Waiver of California Standards Rule Extended by NASD

NASD Rule Proposal Seeks Additional Extensions


NASD submitted a rule proposal on March 5, 2004, seeking immediate approval of an extension on its pilot rule on the California Standards. Securities arbitration in California continues to operate under a unique structure that requires arbitrating parties to waive state law in exchange for SRO arbitration services.

State appellate and federal district courts have supported the SROs’ position that the so-called California Standards, which impose disclosure standards on California arbitrators, conflict with the arbitration scheme approved by the SEC, but that has not yet led the SRO forums to ignore the Standards. Instead, the NASD has required parties, since September 26, 2002, to waive the Standards as part of the situs selection process and the SEC has approved that procedure, as set forth in a pilot rule in IM-10100(f) of the NASD Code of Arbitration Procedure.

In this most recent filing (SR-NASD-2004-040), NASD has requested that the current pilot expiration date of March 31, 2004 be extended for six months to September 30, 2004, while it awaits a definitive outcome of litigation that will resolve the status of the disputed Standards (SAC Ed: Neither the California Supreme Court, nor the Ninth Circuit, has ruled on the preemption issue. The Ninth Cirucit has an appeal before it of the NASD-NYSE lawsuit against the California Judicial Council, but the California Supreme Court is more likely in our view to provide a direct answer to the question. The Court just granted a petition for review of the decision in Jevne v. Superior Ct. (SAA 03-46)). (SAC Ref. No. 04-11-02).

Copyright 2004 Securities Arbitration Commentator, Inc. P.O. Box 112, Maplewood, NJ 07040; t: 973-761-5880 f: 973-761-1504. Materials denoted with a SAC Reference No. (e.g. SAC Ref. No. 99-01-001) are on hand at SAC and may be obtained by calling the Securities Arbitration Commentator, or by email to help@sacarbitration.com. The Securities Arbitration Commentator is the leading publication for securities arbitration news and information, and maintains the most complete database of arbitration awards availalble anywhere. For more information regarding their services, visit their website at www.sacarbitration.com

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

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