On June 21, 2004, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)  and Rule 19b-4 thereunder, a proposed rule change relating to amendments to NYSE Rules 633, 634, and 635 relating to the administration of the Exchange's arbitration program. On October 29, 2004, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change, as amended, was published for comment in the Federal Register on January 4, 2005.
On January 18, 2005, the Exchange filed Amendment No. 2 to the proposed rule change, which proposed certain technical changes to the rule text. The Commission received one comment letter in response to the proposed rule change. For the reasons discussed below, the Commission is approving the proposed rule change as amended.
II. Description of the Proposed Rule Change
A. Description of the Proposal
The proposed rule change consists of amendments to NYSE Rules 633, 634, and 635 concerning appointments of members of the Board of Arbitration, appointments to panels of securities and non-securities arbitrators, and the appointment of the Director of Arbitration of the Exchange. NYSE Rule 633 governs the appointment of a Board of Arbitration, whose membership consists of current or former members of the Exchange, allied members, or officers of member corporations. Members of the Board of Arbitration decide controversies between parties who are members of the Exchange, allied members, member firms or member corporations. Currently, the Chairman of the NYSE Board appoints the members of the Board of Arbitration annually. As proposed, the Chairman will no longer appoint the members of the Board of Arbitration. Rather, the Director of Arbitration will do so, and she or he will do so on an ongoing basis rather than annually. Moreover, under the proposal, members of the Board of Arbitration may not be members of the Board of Executives. Currently, under NYSE Rule 633, they may not be members of the Board of Directors.
NYSE Rule 634 provides for the appointment of securities and non-securities arbitrators to standing panels of arbitrators available to decide customer disputes. Arbitration panels for individual disputes are typically composed of two non-securities arbitrators and one securities arbitrator. Under the proposal, these arbitrators would be appointed by the Director of Arbitration rather than the Chairman of the NYSE Board, as is currently the case. The proposal also would remove a provision stating that the NYSE will keep separate arbitration panels to serve within or outside of the New York metropolitan area because the provision Start Printed Page 10730does not reflect current Exchange practice.
Currently, NYSE Rule 635 provides that the Chairman of the NYSE Board appoints the Director of Arbitration. In light of a recent corporate restructuring at the Exchange, the proposal instead provides that the Chief Regulatory Officer will designate the Director of Arbitration, subject to the approval of the NYSE's Regulatory Oversight Committee.
B. Comment Summary
The proposed rule change was published for comment in the Federal Register on January 4, 2005, and the Commission received one comment letter in response. The commenter opposed the proposal. With regard to the Exchange's proposed changes to Rules 633 and 634, the commenter contended that the NYSE should separate itself and its management from the process of appointing arbitrators by implementing a system of review and oversight of the arbitrator appointment process. The commenter opposed delegating the arbitrator selection process to the Director of Arbitration.
With regard to Rule 635, the commenter stated that the rule should be amended to specify that the appointment of the Director of Arbitration by the Chief Regulatory Officer must be subject to the review and approval of the Regulatory Oversight Committee.
III. Discussion and Findings
After careful consideration of the proposal and the comment that was received, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. Specifically, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act in that it promotes just and equitable principles of trade by helping to ensure that members and member organizations and the public have a fair and impartial forum for the resolution of their disputes.
The NYSE is updating its arbitration selection process to reflect more accurately the way in which arbitrators are selected. Specifically, as amended, NYSE Rule 633 would rest the obligation of selecting members of the Board of Arbitration with the Director of Arbitration, who is the NYSE staff person responsible for recruiting potential arbitrators. Similarly, NYSE Rule 634, as amended, would authorize the Director of Arbitration to appoint arbitration panel members. The Director of Arbitration reports to the Chief Regulatory Officer, who in turn reports to the Regulatory Oversight Committee and NSYE Board.
In response to the comment received, the Commission believes that the proposed rule change provides appropriate oversight over the appointment of arbitrators. Important functions of the Exchange are routinely delegated to the Exchange staff. Nevertheless, the Board of Directors maintains the ultimate authority, and the responsibility, to ensure that the actions of the Exchange staff are carried out in a manner that is consistent with the federal securities laws. Similarly, although the proposed text of Rule 635 does not expressly require that the Regulatory Oversight Committee review the Chief Regulatory Officer's appointment of a Director of Arbitration, as the commenter recommended, this appointment is subject to the oversight of the Regulatory Oversight Committee as a function of the Exchange's routine corporate governance structure. Therefore, we believe the proposal sufficiently addresses the commenter's concerns.
The Commission finds good cause for approving Amendment No. 2 before the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. The proposed Amendment No. 2 makes necessary technical corrections to the rule text and does not alter the substantive content of the rules.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 is consistent with the Act. Comments may be submitted by any of the following methods:
- Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
- Send an e-mail to email@example.com. Please include File Number SR-NYSE-2004-031 on the subject line.
- Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
All submissions should refer to File Number SR-NYSE-2004-031. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on its Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Amendment No. 2 between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the NYSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2004-031 and should be submitted on or before March 25, 2005.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-NYSE-2004-031), as amended, be, and hereby is, approved, and that Amendment No. 2 thereto to the proposed rule change be, Start Printed Page 10731and hereby is, approved on an accelerated basis.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
3. Letter from Karen Kupersmith, Director of Arbitration, NYSE, to Catherine McGuire, Chief Counsel, Division of Market Regulation, SEC, dated October 29, 2004.Back to Citation
5. Amendment 2, submitted electronically to the Commission on January 18, 2005 and signed by Mary Yeager, Assistant Corporate Secretary.Back to Citation
6. Letter to Jonathan G. Katz, Secretary, Commission, from Robert S. Clemente, Esq., dated January 24, 2005, available online at http://www.sec.gov/rules/sro /nyse/nyse200431/rsclemente4506.htm.Back to Citation
7. The NYSE Board of Executives, which includes the Chairman of the NYSE Board and investors and representatives from member organizations, advises the Chief Executive Officer of the Exchange in his or her management of the operations of the Exchange. See NYSE Constitution, Article V, Section 1.Back to Citation
8. Amendment No. 2, submitted on January 18, 2005, proposes a technical correction to the text of NYSE Rule 633, as follows. A proposed deletion appears in [brackets].
The Director of Arbitration shall appoint a Board of Arbitration to be composed of [such number of] present or former members, allied members and officers of member corporations of the Exchange who are not members of the Board of Executives.Back to Citation
9. A securities arbitrator is someone “engaged in or retired from the securities business” and a non-securities arbitrator is someone “not engaged in the securities business.” See NYSE Rule 634.Back to Citation
10. As permitted by the NYSE Constitution, this authority has been delegated to the Vice President, Arbitration and Hearing Board. NYSE stated in its proposal that, in practice, arbitration department management routinely appoints new individuals to the rosters of arbitrators subject to the oversight of the Vice President.Back to Citation
11. Amendment No. 2 also proposes a technical correction to the text of NYSE Rule 634, as follows. The proposed deletion appears in [brackets]:
The Director of Arbitration shall from time to time appoint two panels of arbitrators,[.] the first of such panels shall be composed of persons engaged in or retired from the securities business and the second of such panels shall be composed of persons not engaged in the securities business.Back to Citation
12. See Exchange Act Release No. 48946 (Dec. 17, 2003), 68 FR 74678 (Dec. 24, 2003).Back to Citation
13. See NYSE Constitution, Article IV, Section 12(a)(4) (the Regulatory Oversight Committee is responsible for, inter alia, “personnel actions involving senior regulatory personnel”).Back to Citation
14. See supra note 6.Back to Citation
15. In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).Back to Citation
17. See, e.g., NYSE Constitution, Article IV, Section 14(a) (“Delegation Authority”); id., Article VI, Section 4(a) (responsibilities of the Chief Regulatory Officer are “[s]ubject to the authority of the Board and the Regulatory Oversight & Regulatory Budget Committee”).Back to Citation
18. Increased scrutiny of applicants for the position of arbitrator, while a laudable goal, is beyond the scope of this particular proposed rule change.Back to Citation
19. See Exchange Act Release No. 50939, supra note 4, 70 FR at 00421, citing NYSE Constitution, Article IV, Section 12(a)(4).Back to Citation
[FR Doc. E5-900 Filed 3-3-05; 8:45 am]
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