Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the National Association of Securities Dealers, Inc. Relating to NASD Code of Arbitration Procedure Rule 10335 (Injunctive Relief Rule)

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40441; File No. SR-NASD-98-49]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment Nos. 1 and 2 Thereto by the National Association

of Securities Dealers, Inc. Relating to NASD Code of Arbitration

Procedure Rule 10335 (Injunctive Relief Rule)

September 15, 1998.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on July

16, 1998, the National Association of Securities Dealers, Inc.

(``NASD''), through its wholly-owned subsidiary, NASD Regulation, Inc.

(``NASD Regulation'') filed with the Securities and Exchange Commission

(``Commission'') the proposed rule change as described in Items I, II,

and III below, which Items have been prepared by NASD Regulation.\3\

The Commission is publishing this notice to solicit comments on the

proposed rule change, as amended, from interested persons.

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

\2\ 17 CFR 240.19b-4.

\3\ NASD Regulation filed two amendments to the proposed rule

change. See Letters from Joan C. Conley, Secretary, NASD Regulation

to Katherine A. England, Assistant Director, Division of Market

Regulation, Commission, dated September 9, 1998 (``Amendment No.

1'') and September 10, 1998 (``Amendment No. 2''). These amendments

made several clarifications which are incorporated into this Notice.

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I. Self-Regulatory Organization's Statement of the Terms of

Substance of the Proposed Rule Change

NASD Regulation is proposing to amend Rule 10335 of the NASD's Code

of Arbitration Procedure (``Code'') to clarify and improve the rule and

to make it a permanent part of the Code. Below is the text of the

proposed rule change. The proposed language (which is italicized) would

replace the existing rule (which is in brackets) in its entirety.

* * * * *

RULES OF THE ASSOCIATION

10000. CODE OF ARBITRATION PROCEDURE

10300. UNIFORM CODE OF ARBITRATION

10335. [Injunctions

In industry or clearing disputes required to be submitted to

arbitration pursuant to Rule 10201, parties to the arbitration may seek

injunctive relief either within the arbitration process or from a court

of competent jurisdiction. Within the arbitration process, parties may

seek either an ``interim jurisdiction'' from a single arbitrator or a

permanent injunction from a full arbitration panel. From a court of

competent jurisdiction, parties may seek a temporary injunction. A

party seeking temporary injunctive relief from a court with respect to

an industry or clearing dispute required to be submitted to arbitration

pursuant to Rule 10201 shall simultaneously file a claim for permanent

relief with respect to the same dispute with the Director in the manner

specified under this Code. This Rule contains procedures for obtaining

an interim injunction. Paragraph (g) of this Rule relates to the effect

of court-imposed injunctions on arbitration proceedings. If any

injunction is sought as part of the final award, such request should be

made in the remedies portion of the Statement of Claim, pursuant to

Rule 10314(a).

(a) Single Arbitrator

[[Page 50612]]

Applications for interim injunctive relief shall be heard by a

single arbitrator.

(b) Showing Required

In order to obtain an interim injunction, the party seeking the

injunction must make a clear showing that it is likely to succeed on

the merits, that it will suffer irreparable injury unless the relief is

granted, and that the balancing of the equities lies in its favor.

(c) Application for Relief

Interim injunctions include both Immediate Injunctive Orders and

Regular Injunctive Orders, as described in paragraph (d) below. In

either case, the applicant shall make application for relief by serving

a Statement of Claim, a statement of facts demonstrating the necessity

for injunctive relief, and a properly-executed Submission Agreement on

the party or parties against whom injunctive relief is sought. The

above documents shall simultaneously and in the same manner be filed

with the Director of Arbitration, together with an extra copy of each

document for the arbitrator, proof of service on all parties, and all

fees required under Rule 10205. Filings and service required under this

Rule may be made by United States mail, overnight delivery service or

messenger.

(d) The procedures and timetable for handling applications for

interim injunctive relief are as follows:

(1) Immediate Injunctive Orders.

(A) Upon receipt of an application for an Immediate Injunctive

Order, the Director shall endeavor to schedule a hearing no sooner than

one and no later than three business days after receipt of the

application by the respondent and the Director.

(B) The filing of a response to an application for an Immediate

Injunctive Order is optional to the party against whom the immediate

order is sought. Any response shall be served on the applicant. If a

response is submitted, the responding party shall, prior to the hearing

or at the hearing, file with the Director two copies of the response

and proof of service on all parties.

(C) Notice of the date, time and place of the hearing; the name and

employment history of the single arbitrator required by Rule 10310; and

any information required to be disclosed by the arbitrator pursuant to

Rule 10312 shall be provided to all parties via telephone, facsimile

transmission or messenger delivery prior to the hearing.

(D) The hearing on the application for an Immediate Injunctive

Order may be held, at the discretion of the arbitrator or the Director,

by telephone or in person in a city designated by the Director of

Arbitration.

(E) The arbitrator shall endeavor to grant or deny the application

within one business day after the hearing and record are closed.

(F) If the application is granted, the arbitrator shall determine

the duration of the Immediate Injunctive Order. Unless the parties

agree otherwise, however, the order will expire no later than the

earlier of the issuance or denial of a Regular Injunctive Order under

subparagraph (2) or a decision on the merits of the entire controversy

by an arbitration panel appointed under this Code.

(2) Regular Injunctive Orders.

(A) Upon receipt of an application for a Regular Injunctive Order,

the Director shall endeavor to schedule a hearing no sooner than three

and no later than five business days after the response is filed or due

to be filed, whichever comes first.

(B) The party against which a Regular Injunctive Order is sought

shall serve a response on the applicant within three business days of

receipt of the application. The responding party shall simultaneously

and in the same manner file with the Director two copies of the

response and proof of service on all parties. Failure to file a

response within the specified time period shall not be grounds for

delaying the hearing, nor shall it bar the respondent from presenting

evidence at the hearing.

(C) Notice of the date, time and place of the hearing; the name and

employment history of the single arbitrator required by Rule 10310; and

any information required to be disclosed by the arbitrator pursuant to

Rule 10312 shall be provided to all parties via telephone, facsimile

transmission or messenger delivery prior to the hearing.

(D) The hearing on the application for a Regular Injunctive Order

may be held, at the discretion of the arbitrator or the Director, by

telephone or in person in a city designated by the Director of

Arbitration.

(E) The arbitrator shall endeavor to grant or deny the application

within one business day after the hearing and record are closed.

(F) If the application is granted, the arbitrator shall determine

the duration of the Regular Injunctive Order. Unless the parties agree

otherwise, however, a Regular Injunctive Order shall expire no later

than a decision on the merits of the entire controversy by an

arbitration panel appointed under this Code.

(e) Challenges to Arbitrators

There shall be unlimited challenges for cause to the single

arbitrator appointed to hear the application for injunctive relief, but

there shall be no peremptory challenges. Parties wishing to object to

the arbitrator shall do so by telephone to the Director, and shall

confirm such objection immediately in writing or by facsimile

transmission, with a copy to all parties. A peremptory challenge may

not be made to an arbitrator who heard an application for an injunctive

order and who subsequently participates or is to participate on the

arbitration panel hearing the same arbitration case on the merits.

(f) Hearing on the Merits

Immediately following the issuance of an Immediate or Regular

Injunctive Order, the Director shall appoint arbitrators according to

the procedures specified in the Code to hear the matter on the merits.

The arbitration shall proceed in an expedited manner pursuant to a

schedule and procedures specified by the arbitrators. The arbitrators

may specify procedures and time limitations for actions by the parties

different from those specified in the Code.

(g) Effect of Court Injunction

If a court has issued an injunction against one of the parties to

an arbitration agreement, unless otherwise specified by the court, any

requested arbitration concerning the matter of the injunction shall

proceed in an expedited manner according to a time schedule and

procedures specified by the arbitration panel appointed under this

Code.

(h) Security

The arbitrator issuing the Immediate or Regular Injunctive Order

may require the applicant, as a condition to effectiveness of the

order, to deposit security in an amount that the arbitrator deems

proper, in a separate bank trust or escrow account for the benefit of

the party against whom injunctive relief is sought, for the payment of

any costs and damages that may be incurred or suffered by the party

against whom injunctive relief is sought if it is found to have been

wrongfully enjoined.

(i) Effective Date

This Rule shall apply to arbitration claims filed on or after

January 3, 1996. Except as otherwise provided in this Rule, the

remaining provisions of the Code shall apply to proceedings instituted

under this Rule. This Rule shall expire on July 3, 1998, unless

extended by the Association's Board of Governors.]

Temporary Restraining Orders

In industry or clearing disputes required to be submitted to

arbitration pursuant to Rule 10201, parties to the arbitration may seek

a temporary restraining order within the arbitration process or from a

court of competent

[[Page 50613]]

jurisdiction. This Rule contains procedures for obtaining this interim

relief in arbitration or in court pending completion of an arbitration

proceeding. Requests for permanent injunctive relief should be made in

the remedies portion of the Statement of Claim, pursuant to Rule

10314(a).

(A) Temporary Restraining Orders in Arbitration

(1) Single Arbitrator; Consolidation

A single arbitrator shall hear applications for a temporary

restraining order. At the arbitrator's discretion, multiple requests

for relief involving the same applicant or respondent may be

consolidated.

(2) Showing Required

In order to obtain a temporary restraining order, the party seeking

the relief (``applicant'') must meet the standards for obtaining a

temporary restraining order of the state in which the events leading to

the application occurred.

(3) Application for Relief

An applicant seeking a temporary restraining order shall make

application for relief by serving a Statement of Claim, a statement of

facts demonstrating the necessity for a temporary restraining order,

and a properly executed Submission Agreement on the party or parties

against whom the applicant seeks relief. The applicant shall file the

above documents simultaneously and in the same manner with all parties

and the Director of Arbitration. The papers filed with the Director of

Arbitration should also include three extra copies of each document,

proof of service on all parties, and all fees required under Rule

10205. Filings and service required under this Rule may be made by

United States mail, overnight delivery service or messenger, or

facsimile transmission.

(4) Appointment of Arbitrator

Upon receipt of an application for a temporary restraining order,

the Director of Arbitration shall appoint an arbitrator to hear the

application. Upon appointment, the arbitrator shall set the initial

hearing date.

(5) Challenges to Arbitrator

(a) There shall be unlimited challenges for cause, but no

peremptory challenges, to the single arbitrator appointed to hear the

application for a temporary restraining order. Parties challenging the

arbitrator for cause shall do so by telephone to the Director of

Arbitration, and shall confirm such objection immediately in writing,

with a copy to all parties.

(b) Parties may not make a peremptory challenge to the arbitrator

who has heard an application for a temporary restraining order and

subsequently will participate on the arbitrator panel hearing the same

case on the merits.

(6) Scheduling of Hearing; Notice to Parties

(a) The arbitrator shall endeavor to schedule a hearing no sooner

than one and no later than three business days after the response is

filed or due to be filed, whichever comes first.

(b) The Director of Arbitration shall provide to all parties notice

of the date, time, and place of the hearing, the name and employment

history of the single arbitrator required by Rule 10310, and any

information required to be disclosed by the arbitrator pursuant to Rule

10312 via telephone, facsimile transmission, or messenger delivery

prior to the hearing.

(c) At the discretion of the arbitrator or the Director of

Arbitration, the hearing may be held by telephone or in person in a

city designated by the Director of Arbitration.

(7) Filing of Responses

(a) The party against which an applicant seeks a temporary

restraining order (``responding party'') may respond to the

application. A responding party shall serve any response on the

applicant and shall file with the Director of Arbitration four copies

of the response and proof of service on all parties.

(b) Within time frames set by the arbitrator, the parties shall be

permitted to file briefs, affidavits and documentary evidence in

connection with the request for a temporary restraining order.

(8) Arbitrator's Decision

The arbitrator shall endeavor to grant or deny the application for

a temporary restraining order within one business day after the hearing

and record are closed.

(9) Expiration of Temporary Restraining Orders in Arbitration

A temporary restraining order shall expire 10 days from the date of

issuance. The arbitrator may extend the temporary restraining order for

ten-day periods until a hearing on the merits is held. Notwithstanding

the expiration date, a temporary restraining order shall expire upon a

decision on the merits of the entire controversy, unless the parties

agree otherwise.

(B) Court-Ordered Temporary Restraining Orders

(1) Parties to an arbitration may seek a temporary restraining

order from a court of competent jurisdiction even if another party has

already filed a claim arising from the same dispute in arbitration

pursuant to paragraph (A). However, a party making such a request must

do so within five days of when the party knew or should have known or

the event or occurrence upon which the request is based. In any event,

a party may not seek a temporary restraining order in court after a

hearing on the merits in arbitration has convened.

(2) An arbitrator may not issue an order enjoining a party from

seeking a temporary restraining order in court. The availability of the

temporary restraining order remedy in arbitration is not grounds for a

party to seek denial of a temporary restraining order in court.

However, a party which has been denied a temporary restraining order in

arbitration or in court may not seek the same relief in the other

forum.

(3) Parties may not seek discovery in court in connection with a

request for a court-ordered temporary restraining order.

(4) A party seeking a temporary restraining order from a court with

respect to an industry or clearing dispute required to be submitted to

arbitration pursuant to Rule 10201 shall simultaneously file a claim

for permanent relief with respect to the same dispute with the Director

in the manner specified under this Code. A party obtaining a court-

ordered temporary restraining order shall notify the Director of

Arbitration of the issuance of the order within one business day.

(5) A party obtaining a temporary restraining order in court may

not request that the court extend the order's effectiveness beyond an

initial ten-day period, unless no arbitrator or panel of arbitrators

has been appointed to review the court's order in accordance with

paragraph (B)(6) of this Rule.

(6) Review of Court-Ordered Temporary Restraining Order

(a) Upon request by one or more of the parties, the Director of

Arbitration shall appoint a three-member panel of arbitrators to review

the court-issued temporary restraining order before expiration of the

order. If a three-member panel of arbitrators cannot be appointed

before the temporary restraining order expires, the Director of

Arbitration may appoint a single arbitrator to review the court-issued

temporary restraining order.

(b) There shall be unlimited challenges for cause, but no

peremptory challenges, to the arbitrator(s) appointed to review a

court-ordered temporary restraining order. Parties challenging the

arbitrator(s) for cause shall do so by telephone to the Director of

Arbitration, and shall confirm such objection immediately in writing,

with a copy of all parties.

(c) the panel or single arbitrator appointed to review the court-

ordered temporary restraining order may (i)

[[Page 50614]]

issue an order extending the court's order, (ii) issue a temporary

restraining order with different terms and conditions than the court's

order, or (iii) decline to issue a temporary restraining order. A

temporary restraining order issued by the reviewing arbitrator(s) may

not become effective until the expiration of the court's order. A

temporary restraining order issued by the reviewing arbitrator(s) may

be extended for ten-day periods until a hearing on the merits is held.

(d) Within time frames set by the arbitrator(s), the parties shall

be permitted to file briefs, affidavits and documentary evidence in

connection with the review of a court-ordered temporary restraining

order.

(7) Showing Required

In order to obtain an extension of a court-ordered temporary

restraining order, the party seeking relief must make the same showing

specified in paragraph (A)(2) of this Rule.

(C) Hearing on the Merits

(1) Immediately following the issuance of a temporary restraining

order in arbitration, or upon notification to the Director of

Arbitration of the issuance of a court-ordered temporary restraining

order, the Director of Arbitration shall appoint arbitrators to hear

the matter on the merits. The Director of Arbitration shall appoint the

arbitrators in the manner specified in the Code, provided, however,

that the Director of Arbitration shall have the discretion to expiedite

the appointment of the arbitrators to facilitate the expedition of the

hering on the merits in accordance with paragraph (C)(3) of this Rule.

(2) If the temporary restraining order was issued by an arbitrator,

one of the arbitrators appointed to hear the matter on the merits may

be the arbitrator who heard the request for the temporary restraining

order. If the temporary restraining order was issued by a court and

reviewed by a single arbitrator or a panel of arbitrators, one of the

arbitrators appointed to hear the matter on the merits may be an

arbitrator who reviewed the court-ordered temporary restraining order;

by agreement of the parties, the entire panel of arbitrators may be

appointed to hear the matter on the merits.

(3) The arbitration shall proceed in an expedited manner pursuant

to a schedule and procedures specified by the arbitrators, but in no

event shall proceedings commence more than 28 days from the original

filing, unless the parties agree otherwise. The arbitrators may specify

procedures and time limitations for actions by the parties different

from those specified in the Code.

(D) Security

The arbitrator issuing an injunctive relief order may require the

applicant, as a condition to effectiveness of the order, to deposit

security in an amount that the arbitrator deems proper, in a separate

bank trust or escrow account for the benefit of the party against whom

the temporary restraining order is sought, for the payment of any costs

and damages that may be incurred or suffered by that party.

(E) Effective Date

This rule shall apply to arbitration claims filed on or after

January 4, 1999. Except as otherwise provided in this Rule, the

remaining provisions of the Code shall apply to proceedings instituted

under this Rule.

* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, NASD Regulation included

statements concerning the purpose of the basis for the proposed rule

change and discussed any comments it received on the proposed rule

change. The text of these statements may be examined at the places

specified in Item IV below. NASD Regulation has prepared summaries, set

forth in Sections A, B, and C below, of the most significant aspects of

such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

(1) Purpose

Rule 10335, the NASD's pilot injunctive relief rule, allows interm

injunctive relief to be obtained in controversies involving member

firms and associated persons in arbitration. The proposed rule change

would amend the rule and make it a permanent part of the Code.

The rule took effect on January 3, 1996 for a one-year pilot

period. The Commission extended the initial pilot period twice in order

to permit NASD Regulation's Office of Dispute Resolution to gain

additional experience with the rule before determining whether, and in

what form, the rule should be made a permanent addition to the Code.

The rule is currently due to expire on January 3, 1999.\4\

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\4\ The Commission recently approved a related rule filing (File

No. SR-NASD-98-42) to extend the pilot rule through January 3, 1999.

See Securities Exchange Act Release No. 40124 (June 24, 1998), 63 FR

37282 (July 2, 1998).

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a. Summary of the Current Rule. Rule 10335 currently provides,

among other things, that: (i) Parties may seek temporary injunctive

relief either in court or in arbitration; (ii) Parties who seek

temporary injunctive relief in court must simultaneously submit the

claim to arbitration for permanent relief; (iii) Parties may obtain

interim injunctive relief in arbitration rather than in court in the

form of either an Immediate Injunctive Order or a Regular Injunctive

Order; (iv) Permanent injunctive relief may be obtained in arbitration

as part of the final relief sought by a party in connection with a

claim; (v) Applications for interim injunctive relief are expedited;

and (vi) Where a court grants interim injunctive relief to one of the

parties, arbitration proceedings on the dispute must be expendited.

b. Notice to Members 97-59. The proposed rule change is based in

part on responses to Notice to Members (97-59), published in November

1997, and on NASD Regulation's Office of Dispute Resolution staff's

experience with the pilot rule. At the time the Notice to Members was

published, approximately 433 cases had been filed in which injunctive

relief was sought pursuant to the pilot rule. The average number of

days between filing and the arbitrator's initial injunctive relief

order was approximately 7.5 days. The majority of cases in which

injunctive relief was sought involved the transfer of associated

persons from one firm to another. In most but not all cases, the

associated person's former firm was the petitioner.

The Notice to Members sought comment on how the pilot injunctive

relief rule and expedited proceedings work and how they could be

improved, and identified more than twenty specific questions based on

previous comments received from users of the pilot rule. The comment

letters received in response, which are attached to the proposed rule

change as Exhibit 3, reflected a wide range of opinions about the

rule.\5\ While a few commenters advocated eliminating the rule

entirely, most expressed support for the availability of injunctive

relief in arbitration proceedings. One general concern regarding the

functioning of the rule was the length of time needed to obtain

injunctive relief under the rule. Most commenters also indicated that

the temporary relief available under the rule

[[Page 50615]]

should be subject to time limits, as are temporary restraining orders

and preliminary injunctions available in court. Most also agreed that

the current terminology used in the rule, which refers to Immediate and

Regular Injunctive Orders, should be changed to be consistent with the

terminology used in courts. With some dissenters, most also agreed that

arbitrators should have some authority to modify injunctive relief

granted by a court, at least once an expedited arbitration hearing on

the merits has commenced. The comments reflected less uniformity on

issues such as hearing procedures and forum-shopping.

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\5\ The comments contained in Exhibit 3 pertain to the pilot

injunctive relief rule and not to the proposed rule change.

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c. The Proposed Amendments. The principal objectives of the

proposed amendments are: (1) to simplify and expedite the injunctive

relief process in arbitration; (2) to set time limits on injunctive

relief issued pursuant to the rule; and (3) to clarify the rules

relating to obtaining a court-ordered temporary restraining order, and

the effect of such an order on the subsequent arbitration process.

i. Availability of Injunctive Relief in Arbitration.

Under the current rule, parties may seek either an Immediate

Injunctive Order or a Regular Injunctive Order in arbitration, which

are roughly parallel to temporary restraining orders and preliminary

injunctions available in court. The rule does not currently impose any

time limits on the orders issued, and does not specify what standard

should be applied in deciding applications for injunctive relief.

Commenters responding to Notice to Members 97-59 complained that the

terminology is confusing, that the lack of standards has created

uncertainty, and that the lack of time limits permits parties who

obtain relief to pressure the enjoined party to settle by delaying the

hearing on the merits.

Under the proposed amendments, the Regular Injunctive Order would

be abolished, and the Immediate Injunctive Order would be replaced by a

temporary restraining order, to track the terminology used in court.

Applications for temporary restraining orders would be heard by a

single arbitrator, who would be appointed within three days of the

filing of an application for relief. The rule would permit unlimited

challenges for cause to the arbitrator appointed to hear the request

for the temporary restraining order, but would prohibit peremptory

challenges.

Temporary restraining orders issued in arbitration would expire

after ten days, but could be extended by the single arbitrator for

additional ten-day periods until the commencement of a hearing on the

merits, which would be required to occur within 28 days of the original

filing of the Statement of Claim. A party who sought and was denied a

temporary restraining order in court would also be able to request an

expedited hearing under the rule.

Under the proposed amendments, the legal standards for obtaining a

temporary restraining order in arbitration would be changed to the

standards of the law of the state in which the events giving rise to

the application occurred. The pilot rule specified a legal standard in

part because the kind of injunctive relief available under the rule

differed from the kind of injunctive relief available in court.

Therefore, reference to state law standards in the pilot rule would not

have been practical. The proposed rule change would replace the kinds

of injunctive relief available under the pilot rule with temporary

restraining orders, which are available in court. Since state law

standards for granting temporary restraining orders are well-developed,

the rule can now reference state law standards and eliminate its own

forum standard.

The proposed rule would make clear that, within the time frames set

by the arbitrator, parties could file briefs, affidavits and other

evidence in connection with a request for a temporary restraining

order.

ii. Availability of Injunctive Relief in Court

One of the most controversial issues regarding the pilot rule has

been whether or not parties should be able to continue to seek a

temporary restraining order in court if the same relief is available in

arbitration. Some parties and commenters concerned about the ability to

obtain immediate relief have opposed the elimination of the court

option. Others have expressed concern that permitting parties to seek

relief in court that is also available in arbitration encourages forum-

shopping and undermines the arbitration process.

The proposed amendments relating to the availability and effect of

a court-ordered temporary restraining order are intended to balance

these concerns. The rule would preserve the ability of parties to seek

temporary restraining orders in court as an alternative to doing so in

arbitration, and would make clear that the availability of a temporary

restraining order remedy in arbitration is not grounds for denial of a

temporary restraining order request in court. However, parties who

sought and were denied a temporary restraining order in one forum would

be barred from seeking the same relief in the other forum.

The rule would also clarify that the filing of a claim by one party

in arbitration is not a bar to a party seeking a temporary restraining

order in court, and that an arbitrator would be prohibited from issuing

an order enjoining a party from seeking a court-ordered temporary

restraining order. However, when a claim had been filed in arbitration,

a party seeking a temporary restraining order in court would have to

file in court within five days of when the party knew or should have

known of the conduct or event giving rise to the request, and a party

would not be able to seek a temporary restraining order in court once a

hearing on the merits in arbitration has commenced.

Once a temporary restraining order is issued by a court, the rule

would require the Director of Arbitration, if requested by one or more

of the parties, to appoint a panel of three arbitrators to review the

order within ten days. The rule prohibits a party from requesting

extension of the court order beyond the initial ten-day period. If the

Director of Arbitration was unable to appoint a panel in that time, the

rule would permit the Director to appoint a single arbitrator to review

the order. The rule would prohibit a party from asking a court to

extend a temporary restraining order unless no panel or arbitrator has

been appointed to review the order before the temporary restraining

order expires.

Upon expiration of the court's order, the panel or arbitrator

appointed to review a court-ordered temporary restraining order could

issue or decline to issue a new order. A new order issued by the panel

or single arbitrator might be identical to the court's order, or might

vary in some or all respects. Such an order would be effective for ten

days, and could be extended for additional ten-day periods until a

hearing on the merits commenced. Although the panel or arbitrator may

issue a new order upon expiration of the court order, arbitrators do

not have the authority to extend, vacate or modify a court order.

As in the case of temporary restraining orders sought in

arbitration, once a temporary restraining order is issued by a court, a

hearing on the merits would be required to be held within 28 days of

the original filing of the Statement of Claim. A party who sought and

was denied a temporary restraining order in court could still request

an expedited hearing under the rule.

[[Page 50616]]

(2) Basis

NASD Regulation believes that the proposed rule change is

consistent with Section 15A(b)(6) of the Act,\6\ which requires, among

other things, that the Association's rules 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 NASD believes that the proposed rule will

serve the public interest by enhancing the satisfaction with the

arbitration process afforded by expeditious resolution of certain

disputes.

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

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B. Self-Regulatory Organization's Statement on Burden on Competition

NASD Regulation 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

NASD Regulation did not solicit comments with respect to the

proposed rule change. However, the proposed rule change is based in

part on written comments received in response to Notice to Members 97-

59. A copy of the Notice to Members and copies of the comment letters

received in response to the Notice were attached as exhibits to the

rule filing.

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 Association 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, including whether the proposal is

consistent with the Act. 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 File No. SR-NASD-98-49 and should be

submitted by October 13, 1998.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\7\

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\7\ 17 CFR 200.30-3(a)(12).

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Jonathan G. Katz,

Secretary.

[FR Doc. 98-25290 Filed 9-21-98; 8:45 am]

BILLING CODE 8010-01-M