(Volume 16, Number 3) SEPTEMBER 1996

reqcom.gif (5127 bytes) COMMENTS DUE BY: NOVEMBER 15, 1996


Route To: Manager, Muni Department Compliance

Comments Requested The Board is concerned about the costs of operating its arbitration program in light of the decreasing number of cases filed with the Board. Thus, the Board is considering discontinuing its arbitration program, and requests comment on the impact such action would have on the public and the industry.

Comments on the proposed elimination of the Board's arbitration program should be submitted no later than November 15, 1996.

The Board's arbitration program, which is limited to the resolution of disputes involving municipal securities, has been in effect since December 1978. The Board's caseload grew steadily for a time (for example, 21 cases were received in 1980; 82 in 1986; and 115 in 1988). Between 1978 and 1993, the NASD automatically transferred to the Board's arbitration program any claims received involving municipal securities, and until approximately 1993 the majority of the Board's cases were received in this manner.[1] In 1993, the NASD amended its arbitration code to require a customer's consent before it could transfer a case to another SRO. The practical effect of this amendment has been to virtually halt the transfer of municipal cases to the Board's arbitration program because customers choose to remain at the NASD. Consequently, the Board's caseload has declined dramatically from a record 115 cases received in 1988, to nine cases received in 1995.[2]

The Board believes that the decline in its arbitration caseload makes it difficult for the Board to justify the cost of continuing to operate the arbitration program. Accordingly, the Board is considering discontinuing its arbitration program. However, before any final determination is made in this regard, the Board seeks comment on the impact that such action would have on the public and the industry. The Board wishes to point out that, if it does eliminate its arbitration program, customers, brokers, dealers and municipal securities dealers may use other arbitration facilities, such as the NASD's, for the resolution of any claim, dispute or controversy involving municipal securities. The Board specifically requests comment on what effect, if any, the elimination of its arbitration program would have on bank dealers who are not NASD members.

September 13, 1996


[1] The NASD also transferred cases (other than those involving municipal securities) to other self-regulatory organizations (SROs), such as the New York Stock Exchange and the American Stock Exchange, if the particular claim arose out of a transaction in that SRO's market.

[2] In contrast, the NASD received 82 cases involving municipal securities in 1995. Thus, the vast majority of claims involving municipal securities are filed with, and administered by, the NASD.

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