# Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to Procedures for Large and Complex Arbitration Cases > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-29355 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** November 29, 1994 ## Text SECURITIES AND EXCHANGE COMMISSION [Release No. 34-34998; File No. SR-NASD-94-10] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to Procedures for Large and Complex Arbitration Cases November 22, 1994. Pursuant to section19(b)(1) of the Securities Exchange Act of 1934 (``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November 18, 1994, the National Association of Securities Dealers, Inc. (``NASD'' or ``Association'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in items I, II, and III below, which Items have been prepared by the NASD.\1\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\The NASD initially submitted the proposed rule change on February 15, 1994. Amendment No. 1, submitted on October 12, 1994, clarified various aspects of the proposed rule change, altered the manner in which arbitrators are selected to a panel and altered the disclosures required with respect to unsuccessful settlement discussions. Amendment No. 2 amended proposed Subsection (g) to clarify that arbitrators may, at their own initiative, issue an award accompanied by a statement of reasons or basis of award and that parties may specifically agree to require arbitrators issue a statement of reasons when they issue an award. See Letter from Suzanne E. Rothwell, Associate General Counsel, NASD, to Mark Barracca, Branch Chief, Over-the-Counter Regulation, SEC (available in Commission's Public Reference Room). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The NASD is proposing to amend the Code of Arbitration Procedure (``Code'')\2\ by amending Part III, Sections 43\3\ and 44\4\ and adding Section 46 to provide procedures for large and complex arbitration cases. Below is the text of the proposed rule change. Proposed new language is in italics. --------------------------------------------------------------------------- \2\NASD Manual, Code of Arbitration Procedure, (CCH) 3701 et seq. \3\NASD Manual, Code of Arbitration Procedure, Part III, Sec. 43 (CCH) 3743. \4\NASD Manual, Code of Arbitration Procedure, Part III, Sec. 44 (CCH) 3746. --------------------------------------------------------------------------- Code of Arbitration Procedure * * * * * Schedule of Fees for Customer Disputes Sec. 43. * * * * * (h) If an eligible matter is submitted for arbitration as a large and complex case under the procedures set forth in Section 46 of the Code, or under procedures agreed upon by the parties, following the Administrative Conference specified in Subsection 46(c) of the Code, the fees and deposits for such matter shall be those set forth in the schedule of fees for claims over $5,000,000. * * * * * Schedule of Fees for Industry and Clearing Controversies Sec. 44. * * * * * (i) If an eligible matter is submitted for arbitration as a large and complex case under the procedures set forth in Section 46 of the Code, or under procedures agreed upon by the parties, following the Administrative Conference specified in Subsection 46(c) of the Code, the fees and deposits for such matter shall be those set forth in the schedule of fees for claims over $5,000,000. Procedures for Large and Complex Cases Sec. 46. Applicability (a)(1) Any dispute, claim or controversy, otherwise eligible for disposition under the Code shall be deemed a matter eligible for disposition pursuant to the procedures set forth in this Section where: (A) the claim or counterclaim of any party is at least $1 million, including punitive or exemplary damages, but exclusive of interest, costs and fees; or (B) all parties agree. Unless otherwise agreed to by the parties, in the event of a conflict, the procedures set forth in this Section shall supersede the procedures set forth elsewhere in the Code. (2) Any eligible matter shall be scheduled for an Administrative Conference pursuant to Subsection (b), below. An eligible matter shall not be eligible for further proceedings under this Section following the Administrative Conference unless all parties agree. (3) Any agreement among the parties to an eligible proceeding to continue with further proceedings following the Administrative Conference, either pursuant to the provisions of this Section or pursuant to agreed upon procedures, may be modified or cancelled upon the agreement of all parties and, if cancelled, the parties shall proceed under the procedures set forth elsewhere in the Code. Following the appointment of the last arbitrator pursuant to a procedure agreed upon by the parties or pursuant to the procedure specified under subsection (d)(3) of this Section, the withdrawal or disqualification of an arbitrator shall not reopen consideration of the terms of such agreement unless such reconsideration is ordered by the remaining arbitrators. (4) Unless waived in whole or in part by the Director of Arbitration, the parties to an eligible matter shall pay the arbitrator fees, hearing session deposits and any other fees and deposits required pursuant to the Code prior to the commencement of the first or the next hearing session before the arbitrators, as applicable. Unless apportioned by the arbitrators, 50 percent of all other fees and charges assessed on the parties following the payment of the hearing session deposit specified in Sections 43 or 44 of the Code shall be paid by the Claimants (apportioned equally among all Claimants) and 50 percent shall be paid by the Respondents (apportioned equally among all Respondents). The arbitrators shall, in their award, determine the party or parties responsible for arbitrator or forum fees and may direct the return of monies previously deposited by a party. The waiver of the deposit requirement shall not preclude the assessment of forum fees against a party in the award. If an agreement to proceed under this Section is cancelled, or the parties otherwise settle or abandon the proceeding after agreeing to arbitrate under this Section, the parties shall not be entitled to a refund of any fees or charges paid. Administrative Conference (b) The Director of Arbitration shall designate a member of the Arbitration Department staff to conduct an Administrative Conference of the parties to an eligible matter. The Administrative Conference may be conducted in person or by telephone conference at the discretion of the Director of Arbitration. The purposes of the Administrative Conference include, but are not limited to: (1) obtaining additional information about the nature of and amount in dispute; (2) determining the anticipated length of hearing and other scheduling issues; (3) determining the preferences of the parties with respect to the qualifications of arbitrators; (4) considering whether mediation or another non-adjudicative method of dispute resolution would be of interest to the parties in resolving the dispute; (5) determining what discovery is sought by the parties and setting a schedule to complete discovery and to resolve other procedural disputes; (6) considering the schedule, arrangements, form and scope of any depositions or interrogatories sought; (7) determining a schedule for settlement discussions and the method for certifying to the NASD that settlement discussions occurred; (8) developing a statement of (A) the matters in dispute, (B) the positions of each party on the matters in dispute, and (C) the legal authorities related to the matters in dispute to be brought to the attention of the arbitrators; (9) developing a schedule for: (i) identifying witnesses, including experts (and with respect to experts, arranging for the production of resumes and summaries of anticipated testimony, including any testimony on calculating damages), and (ii) determining the availability of such witnesses for hearings; and (10) determining the form of the hearing record, and, if transcribed, any arrangements for payment by the parties for transcription and transmission of copies to the arbitrators. Appointment of Arbitrators (c)(1) Eligible matters shall be heard and determined by a panel of three arbitrators, at least one of which shall be an attorney; provided, however, that the parties may agree to submit an eligible matter to a single mutually acceptable arbitrator selected pursuant to the provisions of this subsection (c). (2) Arbitrators shall be appointed (A) pursuant to Section 19 of the Code if the parties cannot agree on another method of selection, (B) provided the parties agree, pursuant to the procedures set forth in paragraph (3), below, or (C) pursuant to another procedure agreed upon by the parties. (3)(A) Each party will be provided simultaneously with two lists of arbitrators chosen from the pool of arbitrators: (i) the first list will be securities industry arbitrators; and (ii) the second list will be public arbitrators. Each list also will include the employment and background information specified under Section 21 of the Code. Additional biographical information about arbitrators appearing on the lists will be furnished to a party upon request. Copies of such additional information will be forwarded to all parties. As soon as practicable following the appointment of the last arbitrator, the arbitrators shall comply with and the Director shall act in accordance with the provisions of Section 23 of the Code. (B) Not more than 20 business days following transmittal of the lists of arbitrators, the parties shall: (i) challenge, either on a peremptory basis for cause, any or all arbitrators on the lists; (ii) number any remaining arbitrators on the lists in order of preference, with one (1) being the most preferred; and (iii) return the lists with challenges and preferences noted to the Director of Arbitration. In the event a party fails to return the lists to the Director of Arbitration within the time specified, all arbitrators on the lists will be deemed acceptable to that party. (C) Following receipt of the lists from the parties, the Director of Arbitration shall prepare consolidated lists of arbitrators acceptable to both parties ranked according to consolidated preference rankings. Consolidated preference rankings shall be determined by adding the numerical ranking of each party on each arbitrator and ranking the arbitrators according to sum of the rankings. The Director of Arbitration shall then extend invitations to the highest ranked attorney arbitrators on either list, and appoint an attorney from attorneys accepting the invitations, giving preference to acceptances in the order of the consolidated preference ranking of the arbitrators. The Director of Arbitration shall then extend invitations to all of the remaining ranked arbitrators, including attorney arbitrators who accepted but were not named to the panel in the first round, and appoint a panel from arbitrators accepting the invitations, giving preference to the acceptances in the order of the consolidated preference ranking of the arbitrators. (D) If a complete panel cannot be appointed from the consolidated lists, or after invitations have been extended to arbitrators on the consolidated lists and declined, the Director of Arbitration will submit lists of proposed arbitrators to each party as provided under Section 19 of the code. Arbitrators already named to the panel pursuant to Subsection (c), above, will remain on the panel. Parties may exercise unlimited challenges for cause and one peremptory challenge with respect to arbitrators appointed pursuant to Section 19 of the Code. (E) In the event of a successful challenge for cause following appointment of the panel, the Director of Arbitration may reopen the selection process at the point in the process where the last arbitrator was selected and continue with the process as though the challenged arbitrator had never been appointed. (4) Upon the agreement of the parties, or at the discretion of the Director of Arbitration according to the magnitude and complexity of an eligible matter, compensation shall be paid to the arbitrators by the parties in addition to the honorarium specified by the Board of Governors. The amount of any compensation to be paid to the arbitrators by the parties will be decided before the arbitrators are selected. The parties shall deposit any additional compensation agreed or ordered to be paid with the Association no later than 10 days prior to the first hearing. Such additional compensation shall be assessed and paid pro rata on the basis of the number of parties. The arbitrators may assess any additional compensation paid pursuant to this subsection against any or all of the parties as part of the final award. Preliminary Hearing (d) As promptly as practicable after the selection of the arbitrators, the arbitrators shall convene a preliminary hearing of the parties or their representatives, either in person or by telephone conference. The Director of Arbitration shall appoint one member of the panel to preside over the preliminary hearing and, with respect to any matter arising before or after the preliminary hearing, to act on behalf of the panel. Matters that may be considered at the preliminary hearing include, but are not limited to: (1) stipulations to any uncontested facts; (2) exchange and pre-marking of exhibits or evidence that each party believes may be offered at the hearing; (3) the schedule, form, scope and use of any sworn statements and/ or depositions; (4) whether mediation or another non-adjudicative method of dispute resolution would be of interest to the parties in resolving the dispute; and (5) issues which are or will be ripe for prehearing resolution. Nothing in this subsection, however, shall prevent the arbitrator conducting a preliminary hearing from referring any matter to the full panel for consideration. Settlement of Eligible Matters (e) If an eligible matter is not settled prior to the first hearing date, the parties shall submit a joint statement or individual statements to the arbitrators setting forth the date(s) and duration of settlement discussion, and the fact that such settlement discussions did not result in settlement. Such statements shall not disclose the dollar value of any settlement offer or proposal discussed by the parties. Management of Proceedings (f)(1) Arbitrators are authorized to take such actions and issue such rulings as are necessary or desirable consistent with the objective of a just, speedy and cost-effective resolution of an eligible matter. (2) Arbitrators are authorized to order, at the request of a party, the deposition of, or the propounding of interrogatories to, persons who may possess information relevant to the disposition of an eligible matter and who may not be available to testify at the hearings. Unless otherwise agreed to by the parties, depositions or interrogatories shall be limited to determining and preserving testimony and facts relevant to the determination of the matter, not for conducting discovery. Unless otherwise agreed to by the parties, interrogatories shall be limited to twenty (20) questions, including parts and subparts. Arbitrators are authorized to order audio/video depositions or audio/video site review. (3) Arbitrators are authorized to conduct special proceedings as necessary (either through a hearing or on the written submissions of the parties, at the discretion of the arbitrators) to rule on dispositive motions, such as motions for summary judgment as to liability or damages or the applicability of a statute of limitations. Form of Award (g) The award of the arbitrators shall be in the form prescribed in Section 41 of the Code. In addition, all parties may specifically agree that the award be accompanied by a statement of reasons or basis of the award. Temporary Effectiveness (h) This Section 46 shall remain in effect for one year from [the effective date of the proposed rule change] unless modified or extended prior thereto by the board of Governors. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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. The 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 As a result of the experience gained managing the securities industry's largest arbitration forum, the NASD has become aware that certain large and complex cases may require special management. In response to the perceived need, the NASD is proposing to amend the Code to add a new section 46 setting forth procedures for handling and managing large and complex cases. The proposed procedures are patterned after rules recently adopted by the American Arbitration Association (``AAA'') for processing large and complex cases. The proposed procedures also add the hearing plan features of the arbitration rules of the National Futures Association. The NASD is aware that many of the procedures provided in the proposed rules are already available in the Code; however, placing them in the proposed rules serves to emphasize the utility of these procedures for large and complex cases. The procedures are intended to encourage the parties to come to an agreement on the rules that will govern the disposition of the matter. Beyond the mandatory administrative conference, any party to an eligible matter must agree to continue with a proceeding under the rules. The emphasis in the rules is on flexibility: most of the provisions of the proposed rules allow the parties to adopt an alternative procedure of their own creation if they can come to an agreement on such procedures. The proposed rules include procedures for an administrative conference, the appointment of arbitrators, and a preliminary hearing. The provisions of the proposed rule change are described in more detail below. Finally, the NASD is proposing to adopt the proposed rules as a one year pilot program. They will remain in effect for cases filed within one year from the date of effectiveness unless modified or extended by the Board of Governors. During the pilot program the NASD will monitor the implementation and usefulness of the proposed rules in order to determine whether to make them a permanent addition to the Code. Fees The NASD is proposing to amend Sections 43 and 44 of the Code, which specify the schedule of fees for customer disputes and industry disputes, respectively, to add subsections specifying that the fees and deposits for matters submitted for arbitration under the large and complex case rules shall be the fees and deposits otherwise specified for claims over $5,000,000. The increased complexity of managing large and complex cases necessitates higher fees and deposits to defray the costs to the NASD associated with providing a forum for such matters. Applicability Subsection (a) of the proposed rule change specifies that the procedures for large and complex cases will be applicable to disputes, claims or controversies (referred to in the proposed rules as an ``eligible matter'') where the claim or counterclaim is at least $1 million, including punitive or exemplary damages, but exclusive of interest costs or fees, or where the parties agree that the matter should be subject to the procedures. This provision permits parties with claims of less than $1 million to have their matter heard pursuant to these procedures if, in their judgment, it would be advantageous to do so. An eligible matter is required to be set over for an Administrative Conference and, unless the parties agree, the matter may not continue under the large and complex case procedures following the Administrative Conference. The procedures for an Administrative Conference, discussed in detail below, bring the parties to an eligible matter together to consider the various issues involved in managing the matter and to determine if any agreement can be reached on such issues. If the parties fail to agree on procedures, they are not forced to continue under the large and complex case rules; this reflects the intent of the NASD not to force the structure of the large and complex case rules on an unwilling party. Where, however, the parties have agreed to continue the proceedings under the large and complex case rules, Subsection (a) provides that the agreement becomes binding on the parties once the last arbitrator is named. The NASD believes that once the parties have come to an agreement on the procedures to be employed on an eligible matter, and the effort and commitment necessary to the naming of the arbitrators has been expended, the parties should be compelled to follow through on the arbitration of the matter under the large and complex case rules. In this regard, if, at any point after such an agreement becomes binding, a member of the NASD or an associated person refuses to go forward with the arbitration of the matter and, instead seeks to dismiss the action and refile it in court, another arbitration forum, or with the NASD as an ordinary arbitration action, the NASD would regard such a failure to go forward as a violation of the member's obligation to arbitrate such matters under the Code subjecting the member or associated person to potential disciplinary action. Further, any failure by any party to go forward after the agreement becomes binding may be addressed under various provisions of the Code which permit the arbitrators to issue orders, penalize parties and make awards without the attendance or participation of a party.\5\ --------------------------------------------------------------------------- \5\See Sections 29, 32, 33, and 35 of the Code of Arbitration Procedure. --------------------------------------------------------------------------- Administrative Conference Subsection (b) of the proposed rule change provides for the convening of an Administrative Conference of the parties to an eligible matter to discuss, among other things, the claim and amount in dispute, arbitrator preferences, procedures, discovery, scheduling and settlement. The intent of this provision is to bring the parties together to air and discuss all issues related to the arbitration, to exchange information on procedural and scheduling matters, and to agree on as many such procedural and scheduling issues as possible in order to facilitate the orderly and expeditious resolution of the matter. If it becomes apparent that one or more parties are not amenable to proceeding under the large and complex case rules, the Administrative Conference will have served its purpose and the matter may proceed under the other provisions of the Code. Appointment of Arbitrators Subsection (c) of the proposed rules provides for the appointment of a panel of three arbitrators to hear eligible matters. At least one of the arbitrators must be an attorney. The NASD will establish and maintain a pool of arbitrators to preside over large and complex cases. The NASD intends to identify arbitrators qualified to preside over such cases on the basis of training, varied knowledge and expertise. The qualifications of an arbitrator for inclusion in the pool will be based on, among others, the following factors: (1) attendance and successful completion of course(s) relating to large and complex cases; (2) experience and regular service as an arbitrator; (3) knowledge or expertise in the subject matter or technical aspects of the dispute; (4) length of service as an Association arbitrator; and (5) professional and business expertise. While the NASD intends to establish pools of specially qualified arbitrators, the NASD will also draw from its regular pool of arbitrators as necessary to fill panels for eligible matters. Moreover, in order to attract arbitrators to serve on panels hearing eligible matters, the NASD is proposing to provide a mechanism to provide additional compensation for such arbitrators. Paragraph (c)(4) of the proposed rule change provides that the parties may agree to pay, or the Director of Arbitration has discretion to assess, additional compensation to be paid to the arbitrators by the parties in addition to the honorarium specified by the Board of Governors in the consideration of the magnitude and complexity of an eligible matter. The amount of any such additional compensation must be decided by the Director of Arbitration and agreed to by the parties prior to the selection of the arbitrators and, pursuant to Subsection (a)(4), must be paid prior to the first hearing or the next scheduled hearing, as applicable. The NASD intends that the staff member assigned to conduct the Administrative Conference will discuss the availability of arbitrators with the parties at the Administrative Conference and obtain the agreement of the parties on how to proceed if availability is a problem. The parties may, for instance, make further proceedings under the large and complex case rule contingent upon the availability of specially qualified arbitrators. Finally, while the rules contemplate that eligible matters will be heard by panels of three arbitrators, at least one or whom is an attorney, paragraph (c)(1) of the proposed rule change permits the parties to agree to submit an eligible matter to a single mutually acceptable arbitrator. The appointment of a panel may be accomplished in one of three ways: (1) pursuant to the usual procedures in Section 19 of the Code, if the parties cannot agree on another method; (2) pursuant to a procedure set forth in paragraph (c)(3) of the proposed rules; or (3) pursuant to a procedure agreed to by the parties. The procedure set forth in paragraph (c)(3) of the proposed rules provides that each party will be simultaneously provided with two lists of arbitrators: the first list will be securities industry arbitrators and the second list will be public arbitrators. The lists will include certain biographical information, with other information available on request. Following receipt of the list each party must challenge peremptorily or for cause any or all arbitrators on the lists. Then each party must rank the remaining arbitrators on their lists in order of preference with one (1) being most preferred. Any party failing to challenge, rank and return the lists will be deemed to have accepted all listed arbitrators. After receiving the lists from the parties the Director of Arbitration will prepare two consolidated lists (one of public arbitrators and one of industry arbitrators) of the arbitrators by combing the lists of acceptable arbitrators and consolidating the rankings. This is accomplished by preparing a combined list of only those arbitrators acceptable to all parties and then adding the number rankings assigned by each party together to achieve a consolidated rank. ------------------------------------------------------------------------ Consolidated Party A Party B rank ------------------------------------------------------------------------ Arbitrator #1........................... 1 3 4 Arbitrator #2........................... 3 2 5 Arbitrator #3........................... 4 1 5 Arbitrator #4........................... 2 5 7 Arbitrator #5........................... 5 4 9 ------------------------------------------------------------------------ In order to ensure that the panel has at least one attorney, the Director will extend the first invitations to the highest ranking attorneys on either list, giving preference to acceptances in the order of the ranking. Once an attorney has been named to the panel, the Director will continue to extend invitations to arbitrators in the order of their consolidated rank until the panel has been filled by the required number of public and industry arbitrators. Paragraph (c)(3) also provides for repeating and finalizing the process in an abbreviated manner if the first attempt at appointing a panel from the lists does not succeed in completing a panel. Finally, pursuant to proposed subparagraph (c)(3)(E), if a challenge for cause is successful after the appointment of the panel is complete, subparagraph (c)(3)(E) permits the Director of Arbitration to reopen the selection process at the point where the last arbitrator was appointed and continue the process as though the challenged arbitrator had never been appointed. Preliminary Hearing Subsection (d) of the proposed rule change provides that promptly following the appointment of the panel the arbitrators will convene a preliminary hearing. The preliminary hearing will be held by one of the arbitrators, appointed by the panel, and the presiding arbitrator will have the power to act on behalf of the panel on any matter arising before the hearing. The presiding arbitrator will also have unlimited discretion to refer any such matter to the full panel for consideration. The matters which may be brought to the presiding arbitrator for resolution include: stipulations as to uncontested facts, exchanging and premarking exhibits to be offered at the hearing, and the schedule, form, scope and use of sworn statements and depositions. In addition, the presiding arbitrator may consider any other matter ripe for resolution at the prehearing stage, including encouraging mediation or other non-adjudicative resolution of the matter. Settlement of Eligible Matters Subsection (e) of the proposed rule change provides that if an eligible matter is not settled prior to the first hearing date, the parties must submit either a joint statement or individual statements to the arbitrators summarizing any settlement discussions that occurred. The statement must include a record of the dates of any discussions and the issues discussed by the parties, but must not include any statement disclosing the dollar value of any settlement offer or proposal discussed by the parties. The intent of this proposed subsection is to provide the arbitrators with additional information concerning the issues in dispute. The prohibition against disclosing dollar amounts discussed is intended to avoid suggesting dollar values for any award ultimately made by the arbitrators. Management of Proceedings Subsection (f) of the proposed rule change sets forth the general and specific powers granted to the arbitrators to permit them to manage the proceedings. The goal of the arbitrators under the general powers granted in paragraph (f)(1) is to act and rule on matters before them in a manner consistent with the just, speedy and cost-effective resolution of the matter. Further, the arbitrators may, without limitation, delegate their powers under subsection (f) to a single arbitrator to be exercised either in the preliminary hearing or at any other time prior to the hearing. Among the specific issues on which the arbitrators may act or rule are dispositive motions, including motions to dismiss on any grounds, including the applicability of a statute of limitations, or motions for summary judgment on specific issues such as liability or damages, or on the whole matter. Depositions and interrogatories are intended to be limited to determining and preserving testimony and facts relevant to the determination of the matter, not for conducting unlimited discovery. Further, interrogatories are limited to twenty questions, including parts and subparts. These limitations may be modified upon the agreement of the parties. Finally, the arbitrators are authorized to conduct special proceedings as necessary to resolve any such matters before them. Such special proceedings may take any form specified by the arbitrators, and may be conducted in person, via teleconference or on written submissions alone, or by any other method. Form of Award Subsection (g) of the proposed rule change specifies that the award in an eligible proceeding shall be in the form prescribed in Section 41 of the Code. Arbitrators may, at their own initiative, issue an award that is accompanied by a statement of reasons or basis of the award. Although not specifically addressed by Section 41, it has been the position of the NASD that arbitrators are permitted under that Section to issue a statement of reasons or basis for the award and arbitrators have issued such statements in many cases. In addition, arbitrators must issue such a statement if the parties specifically so require. Thus, in situations where the arbitrators would not otherwise issue a statement accompanying the award, the arbitrators would nonetheless do so where all of the parties have specifically agreed that a statement of the reasons or basis of the award accompanying the award itself. Sunset Provision Subsection (b) of the proposed rule change specifies that the large and complex case rules will remain in effect for one year following the effective date, unless modified or extended by the Board of Governors. The NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act\6\ in that specifying procedures in the Code for large and complex cases will serve the public interest by enhancing the satisfaction and perceived fairness of such proceedings by the parties to such proceedings. To the extent the parties to such proceedings express increased satisfaction with the resolution of eligible matters, the goal of providing the investing public with a fair, efficient and cost-effective forum for the resolution of disputes will have been advanced. --------------------------------------------------------------------------- \6\15 U.S.C. Sec. 78o-3. --------------------------------------------------------------------------- (B) Self-Regulatory Organization's Statement on Burden on Competition The NASD does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act as amended. (C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. 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. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing. The Commission requests that, in addition to any general comments concerning whether the proposed rule change is consistent with Section 15A(b)(6) of the Act, commentators address the following: Commenters are requested to focus attention on the fact that the proposed rule change would alter basic responsibilities of the parties in arbitrations administered under the proposed rule for large and complex cases. Commenters are requested to consider whether the proposed rule change is clear and whether it strikes an appropriate balance in responsibilities for claimants and respondents. Commenters should also consider that the NASD has determined to produce prior to the effective date of the rules an educational pamphlet that would be provided to all parties considering the use of these alternative rules.\7\ The proposed pamphlet would address the issues that parties should address in a written document prior to submitting a matter for resolution under the alternative rules, including: (1) arbitrator selection; (2) additional fees for arbitrator compensation; (3) whether the parties will use the prehearing discovery rules included in these alternative rules, whether they will use the prehearing discovery rules in the regular rules, or some other prehearing procedures; and (4) whether the parties are contracting for the arbitrators to provide a written statement of reasons. The pamphlet also will disclose that if the parties fail to address any of these issues, the issues may need to be resolved by the arbitration department or the arbitrators, as appropriate under the assignment of responsibilities under the large and complex case rules and other Code provisions. The pamphlet will also highlight the fact that under the alternative rules arbitrators may dismiss the case, or any part of it, on the written submissions of the parties without any oral hearing. --------------------------------------------------------------------------- \7\See letter dated October 12, 1994 to Mark Barracca, Esq., Branch Chief, SEC, from Suzanne E. Rothwell, Associate General Counsel, NASD (``NASD Letter''). --------------------------------------------------------------------------- Comment is solicited on whether the provisions for prehearing discovery contained in Subsection (f)(2), which provides for discovery only upon the agreement of the parties would be likely to have a balanced effect on claimants and respondents. Do the rules clearly advise the parties that unless they reach agreement on the scope of desired discovery before submitting to the rules for large and complex cases, they are restricted to depositions and interrogatories taken for the preservation of evidence, rather than to the use of such techniques for conducting discovery? Is the scope of discovery proposed in the proposed rule change appropriate for the large and complex matters to which these proposed rules apply? Commenters should note that under the proposed rule change, arbitrators are authorized to order depositions of, or interrogatories to: Persons who may possess information relevant to the disposition of an eligible matter and who may not be available to testify at the hearings. Unless otherwise agreed to by the parties, depositions or interrogatories shall be limited to determining and preserving testimony and fact relevant to the determination of the matter, not for conducting discovery. Section 32 of the NASD's current arbitration rules provides that an arbitrator may ``issue subpoenas, direct appearances of witness and production of documents, set deadlines for compliance, and issue any other ruling which will expedite the arbitration proceedings.'' The NASD Letter stated that ``[w]hile the standards under Section 32 and proposed Subsection (f)(2) for the ordering of depositions and interrogatories by arbitrators are different, one is not necessarily more restrictive than the other particularly in view of the fact that Subsection (f)(2) allows the parties the flexibility to decide the scope of their own discovery.'' Comment is specifically solicited on whether the parties' ability to bargain for an agreed upon scope of discovery before consenting to arbitrate under the large and complex rules provides sufficient safeguards to assure that the proposed amendment will operate in a balanced manner? Can reliance on agreement by the parties, who may have different bargaining strengths and different needs for the discovery of documents and information provide for a balanced administration of these procedures? Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 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 the NASD. All submissions should refer to the file number in the caption above and should be submitted by December 22, 1994. For the Commission, by the Division of Market Regulation, pursuant to delegated authority, 17 CFR 200.30-3(a)(12). Jonathan G. Katz, Secretary. [FR Doc. 94-29355 Filed 11-28-94; 8:45 am] BILLING CODE 8010-01-M --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-29355. Public record. Not legal advice.