Amendments to Code of Arbitration Procedure

*These are suggested departments only. Others may be appropriate for your firm.

EXECUTIVE SUMMARY

The Securities and Exchange Commission (SEC) has approved amendments to Part III, Sections 13, 30, 43, and 44 of the NASD Code of Arbitration Procedure that are intended to discourage successive adjournments of arbitration hearings and that modify the procedures and schedules under which fees are assessed for the use of NASD arbitration facilities. The new fee and deposit schedules will be applied in all cases filed on or after June 18, 1990, as well as in all cases where a notice of prehearing conference or notice of hearing is issued on or after June 18, 1990. The new fee and deposit schedules will not be applied to cases currently in process where a notice of prehearing conference or a notice of hearing dated prior to June 18, 1990, has been issued. In order to encourage settlement discussions well in advance of hearings or prehearing conferences, the NASD intends to apply the provisions of new sections 43(f) and 44(1) to all applicable cases whether currently pending or newly filed.

The text of the amendments follows this notice.

BACKGROUND AND EXPLANATION

On September 19, 1989, following favorable recommendation by the NASD's National Arbitration Committee, the Association's Board of Governors authorized the filing of amendments to the Association's Code of Arbitration Procedure ("Code") that would have increased arbitration fees under the pre-existing administrative framework set forth in the Code. While the Association filed, these amendments with the SEC on October 12, 1989, the NASD withdrew the amendments at the request of the SEC staff on October 17, 1989, and began considering an alternative administrative framework for the assessment of fees in NASD arbitration proceedings.

The NASD received SEC staff comment dated March 8, 1990, and there was also substantial progress toward the development of a proposed uniform rule increasing fees and incorporating the alternative administrative framework for the assessment of fees in arbitration proceedings involving customers by a Drafting Subcommittee of the Securities Industry Conference on Arbitration. Following that, the NASD filed with the SEC amendments to Sections 13, 30, 43, and 44 of the NASD Code of Arbitration Procedure. Following the solicitation of public comment (55 Federal Register 15048, April 20, 1990), the SEC approved the Association's amendments on June 1, 1990 (55 Federal Register 23493, June 8, 1990). In general, the proposed rule changes are intended to discourage successive adjournments of arbitration hearings and to implement revised procedures and schedules for the assessment of fees in arbitrations brought by or against customers as well as in intraindustry arbitrations.

An amendment to Section 30 of the Code is expected to reduce delays by discouraging frivolous requests for adjournments in the arbitration process. The amendment raises the adjournment fee assessed following the grant of a first request for adjournment from $100 to an amount equal to the initial hearing session deposit required pursuant to the new fee schedules set forth in Sections 43 and 44 of the Code. The adjournment fee for second and subsequent adjournments requested by the same party will be twice the initial hearing session deposit, but such fee may not exceed $1,000. In the event that a third request for adjournment is received to which all parties have consented, the arbitrators will be empowered to dismiss the arbitration without prejudice to the claimant's filing of a new arbitration action.

In amending Sections 13, 43, and 44 of the Code, the NASD has adopted a revised administrative framework for the assessment of fees based on the establishment of a nonrefundable filing fee plus forum fees assessable based on the number of hearing sessions held, in amounts varying in accordance with the amount in dispute. The non-refundable filing fee, which is intended to recoup certain fixed administrative costs related to each filing, is distinguishable from the hearing session deposit, which is intended to relate to hearing costs, not the administrative costs connected with the processing of filings. These filing fees, which are analogous to court filing fees, are intended to offset some of the NASD's costs of administration, at least to a limited degree, even when cases settle prior to hearing.

Revised Sections 43(f) and 44(f) of the Code provide for, in addition to retention of all nonrefundable fees, the retention of the total initial amount deposited as hearing session deposits by all of the parties if a case, including a case filed under customer-simplified procedures, is settled or withdrawn within eight business days of the first scheduled hearing session. A prehearing conference with an arbitrator is not considered a scheduled hearing session under these sections.

The new fee and deposit schedules will be applied in all cases filed on or after June 18, 1990, as well as in all cases where a notice of prehearing conference or notice of hearing dated prior to June 18, 1990, has been issued. The new fee and deposit schedules will not be applied to cases currently in process where a notice of prehearing conference or a notice of hearing has been or will have been sent to the parties prior to June 18, 1990. In order to encourage settlement discussions well in advance of hearings or prehearing conferences, the NASD intends to apply the provisions of new sections 43(f) and 44(f) to all applicable cases, whether currently pending or newly filed. The text of the amendments follows this notice.

Questions can be directed to Kenneth A. Andrichik, Deputy Director, Arbitration, at (212) 858-3915, or Norman Sue, Jr., Assistant General Counsel, NASD Office of General Counsel, at (202) 728-8117.

AMENDMENTS TO THE NASD CODE OF ARBITRATION PROCEDURE

(Note: New language is underlined; deleted language is in brackets.)

CODE OF ARBITRATION PROCEDURE

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PART III. UNIFORM CODE OF ARBITRATION

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SIMPLIFIED ARBITRATION

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Section 13.

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Adjournments

Section 30. (a) The arbitrator(s) may, in their discretion, adjourn any hearing(s) either upon their own initiative or upon the request of any party to the arbitration.

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Schedule of Fees for Customer Disputes

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Section 43. (a) At the time of filing a Claim, Counterclaim, Third Party Claim or Cross-Claim, a party shall [deposit with] pay a non-refundable filing fee and shall remit a hearing session deposit to the Association in the amounts indicated in the schedules below unless such fee or deposit is specifically waived by the Director of Arbitration.

Where [the amount in dispute is $10,000 or less, no additional deposits shall be required despite the number of hearing sessions. Where the amount in dispute is above $10,000 and] multiple hearing sessions are required, the arbitrators may require any of the parties to make additional hearing deposits for each additional hearing session. In no event shall the [aggregate] amount deposited by all parties per hearing session exceed the amount of the largest initial hearing deposit[(s)] made by any party under [as set forth in] the [above] schedules below.

Schedule of Fees

For purposes of the schedule of fees, the term "claim" includes Claims, Counterclaims, Third Party Claims, and Cross-Claims. Any such claim made by a customer is a customer claim. Any such claim made by a member or associated person of a member is an industry claim.

Customer Claimant

(Note: See chart on page 266 of this notice.)

Industry Claimant

(Note: See chart on page 267 of this notice.)

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[Filing Fee for Members

Section 44. A member firm shall, when filing a Submission Agreement against a non-member, pay a non-refundable filing fee of $500.00. This fee shall be in addition to all other fees, deposits, or costs which may be required.]

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Schedule of Fees for Industry and Clearing Controversies

Section [45.] 44. (a) At the time of filing a [Submission Agreement, a Claimant] Claim, Counterclaim, Third-Party Claim or Cross-Claim in an industry or clearing controversy which is required to be submitted to arbitration before the Association as set forth in Section 8, above, a party shall [deposit with] pay a non-refundable filing fee and shall remit a hearing session deposit to the Association in the amounts indicated in the schedule below unless such fee or deposit is specifically waived by the Director of Arbitration.

Where [the amount in dispute is $10,000 or less, no additional deposits shall be required despite the number of hearing sessions. Where the amount in dispute is above $10,000 and] multiple hearing sessions are required, the arbitrator(s) may require any of the parties to make additional hearing deposits for each additional hearing session. In no event shall the [aggregate] amount deposited by all parties per hearing session exceed the amount of the largest initial hearing deposit[(s)] made by any party [as set forth in the above] under the schedule below.

(Note: See chart on page 267 of this notice.)

(Note: Taken from Section 43 on page 265 of this notice.)

¹Simplified Arbitration (Without Hearing)

²One Arbitrator (Per Hearing Session)

³Three or More Arbitrators (Per Hearing Session')

⁴Prehearing Conferences Only

(Note: Taken from Section 43 on page 265 of this notice.)

¹Simplified Arbitration (With out Hearing)

²One Arbitrator (Per Hearing Session)

³Three or More Arbitrators (Per Hearing Session)

⁴Prehearing Conferences Only

(Note: Taken from Section 44 on page 266 of this notice)

¹Simplified Arbitration (With out Hearing)

²One Arbitrator (Per Hearing Session)

³Three or More Arbitrators (Per Hearing Session)

⁴Prehearing Conferences Only