Self-Regulatory Organizations; Order Approving Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to Procedures for Large and Complex Arbitration Cases

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35314; File No. SR-NASD-94-10]

Self-Regulatory Organizations; Order Approving Proposed Rule

Change by National Association of Securities Dealers, Inc. Relating to

Procedures for Large and Complex Arbitration Cases

February 1, 1995.

On January 31, 1995, the National Association of Securities

Dealers, Inc. (``NASD'' or ``Association'') filed with the Securities

and Exchange Commission (``SEC'' or ``Commission'')\1\ a proposed rule

change pursuant to Section 19(b)(1) of the Securities Exchange Act of

1934 (``Act'')\2\, and Rule 19b-4 thereunder.\3\ The rule change amends

the Code of Arbitration Procedure (``Code'')\4\ by amending Part III,

Sections 43\5\ and 44\6\ and adding new Section 46 to provide

procedures for large and complex arbitration cases as a one year pilot

program.

\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, submitted on November 18, 1994,

amended proposed Section 46(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 to issue a statement of reasons when they issue

an award. Amendment No. 3, submitted on December 12, 1994, and

Amendment No. 4 were minor technical amendments. See Letter from

Suzanne E. Rothwell, Associate General Counsel, NASD, to Mark

Barracca, Branch Chief, Over-the-Counter Regulation, SEC (December

9, 1994) (available in Commission's Public Reference Room); Letter

from Suzanne E. Rothwell, Associate General Counsel, NASD, to Mark

Barracca, Branch Chief, Over-the-Counter Regulation, SEC (January

31, 1994) (available in Commission's Public Reference Room).

\2\15 U.S.C. 78s(b)(1) (1988).

\3\17 CFR 240.19b-4.

\4\NASD Manual, Code of Arbitration Procedure, (CCH)  3701 et.

seq.

\5\NASD Manual, Code of Arbitration Procedure, Part III, Sec. 43

(CCH)  3743.

\6\NASD Manual, Code of Arbitration Procedure, Part III, Sec. 44

(CCH)  3744.

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Notice of the proposed rule change, together with the substance of

the proposal, was provided by issuance of a Commission release

(Securities Exchange Act Release No. 34998, Nov. 22, 1994) and by

publication in the Federal Register (59 FR 61010, Nov. 29, 1994). Two

comment letters were received.\7\ This order approves the proposed rule

change.

\7\See letter from Cliff Palefsky, Esq., Chairman, Securities

Industry Arbitration Committee, National Employment Lawyers

Association (``NELA''), to Jonathan G. Katz, Secretary, SEC, dated

December 12, 1994 (``NELA Letter''); letter from Seth E. Lipner,

Esq., Deutsch & Lipner, to Jonathan G. Katz, Secretary, SEC, dated

December 22, 1994 (``Lipner Letter'').

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I. Background

The Code governs arbitration of any dispute arising out of or in

connection with the business of any NASD member, or arising out of the

employment or termination of employment of associated persons with a

member, other than disputes involving the insurance business of any

member which is also an insurance company, if the dispute is: (1)

Between or among members; (2) between or among members and associated

persons; (3) between or among members of associated persons and public

customers, or others; or (4) between or among members, registered

clearing agencies with which the NASD has entered into an agreement to

use the NASD's arbitration facilities and procedures, and participants,

pledges or other persons using the facilities of a registered clearing

agency.\8\

\8\NASD Manual, Code of Arbitration Procedure, Part I, Sec. 1

(CCH)  3701.

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The Code contains specialized procedures for certain categories of

cases. Part II of the Code\9\ contains procedures applicable solely to

industry and clearing controversies. Section 13 of the Code\10\

contains certain specialized procedures applicable to controversies

involving public customers and associated persons or members if these

controversies involve a dollar amount not exceeding $10,000.

\9\NASD Manual, Code of Arbitration Procedure, Part II, Secs. 8-

11 (CCH)  3708-3711.

\10\NASD Manual, Code of Arbitration Procedure, Part III, Sec.

13 (CCH)  3713.

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The NASD submitted this rule change because it believes that

certain large and complex cases may require special management beyond

that currently afforded by the Code. Therefore, the NASD is adding new

Section 46 to the Code setting forth procedures for handling and

managing large and complex cases. In part, some of the procedures

contain certain features of rules adopted by the American Arbitration

Association (``AAA'') for processing large and complex cases. Section

46 also contains certain features of the arbitration rules of the

National Futures Association. Many of the procedures in Section 46 also

are provided elsewhere in the Code; however, the NASD believes that

grouping these procedures together in a [[Page 7242]] single section

serves to emphasize the utility of these procedures for large and

complex cases.

The NASD stated that the procedures are intended to encourage the

parties to come to an agreement on the rules that will govern the

disposition of the matter. Under new Section 46, all cases that are

eligible for the procedures contained in that Section will be scheduled

for an administrative conference in order to determine whether the

parties can agree on ways in which the case should be administered.

Beyond the mandatory administrative conference, however, all parties to

an eligible matter must agree to continue with a proceeding under the

provisions of Section 46; otherwise, the Code provisions generally

applicable to arbitration matters will govern the proceeding. The NASD

stated that most of the provisions of the proposed rules will allow the

parties to adopt an alternative procedure of their own creation if they

can agree on such procedures.

Section 46 includes procedures for an administrative conference,

the appointment of arbitrators, and a preliminary hearing. The

provisions of the rule change are described in more detail below.

Finally, the rule change is a one year pilot program. It will

remain in effect for cases filed within one year from the date of

effectiveness (ninety days after the date of this order) unless the

NASD Board of Governors authorizes and the Commission approves its

modification or extension. During the pilot program the NASD will

monitor the implementation and utility of the rule change in order to

determine whether to add it permanently to the Code.

II. Substantive Provisions

A. Fees

Sections 43 and 44 of the Code, which specify the schedule of fees

for customer disputes and industry disputes, respectively, have been

amended 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. As discussed further below in Section D., parties may

be assessed additional fees to compensate arbitrators. Parties may

condition their acceptance of the large and complex case rules on an

agreement with the NASD governing these fees.

B. Applicability

Section 46(a) specifies that the procedures for large and complex

cases will be applicable to disputes, claims or controversies

(``eligible matters'') in which the claim or counterclaim is at least

$1 million, including punitive or exemplary damages, but exclusive of

interest costs or fees, or in other cases in which 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.

Section 46(a) requires an eligible matter to be scheduled for an

administrative conference. As noted above, unless all parties agree,

the large and complex case rules will not govern arbitration of the

matter following the administrative conference. The procedures for an

administrative conference, discussed in detail below, bring the parties

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 required to continue

under the large and complex case rules; the rules are not intended to

apply to cases if a party does not wish for them to apply. In order to

assist parties in deciding whether to proceed under the large and

complex case rules, the NASD will provide all parties with an

educational pamphlet.\11\ The pamphlet will discuss issues that parties

should address in a written document prior to submitting a matter for

resolution under the large and complex case rules, including, among

other issues, arbitrator selection and compensation, discovery and

whether an award will include a statement of reasons. Thus, the rule

change does not permit a selection of the large and complex case rules

in a predispute arbitration agreement. Rather, it specifically provides

that any agreement to proceed under such rules will be made at or after

an administrative conference.

\11\See letter dated October 12, 1994, to Mark Barracca, Esq.,

Branch Chief, SEC, from Suzanne E. Rothwell, Associate General

Counsel, NASD (``NASD Letter'').

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If all parties agree 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 appointed.

This requirement reflects the NASD's view that parties devote

substantial resources to formulate procedures to govern a particular

matter. In addition, substantial effort and commitment is required to

appoint arbitrators. A party could be severely disadvantaged if it

devoted time and resources to arbitrating a matter under the large and

complex case rules, only to confront unilateral rejection of the

agreed-upon procedures later in the process.

In this regard, the NASD has stated that if, at any point after

such an agreement under Section 46 (a)(2) and (a)(3) becomes binding, a

member of the NASD or an associated person refuses to proceed 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 this action as a

violation of the member's obligation to arbitrate such matters under

the Code subjecting the member of associated person to potential

disciplinary action. Further, the NASD has stated that any failure by

any party to proceed 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.\12\

\12\See e.g., NASD Manual, Code of Arbitration Procedure, Part

III, Secs. 29, 32, 33 and 35 (CCH) 3729, 3732, 3733 and 3735.

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C. Administrative Conference

Section 46(b) provides for 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. In its filing with the Commission, the NASD

indicated that this provision is intended 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 reach

agreement on as many procedural and scheduling issues as possible in

order to facilitate the orderly and expeditious resolution of the

matter. The filing notes that 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.

The NASD expects that parties will have reviewed the NASD's

pamphlet before the administrative conference. Among the topics to be

addressed in the pamphlet are the issues that parties should address in

a written agreement under Section 46 (a)(2) and (a)(3) prior to

submitting a matter for resolution under the large and complex case

rules, [[Page 7243]] including: (1) Arbitrator selection; (2)

additional fees for arbitrator compensation; (3) whether the parties

will use the prehearing discovery rules included in these large and

complex case rules, whether they will use the prehearing discovery

rules elsewhere in the Code, 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 also

will highlight the fact that a significant feature of the large and

complex rules is that arbitrators are authorized to dismiss the case,

or any part of it, on the written submissions of the parties without

any oral hearing.

D. Appointment of Arbitrators

Section 46(c) provides for the appointment of a panel of three

arbitrators to hear eligible matters. At least one arbitrator must be

an attorney.

The NASD intends to establish a pool of separately qualified

arbitrators to hear many of the cases under the large and complex case

rules.\13\ The NASD also indicated that it 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, Section 46 contains a mechanism to provide

additional compensation for those arbitrators. Section 46(c)(4)

provides that prior to the selection of the arbitrators, the parties

may agree to pay, and that the Director of Arbitration has discretion

to assess, compensation to be paid to the arbitrators by the parties in

addition to the honorarium specified by the Board of Governors. The

additional compensation would reflect the magnitude and complexity of

the matter arbitrated under the alternate large and complex case rules.

Under the provision, the amount of any such additional compensation

also must be decided before the selection of the arbitrators. Section

46(a)(4) requires parties to pay arbitrator fees prior to the first

hearing or the next scheduled hearing, as applicable.

\13\The NASD has indicated that it intends to identify

arbitrators qualified to preside over such cases on the basis of

training, experience, varied knowledge and expertise. Qualifications

for inclusion in the pool may 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.

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Under the procedures established by the NASD, the staff member

assigned to conduct the administrative conference must 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 rules contingent upon the

availability of specially qualified arbitrators or upon specific

compensation arrangements.

Finally, while the rules contemplate that eligible matters will be

heard by panels of three arbitrators, at least one of whom is an

attorney, Section 46(c)(1) permits the parties to agree to submit a

matter to a single mutually acceptable arbitrator.

A panel may be appointed 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 Section

46(c)(3); or (3) pursuant to a procedure agreed to by the parties.

The procedure set forth in Section 46(c)(3) provides that each

party simultaneously will be provided with two lists of arbitrators:

the first list will be composed of securities industry arbitrators and

the second list will be composed of public arbitrators. The lists will

include certain biographical information, with other information

available on request. Within 20 days of the transmittal of these lists,

each party may challenge peremptorily or for cause any or all

arbitrators on the lists and must rank the remaining arbitrators on its

lists in order of preference with ``one'' (1) indicating the most

preferred arbitrator. Any party failing to challenge, rank and return

the lists will be considered 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

combining the parties' lists of acceptable arbitrators and

consolidating the rankings. Under the provision, this is accomplished

by preparing a combined list composed solely of 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 a panel has at least one attorney, the Director

will extend the first invitations to the highest ranking attorneys on

either list. If each attorney accepts, the NASD will select the

attorney who received a higher ranking from a party. 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 filed by the required number of public and

industry arbitrators. Under the provision, if a panel cannot be

appointed from the consolidated lists, the remainder of the panel will

be appointed under the regular arbitration provision in Section 19 of

the Code.

Finally, pursuant to Section 46(c)(3)(E), if a challenge for cause

is successful after the appointment of the panel is complete, Section

46(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 through the challenged arbitrator had never

been appointed.

E. Preliminary Hearing

Section 46(d) provides that the arbitrators will convene a

preliminary hearing promptly following the appointment of the panel.

Once the arbitrators convene the preliminary hearing, the Director of

Arbitration will appoint a single arbitrator to preside over the

preliminary hearing and the presiding arbitrator will have the power to

act on behalf of the panel on any appropriate matter arising before or

after the preliminary hearing. The presiding arbitrator will also have

unlimited discretion to refer any such matter to the full panel for

consideration. 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

medication or other non-adjudicative resolution of the matter.

[[Page 7244]]

F. Settlement of Eligible Matters

Section 46(e) also provides for the parties to give arbitrators

information about their settlement efforts. The provision states 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, setting out a record of the dates and

duration of any discussions and the fact that the discussions did not

result in settlement, but must not include any statement disclosing the

dollar value of any settlement offer or proposal discussed by the

parties. The NASD indicated that this subsection is included because it

might provide 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.

G. Management of Proceedings

Section 46(f) sets out general and specific powers granted to the

arbitrators to enable them to manage the proceedings. 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. The large and complex case

rules specifically permit arbitrators to rule on dispositive motions,

such as 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.

As noted above, the pamphlet will highlight this provision so that

parties may determine whether they wish to utilize the large and

complex case rules or whether they wish to agree specifically to amend

the panel's ability to rule on dispositive motions.

A significant difference between the large and complex case rules

and the rules for other cases administered under current Code

provisions concerns the prehearing procedures, or ``discovery''

process. The large and complex case rules rely to a significant extent

on the parties to bargain for setting the scope of discovery. Absent a

specific agreement by the parties in the agreement under Section 46

(a)(2) and (a)(3) to proceed under these rules, parties are to use the

procedures in Section 46(f). These procedures differ from the present

Code in that 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 discovery.\14\ Further,

interrogatories are limited to twenty questions, including parts and

subparts. The pamphlet will highlight these and other differences

between discovery under the large and complex case rules and discovery

under current provisions of the Code and will advise parties that they

may agree to modify the discovery rules contained in Section 46(f).

\14\By contrast, Section 32 of the Code provides that an

arbitrator may ``issue subpoenas, direct appearances of witnesses

and production of documents, set deadlines for compliance, and issue

any other ruling which will expedite the arbitration proceedings.''

NASD Manual, Code of Arbitration Procedure, Part III, Sec. 32 (CCH)

 3732.

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Finally, Section 46(f) authorizes arbitrators to conduct special

proceedings as necessary to resolve any such matters before them.

Special proceedings may take any form specified by the arbitrators, and

may be conducted in person, via teleconference, on written submissions

alone, or by any other method.

H. Form Award

Section 46(g) 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, the Section provides for arbitrators to issue a

statement of reasons or basis of the award if the parties specifically

so agree. Accordingly, even 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 should

accompany the award.

I. Sunset Provision

Section 46(h) of the proposed rule change specifies that the large

and complex cases rules will remain in effect for one year following

the effective date, unless the Board of Governors authorizes their

modification or extension.\15\

\15\Any such modification or extension must be filed as a

proposed rule change with the Commission pursuant to section

19(b)(1) of the Act and Rule 19b-4 thereunder.

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III. Comment Letters

The Lipner Letter states that there were both positive and negative

aspects to the large and complex case rules, and recommended certain

changes to the rule change to enhance the equitable nature of the

arbitration process. NELA's comments were limited to the arbitration of

employment disputes. NELA opposes the rule change in the context of

employment disputes. As a general matter, NELA objects not only to the

proposed rule change but to mandatory arbitration of complex

employment.\16\ The NELA Letter states that employment disputes

typically turn on legal issues rather than factual issues. NELA

believes that it is inappropriate for a panel composed of a majority of

non-lawyers to decide these issues. Furthermore, the NELA Letter states

that arbitration does not provide the opportunity for the development

of employment law. The Commission believes that, whatever the merit of

these arguments, they are not germane to the instant rule change.

\16\The Commission approved a proposed rule change to Sections

1, 8 and 9 of the Code in 1993 that provides that disputes, claims,

or controversies arising out of the employment or termination of

employment of an associated person are eligible for submission to

arbitration. See Securities Exchange Act Release No. 32802 (Aug. 25,

1993), 58 FR 45932 (Aug. 31, 1993). That proposed rule change was

prompted by two court decisions interpreting the Code so as not to

cover employment disputes. The California Court of Appeals held that

Section 8 of the Code did not cover employment disputes, but only

covered disputes arising out of or in connection with business

transactions. Higgins v. Superior Court of Los Angeles County, 1

Cal. Rptr. 2d 57 (1992). The Seventh Circuit concluded that the NASD

Code of Arbitration as then drafted, did not require the arbitration

of employment disputes between an NASD member and its associated

person. Farrand v. Lutheran Brotherhood, 993 F.2d 1253 (7th Cir.

1993). NELA did not comment on that proposed rule change.

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The NELA Letter also states that the large and complex case rules

``are clearly designed to give the defendants all of the advantages of

litigation in defending the cases while fatally disadvantaging the

party with the burden of proof.'' As noted above, parties will be able

to modify all provisions of Section 46 with an agreement under Section

46 (a))(2) and (a)(3) (other than the mandatory administrative

hearing), and if parties do not agree upon procedures to govern the

matter, than Section 46 will not govern the arbitration of the matter.

The NELA Letter also objects to the level of fees imposed upon

large and complex cases. The NELA Letter states that the level of fees

is exorbitant given that the employee does not have the option of going

to court. The Commission notes that Section 46(a)(4) grants the

Director of Arbitration the [[Page 7245]] authority to waive forum fees

and grants the arbitrators the discretion to apportion all fees and

charges assessed on the parties other than hearing session deposits.

The Lipner Letter objects to Section 46(b)(8)(C), which provides

that one purpose of the administrative conference is to develop a

statement of the legal authorities related to the matters in dispute to

be brought to the attention of the arbitrators. The Lipner Letter views

this provision as transforming the arbitration process into one that is

more akin to litigation. The Commission believes that this provision

recognizes that legal issues are argued routinely in arbitration and

that this provision may assist parties in formulating and assessing the

strength of their claims. It is a reasonable approach for the NASD to

adopt.

Both the NELA Letter and the Lipner Letter object to Section

46(f)(3), which permits arbitrators to rule on dispositive motions,

such as motions to dismiss on any grounds, including the applicability

of a statute of limitations, or motions for summary judgment. Both

commenters argue that permitting such motions and the attendant legal

briefing is inconsistent with the nature of the arbitration process.

The Commission believes that parties should be cognizant of this

feature of the large and complex case rules before they agree to

arbitrate pursuant to the large and complex case rules. The Commission

believes that the pamphlet will alert parties to this provision. As

noted above, parties will be able to modify this provision under an

agreement under Section 46 (a)(2) and (a)(3), and, if no agreement is

reached, then the large and complex arbitration rules will not govern

the arbitration of the matter.

The NELA Letter objects to Section 46(f)(2), which limits

depositions and interrogatories to determining and preserving testimony

and facts relevant to the determination of the matter, rather than for

conducting discovery. NELA believes that not permitting depositions for

discovery is a significant disadvantage to employees and causes the

arbitration process to be skewed in favor of employers. The Commission

is not unmindful of the concerns expressed by NELA. However, the

Commission believes that parties may either modify these procedures

through the agreement reached under Section 46 (a)(2) and (a)(3) to

permit depositions for purposes of discovery, or failing agreement, may

arbitrate in accordance with the rules governing arbitration elsewhere

in the Code. Moreover, experience with this provision of the pilot

rules can be evaluated in the event that the NASD determines to propose

these rules for permanent inclusion in the Code. The Commission also

intends to monitor cases arbitrated under the large and complex case

rules to determine whether parties are being disadvantaged by the

limited scope of discovery.

IV. Discussion and Findings

The Commission finds that the proposed rule change is consistent

with the provisions of Section 15A(b)(6) of the Act\17\ because it may

encourage the arbitration of large and complex cases in a manner

consistent with the objective of a just, efficient and cost-effective

resolution of those cases, and will provide parties with the

flexibility to formulate their own procedures. The flexibility will

serve the public interest by permitting parties to tailor arbitration

proceedings in a manner which enhances their ability to pursue their

claims.

\17\U.S.C. 78o-3.

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It is therefore ordered, pursuant to section 19(b)(2) of the Act,

the File No. SR-NASD-94-10 be, and hereby is approved for a one year

period beginning May 2, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority, 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-2972 Filed 2-6-95; 8:45 am]

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