person to represent a 
party in mediation are governed by applicable law and may be determined 
by an appropriate court or other regulatory agency. In the absence of a 
court order, the mediation proceeding shall not be delayed pending 
resolution of such issues.
[10407] 10408. Mediator Selection
    (a)-(d) No change.

[10408] 10409. Limitation on Liability
    No change.

[10409] 10410. Mediation Ground Rules
    (a)-(g) No change.

[10410] 10411. Mediation Fees
    (a)-(c) 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 IV 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
Background
    NASD Dispute Resolution believes a rule is needed to clarify the 
issue of representation of parties in dispute resolution. NASD Rule 
10316 states that all parties shall have the right to representation by 
counsel at any stage of the proceedings. The rule provides no guidance 
on the kind of representatives who are permitted to practice in the 
NASD dispute resolution forum, or on the qualifications those 
representatives must have to participate in the forum. Moreover, Rule 
10316 does not address a growing trend in American jurisprudence, the 
multi-jurisdictional practice of law.
    The multi-jurisdictional practice of law occurs when attorneys, 
licensed in one United States (U.S.) jurisdiction, practice law in a 
jurisdiction in which they are not licensed. In the area of dispute 
resolution, for example, it is common for an attorney licensed to 
practice law in one state to represent a client in a dispute resolution 
proceeding in another state in which the attorney is not licensed. 
Although this practice is permitted in many jurisdictions, it may be a 
violation of certain other states' unauthorized practice of law 
provisions. Until recent years, most states had taken no action against 
this practice. However, two state courts have found that out-of-state 
attorneys must meet certain conditions in order to participate in a 
dispute resolution proceeding in their jurisdictions.\6\ In light of 
these developments, the American Bar Association (ABA) amended its 
Model Rule of Professional Conduct 5.5 (ABA Model Rule 5.5) to promote 
the multi-jurisdictional practice of law.\7\
---------------------------------------------------------------------------

    \6\ See Birbrower, Montalbano, Condo & Frank v. Superior Court, 
949 P.2d 1 (Cal. 1998); see also Florida Bar v. Rapoport, 845 So. 2d 
874, 2003 Fla. LEXIS 250 (Fla. 2003).
    \7\ ABA Model Rule 5.5, as amended, would allow a United States 
lawyer, admitted in one United States jurisdiction, to engage in 
certain types of legal activity in another United States 
jurisdiction where he is not licensed to practice, without being 
deemed to be engaging in the unauthorized practice of law. For 
purposes of the dispute resolution forum, ABA Model Rule 5.5, as 
amended, states, in relevant part, that a lawyer may provide legal 
services on a temporary basis in an out-of-state jurisdiction that 
are in or reasonably related to a pending or potential arbitration, 
mediation, or other alternative dispute resolution proceeding in the 
jurisdiction or another jurisdiction, if the services arise out of 
or are reasonably related to the lawyer's practice in a jurisdiction 
in which the lawyer is admitted to practice and are not services for 
which the forum requires pro hac vice admission. This rule is 
sometimes referred to as the temporary practice rule. Twenty-seven 
states have either adopted ABA Model Rule 5.5 or a similar version 
of the rule or currently have a temporary practice rule in effect. 
American Bar Association, Charts on State Adoption of MJP Proposals 
(visited Aug. 23, 2006) http://www.abanet.org/cpr/mjp/state_
adoption.html. Other states have adopted a temporary practice rule 
that, like ABA Model Rule 5.5, allows an attorney not licensed in a 
state to provide certain types of legal services in the state on a 
limited basis. The laws of Michigan and Virginia specifically 
authorize occasional or incidental practice by out-of-state lawyers. 
See Mich. Comp. Law Ann. sec. 600.916 and Va. State Bar Rule, Pt. 6, 
sec. 1(C).

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

[[Page 18705]]

    Accordingly, NASD proposes to codify its current practice of 
permitting the multi-jurisdictional practice of law in NASD's dispute 
resolution forum to the extent permitted under applicable state law. 
NASD also proposes to codify its current practice which allows non-
attorney representatives to represent parties in arbitration or 
mediation.

Previous Proposal Relating to Representation in Arbitration and 
Mediation

    On February 9, 2005, NASD filed a proposed rule change with the 
Commission to address attorney representation in arbitration and 
mediation.\8\ The proposed rule change would have:
---------------------------------------------------------------------------

    \8\ See File No. SR-NASD-2005-023.
---------------------------------------------------------------------------

     Allowed parties to represent themselves in an arbitration 
or mediation;
     Allowed parties to be represented by an attorney at law 
admitted to practice before a U.S. jurisdiction at any stage of the 
proceeding; and
     Deferred to the states any issues regarding qualifications 
of a person to represent a party.
    NASD amended this proposal on July 8, 2005 to clarify that it was 
intended to address the issue of multi-jurisdictional practice of law 
by attorneys, and was not intended to address the issue of 
representation by non-attorneys in arbitration or mediation 
proceedings.\9\
---------------------------------------------------------------------------

    \9\ Id. at Amendment No. 1.
---------------------------------------------------------------------------

    As amended, the attorney representation proposal was published in 
the Federal Register on July 21, 2005.\10\ The SEC received fifteen 
comments, which primarily focused on two issues: Whether the rule 
should preempt state law regarding attorney licensing, and whether the 
rule should prohibit non-attorneys from practicing in NASD's forum. The 
comments and NASD's response are discussed in subsection C below.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Rel. No. 34-52045 (July 15, 
2005); 70 FR 42123 (July 21, 2005) (File No. SR-NASD-2005-023).
---------------------------------------------------------------------------

    Based on the comments received on the attorney representation 
proposal, as amended, NASD recognized that the proposal may have been 
ambiguous. NASD did not intend to change current practice in the forum 
regarding representation of parties by non-attorneys, or to preempt 
state law on the issue of attorney licensing. Because the comments 
indicated that these positions were unclear, NASD withdrew its 
proposal. The current proposed rule change addresses representation of 
parties by themselves, by attorneys and by non-attorneys in arbitration 
and mediation.

Representation of Parties by Themselves, Attorneys and Non-Attorneys in 
Arbitration and Mediation

    NASD is proposing to amend Rules 12208 and 13208 of the Customer 
and Industry Codes, respectively, and Rule 10407 of the Code to clarify 
that in both arbitration and mediation: (1) Parties may represent 
themselves; (2) parties may be represented by an attorney, provided 
certain criteria are met; (3) parties may be represented by a person 
who is not an attorney, unless state law prohibits such representation 
or the person is currently suspended or barred from the securities 
industry in any capacity or is an attorney who is currently suspended 
from the practice of law or disbarred; and (4) issues regarding 
qualifications of a representative are governed by applicable law.
    First, the proposed rule change codifies current practice by 
explicitly stating that parties may represent themselves in 
arbitration.
    Second, the proposed rule change codifies current practice 
permitting the multi-jurisdictional practice of law by attorneys in the 
NASD dispute resolution forum to the extent permitted by state law. In 
addition, the proposed rule change states that if a party chooses to be 
represented by an attorney, the attorney must be licensed to practice 
in a U.S. jurisdiction and be in good standing in that 
jurisdiction.\11\ NASD believes that requiring an attorney to be 
licensed in a U.S. jurisdiction and to be in good standing in that 
jurisdiction will protect investors by prohibiting individuals who have 
been suspended from the practice of law or disbarred from representing 
parties in the NASD forum. Further, the requirement that an attorney 
must be licensed to practice in a U.S. jurisdiction sets a standard of 
practice for the arbitration forum that is consistent with the other 
rules and proceedings of NASD. In particular, Rule 9141(b) of the NASD 
Code of Procedure states, in relevant part, that a person may be 
represented in any disciplinary proceeding by an attorney at law 
admitted to practice before the highest court of any state of the 
United States, the District of Columbia, or any commonwealth, 
territory, or possession of the United States.\12\ The proposed rule 
change also is consistent with Rule 102(b) of the SEC Rules of 
Practice, which states that, ``[i]n any proceeding, a person may be 
represented by an attorney at law admitted to practice before the 
Supreme Court of the United States or the highest court of any State * 
* *'' \13\
---------------------------------------------------------------------------

    \11\ The requirement to be licensed to practice in a U.S. 
jurisdiction and be in good standing in that jurisdiction is in 
addition to and not in lieu of the requirement that an attorney must 
comply with applicable laws of the relevant jurisdiction. As 
previously noted, while the multi-jurisdictional practice of law may 
be permitted in many jurisdictions, it may constitute a violation of 
certain states' unauthorized practice of law provisions.
    \12\ This rule has been enforced in NASD Enforcement 
proceedings. In two similar cases, a respondent's answer was 
stricken from the record because the respondent's representative had 
not indicated that he was a licensed attorney. See NASDR Office of 
the Hearing Officers, OHO Order 97-15 (C01970032) (visited Aug. 24, 
2006), available at: http://www.nasd.com/web/groups/enforcement/
documents/oho_disciplinary_orders/nasdw_007839.pdf; see also OHO 
Order 98-10 (C10970176) (visited Aug. 24, 2006), available at: 
http://www.nasd.com/web/groups/enforcement/documents/oho_
disciplinary_orders/nasdw_007695.pdf.
    \13\ See SEC Rules of Practice, 17 CFR Sec.  201.102(b) (2004).
---------------------------------------------------------------------------

    Third, the proposed rule change addresses the representation of 
parties by non-attorneys in the NASD forum. Under the proposed rule 
change, parties may be represented in an arbitration or mediation by a 
person who is not an attorney, unless state law prohibits such 
representation or the person is currently suspended or barred from the 
securities industry in any capacity or is an attorney who is currently 
suspended from the practice of law or disbarred.
    This provision would be applicable to all arbitration claims. NASD 
understands, however, that it may be difficult for investors with 
claims of less than $100,000 to retain an attorney on a contingency-fee 
basis because the attorney may believe that the attorney's share of the 
award might be too small to justify the effort. In these circumstances, 
NASD believes that investors should be able to seek other assistance to 
resolve their arbitration or mediation claims for a more affordable 
fee.\14\ At the same time, NASD believes

[[Page 18706]]

that such non-attorney representatives should not be persons who have 
been found by a regulatory body in essence to be unfit to represent 
clients or to conduct securities business with the public. Thus, to 
protect investors, the rule would prohibit non-attorney representatives 
who are currently suspended or barred from the securities industry, or 
attorneys who are currently suspended from the practice of law or 
disbarred, from representing parties in the NASD dispute resolution 
forum. While NASD remains concerned about some aspects of non-attorney 
representation, NASD does not wish to prohibit investors from retaining 
a non-attorney representative if that person is the only affordable 
representation available, and the requirements of the proposed rule are 
met.
---------------------------------------------------------------------------

    \14\ Consistent with current practice, the proposed rule would 
allow a relative, friend or associate to represent or assist a 
person (e.g., an elderly or disabled person) with his or her 
arbitration or mediation. In addition, law school securities 
arbitration clinics can provide investors with affordable legal 
representation. NASD notes that a securities arbitration clinic also 
can help an investor who has a smaller claim but is unable to hire 
an attorney, provided the investor qualifies for assistance. See How 
to Find an Attorney (for more information on clinic locations and 
eligibility requirements) (visited Sept. 13, 2006), available at: 
<http://www.nasd.com/ArbitrationMediation/
StartanArbitrationorMediation/HowtoFindanAttorney/index.htm>.
---------------------------------------------------------------------------

    Last, the proposed rule change would allow an attorney to represent 
a client in an NASD arbitration or mediation held in any U.S. hearing 
location, regardless of the jurisdiction in which the attorney is 
licensed. An attorney's ability to represent clients in a jurisdiction 
in which he or she is not licensed, however, would be subject to the 
applicable law of that jurisdiction. The proposed rule change is not 
intended to preempt state law; it is intended to reflect current 
practice in the forum which, based on experience, indicates that the 
outcome of a dispute resolution proceeding depends more on the level of 
knowledge, training and skill of the attorneys, rather than the 
jurisdiction from which the attorneys received their license to 
practice.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\15\ which requires, among 
other things, that NASD's 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 balances 
the needs of investors to have access to representation, particularly 
in small cases, with NASD's responsibility to protect investors, the 
integrity of its forum, and the public interest.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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 by NASD. The 
SEC received fifteen comments on the attorney representation proposal 
that it published for comment on July 21, 2005.\16\ Commenters 
primarily focused on two issues: Whether the rule should preempt state 
law regarding attorney licensing, and whether the rule should prohibit 
non-attorneys from practicing in NASD's forum.
---------------------------------------------------------------------------

    \16\ Comments were submitted by Timothy A. Canning, Esq., Law 
Offices of Timothy A. Canning, dated February 11, 2005 (``Canning I 
Letter''); Albert A. Rapoport, Esq., dated June 20, 2005 (``Rapoport 
Letter''); Joseph C. Korsak, Esq., Law Office of Joseph C. Korsak, 
dated July 22, 2005 (``Korsak Letter''); Michael Firestein, Esq. and 
Navid Yadegar, Esq., Proskauer Rose LLP, dated August 1, 2005 
(``Firestein Letter''); Rodney J. Heggy, Esq., Heggy & Associates, 
LLC, dated August 4, 2005 (``Heggy Letter''); Richard L. Sacks, 
Securities Arbitration Consultant, dated August 9, 2005 (``Sacks 
Letter''); Rosemary Shockman, President, Public Investors 
Arbitration Bar Association, dated August 9, 2005 (``PIABA 
Letter''); Joseph O'Donnell, dated August 10, 2005 (``O'Donnell 
Letter''); Irwin G. Stein, dated August 10, 2005 (``Stein Letter''); 
Montgomery G. Griffin, Esq., Securities Arbitration Offices of 
Montgomery G. Griffin, dated August 10, 2005 (``Griffin Letter''); 
Timothy A. Canning, Esq., Law Offices of Timothy A. Canning, dated 
August 10, 2005 (``Canning II Letter''); Kevin P. Takacs, CCO, 
Dominion Investor Services, Inc., dated August 11, 2005 (``Takacs 
Letter''); Jill I. Gross, Director of Advocacy and Barbara Black, 
Director of Research, Pace Investor Rights Project, dated August 11, 
2005 (``Pace Letter''); and Stephen C. Krosschell, Esq., Goodman & 
Nekvasil, P.A., dated August 11, 2005 (``Krosschell Letter''). The 
letter received from Marie W. Hayes, dated March 25, 2005, does not 
comment on the proposed rule change.
---------------------------------------------------------------------------

    With respect to the state preemption issue, several commenters 
agreed that state law should control whether attorneys may participate 
in arbitrations in a state in which they are not licensed.\17\ These 
commenters stated that representatives should be licensed legal 
practitioners who are regulated and have demonstrated a minimum level 
of competence required to represent clients. Several other commenters 
opposed the provision of the proposal that would allow state law to 
control attorney-licensure issues, stating that the provision could 
result in delays in arbitration proceedings as representatives make the 
qualifications of an out-of-state representative the focus of the 
proceedings.\18\
---------------------------------------------------------------------------

    \17\ See Firestein Letter, Heggy Letter, Pace Letter, PIABA 
Letter and Rapoport Letter.
    \18\ See Canning I & II Letters, Korsak Letter, Krosschell 
Letter, Sacks Letter and Stein Letter.
---------------------------------------------------------------------------

    Other commenters addressed whether the proposal would prohibit, in 
effect, non-attorneys from practicing in NASD's forum. Several 
commenters contended that the proposal should address non-attorney 
representation and should allow non-attorneys to practice in the 
forum.\19\ These commenters argued that the proposal attempted to deny 
investors access to qualified non-attorney representatives who have 
securities industry experience and are willing to accept cases that are 
too small to enable investors to retain a securities attorney. Other 
commenters contended that the proposal should prohibit compensated non-
attorney representation in securities arbitration, stating that the 
lack of legal training makes non-attorneys less knowledgeable or 
competent to deal fully with the laws and issues that arise in an 
arbitration proceeding.\20\
---------------------------------------------------------------------------

    \19\ See, Griffin Letter, O'Donnell Letter, Rapoport Letter, 
Sacks Letter, Stein Letter and Takacs Letter.
    \20\ See Firestein Letter, Heggy Letter, Korsak Letter, Pace 
Letter and PIABA Letter.
---------------------------------------------------------------------------

    As noted above, based on the disparate comments received on the 
proposal, NASD recognized that the proposal may not have been clear. 
NASD did not intend to change current practice in the forum regarding 
representation of parties by non-attorneys; nor did it intend to 
preempt state law on the issue of attorney licensing. Because the 
comments indicated that these positions were unclear, NASD has 
withdrawn the attorney representation proposal and is filing this new 
proposal to replace it.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

[[Page 18707]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASD-2006-109 on the subject line.

Paper Comments

     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-2006-109. 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 (http://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. Copies of such 
filing will also 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-2006-109 and should be submitted on or before May 4, 
2007. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-7008 Filed 4-12-07; 8:45 am]
BILLING CODE 8010-01-P