View Whole SectionText only Print Print Manager Link
Previous Next

92-37 Proposed Amendment to Article III, Section 21 of the Rules of Fair Practice to Require Predispute Arbitration Agreements to Include a Notice That Class-Action Matters May Not Be Arbitrated; Last Voting Date: August 21, 1992

SUGGESTED ROUTING:*

Senior Management
Legal & Compliance
*These are suggested departments only. Others may be appropriate for your firm.

MAIL VOTE

EXECUTIVE SUMMARY

The NASD invites members to vote on a proposed amendment to Article III. Section 21 of the NASD Rules of Fair Practice to incorporate into predispute arbitration agreements a provision that will make class action disputes ineligible for submission to NASD arbitration. The amendment would take effect one year after Securities and Exchange Commission (SEC) approval. The last voting date is August 21, 1992. The text of the proposed amendment follows this Notice.

BACKGROUND AND DESCRIPTION OF PROPOSAL

The Securities Industry Conference on Arbitration (SICA) recently adopted a change to the Uniform Code of Arbitration to exclude class actions from arbitration proceedings conducted by the self-regulatory organizations that are members of SICA, including the NASD. This change resulted from the SEC's desire, articulated by former SEC Chairman David Ruder, that investors should have access to the courts in appropriate cases. The NASD's Code of Arbitration Procedure (Code) allows arbitrators and the Director of Arbitration to defer certain arbitration proceedings to the court system. However, the NASD determined that the treatment of class actions in the Code should be clarified.

This proposed amendment to Article III, Section 21 of the Rules of Fair Practice set forth below would do that by requiring predispute arbitration agreements to contain a statement to the effect that class actions may not be arbitrated. This provision would take effect one year after SEC approval, so members could have time to redraft and reprint their arbitration agreements. The text of a related amendment to the Code of Arbitration Procedure is included for purposes of information only as this amendment does not require member vote.

REQUEST FOR VOTE

The NASD Board of Governors (Board) believes that the proposal will clarify the existing policy of deferring class-action matters to the court system. The Board considers the proposed amendment necessary and appropriate and recommends that members vote their approval.

Please mark the attached ballot according to your convictions and mail it in the enclosed, stamped envelope to The Corporation Trust Company. Ballots must be postmarked no later than August 21, 1992.

Direct questions concerning this Notice to Deborah Masucci, Vice President, Arbitration, at (212)480-4881.

PROPOSED AMENDMENT TO ARTICLE III OF THE RULES OF FAIR PRACTICE REQUIRING MEMBER VOTE

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

ARTICLE III

* * * * *

Books and Records

Sec. 21.

Requirements When Using Predispute Arbitration Agreements With Customers

(f)
(1) through (4) unchanged.
(5) The requirements of [this subsection] sub-paragraphs (f)(1) through (4) shall apply only to new agreements signed by an existing or new customer of a member after September 7, 1989.
(6) All agreements shall include a statement that "No person shall bring a putative or certified class action to arbitration, nor seek to enforce any predispute arbitration agreement against any person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this agreement except to the extent stated herein."
(7) The requirements of subparagraph (6) shall apply only to new agreements signed by an existing or new customer of a member after (one year from date of SEC approval).

PROPOSED AMENDMENTS TO THE CODE OF ARBITRATION PROCEDURE NOT REQUIRING MEMBER VOTE

PART III — UNIFORM CODE OF ARBITRATION

Required Submission Sec. 12.

(a), (b) and (c) Unchanged,
(d) Class Action Claims.
(1) A claim submitted as a class action shall not be eligible for arbitration under this Code at the Association.
(2) Any claim filed by a member or members of a putative or certified class action is also ineligible for arbitration at the Association if the claim is encompassed by a putative or certified class action filed in federal or state court, or is ordered by a court to an arbitral forum not sponsored by a self-regulatory organization for classwide arbitration. However, such claims shall be eligible for arbitration in accordance with Section 12(a) or pursuant to the parties' contractual agreement, if any, if a claimant demonstrates that it has elected not to participate in the putative or certified class action or, if applicable, has complied with any conditions for withdrawing from the class prescribed by the court.

Disputes concerning whether a particular claim is encompassed by a putative or certified class action shall be referred by the Director of Arbitration to a panel of arbitrators in accordance with Section 13 or Section 19 of the Code, as applicable. Either party may elect instead to petition the court with jurisdiction over the putative or certified class action to resolve such disputes. Any such petition to the court must be filed within ten business days of receipt of notice that the Director of Arbitration is referring the dispute to a panel of arbitrators.
(3) No member or associated person shall seek to enforce any agreement to arbitrate against a customer who has initiated in court a putative class action or is a member of a putative or certified class with respect to any claims encompassed by the class action unless and until: (A) the class certification is denied; (B) the class is decertified; (C) the customer is excluded from the class by the court; or (D) the customer elects not to participate in the putative or certified class action or, if applicable, has complied with any conditions for withdrawing from the class prescribed by the court.
(4) No member or associated person shall be deemed to have waived any of its rights under this Code or under any agreement to arbitrate to which it is party except to the extent stated in this paragraph. * * * * *

Previous Next