Notice To Members 94-26

SEC Approves Surcharge On Any NASD Member Named As A Party To An Arbitration Proceeding

Published Date:

SUGGESTED ROUTING

Senior Management
Legal & Compliance

Executive Summary

On March 8, 1994, the Securities and Exchange Commission (SEC) issued an order declaring immediate effectiveness of amendments to add a new Section 45 to Part III of the Code of Arbitration Procedure imposing a surcharge on any member named as a party to an arbitration proceeding. The text of the amendments, effective on February 25, 1994, follows this Notice.

Background And Description

Historically, the revenue-to-expense ratio of the NASD's arbitration service has resulted in a deficit, which has been subsidized by other revenues of the Association. Although the deficit has declined recently, the NASD anticipates an increase in the deficit in the immediate future as a result of significantly increased resourcing needs. The NASD anticipates such needs to be ongoing. The increased demands result from, among other things, case growth, more selective arbitrator recruitment, increased arbitrator training, increased arbitrator compensation, and the anticipated overhaul of the arbitration administrative systems. The NASD determined that it should begin recovering its increased costs in the immediate future, and that cost recovery should be directed at those member firms using the NASD's arbitration service.

The SEC has approved adoption of new Section 45 to the Code. New Subsection (a) thereof requires each member named as a party to an arbitration proceeding, whether in a claim, counterclaim, crossclaim, or third-party claim, to be assessed a $200 non-refundable surcharge when the Arbitration Department perfects service of the claim naming the member on any party to the proceeding. This fee, which is in addition to fees assessed under Sections 43 and 44 of the Code, applies both to members who file as Claimants and to members who are served by the Arbitration Department as Respondents. Therefore, in claims brought by members, the $200 fee would be assessed in addition to the $500 claim filing fee described in the current fee schedule. For an associated person named as a party to an arbitration proceeding, the fee would be assessed against the member firm or firms that employed the associated person at the time of the events that gave rise to the claim. However, no member will be assessed more than a single charge in any arbitration proceeding. Finally, Subsection (a) clarifies that the surcharge is not subject to reimbursement under Subsections 43(c) or44(c)of the Code.

New Subsection (b) clarifies that service is considered to have been perfected when the Arbitration Department serves the claim under Subsection 25(a) of the Association's Code of Arbitration Procedure.

Questions regarding this rule filing may be directed to Robert J. Smith, Attorney, Office of General Counsel, (202) 728-8176.

Text Of Amendments To Part III Of The Uniform Code Of Arbitration

(Note: New language is underlined.)

Member Surcharge

(a) Each member who is named as a party to an arbitration proceeding. whether in a Claim, Counterclaim. Crossclaim or Third-Party claim, shall be assessed a $200 non-refundable surcharge when the Arbitration Department perfects service of the claim naming the member on any party to the proceeding. For each associated person who is named, the surcharge shall be assessed against the member or members which employed the associated person at the time of the events which gave rise to the dispute. claim or controversy. No member shall be assessed more than a single surcharge in any arbitration proceeding. The surcharge shall not be subject to reimbursement under Subsections 43(c) or 44(c) of the Code.
(b) For the purposes of this Section. service is perfected when the Director of Arbitration properly serves the Respondents to such proceeding under Subsection 25(a) of the Code. ;