September 14, 2005
The purpose of this letter is to provide the Securities and Exchange Commission with comments on the above referenced proposed rule change which was filed by the New York Stock Exchange, Inc. on June 17, 2005
As an attorney whose practice is exclusively devoted to the representation of public investors in their disputes with the securities industry, I agree with the NYSE that the accurate classification of public arbitrators in arbitration proceedings must be addressed.
Unfortunately, the proposed rule change does not sufficiently address the classifications of arbitrators between public and securities industry in a manner which will promote the highest level of investor confidence in the arbitration process.
Moreover, the proposed rule change does not address the fact that the mandatory presence of a securities industry arbitrator, on every public investor claim where the amount in controversy exceeds the sum of 25,000, is an antiquated and illogical concept whose time for extinction has long ago passed.
Notwithstanding the current requirements, in my own experience, a substantial number of arbitrators, who are currently classified by the NYSE as public arbitrators, have significant direct and/or indirect affiliations with the securities industry and, accordingly, should more properly be reclassified as industry arbitrators.
Perhaps the best illustration of this perceived problem is attributable to the increasing number of defense attorneys who are being assigned to serve on arbitration panels under the guise of the public arbitrator classification a phenomenon which has significantly contributed to the erosion of investor confidence in the arbitration process.
I would, accordingly, request your immediate consideration of the following proposed revisions to the applicable arbitrator classification provisions:
1. Section 607a2iv: This section should be amended so as to state that an arbitrator will be deemed as being a securities industry arbitrator if he or she is an attorney, accountant or other professional who has devoted any of his or her professional work effort to securities industry clients within the last five years.
It is my belief that the proposed amended language in this provision would more properly reflect the desired complete accuracy of the definition of the applicable arbitrator classification and, at the same time, would also have the following additional benefits:
a It would eliminate the continuing theoretical audit and/or enforcement responsibilities of the NYSEs staff in connection with the existing twenty 20 percent or more of his or her professional work effort limitation for the applicable individuals;
b It would eliminate the discrepancies that naturally have occurred as a direct result of the absence of any definition for the term professional work effort in the current rule;
c It would, through the utilization of a five 5 year period of time, provide consistency with the other limitations in the same Exchange Rule including, but not limited to, Exchange Rule 607a2ii;
d It would, through the utilization of a five 5 year period of time, provide consistency with the other procedural guidelines including, but not limited to, the applicable portion of question 3b in the NYSEs Arbitrator/Mediator Profile Form; and
e Perhaps of greatest importance, it would help to all but guarantee that the NYSEs stated objective, as set forth in question 1 of its Guidelines for Arbitrator/Mediator Profile Form, of insuring that public arbitrators must be free, both in fact and appearance, of ties with the securities industry, would be achieved.
2. Section 607a3i: This section should be amended so as to state that an arbitrator will not be deemed a public arbitrator if he or she has an immediate family member who is a person who would be deemed as being from the securities industry in accordance with subsection a2 of this rule.
It is my belief that the proposed amended language in this provision would more properly reflect the desired complete accuracy of the definition of the applicable arbitrator classification and, at the same time, would also have the following additional benefits:
a It would, through the recognition of the potential conflicts of interest that may be associated with immediate family members, provide consistency with the other similar limitations for securities industry family members in the same Exchange Rule including, but not limited to, Exchange Rule 607a3; and
b Perhaps of greatest importance, it would help to all but guarantee that the NYSEs stated objective, as set forth in question 1 of its Guidelines for Arbitrator/Mediator Profile Form, of insuring that public arbitrators must be free, both in fact and appearance, of ties with the securities industry, would be achieved.
3. Exchange Rule 607a2vi: I would request that this new section be adopted so as to state that an arbitrator will be deemed as being from the securities industry if he or she is an attorney, accountant or other professional whose firm and/or employer has provided any representation or services to any securities industry client, at any time, within the preceding five 5 year period of time.
It is my belief that the proposed amended language in this provision would more properly reflect the desired complete accuracy of the definition of the applicable arbitrator classification and, at the same time, would also have the following additional benefits:
a It would eliminate the continuing theoretical audit and/or enforcement responsibilities of the NYSEs staff in connection with the existing close securities industry ties or routinely represent industry firms or individuals limitations for the firms of the applicable individuals which are currently set forth in Item 5 of the NYSEs Guidelines for Classifications of Arbitrators;
b It would eliminate the discrepancies that naturally have occurred as a direct result of the absence of any definition for the terms close securities industry ties or routinely represent industry firms or individuals for the firms of the applicable individuals which are currently set forth in Item 5 of the Guidelines for Classifications of Arbitrators; and
c Perhaps of greatest importance, it would help to all but guarantee that the NYSEs stated objective, as set forth in question 1 of its Guidelines for Arbitrator/Mediator Profile Form, of insuring that public arbitrators must be free, both in fact and appearance, of ties with the securities industry, would be achieved.
Thank you for the opportunity to provide you with my comments on the preceding proposed rule change.