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87-55 Amendments to NASD Code of Arbitration Procedure Effective July 1, 1987

TO: All NASD Members and Other Interested Persons

EXECUTIVE SUMMARY

The Securities and Exchange Commission declared effective, on July 1, 1987, amendments to Section 43 of the NASD Code of Arbitration Procedure (Code) and the Board of Governors' Resolution titled "Failure to Act under Provisions of the Code of Arbitration Procedure" (Resolution).

Section 43 of the Code sets forth a schedule of fees to be deposited by claimants with the NASD at the initiation of an arbitration proceeding and establishes fees charged to the parties at the conclusion of the arbitration proceeding for use of the arbitration facility. The amendment to Section 43 of the Code conforms it to changes in the securities industry's Uniform Code of Arbitration regarding the schedule of fees to be deposited by parties in connection with arbitrations in self-regulatory organizations.

The Resolution requires NASD members and associated persons to honor any properly rendered arbitration award, absent a timely motion to vacate or modify the award. The amendment to the Resolution provides that all arbitration awards must be honored by a cash payment to the prevailing party in the exact dollar amount of the award and specifically prohibits crediting an account of the prevailing party with the amount of the award. The amendment also requires the losing party to pay the award upon its receipt, or within such time as may be set forth in the award.

The texts of these amendments are attached.

SUMMARY OF AMENDMENTS

Increase in Filing Fees

The amendments to the Code conform it to recent amendments to the Uniform Code of Arbitration (Uniform Code) approved by the Securities Industry Conference on Arbitration (SICA). The Uniform Code, as implemented by the various self-regulatory organizations, established a uniform system of arbitration procedures throughout the securities industry.

The amendment to Section 43 only affects cases where the amount in controversy exceeds $10,000. The amendment permits the NASD to pass on to users of the arbitration facility a larger share of the cost while maintaining a fee schedule that makes arbitration affordable to the public. In addition, the amendment reduces from $500 to $400 the deposit required for claims between $20,000 and $50,000, making the filing fee less burdensome. The amendment places a higher fee — $1,000 — on claims exceeding $500,000 because claims in this category usually require multiple hearing sessions lasting more than one day and are administratively more expensive to conduct. Even with this fee increase, however, much of the cost of the arbitration facility will continue to be subsidized by the NASD.

For purposes of Section 43(b), a "session" is defined as a meeting of presiding arbitrators and parties that lasts at least four consecutive hours.

Manner and Time of Payment of Awards

The amendment to the Resolution clarifies the NASD's position that arbitration awards are to be paid on a timely basis and in cash, rather than by offsetting the award against other monies owed to the prevailing party.

* * * * *

Questions regarding this notice may be directed to either Deborah Masucci, NASD Director of Arbitration, at (212) 839-625 1, or Eugene Bleier, NASD Office of General Counsel, at (202) 728-8287.

Sincerely,

Frank J.Wilson
Executive Vice President
Legal and Compliance

Attachments

AMENDMENTS TO CODE OF ARBITRATION PROCEDURE*

Schedule of Fees

Sec. 43. (a) At the time of filing a Submission Agreement, a Claimant shall deposit with the Association the amount indicated below unless such deposit is specifically waived by the Director of Arbitration.

Amount in Dispute
(Exclusive of interest and expenses)

Deposit

$ 1,000 or less

$ 15

Above $1,000 but not exceeding $2,500

$25

Above $2,500 but not exceeding $5,000

$ 100

Above $5,000 but not exceeding $ 10,000

$200

Above $10,000 but not exceeding [$20,000] $50,000

[$300] $400

Above [$20,000] $50,000 but not exceeding $ 100,000

$500

Above $ 100,000 but not exceeding $500,000

$750

Above $500,000

$ 1,000

Where the amount in dispute is $10,000 or less, no additional deposits shall be required despite the number of sessions. Where the amount in dispute is above $10,000 and multiple sessions are required, the arbitrators may require any of the parties to make additional deposits for each additional session. In no event shall the aggregate amount deposited per session exceed the amount of the initial deposit as set forth in the above schedule.

(b) The arbitrators, in their awards, may determine the amount chargeable to the parties as forum fees (fees) and shall determine by whom such fees shall be borne. Where the amount in dispute is $10,000 or less, total fees to the parties shall not exceed the amount deposited. Where the amount in dispute is above $10,000 but does not exceed [$20,000] $50,000, the maximum fee shall be [$300] $400 per session. Where the amount in dispute is above [$20,000] $50,000 but does not exceed $100,000, the maximum fee shall be $500 per session. Where the amount in dispute is above $100,000 but does not exceed $500,000, the maximum fee shall be $750 per session. Where the amount in dispute is above $500,000, the maximum fee shall be $1,000 per session. In no event shall the fees assessed by the arbitrators exceed [$750] $1,000 per session. Amounts deposited by a party shall be applied against fees, if any. If the fees are not assessed against a party who had made a deposit, the deposit will be refunded.
(c) If the dispute, claim or controversy does not involve or disclose a money claim, the amount to be deposited by the Claimant shall be $100, or such amount as the Director of Arbitration or the panel of arbitrators may require, but shall not exceed [$750] $1,000.

(Subsections (d), (e), and (f) remain unchanged.)

* * * * * *

••• Resolution of the Board of Governors____________________

Failure to Act Under Provisions of the Code of Arbitration Procedure

It may be deemed conduct inconsistent with just and equitable principles of trade and a violation of Article III, Section 1 of the Rules of Fair Practice for a member or a person associated with a member to fail to submit a dispute for arbitration under the Code of Arbitration Procedure as required by that Code, or to fail to appear or to produce any document in his possession or control as directed pursuant to provisions of the Code of Arbitration Procedure, or to fail to honor an award of arbitrators, properly rendered pursuant to the Code of Arbitration Procedure where a timely motion has not been made to vacate or modify such award pursuant to applicable law.

All awards shall be honored by a cash payment to the prevailing party of the exact dollar amount stated in the award. Awards may not be honored by crediting the prevailing party's account with the dollar amount of the award, unless authorized by the express terms of the award or consented to in writing by the" parties. Awards shall be honored upon receipt thereof, or within such other time period as may be prescribed by the award.

Action by members requiring associated persons to waive the arbitration of disputes contrary to the provisions of the Code of Arbitration Procedure shall constitute conduct that is inconsistent with just and equitable principles of trade and a violation of Article III, Section 1 of the Rules of Fair Practice.


* New language is underlined; deleted language is bracketed.



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