Mr. Richard Grasso
Chairman and Chief Executive Officer
The New York Stock Exchange, Inc.
11 Wall Street
New York, NY 10005
Mr. Robert Gluaber
Chairman and Chief Executive Officer
NASD Inc.
1735 K Street, N.W.
Washington, DC 20006
Mr. Grasso:
Mr. Gluaber:
I am writing to confirm my views that I shared with you in oral discussions regarding the litigation between the NASD and New York Stock Exchange, on the one hand, and the California Judicial Council, on the other, regarding recent California legislation addressing arbitration procedures for hearings that take place in California.
As you know, the Commission has broad oversight responsibilities for the arbitration programs of the NASD and NYSE, and has exercised that authority for more than twenty years, in an effort to promote fair and uniform administration of investor claims in their arbitration programs. To the best of my knowledge, securities arbitration is the only large-scale alternative dispute resolution system in the nation subject to federal government scrutiny. Because of that federal oversight and the need for uniform procedures, I do not believe the legitimate concerns of individual states should be allowed to threaten the consistent application of the national shareholder arbitration system we oversee.
But, the paramount issue facing the NYSE and the NASD is not whether California has the right to provide protections for its citizens, or whether the protections it seeks to apply should also apply to shareholder arbitration disputes; rather, it is whether the arbitration procedures of both your institutions offer investors a fair, convenient and expeditious forum for the resolution of disputes. However, inappropriate you may believe the California legislation to be, there is absolutely no justification for requiring individuals either to go out of state to obtain a hearing they have an absolute right to have or therwise forgo their rights in arbitration. Therefore, I request that the NYSE and the NASD immediately either provide investors with available arbitration panel in California, or take other steps to ensure that California investors have available to them convenient and expeditious resolution of disputes.
In addition, within the next 30 days, we will review the disclosure requirements in the NYSE and NASD arbitration procedures, in light of the recent California legislation, in order to ensure that the goals we all share — of fair, convenient and expeditious dispute resolution — are met, and that any improvements suggested by the California legislation can be made available to investors in an appropriate fashion. Please let me know your response to this before the close of business tomorrow.
Yours Truly,
Harvey L. Pitt