SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-39371; File No. SR-NASD-97-47)

November 26, 1997

Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc.
Relating to Punitive Damages in Arbitration.

     Pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 ("Act"), 15 U.S.C. 78s(b)(1), notice is hereby given that
on July 8, 1997, the National Association of Securities
Dealers, Inc. ("NASD" or "Association") filed with the Securities
and Exchange Commission ("SEC" or "Commission") the proposed rule
change as described in Items I, II, and III below, which Items
have been prepared by the self-regulatory organization.  The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I.   Self-Regulatory Organization's Statement of the Terms of
     Substance of the Proposed Rule Change

     NASD Regulation is proposing to amend the NASD's Code of
Arbitration Procedure to add a new rule relating to the award of
punitive damages.  Below is the text of the proposed rule change. 
Proposed new language is in italics; proposed deletions are in
brackets.
                    RULES OF THE ASSOCIATION
10000.  CODE OF ARBITRATION PROCEDURE
10300.  UNIFORM CODE OF ARBITRATION
10336.    Punitive Damages
This Rule explains when a party may seek punitive damages, what
standards and limitations apply to the claim, and what the
arbitration award must state.
     (a) The Availability of Punitive Damages
          (1) This Rule applies to any claim that must be
     arbitrated under Rule 10301 between a public customer and a
     member, or between a public customer and an associated
     person.
          (2)  A party may request punitive damages if, at the
     time the party files a claim, the party is a citizen of a
     state that allows its courts to award punitive damages for
     the same type of claim.
          (3) A member or an associated person may request
     punitive damages from a public customer only if the public
     customer is a citizen of a state that allows its courts to
     award punitive damages for one or more of the public
     customer's claims.
          (4)  A party seeking punitive damages must state the
     amount in its claim.
          (5)  For purposes of this Rule, the term þclaimþ means
     any dispute or controversy described in the Statement of
     Claim (including Counterclaims, Third-Party Claims, and
     Cross-Claims) for which the claimant is seeking any form of
     remedy.
     (b) Arbitrators to Apply State Standard
          (1)  When arbitrators decide whether to award punitive
     damages, they will apply the same standard of conduct
     applied by courts in the state where the requesting party is
     a citizen at the time a claim is filed.
          (2)  Arbitrators will apply this standard even if the
     parties signed a choice of law agreement that specifies a
     different state.
     (c)  Limitations on the Amount and Availability of Punitive
     Damages
          (1)  Punitive damages may be awarded in an amount up to
     two times compensatory damages or $750,000, whichever is
     less.
          (2)  For purposes of this paragraph only, compensatory
     damages do not include  attorneys' fees, costs of
     arbitration, or post-award interest.
          (3) Arbitrators cannot award punitive damages if they
     have already awarded multiple damages for the same claim
     under:
               (A)  the Racketeer Influenced and Corrupt
          Organizations Act (RICO), or
               (B)  any other federal or state statute that
          provides for multiple damages awards.
          (4) The limitations in this Rule apply even if state
     laws differ.
     (d) Statement in Award
     If the arbitrators award compensatory and punitive damages,
they must state separately the amount they awarded for each.
II.  Self-Regulatory Organization's Statement of the Purpose of,
     and Statutory Basis for, the Proposed Rule Change

     In its filing with the Commission, the self-regulatory
organization included statements concerning the purpose of and
basis for the proposed rule change and discussed any comments it
received on the proposed rule change.  The text of these
statements may be examined at the places specified in Item IV
below.  The self-regulatory organization has prepared summaries,
set forth in Sections A, B, and C below, of the most significant
aspects of such statements.
     A.   Self-Regulatory Organization's Statement of the Purpose
          of, and Statutory Basis for, the Proposed Rule Change

          1.   Purpose

     In January 1996, the NASDþs Arbitration Policy Task Force
("Task Force") released its report on Securities Arbitration
Reform.  The Task Force Report made numerous recommendations to
improve the arbitration process.  Since the Report was released,
NASD Regulation has been engaged in a major effort to implement
the Task Force recommendations.
     The proposed rule change relates to the Task Force
recommendations concerning the availability of punitive damages
in securities arbitration.  In brief, the Task Force recommended
that punitive damages remain available in NASD arbitration,
subject to a cap.  The Task Forceþs recommendations are described
in more detail below.
Summary of Proposed Rule Change
     The proposed rule change would apply only to arbitration
disputes between public customers and member firms (or their
associated persons).  The proposed rule change would allow a
customer to seek punitive damages in arbitration if the state of
which he or she is a citizen would allow punitive damages for the
same type of claim in court.  In deciding whether an award of
punitive damages is warranted, the arbitration panel will look to
the standard of conduct for the award of punitive damages applied
in the state of which the party requesting punitive damages is a
citizen at the time the claim is filed.  That stateþs law is to
be applied without regard to any contrary choice-of-law provision
contained in the partiesþ agreement.  The proposed rule requires
a party requesting an award of punitive damages to specify in the
claim the amount of punitive damages requested, and provides that
punitive damages may be awarded in an amount up to two times
compensatory damages or $750,000, whichever is less.
Background     
     Damages are defined as pecuniary compensation that may be
recovered by any person who has suffered loss, detriment, or
injury to his person, property, or rights through the unlawful
act, omission, or negligence of another.  Damages may be
compensatory or punitive, according to whether they are awarded
(1) as compensation, indemnity, or restitution for harm sustained
by a party (compensatory); or (2) as other damages awarded
against a person to punish him for his outrageous conduct and to
deter him and others like him from similar conduct in the future
(punitive).  Punitive damages usually are awarded only if
compensatory damages have been sustained.  
     For many years, courts and legal scholars debated whether
punitive damages should be available in arbitration proceedings. 
In 1992, the Securities Industry Conference on Arbitration
("SICA") approved an amendment to the Uniform Code of
Arbitration which provided that arbitrators may grant any remedy
or relief that they deem just and equitable and that would have
been available in a court with jurisdiction over the same
dispute.  This provision has not been adopted by any SRO.  As
noted, in 1994, the NASD formed the Task Force to study the
securities arbitration process administered by the NASD and to
make suggestions for reform.  The NASD has followed the Task
Forceþs recommendations, described below, in developing the
proposed rule.
     In 1995, the Supreme Court addressed the availability of
punitive damages in securities arbitration in a case involving
the NASD's arbitration forum.  Mastrobuono v. Shearson Lehman
Hutton, Inc.  The Mastrobuono case involved a brokerage firmþs
client agreement that contained a New York þchoice-of-lawþ
provision and a provision requiring any controversy arising out
of the partiesþ transactions to be arbitrated according to the
rules of the NASD or the NYSE.  The choice-of-law provision
required that disputes be decided according to New York law,
which allowed courts, but not arbitrators, to award punitive
damages.  With regard to the arbitration provision, the Court
examined the NASDþs rules, because the parties had elected to
proceed in arbitration at the NASD.  The Court cited an NASD
rule providing that arbitrators may award þdamages and other
relief,þ and determined this language to be broad enough to
include punitive damages.  In addition, the Court observed
that the Arbitratorþs Manual provided to NASD arbitrators stated
that þarbitrators can consider punitive damages as a remedy.þ 
The Court concluded that the choice-of-law provision introduced
an ambiguity into an agreement that would otherwise allow
punitive damages awards.  The Court construed the ambiguity
against the brokerage firm that drafted the agreement, thus
enforcing the award of punitive damages to the customers.  The
Mastrobuono decision left open the possibility that a more
clearly drafted agreement might permit, exclude, or limit
punitive damages.
Trends in State and Federal Law
     In the past few years, the United States Congress and
several state legislatures have acted to place limits on the
amount of punitive damages that may be recovered in court
proceedings.  Although many of these new laws relate to causes of
action that would not normally be alleged in securities
arbitrations, such as personal injury and product liability, the
number of statutes restricting the award of punitive damages is
an indication of growing legislative concern.  Some examples of
state and federal laws are provided below.
     A review of NASD arbitration records indicates that about
half of all claimants in the past three years have been residents
of California, New York, Florida, New Jersey, Texas, Illinois, or
Michigan; over 40% of all claimants lived in the first three
listed states.  State laws are constantly evolving; however,
it appears that all seven of the above states allow for the award
of punitive damages for some types of tort actions; five
states have some statutory limitations on punitive damages;
and two states have no statutory limit on the amount that may be
awarded, although case law allows the trial or appellate courts
to reduce the amount awarded by the trier of fact.  Two states
provide for payment of a share of the award to the state in
certain circumstances.  In some of the states, punitive damages
requests must be separately pleaded or tried, or are otherwise
subject to special procedures to avoid prejudice to the
defendant.  As noted earlier, many of the state statutes
described above relate to claims that one would not expect to
find in securities arbitrations. 
     At the federal level, Congress has acted to provide for
punitive damages in two specific areas, while at the same time
placing limits on the amounts that may be recovered. 
Task Force Report
     In its Report, the Task Force noted that the subject of
punitive damages has generated widespread controversy and
polarization between the investor and broker/dealer
communities.  The Task Force observed that about 50% of all
new arbitration claims include a claim for punitive damages,
although punitive damages are awarded in only about 1% of cases. 
The Task Force Report expressed the opinion that the existence of
a punitive damages claim can lead to more adversarial litigation,
as respondents use every available tactic to defend themselves
against a potentially enormous award.  The Task Force Report also
noted the views of some claimantsþ lawyers that it could be
considered malpractice for them to omit punitive damages claims. 
After interviewing many interested groups and individuals, and
after numerous discussions, the Task Force recommended that:
    punitive damages remain available in NASD arbitration,
     subject to a cap;
    the cap on punitive damages be the lesser of two times
     compensatory damages or $750,000;
    damages under the Racketeer Influenced and Corrupt
     Organizations Act ("RICO") and punitive damages not be
     awarded for the same claim;
    punitive damages be available to an investor where they
     would be available in court for the same types of claims, in
     the state where the investor is domiciled;
    the standard of conduct justifying the award of punitive
     damages be based on state law where the investor is
     domiciled; 
    the award specify the amount given for compensatory damages
     and the amount given for punitive damages; and
    where requested by the party against whom the award is
     rendered, the award describe the conduct giving rise to the
     award.
     The Task Force noted that the cap on punitive damages finds
support by analogy to recently enacted state and federal statutes
imposing limitations on punitive damages.  The Task Force
recommended further that any predispute arbitration agreement
between the parties expressly provide for the award of punitive
damages (subject to their availability for the same types of
claims in state court), refer to the relevant NASD Rule, and
provide that the parties' agreement to permit punitive damages in
arbitration preempts any state arbitration law to the
contrary.  The Task Force's research indicated that this type
of agreement would comport with existing law under the Federal
Arbitration Act ("FAA"), which has been held to preempt
conflicting state law.

Positions of Interested Organizations
     In order to carry out the recommendations of the Task Force,
NASD Regulation considered the views of various organizations and
reviewed relevant federal and state law.  In particular, NASD
Regulation considered letters from and conversations with
representatives of the Public Investors Arbitration Bar
Association ("PIABA"), SICA, and the Securities Industry
Association ("SIA").   
     Attorneys and groups representing investors argued that
arbitration should afford the same types of relief as would be
available in court, including punitive damages.  These groups
contended that, since virtually all firm agreements with their
customers contain a clause mandating arbitration of disputes
arising under the agreement, customers are unable to take their
claims to court but must proceed in arbitration.  Such groups
generally oppose any limitation on punitive damages, such as
ceilings on the amount that may be awarded, or ratios of punitive
damages to compensatory damages.  For example, PIABA expressed
the initial opinion that there should be no cap on punitive
damages, as such damages provide a "significant and important
curb on customer abuse."  
     Public members of SICA, i.e., those not affiliated with the
securities industry or with the SROs, sent a letter to the
Chairman of the NASD shortly before the NASD Board of Governors
met to consider the proposed rule change.  In the letter, the
public members stated their view that the proposed punitive
damages rule would result in an arbitrary limitation of
arbitratorsþ authority to award punitive damages, and would
conflict with an NASD rule prohibiting arbitration agreements
from containing limitations on arbitratorsþ authority.  The
public members also expressed the opinion that the issue should
be returned to SICA for development of an acceptable resolution.
     Representatives of the broker-dealer community, however,
recommended limiting or prohibiting the award of punitive damages
in arbitration.  The SIA expressed the views that (i) arbitration
claimants do not have an absolute right to punitive damages;
rather, punitive damages are purely discretionary on the part of
the jury or arbitrator in order to punish a person for conduct
that is outrageous to society as a whole; (ii) punitive damages
were devised to serve the purposes of punishment and deterrence,
but, in the securities industry, state and federal regulators
already have a broad arsenal of weapons to use against
wrongdoers; (iii) arbitration does not offer the due process
safeguards that are available in court; for example, the rules of
evidence do not apply in arbitration; there are no set standards
of proof, such as preponderance of the evidence, clear and
convincing evidence, or reasonable doubt; and there is no right
to appeal the award except on very narrow grounds; (iv)
arbitration cases are difficult to settle due to the threat of
punitive damages; because claimants hope for larger awards in
arbitration through an award of punitive damages, they are less
willing to settle cases at what firms consider a "reasonable"
amount; and (v) the chief advantage of arbitration, its
relatively speedy resolution of a dispute by ordinary individuals
using notions of simple justice, will be lost as the process
becomes more complex and more like the court system.  
     The SIA stated that its Board had recommended that the cap
be reduced to $250,000 or one times compensatory damages,
whichever is less.  The SIA noted that $750,000 is greater
than the total net capital of half of the member firms of the SIA
and of an additional several thousand firms that are members of
the NASD.  The SIA contended that, since arbitration awards are
very difficult to appeal, there should be reasonable restraints
on punitive damages to avoid endangering the viability of the
vast majority of NASD members.  
     Other suggestions made by the SIA were that the term
"compensatory damages" be defined as "out-of-pocket losses,"
based upon the difference in price between purchases and sales of
the investment (or current value, if still held); that the term
"exemplary damages" be used instead of "punitive damages"; that a
uniform national standard of conduct be used to determine when
punitive damages are appropriate; that the rule specify that
exemplary damages may be awarded "up to" the stated cap, to
clarify that the cap is not an automatic amount; that the
applicable state law to determine whether punitive damages are
available be that of the investor's domicile at the time the
transaction occurred; and that the award of punitive damages be
considered in a separate proceeding from the rest of the case (a
process often referred to as þbifurcationþ).
Purpose of Proposed Rule Change
     During the past several years, interested parties have been
unable to reach a consensus on punitive damages, and NASD
Regulation believes that it must take action at this time to
implement a punitive damages rule.  After reviewing the positions
of various interested groups, NASD Regulation adopted an
amendment to the Code of Arbitration Procedure that generally
follows the Task Force recommendations, with minor changes
considered appropriate.  NASD Regulation believes that the
proposed rule change best effectuates the interests of providing
a forum to investors that provides appropriate relief while
limiting the potential for awards that are disproportionate based
on the claims alleged. 
     NASD Regulation recognizes that it is not appropriate or
feasible to eliminate the availability of punitive damages in
arbitration so long as public customers are required by most
member firms to sign predispute arbitration agreements.  At the
same time, NASD Regulation realizes that some of the safeguards
against excessive punitive damages awards that may be available
to defendants in court are not available in arbitration, such as
special pleading requirements for requests of punitive
damages, separate hearings for the liability and damages
phases of the case, post-trial review of the award by a
judge, and judicial appeals on the merits of the decision
rather than on the narrower grounds for overturning an
arbitration award.  Therefore, NASD Regulation believes it has
balanced these considerations fairly in endorsing the
recommendation of the Task Force that a cap on punitive damages
is necessary and appropriate if punitive damages are to be
permitted in the NASD Regulation forum.      
     The cap on punitive damages of the lesser of two times
compensatory damages or $750,000 is believed to be appropriate in
an industry that is already subject to extensive regulatory
oversight.  As discussed above, the $750,000 amount is larger
than the net capital requirement of many NASD member firms. 
Therefore, a cap of $750,000 provides a significant deterrent to
egregious behavior, since it could threaten a firmþs continued
operations.  Considering the fact that arbitration by its nature
is more informal than a court proceeding, with relaxed rules of
evidence and procedure, and the fact that arbitration awards may
be modified or vacated only on very narrow grounds, NASD
Regulation believes that the limitation on the amount of punitive
damages is reasonable. 
Description of Proposed Rule Change
     The proposed rule has been drafted using the þplain Englishþ
principles of written communication that the Commission has
encouraged.  NASD Regulation believes the proposed rule will be
easier for all arbitration participants to understand, most
notably participants who represent themselves (pro se parties). 
Unlike the NASDþs Membership and Conduct Rules, which are mainly
referred to and applied by member firms, their compliance
officers, and their attorneys, the Code of Arbitration Procedure
is often used by pro se parties who are not attorneys and who are
usually coming into contact with the dispute resolution process
for the first time.  In such circumstances, plain English
rules are particularly important.  In conformity with plain
English principles, the term þarbitratorsþ has been used instead
of þarbitration panelþ in the proposed rule change.  This usage
is not meant to imply that the proposed rule change applies only
to cases heard by more than one arbitrator; rather, it applies to
any arbitration panel, which may be composed of one or more
arbitrators.  
     Proposed new Rule 10336 provides in paragraph (a)(1) that it
applies only to disputes between a public customer and a member
or between a public customer and an associated person. 
Therefore, the proposed rule will not apply to disputes between
or among members and associated person (þindustry disputesþ).
     Proposed paragraph (a)(2) states that a party may request an
award of punitive damages if a court (not an arbitration panel)
of the state of which that party is a citizen, at the time the
claim is filed, could award punitive damages for the same type of
claim.  A party seeking punitive damages may, either at the
party's option or at the request of the arbitrators, brief the
applicable state law in order to demonstrate to the arbitrators
that his or her state does allow the award of punitive damages in
its courts for the same type of claim.  Thus, the party's
citizenship at the time of filing, rather than at the time of the
underlying transaction(s), determines the applicable state law. 
This facet of the proposed rule follows the Task Force's
recommendation rather than the SIA's suggestion.  NASD Regulation
believes this provision will be considerably easier to
administer, especially where several transactions or events take
place over a long period of time, during which time the party
seeking punitive damages could have moved one or more times. 
     Proposed paragraph (a)(3) was added to address the situation
in which an investor lives in a state that does not allow the
recovery of punitive damages for the investorþs claims.  In that
situation, the rule would prevent a member firm (or associated
person) which is a citizen of a state that permits punitive
damages from seeking punitive damages against the investor.  If
the investor has several claims and is able to request punitive
damages for any one of them, then the member or associated person
may also request punitive damages as allowed under relevant state
law.  
     Proposed paragraph (a)(4) requires a party requesting an
award of punitive damages to specify in its claim the amount of
punitive damages it is requesting.  Specification is required
because the amount of the claim determines the size of the
arbitration panel appointed, the member surcharge,  the
claimantþs filing fees, and the hearing session fees.
     Proposed paragraph (a)(5) defines the term þclaimþ for
purposes of the proposed rule as including any dispute or
controversy described in a Statement of Claim (including
Counterclaims, Third-Party Claims, and Cross-Claims) for which
the claimant is seeking any form of remedy, in order to reduce
the verbiage needed each time the term þclaimþ is used. 
     Proposed paragraph (b)(1) provides that the standard of
conduct to be applied is that of the state of which the party
requesting punitive damages is a citizen at the time the claim is
filed.  This follows the Task Force recommendation and conforms
to paragraph (a)(2) in looking to state law to determine what
conduct justifies an award of punitive damages. 
      Proposed paragraph (b)(2) specifies that the standard of
paragraph (b)(1) applies regardless of any choice-of-law
provision in the parties' predispute arbitration agreement.  This
provision is intended to avoid the situation in which a member
firm inserts a choice-of-law clause in its customer agreements
that specifies use of the law of a state that does not allow, or
that strictly limits, the award of punitive damages in
arbitration.  Often that state is the one in which the member
firm is headquartered, but it may not be the state in which the
customer lives or in which the customer did business with the
member firm.  The NASD believes it is fairer to apply the law of
the state in which the customer is a citizen at the time the
claim is filed, rather than to apply the law of a state specified
in a choice-of-law provision that the customer may not have
noticed or understood when opening an account some months or
years earlier.  Paragraph (b)(2) applies only to the availability
of punitive damages, and not to the substantive claims, which
would still be subject to applicable choice-of-law and conflicts
of law principles to the extent not inconsistent with other NASD
rules.
     Proposed paragraph (c) sets out the limitations discussed
earlier, stating in (c)(1) that punitive damages may be awarded
in an amount up to two times compensatory damages or $750,000,
whichever is less.  The use of the phrase "up to" makes clear
that the limitation is not a standard amount to be awarded in
every case.  The amount of the cap is the same as contained in
the Task Force's recommendation.
     The Task Force intentionally did not define compensatory
damages, leaving it to the discretion of the arbitrators.  This
choice reflected the fact that there are different theories of
loss for compensatory damages, such as out-of-pocket loss or lost
opportunity costs, that may be appropriate in different
circumstances.  The proposed rule deviates only in a minor
respect from this recommendation.  The definition of compensatory
damages set out in proposed paragraph (c)(2) excludes attorneys'
fees, other costs of arbitration, and post-award interest.  Such
amounts may continue to be awarded, but simply are not considered
for purposes of the formula in paragraph (c)(1) for punitive
damages.  Arbitrators, however, may include pre-award interest in
compensatory damages for purposes of paragraph (c)(1) if they
have awarded such interest. 
     Proposed paragraph (c)(3) makes clear that punitive damages
are not to be awarded in addition to the multiple damages allowed
by RICO or other similar statutes for the same claim.  This
recommendation is in accordance with the Task Force's
recommendation that arbitrators be precluded from awarding both
RICO damages and punitive damages for the same claim.  The term
"multiple" was used instead of "treble" to be more comprehensive,
since there may be state and federal statutes that provide for
automatic doubling, tripling, or other multiples of compensatory
damages.  For purposes of the proposed rule, a statute providing
for punitive damages in an amount equal to (one times)
compensatory damages would not be considered to be "multiple." 
Likewise, a statute providing for punitive damages in an amount
þup toþ a certain multiple of compensatory damages would not be
considered to be þmultipleþ for purposes of paragraph (c)(3),
because the actual amount of punitive damages is discretionary
rather than automatic.  In the latter two cases, the amount of
punitive damages would be subject to the cap in the NASD rule.
      Proposed paragraph (c)(4) states that the limitations of
paragraph (c) supersede any applicable state law on the size of
punitive damage awards.  This may result in a higher or lower
award of punitive damages in arbitration than would be available
under state law.  As noted above, NASD Regulation believes this
result is fair, in that it provides uniform remedies for
claimants in different states (if their state allows punitive
damages), as well as a consistent limit of liability for member
firms with offices in several states.  In addition, the
disciplinary processes of NASD Regulation (as well as of the SEC,
the state securities regulators, and federal and state criminal
authorities) remain available to customers who feel they have
been wrongly treated by their broker-dealers.
     Finally, proposed paragraph (d) requires the arbitrators to
set forth separately in their award the amounts awarded for
compensatory and punitive damages.  This requirement is in
accordance with the Task Force's recommendation and was not
opposed by the SIA or PIABA.  The paragraph does not require
arbitrators to describe the facts and conduct upon which the
award of punitive damages was based, or to set forth their
reasons for not awarding punitive damages.  The Task Force had
recommended that, where requested by the party against whom the
award is rendered, the arbitrators should describe the conduct
giving rise to the award.  NASD Regulation believes such
explanations could slow the completion of the arbitration.  They
also would create uncertainty as to the date of the award for
appeal purposes.  However, parties will continue to be allowed to
request an opinion of the arbitrators as described in the
Arbitration Procedures booklet compiled by SICA and distributed
to all public customer claimants.  Under this practice, a party
must make any such request no later than the date of the hearing,
and the arbitration panel has the discretion to grant or deny the
request.
     All newly approved NASD arbitrators who have not presided at
a hearing are required to attend a training program, which
includes information on the awarding of punitive damages.  If the
proposed rule change is approved, Office of Dispute Resolution
staff will make appropriate changes to the arbitrator training
and education materials to reflect the requirements of the new
rule. 
     NASD Regulation is requesting that the proposed rule change
be effective within 45 days of SEC approval.
          2.   Statutory Basis
     NASD Regulation believes that the proposed rule change is
consistent with the provisions of Section 15A(b)(6) of the Act
in that it will promote just and equitable principles of trade by
providing an additional remedy for wrongdoing by broker/dealers
and their associated persons, and it will protect investors and
the public interest by clarifying that punitive damages are
available in the NASD Regulation arbitration forum, where they
would be available under relevant state law for similar court
proceedings. 
     B.   Self-Regulatory Organization's Statement on Burden on
          Competition

     The NASD does not believe that the proposed rule change will
impose any inappropriate burden on competition.
     C.   Self-Regulatory Organization's Statement on Comments on
          the Proposed Rule Change Received from Members,
          Participants, or Others

     No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
     for Commission Action

     Within 35 days of the publication of this notice in the
Federal Register or within such longer period (i) as the
Commission may designate up to 90 days of such date if it finds
such longer period to be appropriate and publishes its reasons
for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
     (A)  by order approve the proposed rule change, or
     (B)  institute proceedings to determine whether the proposed
rule change should be disapproved.
IV.  Solicitation of Comments
     Interested persons are invited to submit written data,
views, and arguments concerning the foregoing.  Persons making
written submissions should file six copies thereof with the
Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549.  Copies of the submission, all
subsequent amendments, all written statements with respect to the
proposed rule change that are filed with the Commission, and all
written communications relating to the proposed rule change
between the Commission and any person, other than those that may
be withheld from the public in accordance with the provisions of
5 U.S.C. 552, will be available for inspection and copying at the
Commission's Public Reference Room.  Copies of such filing will
also be available for inspection and copying at the principal
office of the NASD.  All submissions should refer to File No. SR-
NASD-97-47 and should be submitted by [insert date 21 days from
date of publication].
     For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.

                                             Jonathan G. Katz
                                                  Secretary