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]
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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
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• 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–ISE–2007–19 on the subject
line.
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(‘‘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 (https://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.
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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.
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(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.
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(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.
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*
*
*
Code of Arbitration Procedure
10407. Representation of Parties
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(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.
*
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*
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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
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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
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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
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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) https://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).
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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.
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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: https://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:
https://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
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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.
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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:
<https://www.nasd.com/ArbitrationMediation/
StartanArbitrationorMediation/
HowtoFindanAttorney/index.htm>.
15 15 U.S.C. 78o–3(b)(6).
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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.
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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 (https://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 (https://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) https://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: https://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:
https://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:
<https://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.
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\15\ 15 U.S.C. 78o-3(b)(6).
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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.
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\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.
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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\
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\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.
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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\
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\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.
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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 (https://
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 (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room. 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
