NASD rule adopted on replacement arbitrators –

SEC Approves NASD Rule Change Regarding Replacement Arbitrators

The Securities and Exchange Commission announced immediate effectiveness to a rule change proposed by NASD Dispute Resolution. The proposed change to Rule 10313 appeared on the NASD-DR WebSite a couple of weeks ago, directly after its filing with the Commission on March 13 (SR-NASD-2002-38). We summarized the proposal in SAA 02-13, as one which reverses the default procedure when an arbitrator is disqualified after appointment of the Panel. As NASD-DR did not believe the rule change significantly affects the protection of investors or the public interest, it asked the Commission on March 22 for immediate effectiveness. Approval was granted in SEC Release No. 34-45663 (dtd 3/27/02) and publication for comment appeared on April 3 in the Federal Register (67 F.R. 15848 (No. 64).

While approval and the solicitation of comments may seem contradictory, the Commission often uses this procedure to accelerate the approval process for rule changes that appear non-controversial. Nevertheless, it has the authority to “summarily abrogate such rule change” if it chooses and, in that connection, seeks public comment through April 24, 2002.

New Rule 10313 provides for the replacement of arbitrators on active Panels, absent party agreement to the contrary, if an Arbitrator becomes disqualified, resigns, dies, refuses or is otherwise unable to serve. Parties may agree to continue with the remaining Arbitrator(s), but must now inform the Director in writing within 5 business days of notification of the vacancy.

The default procedure used to require affirmative objection to continuing with the remaining Panel, before NASD-DR would name a replacement. Now, a replacement Arbitrator will be named “immediately, without waiting for an objection,” according to the Release. “NASD Dispute Resolution will send the name of a replacement arbitrator along with notification of the vacancy.” (ed: The consequence of this timing will be thatparties will know the identity of the replacement before the 5-day period to consent begins. However, in situations where the parties then agree to go with the remaining Panel, there will be much lost work and replacement arbitrators who are “all dressed up with no place to go.” Ironically, the efficiency of the procedure counts on the not-unreasonable proposition that party counsel will fail to find the path to agreement in the great majority of cases.) (SAC Ref. No. 02-14-01)


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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.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.