Notice of Filing of Amendment to Rule G-8, on Recordkeeping, Relating to Delivery of Customer Agreements Containing Predispute Arbitration Clauses
On April 29, 2005, the Municipal Securities Rulemaking Board (“MSRB”) filed with the Securities and Exchange Commission (“SEC”) a proposed rule change to amend Rule G-8, on recordkeeping, to conform to NASD’s recent amendments to Rule 3110(f).[1] The NASD amendments conform its requirements with the SEC’s recordkeeping rules by extending the time period for delivery of a copy of a customer account agreement containing a predispute arbitration clause from the time of signing to within 30 days of signing.[2] The MSRB has set an effective date for the amendments of May 1, 2005, to coincide with the effective date of the recent amendments to NASD Rule 3110(f), and, consistent with NASD, has extended the compliance date to June 1, 2005 for the prior amendments to Rule G-8(a)(xi)(M)(1), on required disclosures in customer agreements containing predispute arbitration clauses.[3]
SUMMARY OF AMENDMENT
On March 21, 2005, the MSRB filed, for immediate effectiveness, a proposed rule change consisting of an amendment to Rule G-8 to add requirements governing the use of predispute arbitration agreements with customers, consistent with NASD requirements as set forth in NASD Rule 3110(f).[4] Shortly thereafter, NASD filed an amendment to Rule 3110(f) to conform to SEC recordkeeping rules, in particular Exchange Act Rule 17a-3(a)(17)(i)(B)(1),[5] by extending the time period for delivery of a copy of a customer account agreement containing a predispute arbitration clause from the time of signing to within 30 days of signing. The NASD amendments also extend the compliance date of its prior amendments to Rule 3110(f)(1), on required disclosures, to June 1, 2005.
As stated previously, it is the MSRB’s intent to make its requirements governing the use of presdispute arbitration agreements with customers consistent with NASD requirements in this area. Accordingly, the MSRB is submitting the proposed rule change to amend Rule G-8, consistent with NASD Rule 3110(f) as most recently amended. As noted in NASD’s filing, the purpose of the proposed rule change regarding the delivery of customer agreements is to conform the time period for delivery of copies of any customer agreement containing a predispute arbitration clause to customers with SEC requirements as set forth in its recordkeeping rules.[6] Specifically, the proposed rule change would require dealers to comply with such delivery requirements within 30 days of signing of the customer agreement.
Both NASD and MSRB requirements, as previously filed, are effective as of May 1, 2005.[7] As part of its most recent amendments, NASD extended to June 1, 2005 the compliance date for its provision regarding required disclosures in any customer agreement containing a predispute arbitration clause. Thus, the MSRB has set an effective date for the amendments of May 1, 2005, and has extended the compliance date for its prior amendments to Rule G-8(a)(xi)(M)(1), on required disclosures, to June 1, 2005. Beginning June 1, 2005, all customer agreements containing predispute arbitration clauses must include the new disclosure required by Rule G-8(a)(xi)(M)(1).[8]
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Questions concerning this notice should be directed to Jill C. Finder, Assistant General Counsel.
May 3, 2005
TEXT OF AMENDMENTS [9]
Rule G-8 – Books and Records to be Made by Brokers, Dealers and Municipal Securities Dealers
(a) No change.
(i) - (x) No change.
(xi) Customer Account Information. A record for each customer, other than an institutional account, setting forth the following information to the extent applicable to such customer:
(A) - (L) No change
(M) Predispute Arbitration Agreements with Customers.
(1) No change.
(2)(a) No change.
(b) [At the time] Within thirty days of signing, a copy of the agreement containing any such clause shall be given to the customer who shall acknowledge receipt thereof on the agreement or on a separate document.
(3)(a) A broker, dealer or municipal securities dealer shall provide a customer with a copy of any predispute arbitration clause or customer agreement executed between the customer and the broker, dealer or municipal securities dealer, or inform the customer that the broker, dealer or municipal securities dealer does not have a copy thereof, within ten business days of receipt of the customer’s request. If a customer requests such a copy before the broker, dealer or municipal securities dealer has provided the customer with a copy pursuant to subparagraph (2)(b) above, the broker, dealer or municipal securities dealer must provide a copy to the customer by the earlier date required by this subparagraph (3)(a) or by subparagraph (2)(b) above.
(b) No change.
(4) through (7) No change.
[1] File No. SR-MSRB-2005-07. Comments on the proposed rule change should be submitted to the SEC and should reference this file number.
[2] NASD’s filing (File No. SR-NASD-2005-045) was granted accelerated approval in SEC Release No. 34-51526 (April 12, 2005).
[3] Rule G-8(a)(M)(1), as amended, requires as follows: Any predispute arbitration clause shall be highlighted and shall be immediately preceded by the following language in outline form: This agreement contains a predispute arbitration clause. By signing an arbitration agreement the parties agree as follows: (a) All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed. (b) Arbitration awards are generally final and binding; a party’s ability to have a court reverse or modify an arbitration award is very limited. (c) The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings. (d) The arbitrators do not have to explain the reason(s) for their award. (e) The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry. (f) The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court. (g) The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement.
[4] File No. SR-MSRB-2005-05. The filing also contained a technical amendment to Rule A-11, on indemnification, to delete its obsolete references to arbitrators. On April 1, 2005, the MSRB submitted Amendment No. 1 to the filing to replace, in its entirety, the proposed language to Rule G-8 with new language that conformed with the language of NASD Rule 3110(f), as amended. See MSRB Notices 2005-18 (March 21, 2005) and 2005-21 (April 1, 2005). The Commission published notice of the filing for immediate effectiveness in Release No. 34-51534 (April 12, 2005). The effective date for the amendments to Rule G-8 is May 1, 2005.
[5] 17 CFR 240.17a-3(a)(17)(b)(1). This SEC rule requires a broker-dealer, among other things, to keep a record indicating that the broker-dealer has furnished to each customer within 30 days of opening the account a copy of the account record, or alternate document, containing the customer’s name, address, telephone number, date of birth, employment status, annual income, net worth, the account’s investment objectives, and other information.
[6] File No. SR-NASD-2005-045 at 19.
[7] SEC Release No.’s 34-50713 (November 22, 2004) and 34-51534 (April 12, 2005).
[8] However, any dealer that wishes to use customer agreements containing the new disclosure language required by MSRB Rule G-8(a)(xi)(M)(1) may do so prior to the compliance date of June 1, 2005. See note 3 above for a description of the required disclosure language.
[9] Underlining indicates new language; brackets indicate deletions.
