[Federal Register: October 20, 2006 (Volume 71, Number 203)]
[Notices]
[Page 62026-62029]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20oc06-100]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54607; File No. SR-NASD-2005-094]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1
Thereto Relating to Amendments to the Classification of Arbitrators
Pursuant To Rule 10308 of the NASD Code of Arbitration Procedure
October 16, 2006.
I. Introduction
On June 17, 2005, the National Association of Securities Dealers,
Inc. (``NASD'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend NASD Rule 10308 relating
to the classification of arbitrators as non-public or public.\3\ On
August 5, 2005, NASD filed amendment No. 1 to the proposed rule.\4\ The
proposed rule change, as amended, was published for comment in the
Federal Register on August 30, 2005,\5\ and the Commission received 65
comments on the proposal.\6\
[[Page 62027]]
The majority of commenters are lawyers that represent investors in
arbitrations. This order approves the proposed rule change as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ On September 6, 2006, the Commission approved similar
amendments to NYSE Rule 607 (SR-NYSE-2005-43) (the ``NYSE Rule
Change''), which also governs securities industry and public
arbitrators. The NYSE Rule Change will become effective on Dec. 13,
2006, which is 90 days after the Commission's approval order was
published in the Federal Register. See Exchange Act Release No.
54407 (Sept. 6, 2006), 71 FR 54102 (Sept. 13, 2006).
\4\ The amendment clarified the rule's text and purpose, and
revised the effective date of the rule. NASD will announce the
effective date of the proposed rule change in a Notice to Members to
be published no later than 30 days following Commission approval.
The effective date will be no later than 60 days following
publication of the Notice to Members announcing Commission approval.
\5\ See Exchange Act Release No. 52332 (Aug. 24, 2005), 70 FR
51395 (Aug. 30, 2005) (the ``Notice'').
\6\ Richard H. Levenstein, Kramer, Sopko & Levenstein, P.A.,
Feb. 1, 2006 (``Levenstein''); Les Greenberg, Law Offices of Les
Greenberg, Oct. 9 2005 (``Greenberg''); Bradford D. Kaufman,
Greenberg Traurig, Oct. 7, 2005 (``Kaufman''); Jonathan L. Hochman,
Schindler Cohen & Hochman LLP, Sept. 30, 2005 (``Hochman'');
Jonathan W. Evans, Jonathan W. Evans and Associates, Sept. 21, 2005
(``Evans''); Scot Bernstein, Sept. 21, 2005 (``Bernstein''); John W.
Barnes, Sept. 21, 2005 (``Barnes''); L. Jerome Stanley, Sept. 20,
2005 (``Stanley''); Dale Ledbetter, Ardorno & Yoss, Sept. 20, 2005
(``Ledbetter''); Randall R. Heiner, Sept. 20, 2005 (``Heiner''); Sam
T. Brannan, Page Perry, LLC, Sept. 20, 2005 (``Brannan''); Jason R.
Doss, Page Perry, LLC, Sept. 20, 2005 (``Doss''); William B.
Langenbacher, Sept. 20, 2005 (``Langenbacher''); Steve Parker, Page
Perry, LLC, Sept. 20, 2005 (``Parker''); Jeffrey D. Pederson, Sept.
20, 2005 (``Pederson''); Martin Seiler, Sept. 20, 2005 (``Seiler'');
Brian Greenman, Sept. 20, 2005 (``Greenman''); Teresa M. Gillis,
Shustak Jalil & Heller, Sept. 20, 2005 (``Gillis''); William F.
Davis, Sept. 20, 2005 (``Davis''); David Harrison, Spivak &
Harrison, Sept. 20, 2005 (``Harrison''); Susan N. Perkins, Sept. 20,
2005 (``Perkins''); Mitchell S. Ostwald, Law Offices of Mitchell S.
Ostwald, Sept. 20, 2005 (``Ostwald''); Scot D. Bernstein, Law
Offices of Scot D. Bernstein, Sept. 20, 2005 (``Bernstein'');
William F. Galvin, Commonwealth of Massachusetts, Sept. 20, 2005
(``Galvin''); William P. Torngren, Law Offices of William P.
Torngren, Sept. 20, 2005 (``Torngren''); Charles C. Mihalek and
Steven M. McCauley, Charles C. Mihalek, P.S.C., Sept. 20, 2005
(``Mihalek''); Timothy A. Canning, Sept. 20, 2005 (``Canning'');
Laurance M. Landsman, Block & Landsman, Sept. 20, 2005
(``Landsman''); Steven J. Gard, Gard Smiley Bishop & Dovin LLP,
Sept. 20, 2005 (``Gard''); Scott L. Silver, Blum & Silver, P.A.,
Sept. 20, 2005 (``Silver''); G. Mark Brewer, Brewer Carlson, LLP,
Sept. 20, 2005 (``Brewer''); John D. Hudson, Sept. 20, 2005
(``Hudson''); Joel A. Goodman, Kalju Nekvasil, Steven Krosschell,
and Jennifer Newsom, Goodman & Nekvasil, P.A., Sept. 20, 2005
(``Goodman''); Jill I. Gross, Barbara Black, and Per Jebsen, Pace
Investor Rights Project, Sept. 20, 2005 (``Gross''); Royal B. Lea,
III, Bingham & Lea, and Randall A. Pulman, Pulman, Bresnahan &
Pullen, LLP, Sept. 19, 2005 (``Lea''); Richard P. Ryder, Securities
Arbitration Commentator, Inc., Sept. 19, 2005 (``Ryder''); Alan C.
Friedberg, Pendelton, Friedberg, Wilson & Hennessey, P.C., Sept. 19,
2005 (``Friedberg''); Robert K. Savage, Savage Law Firm, P.A., Sept.
19, 2005 (``Savage''); Michael Chasen, Sept. 19, 2005 (``Chasen'');
Adam S. Doner, Sept. 19, 2005 (``Doner''); Jan Graham, Graham Law
Offices, Sept. 19, 2005 (``Graham''); Frederick W. Rosenberg, Sept.
19, 2005 (``Rosenberg''); Debra G. Speyer, Law Offices of Debra G.
Speyer, Sept. 19, 2005 (``Speyer''); Andrew Stoltmann, Stoltmann Law
Offices, P.C., Sept. 19, 2005 (``Stoltmann''); Al Van Kampen, Rohde
& Van Kampen PLLC, Sept. 19, 2005 (``Van Kampen''); Elliott
Goldstein, Sept. 19, 2005 (``Goldstein''); W. Scott Greco, Greco &
Greco, P.C., Sept. 18, 2005 (``Greco''); Barry D. Estell, Sept. 18,
2005 (``Estell''); Charles W. Austin, Jr., C. W. Austin, Jr. P.C.,
Sept. 17, 2005 (``Austin''); Robert C. Port, Cohen Goldstein Port &
Gottlieb, LLP, Sept. 16, 2005 (``Port''); Kurt Arbuckle, Sept. 16,
2005 (``Arbuckle''); Bill Fynes, Sept. 15, 2005 (``Fynes''); Jeffrey
A. Feldman, Sept. 15, 2005 (``Feldman''); Jay H. Salamon, Hermann,
Cahn & Schneider LLP, Sept. 14, 2005 (``Salamon''); Steven B.
Caruso, Maddox Hargett & Caruso, P.C., Sept. 14, 2005 (``Caruso'');
Jorge A. Lopez, Law Offices of Jorge A. Lopez, P.A., Sept. 14, 2005
(``Lopez''); Michael J. Willner, Miller Faucher And Cafferty LLP,
Sept. 13, 2005 (``Willner''); Jeffrey S. Kruske, Law Offices of
Jeffrey S. Kruske, P.A., Sept. 13, 2005 (``Kruske''); Richard M.
Layne, Layne Lewis, LLP, Sept. 13, 2005 (``Layne''); John Miller,
Law Offices of John J. Miller, P.C., Sept. 13, 2005 (``Miller''),
Herb Pounds, Sept. 13, 2005 (``Pounds''); Laurence S. Schultz,
Driggers, Schultz & Herbst, Sept. 12, 2005 (``Schultz''); Rosemary
J. Shockman, Public Investors Arbitration Bar Association, Sept. 9,
2005 (``PIABA''); Seth E. Lipner, Baruch College and Deutsch &
Lipner, Sept. 8, 2005 (``Lipner''); and Scott I. Batterman, Clay
Chapman Crumpton Iwamura and Pulice, Aug. 30, 2005 (``Batterman'').
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II. Description of the Proposal
The purpose of the proposed rule change is to amend the arbitrator
classification criteria in Rule 10308 of the NASD Code of Arbitration
Procedure (``Code'') to ensure that individuals with significant ties
to the securities industry may not serve as public arbitrators in NASD
arbitrations.
The Code classifies arbitrators as public or non-public. When
investors have a dispute with member firms or associated persons in
NASD arbitration that involves claims of no more than $50,000, they are
entitled to have their cases heard by a panel consisting of one public
arbitrator or, if the dispute involves a claim of more than $50,000, a
panel consisting of two public arbitrators and one non-public
arbitrator.\7\
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\7\ NASD Rule 10308(b)(1). The panel composition for intra-
industry disputes (not involving any parties who are investors) is
governed by NASD Rule 10202. Depending on the nature of the dispute,
intra-industry panels may consist of all public arbitrators, all
non-public arbitrators, or a majority of public arbitrators. The
arbitrator classification provisions of NASD Rule 10308 apply to all
such panels.
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Under current NASD Rule 10308(a)(4), a person is classified as a
non-public arbitrator if he or she:
(A) Is, or within the past 5 years, was:
(i) Associated with a broker or a dealer (including a government
securities broker or dealer or a municipal securities dealer);
(ii) Registered under the Commodity Exchange Act;
(iii) A member of a commodities exchange or a registered futures
association; or
(iv) Associated with a person or firm registered under the
Commodity Exchange Act;
(B) Is retired from, or spent a substantial part of a career,
engaging in any of the business activities listed in subparagraph
(4)(A);
(C) Is an attorney, accountant, or other professional who has
devoted 20 percent or more of his or her professional work, in the last
two years, to clients who are engaged in any of the business activities
listed in subparagraph (4)(A); or
(D) Is an employee of a bank or other financial institution and
effects transactions in securities, including government or municipal
securities, and commodities futures or options or supervises or
monitors the compliance with the securities and commodities laws of
employees who engage in such activities.
Current NASD Rule 10308(a)(5) sets forth the criteria for public
arbitrators. In particular, a person is allowed to serve as a public
arbitrator if he or she is not engaged in the conduct described in
paragraphs (A) through (D) of NASD Rule 10308(a)(4), was not engaged in
that conduct for 20 or more years, is not an investment adviser, and is
not ``an attorney, accountant, or other professional whose firm derived
10 percent or more of its annual revenue in the past 2 years from any
persons or entities listed in paragraph (a)(4)(A).'' \8\ The current
rule also excludes the spouse or an immediate family member of a person
engaged in the conduct described in paragraphs (A) through (D) of NASD
Rule 10308(a)(4) from serving as a public arbitrator.\9\
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\8\ NASD Rule 10308(a)(5)(A)(i)-(iv).
\9\ NASD Rule 10308(a)(5)(A)(v).
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In order to ensure that individuals with significant ties to the
securities industry may not serve as public arbitrators in NASD
arbitrations, NASD proposed to amend the definition of public
arbitrator to exclude individuals who work for, or are officers or
directors of, an entity that controls, is controlled by, or is under
common control with a partnership, corporation, or other organization
that is engaged in the securities business.\10\ The amendment also
applies to individuals who have a spouse or immediate family member who
works for, or is an officer or director of, an entity that is in such a
control relationship with a partnership, corporation, or other
organization that is engaged in the securities business, such as a
broker-dealer. Under the current rule, such individuals may be
considered public arbitrators. For example, a person who works for a
real estate firm that is under common control with, and perhaps shares
the same corporate name of, a broker-dealer may be classified as a
public arbitrator under current rules. Because investors may view such
an arbitrator as not truly ``public,'' NASD proposed to revise the
definition of public arbitrator as described above.
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\10\ For purposes of this rule, the term ``control'' has the
same meaning that it has for purposes of Form BD, which broker-
dealers use to register with NASD and to make periodic updates.
Specifically, control is defined as:
The power, directly or indirectly, to direct the management or
policies of a company, whether through ownership of securities, by
contract, or otherwise. Any person that (i) is a director, general
partner or officer exercising executive responsibility (or having
similar status or functions); (ii) directly or indirectly has the
right to vote 25% or more of a class of a voting security or has the
power to sell or direct the sale of 25% or more of a class of voting
securities; or (iii) in the case of a partnership, has the right to
receive upon dissolution, or has contributed, 25% or more of the
capital, is presumed to control that company.
See Uniform Application for Broker-Dealer Registration (Form
BD).
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In addition, NASD proposed to revise the definition of non-public
arbitrator to clarify that persons who are registered with a broker-
dealer may not be classified as public arbitrators. Under current
rules, arbitrators who are associated with a broker or dealer are
considered non-public. In the financial services industry, it is not
uncommon for a person to be employed by one company (such as a bank or
insurance company) and to be registered to sell securities through
another company (such as an affiliated broker-dealer). NASD believes
that there may be some uncertainty among arbitrators who work for
entities in a control relationship with a broker-dealer as to whether
they are associated with a broker-dealer for purposes of NASD Rule
10308, even though they are registered with the broker-dealer. Because
the definition of ``person associated with a member'' in the NASD By-
Laws includes persons who are registered with a broker-dealer,
regardless of their status as employees, such persons are considered
non-public arbitrators. Therefore, NASD proposes to amend the
definition of non-public arbitrator to specifically include anyone
registered with a broker-dealer.\11\
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\11\ For purposes of NASD Rule 10308(a)(4)(A)(i), the term
``including'' is expanding or illustrative, not exclusive or
limiting. The use of the term ``including but not limited to'' in
NASD Rule 10321(d) of the Code is not intended to create a negative
implication regarding the use of ``including'' without the term
``but not limited to'' in NASD Rule 10308(a)(4)(A)(i) or other
provisions of the Code.
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[[Page 62028]]
III. Summary of Comments
The Commission received 65 comments on the proposal.\12\ Several
commenters believed that the changes proposed were laudatory.\13\ Many
viewed the proposed amendments as insufficient to address what they
considered to be an arbitration process that is unfair to investors.
Their concerns generally centered in three areas: (1) The inclusion of
any non-public arbitrators on arbitration panels; (2) the criteria for
qualifying as a non-public or public arbitrator; and (3) the desire to
harmonize NASD and NYSE rules on this issue.\14\
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\12\ See footnote 6.
\13\ See, e.g., Barnes, Chasen, Gross, Kaufman, Lipner, PIABA,
Pounds, and Rosenberg.
\14\ Many of these comments also applied to the NYSE Rule Change
and were also addressed by the NYSE. See Letter from Mary Yeager,
Assistant Secretary, NYSE, to Katherine A. England, Assistant
Director, SEC, dated June 5, 2006, available at: http://www.sec.gov/rules/sro/nyse/nyse200543/myeager060506.pdf
.
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Inclusion of Non-Public Arbitrators
The majority of commenters expressed the view that the mandatory
inclusion of arbitrators who are involved in the securities industry on
arbitration panels creates an unfair burden for investors seeking
redress, and stated that arbitration panels should be comprised only of
individuals with no ties to the securities industry.\15\ A number of
commenters maintained that the mandatory inclusion of non-public
arbitrators creates a perception that the process is unfair and biased
against investors,\16\ and some suggested eliminating the non-public
arbitrator.\17\
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\15\ See, e.g., Arbuckle, Austin, Barnes, Bernstein, Brewer,
Canning, Caruso, Chasen, Davis, Doner, Doss, Estell, Evans, Feldman,
Friedberg, Fynes, Gard, Gillis, Goldstein, Goodman, Graham, Greco,
Greenman, Harrison, Heiner, Hudson, Kampen, Kruske, Landsman,
Langenbacher, Layne, Lea, Ledbetter, Levenstein, Lipner, Lopez,
Mihalek, Miller, Ostwald, Parker, Pederson, Perkins, PIABA, Port,
Pounds, Salamon, Savage, Schultz, Seiler, Silver, Stoltmann,
Torngren, and Willner.
\16\ See, e.g., Galvin, Gillis, Greco, Greenberg, Harrison,
Heiner, Lopez, Salamon, Torngren, and Willner.
\17\ See, e.g., Davis, Harrison, Ostwald, and Torngren.
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Two commenters stated that any required securities industry
expertise should come from expert testimony, thereby negating the need
for a non-public arbitrator on a panel.\18\ Another commenter opined
that non-public arbitrators face pressure from their firms to prevent
or to reduce damage awards against the securities industry.\19\ One
commenter stated that overturning the factual findings of an
arbitration panel on appeal is significantly more difficult than
overturning the factual findings of a jury, and thus it is critical to
establish the objectivity of panel members by removing the non-public
arbitrator.\20\ Another commenter stated that arbitration should be
voluntary because, in his view, non-public arbitrators are inherently
biased.\21\
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\18\ Brannan and Lopez.
\19\ Feldman.
\20\ Pederson.
\21\ Mihalek.
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Criteria for Non-Public and Public Arbitrators
Several commenters also stated that the proposed rule change would
neither adequately preclude persons with ties, either directly or
through their firms, to the securities industry from meeting the
definition of public arbitrator, nor would it thoroughly include such
people within the definition of non-public arbitrator.\22\ In
particular, commenters criticized two existing provisions in the
current Rule. First, they commented that current NASD Rule
10308(a)(4)(C) defines a non-public arbitrator to include any attorney,
accountant, or other professional who has devoted 20 percent or more of
his or her professional work, in the last two years, to brokerage or
commodity firms or their associated persons. Second, they noted that
current NASD Rule 10308(a)(5)(A)(iv) provides that an attorney,
accountant, or other professional whose firm derived 10 percent or more
of its annual revenue in the past two years from brokerage or commodity
firms or their associated persons is precluded from being a public
arbitrator.
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\22\ See, e.g., Caruso, Evans, Galvin, Lipner, Lopez, and PIABA.
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One commenter stated that the definition of non-public arbitrator
should be amended to remove the 20 percent threshold and instead
include all attorneys, accountants or other professionals who have
devoted ``any'' work to the securities industry.\23\ Another opined
that both the 20 percent and 10 percent limitations are too liberal and
they fail to address the conflicts these professionals are subject
to.\24\ In this commenter's view, public arbitrators should have no
role in representing securities or commodities firms.
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\23\ Caruso. The commenter noted that the preclusion should
apply to individuals that have represented clients in the securities
industry for the last 5 years. NASD Rule 10308(a)(4)(C) currently
applies only to activities in the last two years.
\24\ Galvin.
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One commenter stated that the 10 percent threshold ``is arbitrary
and has no practical or legal significance.'' \25\ The commenter stated
that large law firms may represent securities industry clients that
generate millions of dollars in fees, but still may not exceed 10
percent of the firm's revenues. It further stated that ``an attorney
who represents industry clients which comprise less than 10 percent of
the firm's annual revenue in the past two years, has the same
obligation, commitment and duty of loyalty to the client as does the
attorney with clients who equal or exceed the 10 percent limit.'' \26\
Another commenter stated that ``an attorney whose firm represents any
securities industry clients is inescapably subject to the securities
industry influence regardless of the percentage of industry business.''
\27\ This commenter remarked that even firms with a small percentage of
securities industry business would like to have more.
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\25\ PIABA.
\26\ Id.
\27\ Bernstein.
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Some commenters recommended eliminating the 10 percent threshold
and, as a result, excluding from the definition of public arbitrator
all attorneys, accountants or other professionals whose firms have
derived any revenue from the securities industry in the last two
years.\28\ Two commenters opined that, at a minimum, NASD should remove
all defense lawyers who represent the securities industry from the pool
of public arbitrators.\29\
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\28\ Evans, Bernstein, PIABA, and Schultz.
\29\ Feldman and Lipner.
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Harmonizing NYSE and NASD Rules
One commenter expressed concern that the proposed rule change would
``differ significantly'' from the Uniform Code of Arbitration (``UCA'')
classification rule, and stated that NASD's proposed rule change and
the NYSE Rule Change should have been ``brought to the Commission with
the same text after being vetted by SICA'' (the Securities Industry
Conference on Arbitration).\30\ In this commenter's view, the
Commission should compel NASD and the NYSE to develop ``identical
solutions'' to this issue.\31\
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\30\ Ryder.
\31\ Id. In particular, this commenter highlighted the
differences in relatives who would be considered an ``immediate
family member'' under each rule. The NASD proposal would exclude
immediate family members of all control-related parties from serving
as public arbitrators, while the NYSE Rule Change excluded only
immediate family members of associated persons. The NASD proposal
also would include step-relatives, while the NYSE Rule Change did
not. Finally, the NASD proposal does not include in-laws within the
definition of control-related parties, while the NYSE Rule Change
did not.
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[[Page 62029]]
IV. NASD Response to Comments
As a preliminary matter, NASD stated that suggestions that non-
public arbitrators should be eliminated from arbitration panels were
beyond the scope of the rule filing, which applies to the
classification of arbitrators and not the composition of arbitration
panels.\32\
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\32\ See letter from John D. Nachmann, Counsel, NASD, to Lourdes
Gonzalez, Assistant Chief Counsel--Sales Practices, SEC, dated Aug.
23, 2006, available at: http://www.sec.gov/rules/sro/nasd/nasd2005094/nasd2005094-65.pdf
.
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NASD also stated that the current definitions of non-public
arbitrator and public arbitrator, in conjunction with the proposed rule
change, will properly exclude individuals with significant ties to the
securities industry from being classified as public arbitrators.\33\ It
stressed that the proposed rule change eliminates from the definition
of public arbitrator both persons with ``actual bias'' and those
``perceived as being biased.'' NASD noted that its rules already
prohibit professionals from serving as public arbitrators if they have
devoted 20 percent or more of their work in the last two years to
securities industry clients. It also stated that it has taken the
additional step in the current rule to exclude from the definition of
public arbitrator professionals whose firm derived 10 percent or more
of its annual revenue in the past two years from securities industry
clients.\34\
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\33\ Id.
\34\ Id. NASD noted that its rules already prohibit the
following individuals from serving as public arbitrators: (1) Anyone
associated with securities industry during the past five years, (2)
anyone who has spent 20 or more years in the securities industry,
and (3) anyone who is the spouse or immediate family member of a
person who is associated with the securities industry. NASD Rules
10308(a)(4)-(5).
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NASD further commented that it is not necessary for its rules with
respect to the classification of arbitrators to be identical to those
of the NYSE, and noted existing differences, such as the 10 percent
threshold for certain professionals, between its rules and the NYSE
rule.\35\ Regarding the proposed amendment to prohibit certain family
members or relatives of certain family members who work for a
controlled entity from serving as public arbitrators, NASD stated that
it drafted this proposal to ensure that individuals with significant
ties to the securities industry do not serve as public arbitrators.\36\
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\35\ Similar to the current NASD Rule 10308(a)(4)(C), NYSE Rule
607(A)(2)(iv) defines an industry arbitrator to include any
attorney, accountant or other professional who has devoted 20
percent or more of his or her work to securities industry clients
within the last two years.
\36\ Id.
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V. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as amended, is consistent with the provisions of Section
15A(b)(6) \37\ of the Act, which require, among other things, NASD's
rules to 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.\38\
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\37\ 15 U.S.C. 78o-3(b)(6).
\38\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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The Commission believes that the proposed rule change will promote
the public interest by limiting certain people who have ties to the
securities industry from serving as public arbitrators. In particular,
by expanding the list of entities controlled by companies engaged in
the securities business, the rule will further limit the industry ties
the public arbitrator may have. The inclusion of immediate family
members within the list of controlled parties who may not be public
arbitrators should have a similar result.\39\ In addition, reminding
persons registered with broker-dealers that they are associated persons
of a broker-dealer should further assist in the correct classification
of these persons as non-public arbitrators.\40\
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\39\ Section 19(b)(2) of the Act requires the Commission to
approve a proposed rule change if it finds that the proposed rule
change is consistent with the requirements of the Act, and the
applicable rules and regulations thereunder. This standard does not
require NASD rules to be identical to rules adopted by the NYSE or
by SICA.
\40\ The Commission notes that persons employed by a broker-
dealer (other than in a clerical or ministerial capacity) are
associated persons of a broker-dealer as defined in Section 3(a)(18)
of the Act.
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The Commission appreciates the comments suggesting the elimination
of non-public arbitrators, and the further restriction on persons who
have any ties to the securities industry from serving as public
arbitrators. While these comments are beyond the scope of this rule
filing, they raise important questions regarding the arbitration
process. We understand that SICA is actively considering proposals from
its membership regarding these issues. We note that NASD has stated
that it will review any rule regarding panel composition that SICA
adopts to the UCA, and that it is considering further amendments to the
definitions of public arbitrator and non-public arbitrator.\41\
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\41\ Telephone conversation between John D. Nachmann, Counsel,
NASD, and Michael Hershaft, Special Counsel, SEC (Oct. 3, 2006).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\42\ that the proposed rule change, as amended (SR-NASD-2005-094), be,
and hereby is, approved.
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\42\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-17563 Filed 10-19-06; 8:45 am]
BILLING CODE 8011-01-P