TO: All NASD Members
On September 7, 1984, the Securities and Exchange Commission ("Commission" or "SEC") approved amendments to the Association's Code of Arbitration Procedure. These rule changes will be effective on October 1, 1984. A summary of the major provisions and the text of the rule changes follows.
The amendments are intended to conform the provisions of the Association's Code of Arbitration Procedure to recent amendments to the uniform arbitration code (the "Uniform Code") which has been developed by the Securities Industry Conference on Arbitration ("SICA"). SICA is composed of representatives of the Association, nine other self-regulatory organizations, four public members, and the Securities Industry Association. The Uniform Code, as implemented by the various self-regulatory organizations, has established throughout the securities industry a uniform system of arbitration procedures.
MAJOR PROVISIONS
1. Jurisdiction: The amendment to the Code's time limitation provision would permit a court which has jurisdiction over a claim to direct that the claim be resolved by arbitration. Currently, if the claim is six years old or more, the Association and other self-regulatory organizations could not accept the matter for arbitration. The change will make the Code's time limitation co-extensive with various state statutes of limitations and permit all securities-related disputes which are eligible for a judicial disposition to be resolved by arbitration.
2. Fees: The amendment increases the upper dollar limit for Small Claim submissions by public customers from $2,500 to $5,000. This should help alleviate the strain on the Association's arbitration pool and is of particular importance in view of the continued, substantial increase in case filings in this dollar range.
In addition, the increases in certain arbitration fees are reasonable and reflect the results of inflation in the years since the Code's adoption.
3. Procedures: The amendments also describe the arbitrators' discretion to bar the presentation by the Respondent of certain facts and defenses not disclosed to the Claimant prior to hearing. This amendment should result in more complete answers filed by Respondents.
Other minor amendments expand the procedural rights afforded to all parties. The amendments provide that the Director of Arbitration may determine preliminarily whether multiple Claimants, Respondents and/or Third Party Respondents are to proceed in the same or separate arbitrations. Also, Claimants, Respondents, and Third Party Respondents will have the right to one peremptory challenge and unlimited challenges for cause. The Director of Arbitration will be given the discretion to extend the time period allowed for a party to challenge an arbitrator when necessary (e.g., when a party requires more time to investigate the background of an arbitrator prior to making a decision regarding the use of a peremptory challenge). Finally, the amendment will allow parties to amend pleadings prior to the appointment of an arbitration panel.
* * * *
Questions concerning the Notice may be directed to Deborah Masucci, Director of Arbitration, at telephone number (212) 839-6246, Dennis C. Hensley, Vice President and Deputy General Counsel, at telephone number (202) 728-8245, or Jean Ivey McNeill, Senior Attorney, at telephone number (202) 728-8286.
Very truly yours,
Frank J. Wilson
Executive Vice President and General Counsel
AMENDMENTS TO THE CODE OF ARBITRATION PROCEDURE
(New language is underlined, deletions are indicated by brackets)
Simplified Arbitration
Sec. 13. (a) Any dispute, claim or controversy, arising between a public customer(s) and an associated person or a member subject to arbitration under this Code involving a dollar amount not exceeding [ $2,500.00] $5,000.00, exclusive of attendant costs and interest, shall upon demand of the customer(s) or by written consent of the parties, be arbitrated as hereinafter provided.
(b) (No change)
(c) The Claimant shall pay the sum of $15.00 if the amount in controversy is $1,000 or less, $25.00 if the amount is more than $1,000.00 but $2,500 or less, or $100.00 if the amount in controversy is more than $2,500, but does not exceed $5,000 upon filing of the Submission Agreement. The final disposition of the sum shall be determined by the arbitrator.
(d) The Director of Arbitration shall endeavor to serve promptly, by mail or otherwise, on the Respondent(s) one (1) copy of the Submission Agreement and one (1) copy of the Statement of Claim. The Respondent(s) shall, within twenty (20) calendar days from receipt of service, file with the Director of Arbitration one (1) executed Submission Agreement and one (1) copy of Respondent's answer, together with supporting documents. The Answer shall designate all available defenses to the Claim and may set forth any related Counterclaim and/or related Third Party Claim the Respondent(s) may have against the Claimant or any other person. If the Respondent(s) has interposed a Third Party Claim, the Director of Arbitration shall endeavor to serve promptly by mail or otherwise a copy of same, together with a copy of the Submission Agreement on such Third Party who shall respond in the manner herein provided for response to the Claim. If the Respondent(s) files a related Counterclaim exceeding [2,500.00] $5,000, the arbitrator may refer the Claim, Counterclaim and/or Third Party Claim, if any, to a panel of three (3) or five (5) arbitrators in accordance with Section 19 of this Code, or he may dismiss the Counterclaim and/or Third Party Claim without prejudice to the Counterclaimant(s) and/or Third Party Claimant(s) pursuing the Counterclaim and/or Third Party Claim in a separate proceeding.
Time Limitation Upon Submission
Sec. 15. No dispute, claim, or controversy shall be eligible for submission to arbitration under this Code [in any instance ] where six (6) years have elapsed from the occurence or event giving rise to the act or dispute, claim or controversy. This section shall not extend applicable statutes of limitations, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction.
Tolling of Time Limitation(s) for the Institution of Legal Proceedings and Extension of Time Limitation(s) for Submission to Arbitration
Sec. 18. (a) Where permitted by applicable law, the time limitations which would otherwise run or accrue for the institution of legal proceedings shall be tolled where [all the parties shall have filed duly executed Submission Agreements upon the dispute, claim or controversy submitted to arbitration] a duly executed Submission Agreement is filed by the Claimant(s). The tolling shall continue for such period as the Association shall retain jurisdiction upon the matter submitted.
(b) The six (6) year time limitation upon submission to arbitration shall not apply when the parties have submitted the dispute, claim or controversy to a court of competent jurisdiction. The six (6) year time limitation shall not run for such period as the court shall retain jurisdiction upon the matter submitted.
Peremptory Challenge
Sec. 22. In any arbitration proceeding [ being heard by a panel consisting of more than one (l) arbitrator], each party shall have the right to one peremptory challenge. In arbitrations where there are multiple Claimants, Respondents and/or Third Party Respondents, the Claimants shall have one peremptory challenge, the Respondents shall have one peremptory challenge and the Third Party Respondents shall have one peremptory challenge, unless the Director of Arbitration determines that the interests of justice would best be served by awarding additional peremptory challenges. Unless extended by the Director of Arbitration, [A] a party wishing to exercise a peremptory challenge must do so by notifying the Director of Arbitration in writing within five (5) business days of notification of the identity of the persons named to the panel. There shall be unlimited challenges for cause.
Initiation of Proceedings
Sec. 25. Except as otherwise provided herein, an arbitration proceeding under this Code shall be instituted as follows:
Statement of Claim
(a) (No change)
Answer — Defenses, Counterclaims and/or Cross-Claims
(b)
(l) The Respondent(s) shall within twenty (20) business days from receipt of service file with the Director of Arbitration one (1) executed Submission Agreement and one (1) copy of the Respondent's(s') Answer. The Answer shall [designate all available defenses to the Statement of Claim] specify all available defenses and the relevant facts thereto that will be relied upon at hearing and may set forth any related Counterclaim the Respondent(s) may have against the Claimant and any Third Party Claim against any other party or person upon any existing dispute, claim or controversy subject to arbitration under this Code.
(2)
(i) A Respondent, Responding Claimant, Cross-Claimant or Third-Party Respondent who pleads only a general denial as an answer may, upon written objection by the adversary party before the hearing to the Director of Arbitration, in the discretion of the arbitrators, be barred from presenting any facts or defenses at the time of the hearing.
(ii) A Respondent, Responding Claimant, Cross-Claimant or Third-Party Respondent who fails to specify all available defenses and the relevant facts thereto may, upon objection by the adversary party, in the discretion of the arbitrators, be barred from presenting such facts or defenses not included in such party's answer at the hearing.
Note: The present subsections (2), (3), (4) hereunder will remain as presently in the Code, but will be renumbered (3), (4) and (5) respectively.
Joining and Consolidation — Multiple Parties
(c)
(1) (No change)
(2) For purposes of this subsection, the Director of Arbitration shall be authorized to determine preliminarily whether a claim is directly related to the matter in dispute and to join any other party to the dispute and to consolidate the matter for hearing and award purposes. In arbitrations where there are multiple Claimants, Respondents and/or Third Party Respondents, the Director of Arbitration shall be authorized to determine preliminarily whether such parties should proceed in the same or separate arbitrations.
(3) All final determinations with respect to joining [and], consolidation and multiple parties under this subsection shall be made by the arbitration panel.
Amendments
Sec. 39. [ No amendment to the pleadings shall be permitted after receipt of a responsive pleading except upon the consent of the arbitrators and upon such terms and conditions as they may direct. ]
(a) After the filing of any pleadings, if a party desires to file a new or different pleading, such change must be made in writing and filed with the director of Arbitration. The Director of Arbitration shall endeavor to serve promptly by mail or otherwise upon all other parties a copy of said change. The other parties may, within ten (10) business days from the receipt of service, file a response with the Director of Arbitration.
(b) After a panel has been appointed, no new or different pleading may be filed except for a responsive pleading as provided for in (a) above or with the panel's consent.
Schedule of Fees
Sec. 43. (a) At the time of filing a Submission Agreement, a Claimant shall deposit with the Association the amount indicated below unless such deposit is specifically waived by the Director of Arbitration.
|
Amount in Dispute
(Exclusive of interest and expenses) |
Deposit |
|
[ $2,500 or less] |
[ $50 ($15 for Simplified Arbitration, Section 13)] |
|
$1,000 or less |
$15 |
|
Above $1,000 but not exceeding $2,500 |
$25 |
|
Above $2,500 but [less than]
not exceeding $5,000 |
$100 |
|
Above $5,000 [ or more but less than]
but not exceeding $10,000 |
$200 |
|
Above $10,000 [ or more but less than]
but not exceeding $20,000 |
[$250]$300 |
|
Above $20,000 [ or more but less than]
but not exceeding $100,000 |
[$350] $500 |
|
Above $100,000[and over] |
[$550]$750 |
Where the amount in dispute is [ less than] $10,000 or less, no additional deposits shall be required despite the number of sessions. Where the amount in dispute is above $10,000 [or more] and multiple sessions are required, the arbitrators may require any of the parties to make additional deposits for each additional session. In no event shall the aggregate amount deposited per session exceed the amount of the initial deposit as set forth in the above schedule.
(b) The arbitrators, in their awards, may determine the amount chargeable to the parties as forum fees (fees) and shall determine by whom such fees shall be borne. Where the amount in dispute is [less than ]$10,000 or less, total fees in the parties shall not exceed the amount deposited. Where the amount in dispute is above $10,000 [or more] but [less than] does not exceed $20,000, the maximum fee shall be [$250] $300 per session. Where the amount in dispute is above $20,000[ or more] but [less than] does not exceed $100,000, the maximum fee shall be [$350 ]$500 per session. Where the amount in dispute is above $100,000 [or more], the maximum fee shall be[ $550] $750 per session. In no event shall the fees assessed by the arbitrators exceed[ $550] $750 per session. Amounts deposited by a party shall be applied against fees, if any. If the fees are not assessed against a party who had made a deposit, the deposit will be refunded.
(c) If the dispute, claim or controversy does not involve or disclose a money claim, the amount to be deposited by the Claimant shall be $100, or such amount as the Director of Arbitration or the panel of arbitrators may require, but shall not exceed[ $550] $750.
(d) (No change)
(e) (No change)
(f) The arbitrators may assess forum fees and Section 43 costs in any matter settled or withdrawn subsequent to the commencement of the first session.
