Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to the Time Period for Filing Information Requests in Arbitration

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40954; File No. SR-NASD-98-91]

Self-Regulatory Organizations; Notice of Filing and Immediate

Effectiveness of Proposed Rule Change by the National Association of

Securities Dealers, Inc. Relating to the Time Period for Filing

Information Requests in Arbitration

January 19, 1999.

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

(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby

given that on December 8, 1998, the National Association of Securities

Dealers, Inc., through its wholly owned subsidiary, NASD Regulation,

Inc. (``NASD Regulation''), 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 NASD Regulation. NASD Regulation has designated the proposed rule

change as constituting a ``non-controversial'' rule change under

paragraph (e)(6) of Rule 19b-4 under the Exchange Act,\3\ which renders

the proposal effective upon receipt of this filing by the Commission.

The Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

---------------------------------------------------------------------------

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

\2\ 17 CFR 240.19b-4.

\3\ 17 CFR 240.19b-4(e)(6).

---------------------------------------------------------------------------

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

Substance of the Proposed Rule Change

NASD Regulation is proposing to amend Rule 10321 of the National

Association of Securities Dealers, Inc. (``NASD'' or ``Association''),

to modify the earliest date to file document and information requests

in arbitration proceedings from 20 business days to 45 calendar days

after service of the Statement of Claim or upon filing of the Answer,

whichever is earlier. Below is the text of the proposed rule change.

Proposed new language is in italics; proposed deletions are in

brackets.

* * * * *

RULES OF THE ASSOCIATION

* * * * *

10000. CODE OF ARBITRATION PROCEDURE

* * * * *

10321. General Provisions Governing Pre-Hearing Proceedings

(a) (No change)

(b) Document Production and Information Exchange

(1) Any party may serve a written request for information or

documents (``information request'') upon another party [twenty (20)

business] 45 calendar days or more after service of the Statement of

Claim by the Director of Arbitration or upon filing of the Answer,

whichever is earlier. The requesting party shall serve the information

request on all parties and file a copy with the Director of

Arbitration. The parties shall endeavor to resolve disputes regarding

an information request prior to serving any objection to the request.

Such efforts shall be set forth in the objection.

(2)-(4) (No change)

(c)-(e) (No change)

* * * * *

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

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, NASD Regulation included

statements concerning the purpose of and basis for the proposed rule

change and discussed any comments it received on the proposed rule

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

specified in Item IV below. NASD 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

The proposed rule change is intended to modify the earliest date to

file document and information requests in arbitration proceedings from

20 business days to 45 calendar days after service of the Statement of

Claim or upon filing of the Answer, whichever is earlier, to coincide

with the recently amended time period to file an Answer to the

Statement of Claim.

In a previous filing approved by the Commission \4\ and effective

on March 16, 1998, NASD Regulation enlarged the time to answer an

arbitration claim from 20 business days to 45 calendar days, and

eliminated extensions of time to answer except in extraordinary

circumstances. That change was proposed because requests for extensions

of time were common, generally because respondents needed additional

time to develop a complete answer to the claim. The extension of time

to 45 days was designed to ease the administrative burden on NASD

Regulation staff by eliminating the burden of processing and granting

routine extensions of time.

---------------------------------------------------------------------------

\4\ Exchange Act Rel. No. 39664 (February 13, 1998) (File No.

SR-NASD-98-07) 63 FR 8727 (February 20, 1998).

---------------------------------------------------------------------------

NASD Regulation has determined that a related change is necessary

to the rule on discovery in arbitration, Rule 10321, which currently

permits requests for documents and information to be made 20 business

days or more after service of the Statement of Claim by the Director of

Arbitration or upon filing of the Answer, whichever is earlier. The 20-

day period was originally intended to coincide with the time to answer

claims, in order to prevent the respondent from having to respond to a

discovery request before it had prepared its answer. Since the time to

answer has been extended to 45 days, however, Rule 10321 could require

a party to respond to a document request in 20 business days

(approximately a month), which would be over two weeks before the

party's answer was due. Therefore, to maintain the original purpose of

the discovery time period, NASD Regulation proposes that the time

period in Rule 10321 be extended to 45 calendar days as well.

(b) Statutory Basis

NASD Regulation believes that the proposed rule change is

consistent with the provisions of Section 15A(b)(6) of the Exchange

Act, which requires, among other things, that the Association's rules

must be designed to prevent fraudulent and manipulative acts and

practices, to promote just and equitable principles of trade, and, in

general, to protect investors and the public interest. The NASD

believes that the proposed rule change will protect investors and the

public interest by facilitating a more orderly discovery procedure for

all parties.

(B) Self-Regulatory Organization's Statement of 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 Exchange 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.

[[Page 3994]]

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

The proposed rule change has been filed by the Association as a

``non-controversial'' rule change under Rule 19b-4(e)(6) under the

Exchange Act.\5\ Consequently, because the foregoing proposed rule

change: (1) does not significantly affect the protection of investors

or the public interest; (2) does not impose any significant burden on

competition; and (3) does not become operative until January 11, 1999,

more than 30 days from December 8, 1998, the date on which it was

filed, and the NASD provided the Commission with written notice of its

intent to file the proposed rule change at least five days prior to the

filing date, it has become effective pursuant to Section 19(b)(3)(A) of

the Exchange Act and Rule 19b-4(e)(6) thereunder.

---------------------------------------------------------------------------

\5\ 17 CFR 240.19b-4(e)(6).

---------------------------------------------------------------------------

At any time within 60 days of this filing, the Commission may

summarily abrogate this proposal if it appears to the Commission that

such action is necessary or appropriate in the public interest, for the

protection of investors, or otherwise in furtherance of the purposes of

the Exchange Act.

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 Exchange Act. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW, 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 number SR-NASD-98-91 and

should be submitted by February 16, 1999.

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. 99-1699 Filed 1-25-99; 8:45 am]

BILLING CODE 8010-01-M