Self-Regulatory Organizations; National Association of Securities Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); Order Approving Proposed Rule Change as Modified by Amendment Nos. 1 and 2 Thereto Relating to Representation of Parties in Arbitration and Mediation, 56410-56412 [E7-19536]
Download as PDF
<![CDATA[
56410
Federal Register / Vol. 72, No. 191 / Wednesday, October 3, 2007 / Notices
the Commission of any written
comments received by DTC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective upon filing pursuant to Section
19(b)(3)(A)(iii) of the Act 6 and Rule
19b–4(f)(4) 7 thereunder because the
proposed rule effects a change in an
existing service of DTC that (i) does not
adversely affect the safeguarding of
securities or funds in the custody or
control of DTC or for which it is
responsible and (ii) does not
significantly affect the respective rights
or obligations of DTC or persons using
the service. At any time within 60 days
of the filing of the proposed rule change,
the Commission could have summarily
abrogated such rule change if it
appeared to the Commission that such
action was necessary or appropriate in
the public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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
Section, 100 F Street, NE., Washington,
DC 20549, on official business days
from 10 a.m. to 3 p.m. The text of the
proposed rule change is available at
DTC, the Commission’s Public
Reference Room, and https://
www.dtcc.com/downloads/legal/
rule_filings/2007/dtc/2007-09.pdf. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–DTC–2007–09 and should
be submitted on or before October 24,
2007.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.8
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–19534 Filed 10–2–07; 8:45 am]
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–DTC–2007–09 on the
subject line.
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
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–DTC–2007–09. 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
6 15
7 17
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(4).
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18:31 Oct 02, 2007
BILLING CODE 8011–01–P
[Release No. 34–56540; File No. SR–NASD–
2006–109]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc. (n/k/a Financial Industry
Regulatory Authority, Inc.); Order
Approving Proposed Rule Change as
Modified by Amendment Nos. 1 and 2
Thereto Relating to Representation of
Parties in Arbitration and Mediation
September 26, 2007.
Jkt 211001
PO 00000
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
Frm 00080
Fmt 4703
The changes to NASD’s Code of
Arbitration Procedure for Customer
Disputes, Code of Arbitration Procedure
for Industry Disputes, and Code of
Mediation Procedure provide 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 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
CFR 240.19b–4.
July 26, 2007, the Commission approved a
proposed rule change filed by NASD to amend
NASD’s Certificate of Incorporation to reflect its
name change to Financial Industry Regulatory
Authority Inc., or FINRA, in connection with the
consolidation of the member firm regulatory
functions of NASD and NYSE Regulation, Inc. See
Exchange Act Release No. 56146 (July 26, 2007); 72
FR 42190 (Aug. 1, 2007).
4 See Securities Exchange Act Release No. 55604
(April 9, 2007), 72 FR 18703 (April 13, 2007).
5 See letters to Nancy Morris, Secretary,
Commission, from Timothy Canning, Law Offices of
Timothy A. Canning, dated May 4, 2007
(‘‘Canning’’); Vincent DiCarlo, Law Offices of
Vincent DiCarlo, dated May 4, 2007 (‘‘DiCarlo’’); Jill
I. Gross, Director of Advocacy, Pace Investor Rights
Project, dated May 4, 2007 (‘‘Pace’’); Richard L.
Sacks, dated May 3, 2007 (‘‘Sacks’’); and Irwin G.
Stein, dated May 4, 2007 (‘‘Stein’’).
3 On
On September 14, 2006, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’) (n/k/a Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)),
through its wholly owned subsidiary,
NASD Dispute Resolution, Inc. (‘‘NASD
Dispute Resolution’’) (n/k/a, FINRA
Dispute Resolution, Inc.), filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’), pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
1 15
II. Description of the Proposal
2 17
I. Introduction
8 17
19b–4 thereunder,2 a proposed rule
change relating to representation of
parties in arbitration and mediation.3
On November 9, 2006 and February 23,
2007, NASD Dispute Resolution
submitted Amendment Nos. 1 and 2,
respectively, to the proposed rule
change. The proposed rule change, as
amended, was published for comment
in the Federal Register on April 13,
2007.4 The Commission received five
comments on the proposal.5 For the
reasons discussed below, the
Commission is approving the proposed
rule change, as amended.
Sfmt 4703
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Federal Register / Vol. 72, No. 191 / Wednesday, October 3, 2007 / Notices
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in good standing in that jurisdiction.6
NASD stated that requiring an attorney
to be licensed and in good standing in
a U.S. 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, NASD stated
that the requirement for an attorney to
be licensed to practice in a U.S.
jurisdiction sets a standard of practice
for its forum that is consistent with the
other rules and proceedings of NASD.
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 applicable law
prohibits such representation or the
person is currently suspended or barred
from the securities industry in any
capacity or is currently suspended from
the practice of law or disbarred.
While this provision would be
applicable to all arbitration claims, it
may be particularly beneficial for
certain investors that may have
difficulty retaining an attorney on a
contingency-fee basis. For example,
investors with small claims may be
unable to retain an attorney because the
attorney may believe that the attorney’s
share of any award would be too small
to justify the effort. In these
circumstances, investors may benefit
from being able to seek other assistance
to resolve their arbitration or mediation
claims for a more affordable fee.7 At the
same time, NASD stated that such nonattorney 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
6 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. 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.
7 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. 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),
available at: https://www.finra.org/
ArbitrationMediation/
StartanArbitrationorMediation/
HowtoFindanAttorney/index.htm.
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18:31 Oct 02, 2007
Jkt 211001
prohibit non-attorney representatives
who are currently suspended or barred
from the securities industry, or are
currently suspended from the practice
of law or disbarred, from representing
parties in the NASD Dispute Resolution
forum.
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.
III. Comment Summary and Response
to Comments
The Commission received five
comments 8 on the proposal and a
response to comments.9 One commenter
generally expressed support for the
proposed rule change.10 The remaining
four commenters opposed the proposed
rule change and the NASD Response
addressed these comments.11
Three commenters expressed the view
that there should be a uniform national
rule governing who can represent a
party in a NASD forum, rather than
permitting the incorporation of state
rules that may vary from jurisdiction to
jurisdiction.12 These commenters
suggested that NASD should adopt a
uniform rule that would preempt
contrary state laws.13 NASD indicated
that it had determined that ‘‘there is no
overriding need for a uniform rule in
this area, and that the continued
compliance with state rules is in the
best interests of all participants in its
arbitration forum.’’ 14 NASD also noted
that this position is consistent with its
previous position with respect to
56411
arbitrator disclosure, distinguishing
attorney qualification rules and rules
regulating arbitration procedure.15
Four commenters stated that the
proposed rule change would penalize
retroactively those persons who are
currently suspended or barred from the
securities industry by prohibiting them
from representing a party in an
arbitration or mediation proceeding.16
In their view, it would impose a new
penalty on those who have had their
misconduct adjudicated and sanctions
imposed.17 NASD indicated that the
rule is ‘‘designed to protect investors’’
and that at a minimum a non-attorney
representative should not be ‘‘a person
whom a regulatory body has suspended
or barred from representing clients or
conducting securities business with the
public.’’ 18
In addition, in response to comments
that the proposed rule may unduly limit
investor choices,19 NASD stated that it
believes that the limitations on the
choice of representation under the
proposed rule are appropriate and
would protect investors.20
IV. Discussion and Findings
The Commission believes that the
proposed rule change is consistent with
the provisions of Section 15A(b)(6) of
the Act,21 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. The
Commission believes that the proposed
rule change meets this standard by
balancing 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.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,22 that the
proposed rule change (SR–NASD–2006–
109), as amended, be, and hereby is,
approved.
8 Canning,
15 Id.
9 See
16 Canning,
DiCarlo, Pace, Sacks, and Stein.
letter to Nancy Morris, Secretary,
Commission, from Mignon McLemore, Assistant
Chief Counsel, FINRA Dispute Resolution, dated
September 17, 2007 (‘‘NASD Response’’). While
FINRA had been formed at the time of the
submission of the NASD Response, for ease of
reference the term NASD is used throughout.
10 Pace.
11 Canning, DiCarlo, Sacks, and Stein. See also
NASD Response.
12 Canning, DiCarlo, and Stein.
13 Id.
14 NASD Response.
PO 00000
Frm 00081
Fmt 4703
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DiCarlo, Sacks, and Stein.
17 Id.
18 NASD Response. NASD noted that ‘‘[t]he
proposal will apply prospectively as to
representation on or after the effective date. If a
barred or suspended individual is representing a
party in a case pending on the effective date of the
rule, he or she may continue to serve on that case,
but may not serve on new ones.’’
19 Canning, DiCarlo, Sacks, and Stein.
20 Id.
21 15 U.S.C. 78o–3(b)(6).
22 15 U.S.C. 78s(b)(2).
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56412
Federal Register / Vol. 72, No. 191 / Wednesday, October 3, 2007 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.23
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–19536 Filed 10–2–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56564; File No. SR–ISE–
2007–74]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Order Granting Accelerated
Approval to a Proposed Rule Change,
as Modified by Amendment No. 1,
Relating to an Extension and
Expansion of the Penny Pilot Program
September 27, 2007.
I. Introduction
On August 21, 2007, the International
Securities Exchange, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
extend and expand a pilot program to
quote certain options in smaller
increments (‘‘Pilot Program’’ or ‘‘Pilot’’).
On August 22, 2007, the Exchange filed
Amendment No. 1 to the proposed rule
change. The proposed rule change, as
amended, was published for comment
in the Federal Register on August 29,
2007.3 The Commission received one
comment letter on the proposed rule
change.4 This order approves the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
II. Description of the Proposal
Currently, the six options exchanges,
including ISE, participate in the thirteen
class Pilot Program,5 which is
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 56306
(August 22, 2007), 72 FR 49753.
4 See letter to Nancy Morris, Secretary,
Commission, from John C. Nagel, Director &
Associate General Counsel, Citadel, dated
September 12, 2007 (‘‘Citadel Letter).
5 The thirteen option classes currently in the Pilot
are: Ishares Russell 2000 (IWM); NASDAQ–100
Index Tracking Stock (QQQQ); SemiConductor
Holders Trust (SMH); General Electric Company
(GE); Advanced Micro Devices, Inc. (AMD),
Microsoft Corporation (MSFT); Intel Corporation
(INTC); Caterpillar, Inc. (CAT); Whole Foods
Market, Inc. (WFMI); Texas Instruments, Inc. (TXN);
Flextronics International Ltd. (FLEX); Sun
Microsystems, Inc. (JAVA); and Agilent
Technologies, Inc. (A).
scheduled to expire on September 27,
2007.6 The Exchange proposes to extend
and expand the Pilot Program to include
fifty additional classes, in two phases.
Phase One will begin on September
28, 2007 and will continue for six
months, until March 27, 2008. Phase
One will add the following twenty-two
options classes to the Pilot: SPDRs
(SPY); Apple, Inc. (AAPL); Altria Group
Inc. (MO); Dendreon Corp. (DNDN);
Amgen Inc. (AMGN); Yahoo! Inc.
(YHOO); QUALCOMM Inc. (QCOM);
General Motors Corporation (GM);
Energy Select Sector (XLE); DIAMONDS
Trust, Series 1 (DIA); Oil Services
HOLDRs (OIH); NYSE Euronext, Inc.
(NYX); Cisco Systems, Inc. (CSCO);
Financial Select Sector SPDR (XLF);
AT&T Inc. (T); Citigroup Inc. (C);
Amazon.com Inc. (AMZN); Motorola
Inc. (MOT); Research in Motion Ltd.
(RIMM); Freeport-McMoRan Copper &
Gold Inc. (FCX); ConocoPhillips (COP);
and Bristol-Myers Squibb Co. (BMY).
These twenty-two options classes are
among the most actively-traded,
multiply-listed options classes, and
account, together with the current
thirteen Pilot classes, for approximately
35% of total industry trading volume.7
Phase Two will begin on March 28,
2008, and will continue for one year,
until March 27, 2009. During the second
phase, the number of options classes
trading in pennies will again increase.8
The Exchange proposes to add twentyeight more classes from among the most
actively-traded, multiply-listed options
classes.9
The minimum price variation for all
classes to be included in the Pilot
Program, except for the QQQQs, will
continue to be $0.01 for all quotations
in option series that are quoted at less
than $3 per contract and $0.05 for all
quotations in option series that are
quoted at $3 per contract or greater. The
QQQQs will continue to be quoted in
$0.01 increments for all options series.
During the extended and expanded
Pilot Program, the ISE commits to
23 17
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1 15
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6 The Pilot Program began on January 26, 2007
and is currently set to expire on September 27,
2007. See Securities Exchange Act Release No.
56151 (July 26, 2007), 72 FR 42452 (August 2, 2007)
(SR-ISE–2007–68). See also Securities Exchange Act
Release No. 55161 (January 24, 2007), 72 FR 4754
(February 1, 2007) (SR–ISE–2006–62) (‘‘Original
Pilot Program Approval Order’’).
7 This volume is based on the Options Clearing
Corporation (‘‘OCC’’) year-to-date trading volume
data through July 16, 2007.
8 The Exchange has committed to file a proposed
rule change under section 19(b)(3)(A) of the Act to
identify the options classes to be included in the
second expansion.
9 As proposed in its filing, ISE represents that
options trading in penny increments will not be
eligible for split pricing, as permitted under ISE
Rule 716.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
deliver four reports to the Commission.
Each report will analyze the impact of
penny pricing on market quality and
options system capacity. The first report
will analyze the penny pilot results
from May 1, 2007 through September
27, 2007; the second will analyze the
results from September 28, 2007
through January 31, 2008; the third will
analyze the results from February 1,
2008 through July 31, 2008; and the
fourth and final report will examine the
results from August 1, 2008 through
January 31, 2009. These reports will be
provided to the Commission within
thirty days of the conclusion of the
reporting period.
III. Discussion
After careful review of the proposal
and the comment letter, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.10 In particular, the
Commission finds that the proposal is
consistent with section 6(b)(5) of the
Act,11 which requires, among other
things, that the rules of an exchange be
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
On June 28, 2005, the Pacific
Exchange (now known as NYSE Arca)
announced its intention to begin
quoting and trading all listed options in
penny increments.12 In June 2006, to
facilitate the orderly transition to
quoting a limited number of options in
penny increments, Chairman Cox sent a
letter to the six options exchanges
urging the exchanges that chose to begin
quoting in smaller increments to plan
for the implementation of a limited
penny pilot program to commence in
January 2007.13 All six of the options
exchanges submitted proposals to
permit quoting a limited number of
classes in smaller increments, and, in
January 2007, the Commission approved
those proposals to implement the
current Pilot Program.14 The exchanges
10 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
11 15 U.S.C. 78f(b)(5).
12 PCX News Release, ‘‘Pacific Exchange to Trade
Options in Pennies,’’ June 28, 2005.
13 Commission Press Release 2006–91, ‘‘SEC
Chairman Cox Urges Options Exchanges to Start
Limited Penny Quoting,’’ June 7, 2006.
14 See Securities Exchange Act Release Nos.
55161 (January 24, 2007), 72 FR 4754 (February 1,
2007) (SR-ISE–2006–62); 55162 (January 24, 2007),
E:\FR\FM\03OCN1.SGM
03OCN1
]]>Agencies
[Federal Register Volume 72, Number 191 (Wednesday, October 3, 2007)]
[Notices]
[Pages 56410-56412]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-19536]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56540; File No. SR-NASD-2006-109]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.);
Order Approving Proposed Rule Change as Modified by Amendment Nos. 1
and 2 Thereto Relating to Representation of Parties in Arbitration and
Mediation
September 26, 2007.
I. Introduction
On September 14, 2006, the National Association of Securities
Dealers, Inc. (``NASD'') (n/k/a Financial Industry Regulatory
Authority, Inc. (``FINRA'')), through its wholly owned subsidiary, NASD
Dispute Resolution, Inc. (``NASD Dispute Resolution'') (n/k/a, FINRA
Dispute Resolution, Inc.), filed with the Securities and Exchange
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change relating to representation of
parties in arbitration and mediation.\3\ On November 9, 2006 and
February 23, 2007, NASD Dispute Resolution submitted Amendment Nos. 1
and 2, respectively, to the proposed rule change. The proposed rule
change, as amended, was published for comment in the Federal Register
on April 13, 2007.\4\ The Commission received five comments on the
proposal.\5\ For the reasons discussed below, the Commission is
approving the proposed rule change, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ On July 26, 2007, the Commission approved a proposed rule
change filed by NASD to amend NASD's Certificate of Incorporation to
reflect its name change to Financial Industry Regulatory Authority
Inc., or FINRA, in connection with the consolidation of the member
firm regulatory functions of NASD and NYSE Regulation, Inc. See
Exchange Act Release No. 56146 (July 26, 2007); 72 FR 42190 (Aug. 1,
2007).
\4\ See Securities Exchange Act Release No. 55604 (April 9,
2007), 72 FR 18703 (April 13, 2007).
\5\ See letters to Nancy Morris, Secretary, Commission, from
Timothy Canning, Law Offices of Timothy A. Canning, dated May 4,
2007 (``Canning''); Vincent DiCarlo, Law Offices of Vincent DiCarlo,
dated May 4, 2007 (``DiCarlo''); Jill I. Gross, Director of
Advocacy, Pace Investor Rights Project, dated May 4, 2007
(``Pace''); Richard L. Sacks, dated May 3, 2007 (``Sacks''); and
Irwin G. Stein, dated May 4, 2007 (``Stein'').
---------------------------------------------------------------------------
II. Description of the Proposal
The changes to NASD's Code of Arbitration Procedure for Customer
Disputes, Code of Arbitration Procedure for Industry Disputes, and Code
of Mediation Procedure provide 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 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
[[Page 56411]]
in good standing in that jurisdiction.\6\ NASD stated that requiring an
attorney to be licensed and in good standing in a U.S. 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, NASD stated that the requirement
for an attorney to be licensed to practice in a U.S. jurisdiction sets
a standard of practice for its forum that is consistent with the other
rules and proceedings of NASD.
---------------------------------------------------------------------------
\6\ 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. 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.
---------------------------------------------------------------------------
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 applicable law prohibits such
representation or the person is currently suspended or barred from the
securities industry in any capacity or is currently suspended from the
practice of law or disbarred.
While this provision would be applicable to all arbitration claims,
it may be particularly beneficial for certain investors that may have
difficulty retaining an attorney on a contingency-fee basis. For
example, investors with small claims may be unable to retain an
attorney because the attorney may believe that the attorney's share of
any award would be too small to justify the effort. In these
circumstances, investors may benefit from being able to seek other
assistance to resolve their arbitration or mediation claims for a more
affordable fee.\7\ At the same time, NASD stated 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 are
currently suspended from the practice of law or disbarred, from
representing parties in the NASD Dispute Resolution forum.
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\7\ 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. 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), available at: https://www.finra.org/
ArbitrationMediation/StartanArbitrationorMediation/
HowtoFindanAttorney/index.htm.
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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.
III. Comment Summary and Response to Comments
The Commission received five comments \8\ on the proposal and a
response to comments.\9\ One commenter generally expressed support for
the proposed rule change.\10\ The remaining four commenters opposed the
proposed rule change and the NASD Response addressed these
comments.\11\
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\8\ Canning, DiCarlo, Pace, Sacks, and Stein.
\9\ See letter to Nancy Morris, Secretary, Commission, from
Mignon McLemore, Assistant Chief Counsel, FINRA Dispute Resolution,
dated September 17, 2007 (``NASD Response''). While FINRA had been
formed at the time of the submission of the NASD Response, for ease
of reference the term NASD is used throughout.
\10\ Pace.
\11\ Canning, DiCarlo, Sacks, and Stein. See also NASD Response.
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Three commenters expressed the view that there should be a uniform
national rule governing who can represent a party in a NASD forum,
rather than permitting the incorporation of state rules that may vary
from jurisdiction to jurisdiction.\12\ These commenters suggested that
NASD should adopt a uniform rule that would preempt contrary state
laws.\13\ NASD indicated that it had determined that ``there is no
overriding need for a uniform rule in this area, and that the continued
compliance with state rules is in the best interests of all
participants in its arbitration forum.'' \14\ NASD also noted that this
position is consistent with its previous position with respect to
arbitrator disclosure, distinguishing attorney qualification rules and
rules regulating arbitration procedure.\15\
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\12\ Canning, DiCarlo, and Stein.
\13\ Id.
\14\ NASD Response.
\15\ Id.
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Four commenters stated that the proposed rule change would penalize
retroactively those persons who are currently suspended or barred from
the securities industry by prohibiting them from representing a party
in an arbitration or mediation proceeding.\16\ In their view, it would
impose a new penalty on those who have had their misconduct adjudicated
and sanctions imposed.\17\ NASD indicated that the rule is ``designed
to protect investors'' and that at a minimum a non-attorney
representative should not be ``a person whom a regulatory body has
suspended or barred from representing clients or conducting securities
business with the public.'' \18\
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\16\ Canning, DiCarlo, Sacks, and Stein.
\17\ Id.
\18\ NASD Response. NASD noted that ``[t]he proposal will apply
prospectively as to representation on or after the effective date.
If a barred or suspended individual is representing a party in a
case pending on the effective date of the rule, he or she may
continue to serve on that case, but may not serve on new ones.''
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In addition, in response to comments that the proposed rule may
unduly limit investor choices,\19\ NASD stated that it believes that
the limitations on the choice of representation under the proposed rule
are appropriate and would protect investors.\20\
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\19\ Canning, DiCarlo, Sacks, and Stein.
\20\ Id.
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IV. Discussion and Findings
The Commission believes that the proposed rule change is consistent
with the provisions of Section 15A(b)(6) of the Act,\21\ 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. The Commission believes that the
proposed rule change meets this standard by balancing 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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\21\ 15 U.S.C. 78o-3(b)(6).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-NASD-2006-109), as amended,
be, and hereby is, approved.
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\22\ 15 U.S.C. 78s(b)(2).
[[Page 56412]]
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-19536 Filed 10-2-07; 8:45 am]
BILLING CODE 8011-01-P
