Now that the NASDR has filed its rule proposal with the SEC eliminating its requirement that all discrimination and sexual harassment complaints be subject to arbitration, the question becomes: Will the NYSE follow in the NASDR's footsteps?
The NASDR's move is "completely meaningless unless the other SROs do the same," notes Cliff Palefsky, an attorney with the National Employment Lawyers Association (NELA) of San Francisco.
That's because the firms can demand arbitration at the NYSE where there is no proposal to exempt from arbitration discrimination or sexual harassment complaints.
That's exactly what happened in the case of Susan M. Rosenberg v. Merrill Lynch, currently being litigated in the U.S. District Court in Boston. That case has drawn widespread attention because Judge Nancy Gertner has taken the unusual step of asking for wide-ranging fact-finding on the fairness of employment arbitration in the securities industry. The judge's ruling was based on the briefs that were submitted by a number of parties, including the Equal Employment Opportunity Commission, the National Organization for Women Legal Defense and Education Fund, the NELA and the Securities Industry Association. Oral arguments are expected shortly.
Initially, Merrill Lynch demanded arbitration at the NASD, says Steven Sager, one of Rosenberg's attorneys. But when Rosenberg signed her U-4, "the NASD did not specifically include employment disputes in their mandate to arbitrate-that happened several months after she signed," he says. In response to that argument, Merrill then demanded arbitration at the NYSE, he says.
Changing forums is possible, Sager says, because on the U-4, brokers also check off boxes to register with the other SROs, including the NYSE and AMEX.
Discovery in the Rosenberg case has produced a document that shows between Jan. 1, 1993, and June 3, 1997, in the space of three and a half years, 98 claims involving discrimination of one kind or another, or sexual harassment were filed with the NYSE. By way of contrast, the NASDR says it logged 109 discrimination or harassment cases in 1996 alone. The NYSE could become the dominant forum for these claims if it doesn't change its rules.
Will it? Palefsky believes the NYSE wants to. He points out that in 1994, after a prominent article in The Wall Street Journal on sexual harassment and mandatory arbitration in the securities industry prompted Brandon Becker (then the SEC's director of the division of market regulation) to write to all of the SROs on the issue, "The staff of the NYSE recommended that they no longer require that discrimination cases be arbitrated. In fact, they even went so far as to draft possible rules changes," he says. But, "The NASD and the SIA went nuts, and [the NYSE] backed down," he says.
The SIA's general counsel at the time, William Fitzpatrick, wrote a memo to the SROs, which ended with the following: "Please hold the line on this issue; otherwise, you're going to have very cranky members after you." Palefsky supplied a copy of the memo to RR.
The NYSE wouldn't comment for this story. However, a source at the exchange suggested that it might be "perceptive" and "ahead of the curve" to think that the NYSE might follow with a rule change of its own.