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39110 Federal Register / Vol. 72, No.

136 / Tuesday, July 17, 2007 / Notices

amendments, all written statements comments on the proposed rule change • Increased from three years to five
with respect to the proposed rule from interested persons. years the period for transitioning from a
change that are filed with the non-public to public arbitrator after
I. Self-Regulatory Organization’s
Commission, and all written leaving the securities industry.
Statement of the Terms of Substance of • Clarified that the term ‘‘retired’’
communications relating to the
the Proposed Rule Change from the industry includes anyone who
proposed rule change between the
Commission and any person, other than NASD Dispute Resolution proposes to spent a substantial part of his or her
those that may be withheld from the amend the Code of Arbitration career in the industry.
public in accordance with the Procedure for Customer Disputes • Prohibited anyone who has been
provisions of 5 U.S.C. 552, will be (‘‘Customer Code’’), and the Code of associated with the industry for at least
available for inspection and copying in Arbitration Procedure for Industry 20 years from ever becoming a public
the Commission’s Public Reference Disputes (‘‘Industry Code’’) to amend arbitrator, regardless of how long ago
Room, 100 F Street, NE., Washington, the definition of public arbitrator to add the association ended.
DC 20549, on official business days an annual revenue limitation. The text • Excluded from the public arbitrator
between the hours of 10 a.m and 3 p.m. of the proposed rule change is available roster attorneys, accountants, or other
Copies of such filing also will be at NASD, http://www.nasd.com, and the professionals whose firms have derived
available for inspection and copying at Commission’s Public Reference Room. 10 percent or more of their annual
the principal office of Nasdaq. All revenue in the previous two years from
comments received will be posted II. Self-Regulatory Organization’s clients involved in securities-related
without change; the Commission does Statement of the Purpose of, and activities.
not edit personal identifying Statutory Basis for, the Proposed Rule The proposal was approved by the SEC
information from submissions. You Change on April 16, 2004, and became effective
should submit only information that In its filing with the Commission, on July 19, 2004.4
you wish to make available publicly. On July 22, 2005, NASD proposed a
NASD included statements concerning
All submissions should refer to File further amendment to Rule 10308 of the
the purpose of and basis for the
Number SR–NASDAQ–2007–024 and Code relating to arbitrator classification
proposed rule change. The text of these
should be submitted on or before to prevent individuals with certain
statements may be examined at the indirect ties to the securities industry
August 7, 2007. places specified in Item IV below. from serving as public arbitrators.
For the Commission, by the Division of NASD has prepared summaries, set Specifically, NASD proposed to amend
Market Regulation, pursuant to delegated forth in Sections A, B, and C below, of the definition of public arbitrator to
authority.6 the most significant aspects of such exclude individuals who work for, or
J. Lynn Taylor, statements. are officers or directors of, an entity that
Assistant Secretary. A. Self-Regulatory Organization’s controls, is controlled by, or is under
[FR Doc. E7–13808 Filed 7–16–07; 8:45 am] Statement of the Purpose of, and common control with, a broker/dealer,
BILLING CODE 8010–01–P Statutory Basis for, the Proposed Rule or who have a spouse or immediate
Change family member who works for, or is an
officer or director of, an entity that is in
SECURITIES AND EXCHANGE 1. Purpose such a control relationship with a
COMMISSION NASD has taken numerous steps in broker/dealer. NASD also proposed to
recent years to ensure the integrity and amend Rule 10308 to clarify that
[Release No. 34–56039; File No. SR–NASD–
2007–021] neutrality of its arbitrator roster by individuals registered through broker-
addressing classification of arbitrators. dealers may not be public arbitrators,
Self-Regulatory Organizations; For example, in August 2003, NASD even if they are employed by a non-
National Association of Securities proposed changes to Rules 10308 and broker-dealer (such as a bank). This rule
Dealers, Inc., Notice of Filing of 10312 of the Code of Arbitration filing was approved by the SEC on
Proposed Rule Change To Amend the Procedure (‘‘Code’’) to modify the October 16, 2006, and became effective
Definition of Public Arbitrator definitions of public and non-public on January 15, 2007.5
arbitrators to further prevent individuals Finally, during the time that the above
July 10, 2007.
with significant ties to the securities changes were being made, NASD also
Pursuant to Section 19(b)(1) of the industry from serving as public had pending at the Commission a 2003
Securities Exchange Act of 1934 (the arbitrators.3 The 2003 proposal: proposal to amend the Code to
‘‘Act’’),1 and Rule 19b–4 thereunder,2 reorganize the rules into the Customer
notice is hereby given that on March 12, 3 In July 2002, the SEC retained Professor Michael
Code, the Industry Code, and a separate
2007, the National Association of Perino to assess the adequacy of arbitrator code for mediation. The final provisions
Securities Dealers, Inc. (‘‘NASD’’), disclosure requirements at NASD and at the New of this proposal were approved by the
through its wholly owned subsidiary, York Stock Exchange (NYSE). Professor Perino’s Commission on January 24, 2007, and
NASD Dispute Resolution, Inc. (‘‘NASD report (Perino Report) concluded that undisclosed became effective on April 16, 2007.6
conflicts of interest were not a significant problem
Dispute Resolution’’) filed with the in arbitrations sponsored by self-regulatory
Securities and Exchange Commission organizations (SROs), such as NASD and the NYSE.
4 See Securities Exchange Act Rel. No. 49573

(‘‘Commission’’) the proposed rule However, the Perino Report recommended several (April 16, 2004), 69 FR 21871 (April 22, 2004) (SR–
amendments to SRO arbitrator classification and NASD–2003–95) (approval order). The changes
change as described in Items I, II and III were announced in Notice to Members 04–49 (June
disclosure rules that might ‘‘provide additional
below, which Items have been prepared assurance to investors that arbitrations are in fact 2004).
by NASD. The Commission is
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5 See Securities Exchange Act Rel. No. 54607


neutral and fair.’’ This proposal implemented the
publishing this notice to solicit recommendations of the Perino Report and made (Oct. 16, 2006), 71 FR 62026 (Oct. 20, 2006) (SR–
several other related changes to the definitions of NASD–2005–094) (approval order). The changes
public and non-public arbitrators that were were announced in Notice to Members 06–64
6 17 CFR 200.30–3(a)(12). consistent with the Perino Report (November 2006).
1 15 U.S.C. 78s(b)(1). recommendations. The Perino Report is available at 6 See Securities Exchange Act Rel. No. 51856
2 17 CFR 240.19b–4. http://www.sec.gov/pdf/arbconflict.pdf. (June 15, 2005), 70 FR 36442 (June 23, 2005) (SR–

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Federal Register / Vol. 72, No. 136 / Tuesday, July 17, 2007 / Notices 39111

Several of the substantive changes to the to, law firm fees, accounting firm fees, C. Self-Regulatory Organization’s
Customer and Industry Codes will affect and consulting fees.9 Statement on Comments on the
the classification of arbitrators7 and how NASD believes the proposed Proposed Rule Change Received From
they are selected for panels.8 amendment, in conjunction with the Members, Participants or Others
Despite these many initiatives
existing 10 percent revenue limitation,10 Written comments were neither
amending the arbitrator classification
will further improve NASD’s public solicited nor received.
rules, some users of the forum continue
to voice concerns about individuals arbitrator roster by ensuring that III. Date of Effectiveness of the
serving as public arbitrators when they arbitrators whose firms receive a Proposed Rule Change and Timing for
have business relationships with significant amount of compensation Commission Action
entities that derive income from broker- from any persons or entities associated
with or engaged in the securities, Within 35 days of the date of
dealers. The concern is that, for
commodities, or futures business are publication of this notice in the Federal
example, an arbitrator classified as
Register or within such longer period (i)
public might work for a very large law removed from the public roster.11
as the Commission may designate up to
firm that derived less than 10% of its
2. Statutory Basis 90 days of such date if it finds such
annual revenue from broker-dealer
longer period to be appropriate and
clients, but still receives a large dollar NASD believes that the proposed rule publishes its reasons for so finding or
amount of such revenue. The concern change is consistent with the provisions
focused primarily on the law firm’s (ii) as to which the self-regulatory
of Section 15A(b)(6) of the Act, which organization consents, the Commission
defense of action (in arbitration or requires, among other things, that the
litigation) by customers of broker- will:
Association’s rules must be designed to A. By order approve such proposed
dealers, and not on representing broker-
dealers in underwriting or other prevent fraudulent and manipulative rule change, or
activities. Therefore, those concerned acts and practices, to promote just and B. Institute proceedings to determine
with the amount of annual revenue equitable principles of trade, and, in whether the proposed rule change
recommended that there be an annual general, to protect investors and the should be disapproved.
dollar limitation of $50,000 on revenue public interest. NASD believes that the IV. Solicitation of Comments
from broker-dealers relating to customer proposed rule change will enhance
disputes with a brokerage firm or investor confidence in the fairness and Interested persons are invited to
associated person concerning an neutrality of NASD’s arbitration forum, submit written data, views, and
investment account. by providing further assurance to parties arguments concerning the foregoing,
NASD supports these that persons who have a relationship including whether the proposed rule
recommendations and is, therefore, change is consistent with the Act.
with those who receive a significant
proposing to amend the definition of Comments may be submitted by any of
amount of compensation from the
public arbitrator in Rule 12100(u) of the the following methods:
securities industry are not able to serve
Customer Code and Rule 13100(u) of the as public arbitrators in NASD Electronic Comments
Industry Code to add a provision that arbitrations.
would prevent an attorney, accountant, • Use the Commission’s Internet
or other professional from being B. Self-Regulatory Organization’s comment form (http://www.sec.gov/
classified as a public arbitrator, if the Statement on Burden on Competition rules/sro.shtml); or
person’s firm derived $50,000 or more • Send an e-mail to rule-
in annual revenue in the past two years NASD does not believe that the comments@sec.gov. Please include File
from professional services rendered to proposed rule change will result in any Number SR–NASD–2007–021 on the
any persons or entities listed in Rule burden on competition that is not subject line.
12100(p)(1) of the Customer Code or necessary or appropriate in furtherance Paper Comments
Rule 13100(p)(1) of the Industry Code of the purposes of the Act, as amended.
relating to any customer disputes • Send paper comments in triplicate
concerning an investment account or 9 Rule
12100(p) defines ‘‘non-public arbitrator.’’
to Nancy M. Morris, Secretary,
transaction, including but not limited Paragraph (1) of the rule states, in relevant part, that Securities and Exchange Commission,
the term ‘‘non-public arbitrator’’ means a person 100 F Street, NE., Washington, DC
NASD–2003–158) (notice); See Securities Exchange
who is otherwise qualified to serve as an arbitrator 20549–1090.
and is or, within the past five years, was: (A)
Act Rel. No. 51857 (June 15, 2005), 70 FR 36430 All submissions should refer to File
(June 23, 2005) (SR–NASD–2004–011) (notice); and Associated with, including registered through, a
broker or a dealer (including a government
Number SR–NASD–2007–021. This file
See Securities Exchange Act Rel. No. 51855 (June
15, 2005), 70 FR 36440 (June 23, 2005) (SR–NASD– securities broker or dealer or a municipal securities number should be included on the
2004–013) (notice). The changes were announced in dealer); (B) registered under the Commodity subject line if e-mail is used. To help the
Notice to Members 07–07 (February 2007). Exchange Act; (C) a member of a commodities Commission process and review your
7 NASD believes the new Codes have improved exchange or a registered futures association; or (D) comments more efficiently, please use
the arbitrator selection process by creating and associated with a person or firm registered under only one method. The Commission will
maintaining a new roster of arbitrators who are the Commodity Exchange Act. Rule 13100(p) is the
qualified to serve as chairpersons. The chair roster same as Rule 12100(p).
post all comments on the Commission’s
will consist of more experienced arbitrators 10 See supra note 4. Under the July 2004 Internet Web site (http://www.sec.gov/
available on NASD’s public arbitrator roster for all amendments, a public arbitrator cannot be ‘‘an rules/sro.shtml). Copies of the
investor cases and for certain intra-industry cases. submission, all subsequent
attorney, accountant, or other professional whose
For other industry cases, the Code also creates a
chair roster of experienced non-public arbitrators.
firm derived 10 percent or more of its annual amendments, all written statements
revenue in the past 2 years from any persons or with respect to the proposed rule
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See Rules 12400(b) and (c) of the Customer Code


entities listed in Rules 12100(p)(1) and 13100(p)(1)
and Rules 13400(b) and (c) of Industry Code. change that are filed with the
8 The new Codes also change how arbitrator lists of the new Codes.’’
11 NASD will survey its public arbitrators to
Commission, and all written
are generated and how arbitrators are selected for
a panel. See Rules 12403 and 12404 of the Customer determine which arbitrators will be removed from communications relating to the
Code and Rules 13403 and 13404 of the Industry the roster for appointment to new cases upon the proposed rule change between the
Code. effective date of the proposed rule. Commission and any person, other than

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39112 Federal Register / Vol. 72, No. 136 / Tuesday, July 17, 2007 / Notices

those that may be withheld from the comments on the proposed rule change covering the entire period which the
public in accordance with the from interested persons. program was in effect. The Report will
provisions of 5 U.S.C. 552, will be include: (1) Data and written analysis on
available for inspection and copying in the open interest and trading volume in
the Commission’s Public Reference I. Self-Regulatory Organization’s the classes for which Quarterly Options
Room, 100 F Street, NE., Washington, Statement of the Terms of Substance of Series were opened; (2) an assessment of
DC 20549, on official business days the Proposed Rule Change the appropriateness of the option classes
between the hours of 10 a.m. and 3 p.m. The Exchange is proposing to extend selected for the Pilot Program; (3) an
Copies of such filing also will be the Quarterly Options Series pilot assessment of the impact of the Pilot
available for inspection and copying at program (‘‘Pilot Program’’) for an Program on the capacity on the
the principal office of NASD. All additional two-week period, through Exchange, OPRA, and market data
comments received will be posted July 24, 2007, and to amend Rule 5.19(a) vendors (to the extent data from market
without change; the Commission does regarding the restriction on the number data vendors is available); (4) any
not edit personal identifying of strike prices for Quarterly Options capacity problems or other problems
information from submissions. You Series based on an underlying index. that arose during the operation of the
should submit only information that The text of the proposed rule change is Pilot Program and how the Exchange
you wish to make available publicly. All available on the Exchange’s Web site addressed such problems; (5) any
submissions should refer to File (http://www.nysearca.com), at the complaints that the Exchange received
Number SR–NASD–2007–021 and Exchange’s principal office, and at the during the operation of the Pilot
should be submitted on or before Commission’s Public Reference Room. Program and how the Exchange
August 7, 2007. addressed them; and (6) any additional
II. Self-Regulatory Organization’s
For the Commission, by the Division of Statement of the Purpose of, and information that would assist the
Market Regulation, pursuant to delegated Statutory Basis for, the Proposed Rule Commission in assessing the operation
authority.12 Change of the Pilot Program. The Exchange
Florence E. Harmon, plans to submit the Report in
In its filing with the Commission, the connection with a proposal that will
Deputy Secretary.
Exchange included statements extend the Pilot Program until July 10,
[FR Doc. E7–13747 Filed 7–16–07; 8:45 am] concerning the purpose of, and basis for,
BILLING CODE 8010–01–P
2008. This proposal and Report will be
the proposed rule change and discussed filed with the Commission at the
any comments it received on the conclusion of the proposed two-week
proposed rule change. The text of these extension.
SECURITIES AND EXCHANGE statements may be examined at the
COMMISSION places specified in Item IV below. The The Exchange also proposes at this
Exchange has prepared summaries, set time to add a provision to Rule 5.19(a)
[Release No. 34–56040; File No. SR– regarding the limitations on the number
NYSEArca–2007–67] forth in sections A, B, and C below, of
the most significant aspects of such of strikes the Exchange may list for
Self-Regulatory Organizations; NYSE statements. Quarterly Options Series based on an
Arca, Inc.; Notice of Filing and underlying index. These changes mirror
A. Self-Regulatory Organization’s provisions previously submitted by the
Immediate Effectiveness of Proposed Statement of the Purpose of, and
Rule Change To Extend the Quarterly Chicago Board Options Exchange
Statutory Basis for, the Proposed Rule (‘‘CBOE’’) and approved by the
Options Series Pilot Program for a Change
Two-Week Period Commission.7 The Exchange proposes
1. Purpose to: (1) Limit the number of strike prices
July 10, 2007. that the Exchange may initially open for
On July 12, 2006, the Exchange filed
Pursuant to section 19(b)(1) of the with the Commission a proposed rule Quarterly Options Series to five strike
Securities Exchange Act of 1934 change that allowed it to establish the prices above and five below the value of
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 Pilot Program, pursuant to which the the underlying index; (2) clarify that the
notice is hereby given that on July 10, Exchange lists and trades Quarterly Exchange may open for trading
2007, NYSE Arca, Inc. (‘‘Exchange’’ or Options Series.5 The rule change was additional Quarterly Options Series of
‘‘NYSE Arca’’) filed with the Securities effective upon filing. The Exchange the same class when the Exchange
and Exchange Commission hereby proposes to extend the Pilot deems such action necessary to
(‘‘Commission’’) the proposed rule Program for an additional two-week maintain an orderly market or meet
change as described in Items I and II period, so that it will expire on July 24, customer demand, provided that the
below, which Items have been 2007.6 additional series priced above (below)
substantially prepared by the Exchange. In the Pilot Program Release, the the value of the underlying index do not
The Exchange has designated this Exchange stated that it would submit, in cause there to be more than five strike
proposal as non-controversial under connection with any proposed process above (below) the value of the
section 19(b)(3)(A)(iii) of the Act 3 and extension of the Pilot Program, a Pilot underlying index; and (3) clarify that
Rule 19b–4(f)(6) thereunder,4 which Program Report (‘‘Report’’) that would the opening of any new Quarterly
renders the proposed rule change provide an analysis of the Pilot Program Options Series will not affect the
effective upon filing with the previously opened series of the same
Commission. The Commission is 5 See Securities Exchange Act Release No. 54166 class. These changes are based on CBOE
publishing this notice to solicit (July 18, 2006), 71 FR 42151 (July 25, 2006) (File Rule 24.9 and are shown in Exhibit 5 to
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No. SR–NYSEArca–2006–45) (‘‘Pilot Program the proposed rule change on Form 19b–
Release’’).
12 17 CFR 200.30–3(a)(12). 6 At the end of this proposed two-week extension,
4 filed with the Commission.
1 15 U.S.C. 78s(b)(1). NYSE Arca will submit a subsequent proposal to
2 17 CFR 240.19b–4.
the Commission, in conjunction with a report on 7 See Securities Exchange Act Release No. 54762
3 15 U.S.C. 78s(b)(3)(A)(iii).
the Pilot Program, requesting that the Pilot Program (November 16, 2006), 71 FR 67663 (November 22,
4 17 CFR 240.19b–4(f)(6). be extended until July 10, 2008. 2006) (File No. SR–CBOE–2006–93).

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