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U.S. Securities and Exchange Commission

Statement Regarding Arbitration Programs
of Self-Regulatory Organizations

U.S. Securities and Exchange Commission
Washington, D.C.
September 17, 2002

The Commission announced today several actions to protect investors and resolve an ongoing dispute concerning investor-broker arbitration procedures in California. In July, California adopted new rules for arbitrations conducted in that state. Despite requests from the Commission's staff and two SROs — the New York Stock Exchange and the National Association of Securities Dealers — California declined to exempt from its new rules existing arbitration programs provided by the SROs to resolve investor complaints. Thereafter, the NYSE and NASD filed an action in federal district court in California, claiming the California rules are preempted by federal law and cannot apply to their arbitration programs. Pending the outcome of the litigation, the NYSE and the NASD stopped appointing arbitrators in California, preventing the conduct of arbitration under their procedures.

First, the Commission reaffirmed Chairman Pitt's prior request that the NYSE and NASD both immediately provide investors with available arbitration panels in California, or take other steps to ensure that California investors have available to them convenient and expeditious resolution of disputes. The Commission believes it is vitally important to protect the interest of investors in being able to resolve their disputes with broker-dealers quickly and fairly.

Second, the Commission asked Michael Perino, an associate professor of St. John's University School of Law and currently a visiting professor at Columbia Law School, to assess whether the current disclosure requirements in the NASD and NYSE arbitration procedures should be modified to reflect any of the new disclosure concepts in the new California rules. Professor Perino has agreed to conduct this review and report back promptly with any recommendations he may have to improve the disclosures required of arbitrators in SRO arbitration proceedings.

Finally, the Commission's General Counsel informed the federal district court in which the litigation against California is pending, that the Commission will seek leave to file a friend of the court brief this week. The Commission shares California's concern that investors be given all of the information they need to pursue their rights and protect their interests in arbitration. In addition, as will be discussed in the court brief, the Commission must discharge the obligations imposed by Congress to implement the federal securities laws and to oversee a uniform national system for resolving investor complaints. The Commission's staff previously discussed these issues with California officials and expressed their concerns regarding the potential adverse consequences to investors of a conflicting approach.

The Commission believes these actions will promote the goals of fair, convenient and expeditious dispute resolution for investors. These actions are intended to further the Commission's commitment to partnership with state securities regulators in our efforts to promote investor protection and prevent fraud.



Modified: 09/17/2002