finra

FINRA

 

For Release:
Contacts:
Wednesday, January 24, 2007
Nancy Condon (202) 728-8379
Herb Perone (202) 728-8464

 


SEC Approves New NASD Code of Arbitration Procedure

Washington, DC — NASD Dispute Resolution (NASD DR) announced today that the Securities and Exchange Commission has approved a number of improvements to the NASD Code of Arbitration Procedure, including simplifying its language and reorganizing it in a more logical, user-friendly way. These and other revisions codify best practices and provide more guidance to parties and arbitrators in the NASD DR forum.

The newly approved Code is now separated into three parts: the Customer Code, the Industry Code, and the Mediation Code. Maintaining separate codes eliminates confusion regarding which rules apply to which disputes. To make it easier to find specific rules, the code is now organized to follow the sequential order of a typical arbitration.

"NASD continues to make significant improvements to the dispute resolution forum to make the process more transparent, fair and efficient for investors and others who use the forum," said NASD DR President Linda Fienberg.

The new code also makes it mandatory that parties must produce (or formally object to producing) documents requested in the discovery process. In addition, the code codifies the ability of arbitrators to sanction parties for non-compliance with the discovery rules or orders of the panel. Collectively, these changes should significantly reduce the number of discovery disputes in NASD arbitrations involving customer disputes. The new rules also establish uniform procedures for filing, responding to and ruling on motions in NASD arbitrations.

The Mediation Code was separately approved and became effective on Jan. 30, 2006. The Customer and Industry Codes will become effective in April. The exact date will be announced in an upcoming NASD Notice to Members.

The new code refines the arbitrator selection process through creation of a new roster of public arbitrators who are qualified to serve as chairpersons in cases involving investors. Arbitrators must have a specific amount of training and experience to qualify to serve as a chairperson.

In three-arbitrator investor cases, parties will receive three lists of potential arbitrators: a public arbitrator list, a public chair-qualified arbitrator list and a non-public arbitrator list, each containing eight names. Parties can strike up to four names from each list and rank the remaining names. In single-arbitrator cases (cases involving claims of $50,000 or less), parties will choose from a list of eight public chair-qualified arbitrators. For certain industry-only cases (such as disputes between firms), NASD has also established a non-public chairperson list.

The new Customer and Industry Codes will apply to claims filed on or after the April effective date, with the exception of the list selection provisions. The arbitrator list selection rules will apply to new claims, to previously filed claims in which a list of arbitrators has not yet been generated, and in claims for which an entirely new list of arbitrators must be generated.

To implement many of the changes in the code, NASD upgraded its computer technology platform, replacing its Neutral List Selection System (NLSS) with a more user-friendly, Web-based application, called MATRICS, which stands for Mediation and Arbitration Tracking Retrieval Interactive Case System. MATRICS went into effect in October 2006. NLSS generated lists of arbitrators from NASD's rosters of arbitrators on a rotational basis. MATRICS generates lists of arbitrators on a random basis. The shift from rotational to random selection was made to provide arbitrators with an equal opportunity of being listed on any given list of proposed arbitrators for an arbitration panel and to make the list selection process more transparent.

NASD will maintain electronic versions of the three codes on its Web site www.nasd.com and will make paper copies available upon request.

NASD DR is the largest securities dispute resolution forum in the world. NASD DR facilitates the efficient resolution of monetary, business, and employment disputes between investors, securities firms, and employees of securities firms by offering both arbitration and mediation services through a network of hearing locations across the United States. It currently maintains a roster of approximately 7,000 arbitrators and conducts arbitrations in 68 hearing locations in the United States and abroad.

NASD is the largest private sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.