Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by National Association of Securities Dealers, Inc, Relating to Extension of Effectiveness of Pilot Injunctive Relief Rule

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40846; File No. SR-NASD-98-97]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval of Proposed Rule Change by National

Association of Securities Dealers, Inc, Relating to Extension of

Effectiveness of Pilot Injunctive Relief Rule

December 28, 1998.

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

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice of hereby given that

on December 22, 1998, the National Association of Securities Dealers,

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

Exchange Commission (``Commission'') the proposed rule change as

described in Items I and II below, which Items have been prepared by

the NASD Regulation, Inc. (``NASD Regulation''). The Commission is

publishing this notice to solicit comments on the proposed rule change

from interested persons. For the reasons discussed below, the

Commission is granting accelerated approval of the proposed rule

change.

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

\2\ 17 CFR 240.19b-4.

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

Substance of the Proposed Rule Change

The NASD Regulation is proposing to amend Rule 10335 of the Code of

Arbitration (``Code'') of the NASD to extend the pilot injunctive

relief rule for six months. Below is the text of the proposed rule

change. Proposed new language is in italics; proposed deletions are in

brackets.

10335. Injunctions

* * *

(i) Effective Date

This Rule shall apply to arbitration claims filed on after January

3, 1996. Except as otherwise proved in this Rule, the remaining

provisions of the Code shall apply to proceedings instituted under this

Rule This Rule shall expire on [January 3, 1999] July 3, 1999, unless

extended by the Association's 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 Regulation included

statement 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 III below. The 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

(a) Purpose

The NASD's injunctive relief rule, Rule 10335 of the Code, provides

a procedure for obtaining injunctive relief in arbitration and for

expediting proceedings for injunctive relief in intra-industry

disputes. NASD Rule 10335 took effect on January 3, 1996, for a one-

year pilot period.\3\ The initial pilot period was subsequently

extended twice by the Commission to permit the Regulation's Office of

Dispute Resolution to gain additional experience with the rule before

determining whether the rule should be made permanent, the pilot period

should be extended, or the rule should be permitted to terminate by its

terms.\4\ In July 1998, the NASD filed a proposed rule change that

would amend Rule 10335 and make it a permanent part of the Code.\5\ The

NASD also sought, and the Commission approved, a six-month extension of

the pilot rule to provide time for the Commission to take action with

respect to the proposed rule change.\6\ The rule is currently due to

expire on January 3, 1999.

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\3\ Securities Exchange Act Release No. 36145 (August 23, 1995),

60 FR 45200 (August 30, 1995).

\4\ Securities Exchange Act Release Nos. 38069 (December 20,

1996), 61 FR 68806 (December 30, 1996), and 39458 (December 17,

1997), 62 FR 67423 (December 24, 1997).

\5\ Securities Exchange Act Release No. 40441 (September 15,

1998), 63 FR 50611 (September 22, 1998).

\6\ Securities Exchange Act Release No. 40124 (June 24, 1998),

63 FR 36282 (July 2, 1998).

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The proposed amendments to Rule 10335 were published for comment,

and the NASD filed an amendment to the proposed rule change in response

to those comments in December 1998. The Commission has received

additional comments regarding the proposed rule change since that

amendment was filed. The purpose of the requested six-month extension

of the pilot rule is to provide the NASD with time to consider and

respond to the additional comments.

(b) Statutory Basis

The NASD Regulation believes that the proposed rule change is

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

current pilot rule serves the public interest by enhancing the

satisfaction with the arbitration process afforded by expeditious

resolution of certain disputes, and that it is in the interest of

members that the effectiveness of the rule remains uninterrupted

pending Commission action on the permanent rule filing.

(B) Self-Regulatory Organization's Statement on Burden on Competition

The 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

Written comments were neither solicited nor received.

[[Page 549]]

III. Solicitation of Comments

Interested persons are invited to submit written data, views, and

arguments concerning the foregoing, including whether the proposed rule

change is consistent with the Act. 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 provision

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-98-97 and

should be submitted by January 26, 1999.

IV. Commission Findings and Order Granting Accelerated Approval of

Proposed Rule Change

The NASD Regulation has requested that the Commission find good

cause pursuant to Section 19(b)(2) of the Act \7\ for approving the

proposed rule change prior to the 30th day after publication in the

Federal Register. The Commission finds that the proposed rule change is

consistent with the requirements of the Act and the rules and

regulations thereunder applicable to a national securities association

and, in particular, the requirements of Section 15A(b)(6) of the

Act.\8\ Rule 10335 is intended to provide a pilot system within the

NASD arbitration forum to process requests for temporary injunctive

relief. Rule 10335 is intended principally to facilitate the

disposition of employment disputes, and related disputes, concerning

members who file for injunctive relief to prevent registered

representatives from transferring their client accounts to their new

firms. The Commission expects that during the pilot's extension the

NASD Regulation will consider and respond to the comment letters

regarding the proposed rule change to permanently add Rule 10335 to the

Code.\9\

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\7\ 15 U.S.C. 78s(b)(2).

\8\ 15 U.S.C. 78o(b)(6).

\9\ See supra, note 6.

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The Commission finds good cause for approving the proposed rule

change prior to the thirtieth day after the date of publication of

notice of filing thereof in the Federal Register. The Commission

believes that accelerated approval of the proposal is appropriate

because members will continue to have the benefit of injunctive relief

in arbitration without interruption. The Commission is extending the

pilot for six months. During that time NASD Regulation will review and

respond to comments regarding the proposed rule change to amend and

make Rule 10335 a permanent part of the Code. The Commission believes,

therefore, that granting accelerated approval of the proposed rule

change is consistent with Section 15A of the Act.\10\

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\10\ 15 U.S.C. 78o-3.

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

Act,\11\ that the proposed rule change be, and hereby is, approved on

an accelerated basis for a six month pilot basis through July 3, 1999.

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\11\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\12\

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

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 99-74 Filed 1-4-99; 8:45 am]

BILLING CODE 8010-01-M