SEC Approves Changes To NASD Code Of Arbitration

by Glen Shapiro, LawAndTax-News.com, New York

26 January 2007

The US Securities and Exchange Commission on Wednesday approved rule changes to enhance the National Association of Securities Dealers (NASD) Code of Arbitration and make it more user-friendly.

The Code will be replaced in its entirety by three separate codes – one for customer disputes, one for industry disputes, and one for mediations, which the Commission approved in 2005. These have been written in plain English and, in the case of the customer code and industry code, are organized to follow the sequential order of a typical arbitration.

“The new codes will benefit investors by improving the transparency of the arbitration process and clarifying the rules that apply to resolving customer disputes, industry disputes, and mediations,” explained Erik Sirri, Director of the SEC Division of Market Regulation.

Substantive made to the customer code and industry code include:

• Broader Arbitrator Authority to Impose Sanctions: Under the new codes, arbitrators may impose sanctions for violations of any provision of the new codes. This authority will allow arbitrators to better control all aspects of an arbitration proceeding.
• Enhanced Qualification Requirements for Arbitrator Chairpersons: Under the new codes, NASD arbitrators must meet certain training and/or experience requirements to serve as chairpersons. This new requirement will increase the overall level of training and experience among arbitration panels.
• Changes in Discovery Procedures: The new codes codify the discovery guidelines to make clear that complying with the discovery rules is mandatory, and authorize arbitrators to impose sanctions for noncompliance.
• Improved Arbitrator Selection Procedures: The new codes will give parties greater control over the selection process by increasing the number of arbitrators parties may choose from, while limiting the number of strikes that parties may exercise, and decreasing the likelihood that the Director of Arbitration will have to name arbitrators.

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