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02-59 SEC Approves Amendment to Rule 10314 Regarding Specificity of Answers
Answers in Arbitration
Effective Date: October 14, 2002
Legal & Compliance
The Securities and Exchange Commission (SEC or Commission) has approved amendments to Rule 10314 of the NASD Code of Arbitration Procedure (Code) governing Initiation of Proceedings.1 The amendments will conform Rule 10314(b) to the current minimum standard applicable to claims, so that Answers need only specify relevant facts and available defenses to the Statement of Claim submitted.
The text of the amendments as provided in Attachment A will apply to all claims filed on or after October 14, 2002.
Questions regarding this Notice may be directed to Jean I. Feeney, Chief Counsel and Associate Vice President, NASD Dispute Resolution, at (202) 728-6959, or e-mail email@example.com.
NASD is amending the Code to conform Rule 10314(b) to the current minimum standard applicable to claims, so that Answers need only specify relevant facts and available defenses to the Statement of Claim that was submitted by the claimant, rather than specifying all such facts and defenses that may be relied upon at the hearing.
As background, NASD recently streamlined its procedures for review of arbitration claims. NASD does not consider a Statement of Claim to be deficient if it meets the minimum requirements of a properly signed Uniform Submission Agreement that names the respondents as shown on the Statement of Claim, proper fees, and sufficient copies of the Statement of Claim. This has accelerated the claims review process, so that claims can be served promptly after filing. Accordingly, the Statement of Claim may not contain details on the evidence to be presented at the hearing.
The rules relating to Answers continued to provide, however, that the Answer had to specify all available defenses and relevant facts that would be relied upon at the hearing, and that a respondent that failed to specify all available defenses and relevant facts in its Answer could be barred from presenting such facts or defenses at the hearing.2
NASD determined that the above provisions could place the respondent at an unfair disadvantage because the initial claim may be quite brief, but may be expanded substantially by the time of the hearing. Based on Rule 10314(b), the arbitrators might prevent the respondent from introducing additional facts or defenses to the expanded claim. Therefore, Rule 10314(b)(1) has been amended to provide that the Answer should only be required to specify all relevant facts and available defenses to the Statement of Claim submitted, which makes the requirement consistent with the streamlined claims procedure; and Rule 10314(b)(2)(A) has been amended to apply only to general denials to pleadings that state specific facts and contentions.
The amendment described in this Notice will apply to all claims filed on or after October 14, 2002.
1 Exchange Act Release No. 46256 (July 25, 2002) (File No. SR-NASD-2002-62, 67 Federal Register 50499 (August 2, 2002).
2 The term "defenses" in Rule 10314 is understood to include not only defenses to the specific allegations in the Statement of Claim, but also any affirmative defenses that the respondent may wish to set forth.
New language is underlined; deletions in brackets.
Code of Arbitration Procedure
10314. Initiation of Proceedings