Notice To Members 90-47

Amendments to Code of Arbitration Procedure

Published Date:

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

EXECUTIVE SUMMARY

The Securities and Exchange Commission (SEC) has approved amendments to Part III, Sections 13, 30, 43, and 44 of the NASD Code of Arbitration Procedure that are intended to discourage successive adjournments of arbitration hearings and that modify the procedures and schedules under which fees are assessed for the use of NASD arbitration facilities. The new fee and deposit schedules will be applied in all cases filed on or after June 18, 1990, as well as in all cases where a notice of prehearing conference or notice of hearing is issued on or after June 18, 1990. The new fee and deposit schedules will not be applied to cases currently in process where a notice of prehearing conference or a notice of hearing dated prior to June 18, 1990, has been issued. In order to encourage settlement discussions well in advance of hearings or prehearing conferences, the NASD intends to apply the provisions of new sections 43(f) and 44(1) to all applicable cases whether currently pending or newly filed.

The text of the amendments follows this notice.

BACKGROUND AND EXPLANATION

On September 19, 1989, following favorable recommendation by the NASD's National Arbitration Committee, the Association's Board of Governors authorized the filing of amendments to the Association's Code of Arbitration Procedure ("Code") that would have increased arbitration fees under the pre-existing administrative framework set forth in the Code. While the Association filed, these amendments with the SEC on October 12, 1989, the NASD withdrew the amendments at the request of the SEC staff on October 17, 1989, and began considering an alternative administrative framework for the assessment of fees in NASD arbitration proceedings.

The NASD received SEC staff comment dated March 8, 1990, and there was also substantial progress toward the development of a proposed uniform rule increasing fees and incorporating the alternative administrative framework for the assessment of fees in arbitration proceedings involving customers by a Drafting Subcommittee of the Securities Industry Conference on Arbitration. Following that, the NASD filed with the SEC amendments to Sections 13, 30, 43, and 44 of the NASD Code of Arbitration Procedure. Following the solicitation of public comment (55 Federal Register 15048, April 20, 1990), the SEC approved the Association's amendments on June 1, 1990 (55 Federal Register 23493, June 8, 1990). In general, the proposed rule changes are intended to discourage successive adjournments of arbitration hearings and to implement revised procedures and schedules for the assessment of fees in arbitrations brought by or against customers as well as in intraindustry arbitrations.

An amendment to Section 30 of the Code is expected to reduce delays by discouraging frivolous requests for adjournments in the arbitration process. The amendment raises the adjournment fee assessed following the grant of a first request for adjournment from $100 to an amount equal to the initial hearing session deposit required pursuant to the new fee schedules set forth in Sections 43 and 44 of the Code. The adjournment fee for second and subsequent adjournments requested by the same party will be twice the initial hearing session deposit, but such fee may not exceed $1,000. In the event that a third request for adjournment is received to which all parties have consented, the arbitrators will be empowered to dismiss the arbitration without prejudice to the claimant's filing of a new arbitration action.

In amending Sections 13, 43, and 44 of the Code, the NASD has adopted a revised administrative framework for the assessment of fees based on the establishment of a nonrefundable filing fee plus forum fees assessable based on the number of hearing sessions held, in amounts varying in accordance with the amount in dispute. The non-refundable filing fee, which is intended to recoup certain fixed administrative costs related to each filing, is distinguishable from the hearing session deposit, which is intended to relate to hearing costs, not the administrative costs connected with the processing of filings. These filing fees, which are analogous to court filing fees, are intended to offset some of the NASD's costs of administration, at least to a limited degree, even when cases settle prior to hearing.

Revised Sections 43(f) and 44(f) of the Code provide for, in addition to retention of all nonrefundable fees, the retention of the total initial amount deposited as hearing session deposits by all of the parties if a case, including a case filed under customer-simplified procedures, is settled or withdrawn within eight business days of the first scheduled hearing session. A prehearing conference with an arbitrator is not considered a scheduled hearing session under these sections.

The new fee and deposit schedules will be applied in all cases filed on or after June 18, 1990, as well as in all cases where a notice of prehearing conference or notice of hearing dated prior to June 18, 1990, has been issued. The new fee and deposit schedules will not be applied to cases currently in process where a notice of prehearing conference or a notice of hearing has been or will have been sent to the parties prior to June 18, 1990. In order to encourage settlement discussions well in advance of hearings or prehearing conferences, the NASD intends to apply the provisions of new sections 43(f) and 44(f) to all applicable cases, whether currently pending or newly filed. The text of the amendments follows this notice.

Questions can be directed to Kenneth A. Andrichik, Deputy Director, Arbitration, at (212) 858-3915, or Norman Sue, Jr., Assistant General Counsel, NASD Office of General Counsel, at (202) 728-8117.

AMENDMENTS TO THE NASD CODE OF ARBITRATION PROCEDURE

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

CODE OF ARBITRATION PROCEDURE

* * * * *

PART III. UNIFORM CODE OF ARBITRATION

* * * * *

SIMPLIFIED ARBITRATION

* * * * *

Section 13.

(a) No change.
(b) No change.
(c) The Claimant shall pay a non-refundable filing fee and shall remit a hearing session deposit [$15.00 if the amount in controversy is $1,000 or less, $25.00 if the amount is more than $1,000 but does not exceed $2,500, $100 if the amount in controversy is more than $2,500 but does not exceed $5,000, or $200 if the amount in controversy is more than $5,000 but does not exceed $10,000] as specified in Section 43 of this Code upon filing of the Submission Agreement. The final disposition of [this] the fee or deposit shall be determined by the arbitrator.
(d) The Director of Arbitration shall endeavor to serve promptly by mail or otherwise on the Respondent(s) one (1) copy of the Submission Agreement and one (1) copy of the Statement of Claim. Within twenty (20) calendar days from receipt of the Statement of Claim, Respondent(s) shall serve each party with an executed Subcommission Agreement and a copy of Respondent's Answer. Respondent's executed Submission Agreement and Answer shall also be filed with the Director of Arbitration with sufficient additional copies for the arbitrator(s) along with any deposit required under the schedule of fees for customer disputes. The Answer shall designate all available defenses to the Claim and may set forth any related Counterclaim and/or related Third Party Claim the Respondent(s) may have against the Claimant or any other person. If the Respondent(s) has interposed a Third Party Claim, the Respondent(s) shall serve the Third Party Respondent with an executed Submission Agreement, a copy of Respondent's Answer containing the Third Party Claim, and a copy of the original Claim filed by the Claimant. The Third Party Respondent shall respond in the manner herein provided for response to the Claim. If the Respondent(s) files a related Counterclaim exceeding $10,000, the arbitrator may refer the Claim, Counterclaim and/or Third Party Claim, if any, to a panel of three (3) or five (5) arbitrators in accordance with Section 19 of this Code or, he may dismiss the Counterclaim and/or Third Party Claim without prejudice to the Counterclaimant(s) and/or Third Party Claimant(s) pursuing the Counterclaim and/or Third Party Claim in a separate proceeding. The costs to the Claimant under either proceeding shall in no event exceed [$200.00.] the total amount specified in Section 43.

* * * * *

Adjournments

Section 30. (a) The arbitrator(s) may, in their discretion, adjourn any hearing(s) either upon their own initiative or upon the request of any party to the arbitration.

(b) A party requesting an adjournment after arbitrators have been appointed[,] shall, if an [said] adjournment is granted, [shall pay] deposit a fee, equal to the initial deposit [of costs but not more than $100.] of hearing session fees for the first adjournment and twice the initial deposit of hearing session fees, not to exceed $1,000, for a second or subsequent adjournment requested by that party. The arbitrator(s) may waive the deposit of this fee or in their award may direct the return of the adjournment fee. [This provision shall not apply to matters filed under Section 13 of the Code.]
(c) Upon receiving a third request consented to by all parties for an adjournment, the arbitrator(s) may dismiss the arbitration without prejudice to the Claimant filing a new arbitration.

* * * * *

Schedule of Fees for Customer Disputes

* * * * *

Section 43. (a) At the time of filing a Claim, Counterclaim, Third Party Claim or Cross-Claim, a party shall [deposit with] pay a non-refundable filing fee and shall remit a hearing session deposit to the Association in the amounts indicated in the schedules below unless such fee or deposit is specifically waived by the Director of Arbitration.

[Amount in Dispute

Deposit

(Exclusive of interest and expenses)

$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 $50,000

$400

Above $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 hearing sessions. Where the amount in dispute is above $10,000 and] multiple hearing sessions are required, the arbitrators may require any of the parties to make additional hearing deposits for each additional hearing session. In no event shall the [aggregate] amount deposited by all parties per hearing session exceed the amount of the largest initial hearing deposit[(s)] made by any party under [as set forth in] the [above] schedules below.

(b) A hearing session is any meeting between the parties and the arbitrator(s), including a pre-hearing conference with an arbitrator, which lasts four (4) hours or less. The forum fee for a pre-hearing conference with an arbitrator shall be the amount set forth in the schedules below as a hearing session deposit for a hearing with a single arbitrator.
(c) The arbitrators, in their awards, [may] shall determine the amount chargeable to the parties as forum fees [(fees)] and shall determine [by whom such fees shall be borne] who shall pay such forum fees. [Where the amount in dispute is $10,000 or less, total fees chargeable to the parties shall not exceed the amount of the total initial deposit deposited by the parties, regardless of the number of hearing sessions conducted. Where the amount in dispute is above $10,000, total] Forum fees chargeable to the parties shall be assessed on a per hearing session basis, and the aggregate for each hearing session [to the parties] may equal but shall not exceed the amount of the [total] largest initial hearing deposit[(s)] deposited by [the parties.] any party, except in a case where claims have been joined subsequent to filing in which case hearing session fees shall be computed as provided in para graph (d). The arbitrator(s) may determine in the award that a party shall reimburse to another party any non-refundable filing fee it has paid. If a customer is assessed forum fees in connection with an industry claim, forum fees assessed against the customer shall be based on the hearing deposit required under the industry claims schedule for the amount awarded to industry parties to be paid by the customer and not based on the size of the industry claim. No fees shall be assessed against a customer in connection with an industry claim that is dismissed; however, in cases where there is also a customer claim, the customer may be assessed forum fees based on the customer claim under the procedure set out above. Amounts deposited by a party shall be applied against forum fees, if any. [If the fees are not assessed against a party who had made a deposit, the deposit will be refunded.] In addition to forum fees, the arbitrator(s) may determine in the[ir] award[s] the amount of costs incurred pursuant to Sections 30, 32, 33, and 37 and, unless applicable law directs otherwise, other costs and expenses of the parties and arbitrator(s) which [that] are within the scope of the agreement of the parties. [or otherwise as permitted by law.] The arbitrator(s) shall determine by whom such costs shall be borne. If the hearing session fees are not assessed against a party who had made a hearing deposit, the hearing deposit will be refunded unless the arbitrators determine otherwise.
(d) For claims filed separately which are subsequently joined or consolidated under Section 25(d) of this Code, the hearing deposit and forum fees assessable per hearing session after joinder or consolidation shall be based on the cumulative amount in dispute. The arbitrator(s) shall determine by whom such fees shall be borne.
[(d)] (e) If the dispute, claim, or controversy does not involve, [or] disclose, or specify a money claim, the non-refundable filing fee [amount to be deposited by the Claimant shall] shall be [$200,] $250 and the hearing session deposit to be remitted by a party shall be $600 or such greater or lesser amount as the Director of Arbitration or the panel of arbitrators may require, but shall not exceed $1,000.
[(e)] (f) If a matter has been submitted and thereafter is settled or withdrawn prior to the commencement of the first hearing session, the parties shall be entitled to a refund of all but $100 of the amount deposited with the Association. This section shall not apply to claims filed under Section 13 of this Code.] The Association shall retain the total initial amount deposited as hearing session deposits by all the parties in any matter submitted and settled or withdrawn within eight business days of the first scheduled hearing session other than a pre-hearing conference.
[(f)] (g) Any matter submitted and thereafter settled or withdrawn subsequent to the commencement of the first hearing session, including a pre-hearing conference with an arbitrator, shall [may] be subject to [such refund of assessed deposits, if any, as the panel of arbitrators presiding may determine.] an assessment of forum fees and costs incurred pursuant to Sections 30, 32, 33, and 37 based on hearing sessions held and scheduled within eight business days after the Association receives notice that the matter has been settled or withdrawn. The arbitrator(s) shall determine by whom such forum fees and costs shall be borne.
[(g) The arbitrators may assess forum fees and costs incurred pursuant to Section 30, 31, 33, and 37 in any matter settled or withdrawn subsequent to the commencement of the first hearing session.]

Schedule of Fees

For purposes of the schedule of fees, the term "claim" includes Claims, Counterclaims, Third Party Claims, and Cross-Claims. Any such claim made by a customer is a customer claim. Any such claim made by a member or associated person of a member is an industry claim.

Customer Claimant

(Note: See chart on page 266 of this notice.)

Industry Claimant

(Note: See chart on page 267 of this notice.)

* * * * *

[Filing Fee for Members

Section 44. A member firm shall, when filing a Submission Agreement against a non-member, pay a non-refundable filing fee of $500.00. This fee shall be in addition to all other fees, deposits, or costs which may be required.]

* * * * *

Schedule of Fees for Industry and Clearing Controversies

Section [45.] 44. (a) At the time of filing a [Submission Agreement, a Claimant] Claim, Counterclaim, Third-Party Claim or Cross-Claim in an industry or clearing controversy which is required to be submitted to arbitration before the Association as set forth in Section 8, above, a party shall [deposit with] pay a non-refundable filing fee and shall remit a hearing session deposit to the Association in the amounts indicated in the schedule below unless such fee or deposit is specifically waived by the Director of Arbitration.

[Amount in Dispute Deposit
(Exclusive of interest and expenses)
$10,000 or less $200
Above $10,000 but less than $100,000 $750
Above $100,000 $1,000]

Where [the amount in dispute is $10,000 or less, no additional deposits shall be required despite the number of hearing sessions. Where the amount in dispute is above $10,000 and] multiple hearing sessions are required, the arbitrator(s) may require any of the parties to make additional hearing deposits for each additional hearing session. In no event shall the [aggregate] amount deposited by all parties per hearing session exceed the amount of the largest initial hearing deposit[(s)] made by any party [as set forth in the above] under the schedule below.

(b) A hearing session is any meeting between the parties and the arbitrator(s), including a pre-hearing conference with an arbitrator, which lasts four (4) hours or less. The forum fee for a pre-hearing conference with an arbitrator shall be the amount set forth in the schedule below as a hearing session deposit for a hearing with a single arbitrator.
(c) The arbitrators, in their award[s], [may] shall determine the amount chargeable to the parties as forum fees [(fees)] and shall determine [by whom such fees shall be borne] who shall pay such forum fees. [Where the amount in dispute is $10,000 or less, total fees chargeable to the parties shall not exceed the amount of the total initial deposit deposited by the parties regardless of the number of hearing sessions conducted. Where the amount in dispute is above $10,000,] Forum [total] fees chargeable to the parties shall be assessed on a per hearing session basis and the aggregate for each hearing session may equal but shall not exceed the amount of the largest [total] initial hearing deposit[(s)] deposited by [the parties.] any party, except in a case where claims have been joined sub sequent to filing in which case hearing session fees shall be computed as provided in paragraph (d). The arbitrator(s) may determine in the award that a party shall reimburse to another party any non-refundable filing fee it has paid. Amounts deposited by a party shall be applied against forum fees, if any. [If the fees are not assessed against a party who had made a deposit, the deposit will be refunded.] In addition to forum fees, the arbitrator(s) may determine in the[ir] award the amount of costs incurred pursuant to Sections 30, 32, 33, [or] and 37 and, unless applicable law directs otherwise, other costs and expenses of the parties and arbitrator(s) which are within the scope of the agreement of the parties. The arbitrator(s) shall determine by whom such costs shall be borne. If the hearing session fees are not assessed against a party who had made a hearing deposit, the hearing deposit will be refunded unless the arbitrators determine otherwise.
(d) For claims filed separately which are subsequently joined or consolidated under Section 25(d) of this Code, the hearing deposit and forum fees assessable per hearing session after joinder or consolidation shall be based on the cumulative amount in dispute. The arbitrators) shall determine by whom such fees shall be borne.
[(d)](e) If the dispute, claim, or controversy does not involve, [or] disclose or specify a money claim[,] the non-refundable filing fee will be $250 and the hearing session deposit [the amount] to be deposited by [the Claimant] a party shall be [$200] $600, or such greater or lesser amount as the Director of Arbitration or the panel of arbitrators may require, but shall not exceed $1,000.
[(e)](f) [If a matter has been submitted and thereafter is settled or withdrawn prior to the commencement of the first hearing session, the parties shall be entitled to a refund of all but $125 of the amount deposited with the Association.] The Association shall retain the total initial amount deposited as hearing session deposits by all the parties in any matter submitted and settled or withdrawn within eight business days of the first scheduled hearing session other than a pre-hearing conference.
[(f)](g) Any matter submitted and thereafter settled or withdrawn subsequent to the commencement of the the first hearing session, including a pre-hearing conference with an arbitrator, shall [may] be subject to [such refund of assessed deposits, if any, as the panel or arbitrators presiding may determine.] an assessment of forum fees and costs incurred pursuant to Sections 30, 32, 33, and 37 based on hearing sessions held and scheduled within eight business days after the Association receives notice that the matter has been settled or withdrawn. The arbitrator(s) shall determine by whom such fees and costs shall be borne.
[(g) The arbitrator(s) may assess forum fees and costs incurred pursuant to Section 30, 32, 33, and 37 in any matter settled or withdrawn subsequent to the commencement of the first hearing session.]
(h) In each industry or clearing controversy [that] which is required to be submitted to arbitration before the Association as set forth in Section 8, above, requiring expedited hearings, a non-refundable surcharge of $2,500 shall be paid by all Claimants, collectively, and a non-refundable surcharge of $2,500 shall be paid by all Respondents, collectively. These surcharge fees shall be in addition to all other non-refundable filing fees, hearing deposits, or costs which may be required.

(Note: See chart on page 267 of this notice.)

(Note: Taken from Section 43 on page 265 of this notice.)

Customer Claimant

Amount in Dispute

Claim Filing Fee

Hearing Session Deposit

(Exclusive of Interest and Expenses)

Simplified1

One Arbitrator2

Three+ Arbitrators3

$.01-$1,000

$15

$15

$15

NA

$1000.01-$2,500

$25

$25

$25

NA

$2,500.01-$5,000

$50

$75

$100

NA

$5,000.01-$10,000

$75

$75

$200

NA

$10,000.01-$30,000

$100

NA

$300

$400

$30,000.01-$50,000

$120

NA

$3004

$400

$50,000.01-$100,000

$150

NA

$3004

$500

$100,000.01-$500,000

$200

NA

$3004

$750

$500,000.01-$5,000,000

$250

NA

$3004

$1,000

Over $5,000,000

$300

NA

$3004

$1,500

1Simplified Arbitration (Without Hearing)

2One Arbitrator (Per Hearing Session)

3Three or More Arbitrators (Per Hearing Session')

4Prehearing Conferences Only

(Note: Taken from Section 43 on page 265 of this notice.)

Industry Claimant

Amount in Dispute

Claim Filing Fee

Hearing Session Deposit

(Exclusive of Interest
and Expenses)

Simplified1

One Arbitrator2

Three+ Arbitrators3

$.01-$l,000

$500

$75

$300

NA

$1000.01-$2,500

$500

$75

$300

NA

$2,500.01-$5,000

$500

$75

$300

NA

$5,000.01-$10,000

$500

$75

$300

NA

$10,000.01-$30,000

$500

NA

$300

$600

$30,000.01-$50,000

$500

NA

$3004

$600

$50,000.01-$100,000

$500

NA

$3004

$600

$100,000.01-$500,000

$500

NA

$3004

$750

$500,000.01-$5,000,000

$500

NA

$3004

$1,000

Over $5,000,000

$500

NA

$3004

$1,500

1Simplified Arbitration (With out Hearing)

2One Arbitrator (Per Hearing Session)

3Three or More Arbitrators (Per Hearing Session)

4Prehearing Conferences Only

(Note: Taken from Section 44 on page 266 of this notice)

Schedule of Fees

Amount in Dispute

Claim Filing Fee

Hearing Session Deposit

(Exclusive of Interest and Expenses)

Simplified1

One Arbitrator2

Three+Arbitrators3

$.01-$1,000

$500

$75

$300

NA

$1000.01-$2,500

$500

$75

$300

NA

$2,500.01-$5,000

$500

$75

$300

NA

$5,000.01-$10,000

$500

$75

$300

NA

$10,000.01-$30,000

$500

NA

$300

$600

$30,000.01-$50,000

$500

NA

$3004

$600

$50,000.01-$100,000

$500

NA

$3004

$600

$100,000.01-$500,000

$500

NA

$3004

$750

$500,000.01-$5,000,000

$500

NA

$3004

$1,000

Over $5,000,000

$500

NA

$3004

$1,500

1Simplified Arbitration (With out Hearing)

2One Arbitrator (Per Hearing Session)

3Three or More Arbitrators (Per Hearing Session)

4Prehearing Conferences Only