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					                                  COMPARISON CHART OF
                OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT        NEW RULE                 OLD RULE              COMMENTS


PART I                                                        The old Code did not
                                                              contain a separate
INTERPRETIVE                                                  definitions section,
MATERIAL,                                                     although some rules, such
DEFINITIONS,                                                  as Rule 10308, included
ORGANIZATION                                                  definitions applicable only
AND                                                           to the specific rule.
AUTHORITY
                                                              Frequent users of the
                                                              forum advised NASD that
                                                              it would be helpful to
                                                              include a comprehensive
                                                              definitions section that
                                                              applies to the entire Code.

                                                              Some of the definitions
                                                              are based on the
                                                              definitions already
                                                              contained in specific rules,
                                                              some are based on
                                                              definitions contained in
                                                              other NASD rules or By-
                                                              laws, and some are based
                                                              on current practice.

                                                              All references to “rule” in
                                                              the comments section of
                                                              this chart refer to new
                                                              rules.




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                                      COMPARISON CHART OF
                    OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT          NEW RULE                                 OLD RULE   COMMENTS


Failure to Act   IM-12000. Failure to Act Under                      Interpretive Material (IM)
Under            Provisions of Code of Arbitration                   10100 has been re-
Provisions of    Procedure for Customer Disputes                     numbered as IM-12000,
Code of                                                              and moved to Part I of the
Arbitration      It may be deemed conduct                            new Code.
Procedure for    inconsistent with just and equitable
Customer         principles of trade and a violation of
Disputes         Rule 2110 for a member or a person
                 associated with a member to:

                 (a) fail to submit a dispute for
                 arbitration under the NASD Code of
                 Arbitration Procedure (“Code”) as
                 required by the Code;

                 (b) fail to comply with any injunctive
                 order issued pursuant to the Code;

                 (c) fail to appear or to produce any
                 document in his possession or control
                 as directed pursuant to provisions of
                 the Code;

                 (d) fail to honor an award, or comply
                 with a written and executed settlement
                 agreement, obtained in connection
                 with an arbitration submitted for
                 disposition pursuant to the procedures
                 specified by NASD, the New York,
                 American, Boston, Cincinnati,
                 Chicago, or Philadelphia Stock




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SUBJECT   NEW RULE                                  OLD RULE   COMMENTS


          Exchanges, the Pacific Exchange,
          Inc., the Chicago Board Options
          Exchange, the Municipal Securities
          Rulemaking Board, or pursuant to the
          rules applicable to the arbitration of
          disputes before the American
          Arbitration Association or other
          dispute resolution forum selected by
          the parties where timely motion has
          not been made to vacate or modify
          such award pursuant to applicable
          law; or

          (e) fail to comply with a written and
          executed settlement agreement,
          obtained in connection with a
          mediation submitted for disposition
          pursuant to the procedures specified
          by NASD.

          All awards shall be honored by a cash
          payment to the prevailing party of the
          exact dollar amount stated in the
          award. Awards may not be honored
          by crediting the prevailing party's
          account with the dollar amount of the
          award, unless authorized by the
          express terms of the award or
          consented to in writing by the parties.
          Awards shall be honored upon receipt
          thereof, or within such other time




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SUBJECT       NEW RULE                                   OLD RULE   COMMENTS


              period as may be prescribed by the
              award.

              It may be deemed conduct
              inconsistent with just and equitable
              principles of trade and a violation of
              Rule 2110 for a member to require
              associated persons to waive the
              arbitration of disputes contrary to the
              provisions of the Code of Arbitration
              Procedure.

Definitions   12100. Definitions                                    In the interest of Plain
                                                                    English, the new Code
              Unless otherwise defined in the Code,                 uses the term “associated
              terms used in the Code and                            person” to mean “person
              interpretive material, if defined in the              associated with a
              NASD By-Laws, shall have the                          member” or “associated
              meaning as defined in the NASD By-                    person of a member” as
              Laws.                                                 defined in NASD By-Laws.

              (a) Associated Person

              The term “associated person” or
              “associated person of a member”
              means a person associated with a
              member, as that term is defined in
              paragraph (r).




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SUBJECT   NEW RULE                                 OLD RULE   COMMENTS



          (b) Award
          An award is a document stating the
          disposition of a case.

          (c) Board

          The term “Board” means the Board of
          Directors of NASD Dispute
          Resolution, Inc.

          (d) Claim                                           In paragraph (l), the term
                                                              “dispute” is defined to
          The term “claim” means an allegation                mean “a dispute, claim or
          or request for relief.                              controversy.” A dispute
                                                              may consist of one or
                                                              more claims. Throughout
                                                              the new Code, the term
                                                              “claim” is used to refer to a
                                                              specific allegation or
                                                              request for relief, while the
                                                              term “dispute” refers to the
                                                              entire matter submitted to
                                                              arbitration.


          (e) Claimant

          The term “claimant” means a party
          that files the statement of claim that




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SUBJECT   NEW RULE                                 OLD RULE   COMMENTS


          initiates an arbitration under Rule
          12302.

          (f) Code                                            NASD will maintain
                                                              separate Customer,
          The term “Code” means the Code of                   Industry and Mediation
          Arbitration Procedure for Customer                  Codes.
          Disputes. For disputes involving only
          industry parties, see the NASD Code
          of Arbitration Procedure for Industry
          Disputes.

          (g) Counterclaim

          The term “counterclaim” means a
          claim asserted against a claimant by a
          respondent.




          (h) Cross Claim

          The term “cross claim” means a claim
          asserted by a respondent against
          another already-named respondent.

          (i) Customer

          A customer shall not include a broker
          or dealer.




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SUBJECT   NEW RULE                                  OLD RULE                         COMMENTS



          (j) Day                                   10308(a)(1) "day"

          Except as otherwise provided, the         For purposes of this Rule, the
          term “day” means calendar day. If a       term "day" means calendar day.
          deadline specified in the Code falls on
          a Saturday, Sunday or any NASD
          holiday, the deadline is extended until
          the next business day.


          (k) Director

          The term “Director” means the
          Director of NASD Dispute Resolution.
          Unless the Code provides that the
          Director may not delegate a specific
          function, the term includes NASD staff
          to whom the Director has delegated
          authority.

          (l) Dispute                                                                Throughout the new Code,
                                                                                     the term “claim” is used to
          The term “dispute” means a dispute,                                        refer to a specific
          claim or controversy. A dispute may                                        allegation or request for
          consist of one or more claims.                                             relief, while the term
                                                                                     “dispute” refers to the
                                                                                     entire matter submitted to
                                                                                     arbitration.
          (m) Hearing




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SUBJECT   NEW RULE                                OLD RULE                    COMMENTS


          The term “hearing” means the hearing
          on the merits of an arbitration under
          Rule 12600.

          (n) Hearing Session

          The term “hearing session” means
          any meeting between the parties and
          arbitrator(s) of four hours or less,
          including a hearing or a prehearing
          conference.
          (o) Member                                                          After the Code Revision,
                                                                              SEC approved change to
          For purposes of the Code, the term                                  definition of member (SR-
          "member" means any broker or dealer                                 NASD-2007-038) on July
          admitted to membership in NASD,                                     9, 2007.
          whether or not the membership has
          been terminated or cancelled; and any
          broker or dealer admitted to
          membership in a self-regulatory
          organization that, with NASD consent,
          has required its members to arbitrate
          pursuant to the Code and/or to be
          treated as members of NASD for
          purposes of the Code, whether or not
          the membership has been terminated
          or cancelled.

          (p) Non-Public Arbitrator               10308(a)(4) - "non-public   After filing the Code
                                                  arbitrator"                 Revision, NASD filed the
                                                                              following proposals to




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SUBJECT   NEW RULE                                    OLD RULE                            COMMENTS


          The term "non-public arbitrator"            The term "non-public arbitrator"    amend old Rule
          means a person who is otherwise             means a person who is               10308(a)(4): SR-NASD-
          qualified to serve as an arbitrator and:    otherwise qualified to serve as     2005-007 and SR-NASD-
                                                      an arbitrator and:                  2005-094. The SEC
                                                                                          approved these proposals
          (1) is or, within the past five years,                                          and NASD has
          was:                                        (A) is, or within the past 5        incorporated the rule
                                                      years, was:                         language in the rule,
             (A) associated with, including                                               where appropriate.
             registered through, a broker or a        (i) associated with a broker or a
             dealer (including a government           dealer (including a government
             securities broker or dealer or a         securities broker or dealer or a
             municipal securities dealer);            municipal securities dealer);
             (B) registered under the                 (ii) registered under the
             Commodity Exchange Act;                  Commodity Exchange Act;

             (C) a member of a commodities            (iii) a member of a commodities
             exchange or a registered futures         exchange or a registered
             association; or                          futures association; or

             (D) associated with a person or          (iv) associated with a person or
             firm registered under the                firm registered under the
             Commodity Exchange Act;                  Commodity Exchange Act;
          (2) is retired from, or spent a
          substantial part of a career engaging       (B) is retired from, or spent a
          in, any of the business activities listed   substantial part of a career,
          in paragraph (p)(1);                        engaging in any of the business
          (3) is an attorney, accountant, or other    activities listed in subparagraph
          professional who has devoted 20             (4)(A);
          percent or more of his or her               (C) is an attorney, accountant,
          professional work, in the last two          or other professional who has



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SUBJECT   NEW RULE                                   OLD RULE                             COMMENTS


          years, to clients who are engaged in       devoted 20 percent or more of
          any of the business activities listed in   his or her professional work, in
          paragraph (p)(1); or                       the last two years, to clients
                                                     who are engaged in any of the
          (4) is an employee of a bank or other      business activities listed in
          financial institution and effects          subparagraph (4)(A); or
          transactions in securities, including
          government or municipal securities,        (D) is an employee of a bank or
          and commodities futures or options or      other financial institution and
          supervises or monitors the                 effects transactions in
          compliance with the securities and         securities, including
          commodities laws of employees who          government or municipal
          engage in such activities.                 securities, and commodities
          For purposes of this rule, the term        futures or options or supervises
          “professional work” shall not include      or monitors the compliance with
          mediation services performed by            the securities and commodities
          mediators who are also arbitrators,        laws of employees who engage
          provided that the mediator acts in the     in such activities.
          capacity of a mediator and does not                       ****
          represent a party in the mediation.        IM-10308. Arbitrators Who
                                                     Also Serve as Mediators
                                                     Mediation services performed
                                                     by mediators who are also
                                                     arbitrators shall not be included
                                                     in the definition of “professional
                                                     work” for purposes of Rule
                                                     10308(a)(4)(C), so long as the
                                                     mediator is acting in the
                                                     capacity of a mediator and is
                                                     not representing a party in the
                                                     mediation.




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SUBJECT   NEW RULE                                   OLD RULE           COMMENTS



                                                                *****
          (q) Panel                                                     A panel normally consists
                                                                        of one or three arbitrators,
          The term “panel” means the                                    depending on the amount
          arbitration panel, whether it consists                        in dispute. However, a
          of one or more arbitrators.                                   panel could consist of two
                                                                        arbitrators if an arbitrator
                                                                        is removed from a three-
                                                                        arbitrator panel, and the
                                                                        parties agree to proceed
                                                                        with only the remaining
                                                                        arbitrators. See Rule
                                                                        12411(a).

          (r) Person Associated with a                                  This definition is based on
          Member                                                        Article I, Section dd, of
                                                                        NASD’s By-Laws.
          The term “person associated with a
          member” means:

          (1) A natural person registered under
          the Rules of NASD; or

          (2) A sole proprietor, partner, officer,
          director, or branch manager of a
          member, or a natural person
          occupying a similar status or
          performing similar functions, or a
          natural person engaged in the
          investment banking or securities




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SUBJECT   NEW RULE                                 OLD RULE                         COMMENTS


          business who is directly or indirectly
          controlling or controlled by a member,
          whether or not any such person is
          registered or exempt from registration
          with NASD under the By-Laws or the
          Rules of NASD.

          For purposes of the Code, a person
          formerly associated with a member is
          a person associated with a member.

          (s) Pleadings

          A pleading is a statement describing a
          party’s causes of action or defenses.
          Documents that are considered
          pleadings are: a statement of claim,
          an answer, a counterclaim, a cross
          claim, a third party claim, and any
          replies.

          (t) Prehearing
          Conference

          The term “prehearing conference”
          means any hearing session, including
          an Initial Prehearing Conference, that
          takes place before the hearing on the
          merits begins.

          (u) Public Arbitrator                    10308(a)(5) “public arbitrator" After filing the Code




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SUBJECT   NEW RULE                                 OLD RULE                            COMMENTS


                                                                                       Revision, NASD filed the
          The term "public arbitrator" means a      (A) The term "public arbitrator"   following proposals to
          person who is otherwise qualified to     means a person who is               amend old Rule
          serve as an arbitrator and:              otherwise qualified to serve as     10308(a)(5): SR-NASD-
                                                   an arbitrator and:                  2005-007, SR-NASD-
            (1) is not engaged in the conduct or                                       2005-094, and SR-NASD-
            activities described in paragraphs      (i) is not engaged in the          2006-136. The SEC
            (p)(1)-(4);                            conduct or activities described     approved these proposals
                                                   in paragraphs (a)(4)(A) through     and NASD has
            (2) was not engaged in the conduct     (D);                                incorporated the rule
            or activities described in                                                 language in the rule,
            paragraphs (p)(1)-(4) for a total of   (ii) was not engaged in the         where appropriate.
            20 years or more;                      conduct or activities described
                                                   in paragraphs (a)(4)(A) through     SEC approved proposal to
            (3) is not an investment adviser;      (D) for a total of 20 years or      add a revenue limitation to
                                                   more;                               definition of public
            (4) is not an attorney, accountant,                                        arbitrator (SR-NASD-
            or other professional whose firm       (iii) is not an investment          2007-021) on March 13,
            derived 10 percent or more of its      adviser;                            2008.
            annual revenue in the past two
            years from any persons or entities     (iv) is not an attorney,
            listed in paragraphs (p)(1)-(4);       accountant, or other
                                                   professional whose firm
                                                   derived 10 percent or more of
            (5) is not an attorney, accountant,    its annual revenue in the past 2
            or other professional whose firm       years from any persons or
            derived $50,000 or more in annual      entities listed in paragraph
            revenue in the past two years from     (a)(4)(A); and
            professional services rendered to      (v) is not the spouse or an
            any persons or entities listed in      immediate family member of a
            paragraph (p)(1) relating to any       person who is engaged in the




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           OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                    OLD RULE                             COMMENTS


           customer disputes concerning an            conduct or activities described
           investment account or transaction,         in paragraphs (a)(4)(A) through
           including but not limited to, law firm     (D).
           fees, accounting firm fees, and
           consulting fees;                           (B) For the purpose of this
           (6) is not employed by, and is not         Rule, the term "immediate
           the spouse or an immediate family          family member" means:
           member of a person who is
           employed by, an entity that directly       (i) the parent, stepparent, child,
           or indirectly controls, is controlled      or stepchild, of a person
           by, or is under common control             engaged in the conduct or
           with, any partnership, corporation,        activities described in
           or other organization that is              paragraphs (a)(4)(A) through
           engaged in the securities business;        (D);
           (7) is not a director or officer of, and
                                                      (ii) a member of the household
           is not the spouse or an immediate
                                                      of a person engaged in the
           family member of a person who is a
                                                      conduct or activities described
           director or officer of, an entity that
                                                      in paragraphs (a)(4)(A) through
           directly or indirectly controls, is
                                                      (D);
           controlled by, or is under common
           control with, any partnership,             (iii a person who receives
           corporation, or other organization         financial support of more than
           that is engaged in the securities          50 percent of his or her annual
           business; and                              income from a person engaged
                                                      in the conduct or activities
           (8) is not the spouse or an                described in paragraphs
           immediate family member of a               (a)(4)(A) through (D); or
           person who is engaged in the
           conduct or activities described in         (iv) a person who is claimed as
           paragraphs (p)(1)-(4). For                 a dependent for federal income
           purposes of this rule, the term            tax purposes by a person



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SUBJECT   NEW RULE                                 OLD RULE                           COMMENTS


            immediate family member means:         engaged in the conduct or
                                                   activities described in
                (A) a person’s parent,
                                                   paragraphs (a)(4)(A) through
                stepparent, child, or stepchild;
                                                   (D).
                (B) a member of a person’s
                household;                                      ****
                 (C) an individual to whom a     IM-10308. Arbitrators Who
                 person provides financial       Also Serve as Mediators
                 support of more than 50 percent
                 of his or her annual income; or                 ****
                                                 Mediation fees received by
                 (D) a person who is claimed as mediators who are also
                 a dependent for federal income arbitrators shall not be included
                 tax purposes.                   in the definition of “revenue” for
                                                 purposes of
          For purposes of this rule, the term
                                                 Rule 10308(a)(5)(A)(iv), so long
          “revenue” shall not include mediation
                                                 as the mediator is acting in the
          fees received by mediators who are
                                                 capacity of a mediator and is
          also arbitrators, provided that the
                                                 not representing a party in the
          mediator acts in the capacity of a
                                                 mediation.
          mediator and does not represent a
          party in the mediation.
                                                                 *****
          (v) Respondent

          The term “respondent” means a party
          against whom a statement of claim or
          third party claim has been filed. A
          claimant against whom a counterclaim
          has been filed is not a respondent for
          purposes of the Code.




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SUBJECT            NEW RULE                                 OLD RULE                          COMMENTS


                   (w) Statement of Claim

                   The term “statement of claim” means
                   the initial or amended claim filed by
                   the party or parties initiating the
                   arbitration.

                   (x) Third Party Claim

                   The term “third party claim” means a
                   claim asserted against a party not
                   already named in the statement of
                   claim or any other previous pleading.

                   (y) Uniform Submission Agreement

                   The term “Uniform Submission
                   Agreement” means the NASD Uniform
                   Submission Agreement. The NASD
                   Uniform Submission Agreement is a
                   document that parties must sign at the
                   outset of an arbitration in which they
                   agree to submit to arbitration under
                   the Code.


Applicability of   12101. Applicability of Code and         10204. Applicability of           The rule reflects the
Code and           Incorporation by Reference               Uniform Code                      organization of the new
Incorporation by                                                                              Code, including the
Reference          (a) Applicability of Code                Except as otherwise provided in   creation of separate
                                                            the Rule 10200 Series, the        Industry and Customer




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SUBJECT           NEW RULE                                  OLD RULE                           COMMENTS


                  The Code applies to any dispute           Rules and procedures               Codes.
                  between a customer and a member or        applicable to arbitrations
                  associated person of a member that is     concerning industry and
                  submitted to arbitration under Rule       clearing controversies shall be
                  12200 or 12201.                           those set forth hereinafter
                                                            under the Rule 10300 Series.
                  (b) Incorporation by Reference
                                                            10331. Incorporation By
                  When a dispute is submitted to            Reference
                  arbitration under the Code pursuant to
                  an arbitration agreement, the Code is     This Code shall be deemed a
                  incorporated by reference into the        part of and incorporated by
                  agreement.                                reference in every agreement
                                                            to arbitrate under the Rules of
                                                            the Association including a duly
                                                            executed Submission
                                                            Agreement.

National          12102. National Arbitration and           10102. National Arbitration        The rule is substantially
Arbitration and   Mediation Committee                       and Mediation Committee            similar to the old rule, but
Mediation                                                                                      has been updated based
Committee         (a) Pursuant to Section III of the Plan   (a) The NASD Dispute               on the Plan of Allocation
                  of Allocation and Delegation of           Resolution Board of Directors,     and Delegation of
                  Functions by NASD to Subsidiaries         following the annual election of   Functions by NASD to
                  (“Delegation Plan”), the Board shall      its members by the NASD            Subsidiaries.
                  appoint a National Arbitration and        Board of Governors, shall
                  Mediation Committee (“NAMC”).             appoint a National Arbitration
                                                            and Mediation Committee of
                  (1) The NAMC shall consist of no          such size and composition,
                  fewer than 10 and no more than 25         including representation from
                  members. At least 50 percent of the       the public at large, as it shall




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SUBJECT   NEW RULE                                  OLD RULE                             COMMENTS


          NAMC shall be Non-Industry                 deem appropriate and in the
          members.                                   public interest. The Chairman
                                                     of the Committee shall be
          (2) The Chairperson of the Board shall named by the Chairman of the
          name the chairperson of the NAMC.          NASD Dispute Resolution
                                                     Board. The said Committee
          (b) Pursuant to the Delegation Plan,       shall establish and maintain
          the NAMC shall have the authority to       rosters of neutrals composed of
          recommend rules, regulations,              persons from within and without
          procedures and amendments relating the securities industry.
          to arbitration, mediation, and other       (b) The Committee shall have
          dispute resolution matters to the          the authority to recommend to
          Board. All matters recommended by          the NASD Dispute Resolution
          the NAMC to the Board must have            Board appropriate Rules,
          been approved by a quorum, which           regulations, and procedures to
          shall consist of a majority of the         govern the conduct of all
          NAMC, including at least 50 percent        arbitration, mediation, and other
          of the Non-Industry committee              dispute resolution matters
          members. If at least 50 percent of the before the Association. All
          Non-Industry committee members are Rules, regulations, and
          either (i) present at or (ii) have filed a procedures and amendments
          waiver of attendance for a meeting         thereto presented by the
          after receiving an agenda prior to         Committee must be by a
          such meeting, the requirement that at majority vote of all the
          least 50 percent of the Non-Industry       members of the said
          committee members be present to            Committee. It also shall have
          constitute the quorum shall be waived. such other power and authority
          The NAMC has such other power and as is necessary to effectuate
          authority as is necessary to carry out     the purposes of this Code.
          the purposes of the Code.
                                                     (c) The Committee shall meet




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SUBJECT       NEW RULE                                  OLD RULE                             COMMENTS


              (c) The NAMC may meet as                  at least once each year and at
              frequently as necessary, but must         such other times as are
              meet at least once a year.                deemed necessary by the
                                                        Committee.

Director of   12103. Director of Dispute                10103. Director of Arbitration       To reflect current
Dispute       Resolution                                                                     corporate structure, the
Resolution                                              The Board of Governors of the        rule provides that the
              (a) The Board shall appoint a Director    Association shall appoint a          President of NASD
              of Dispute Resolution. The Director       Director of Arbitration (Director)   Dispute Resolution is
              shall perform all the administrative      who shall be charged with the        authorized to perform the
              duties relating to arbitrations           performance of all                   Director’s duties, and that
              submitted under the Code. The             administrative duties and            only the President of
              Director may delegate his or her          functions in connection with         NASD Dispute Resolution
              duties when it is appropriate, unless     matters submitted for arbitration    may appoint an interim
              the Code provides otherwise.              pursuant to this Code. The           director if necessary.
                                                        Director shall be directly           (Under the old rule, the
              (b) The Director shall consult with the   responsible to the National          President of NASD
              NAMC at the NAMC’s request.               Arbitration and Mediation            Dispute Resolution or an
                                                        Committee and shall report to it     Executive Vice President
              (c) The President of NASD Dispute         at periodic intervals established    of NASD may appoint an
              Resolution may perform the Director’s     by the Committee and at such         interim Director.)
              duties. If the Director is unable to      other times as called upon by
              perform his or her duties, the            the Committee to do so. The          Rule 12103(b) reflects
              President of NASD Dispute                 duties and functions of the          current practice. The
              Resolution may appoint an interim         Director may be delegated by         Director meets with the
              Director.                                 the Director, as appropriate. In     NAMC, usually every
                                                        the event of the incapacitation,     quarter, and updates the
                                                        resignation, removal, or other       Committee on the state of
                                                        permanent or indefinite inability    the arbitration forum. At
                                                        of the Director to perform the       this time, the Director




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SUBJECT          NEW RULE                                   OLD RULE                            COMMENTS


                                                            duties and responsibilities of      receives feedback and
                                                            the Director, the President or      suggestions on arbitration
                                                            an Executive Vice President of      rules and procedures.
                                                            the Association may appoint an
                                                            interim Director.

Effect of        12104. Effect of Arbitration on            10105. Non-Waiver of                No substantive change.
Arbitration on   NASD Regulatory Activities                 Association Objects and
NASD                                                        Purposes
Regulatory       (a) Submitting a dispute to arbitration
Activities       under the Code does not limit or           The submission of any matter
                 preclude any right, action or              to arbitration under this Code
                 determination by NASD that it would        shall in no way limit or preclude
                 otherwise be authorized to adopt,          any right, action or
                 administer or enforce.                     determination by the
                                                            Association which it would
                 (b) Only at the conclusion of an           otherwise be authorized to
                 arbitration, any arbitrator may refer to   adopt, administer or enforce. If
                 NASD for disciplinary investigation        any matter comes to the
                 any matter that has come to the            attention of an arbitrator during
                 arbitrator’s attention during and in       and in connection with the
                 connection with the arbitration, either    arbitrator's participation in a
                 from the record of the proceeding or       proceeding, either from the
                 from material or communications            record of the proceeding or
                 related to the arbitration, which the      from material or
                 arbitrator has reason to believe may       communications related to the
                 constitute a violation of NASD’s rules,    proceeding, that the arbitrator
                 the federal securities laws, or other      has reason to believe may
                 applicable rules or laws.                  constitute a violation of the
                                                            Association's Rules or the
                                                            federal securities laws, the




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SUBJECT        NEW RULE                                     OLD RULE                             COMMENTS


                                                            arbitrator may initiate a referral
                                                            of the matter to the Association
                                                            for disciplinary investigation;
                                                            provided, however, that any
                                                            such referral should only be
                                                            initiated by an arbitrator after
                                                            the matter before him has been
                                                            settled or otherwise disposed
                                                            of, or after an award finally
                                                            disposing of the matter has
                                                            been rendered pursuant to Rule
                                                            10330 of the Code

Agreement of   12105. Agreement of the Parties
the Parties
               (a) Except as provided in paragraph
               (b), if the Code provides that the
               parties may agree to modify a
               provision of the Code, or a decision of
               the Director or the panel, the written
               agreement of all named parties is
               required.

               (b) If the Director or the panel
               determines that a named party is
               inactive in the arbitration, or has failed
               to respond after adequate notice has
               been given, the Director or the panel
               may determine that the written
               agreement of that party is not required
               while the party is inactive or not




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SUBJECT   NEW RULE                                  OLD RULE   COMMENTS


          responsive. For purposes of this rule,
          an inactive party could be, but is not
          limited to: (1) a party that does not
          answer; (2) a party that answers and
          then fails to respond to
          correspondence sent by the Director;
          (3) a party that answers and then fails
          to respond to correspondence sent by
          the panel in cases involving direct
          communication under Rule 12211; or
          (4) a party that does not attend pre-
          hearing conferences.




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SUBJECT        NEW RULE                                  OLD RULE                          COMMENTS



PART II

GENERAL
ARBITRATION
RULES

Arbitration    12200. Arbitration Under an               10301. Required Submission        No substantive change.
Under an       Arbitration Agreement or the Rules
Arbitration    of NASD                                                                     The substance of old Rule
Agreement or                                             (a) Any dispute, claim, or        10301 has been broken
the Rules of   Parties must arbitrate a dispute under    controversy eligible for          into several rules. The
NASD           the Code if:                              submission under the Rule         remainder of Rule
                                                         10100 Series between a            10301(a) is now in new
               •   Arbitration under the Code is         customer and a member and/or      Rule 12202. For other
                   either:                               associated person arising in      parts of Rule 10301, see
                                                         connection with the business of   new Rules 12203 and
                   (1) Required by a written             such member or in connection      12204.
                   agreement, or                         with the activities of such
                                                         associated persons shall be
                   (2) Requested by the customer;        arbitrated under this Code, as
                                                         provided by any duly executed
               •   The dispute is between a              and enforceable written
                   customer and a member or              agreement or upon the demand
                   associated person of a member;        of the customer . . . .
                   and

               •   The dispute arises in connection
                   with the business activities of the
                   member or the associated person,




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SUBJECT   NEW RULE                               OLD RULE   COMMENTS


            except disputes involving the
            insurance business activities of a
            member that is also an insurance
            company.




                                                                       24
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SUBJECT       NEW RULE                                 OLD RULE                             COMMENTS


Elective      12201. Elective Arbitration              10101. Matters Eligible for          No substantive change.
Arbitration                                            Submission
              Parties may arbitrate a dispute under
              the Code if:                             This Code of Arbitration
                                                       Procedure is prescribed and
              •   The parties agree in writing to      adopted pursuant to Article VII,
                  submit the dispute to arbitration    Section 1(a)(iv) of the By-Laws
                  under the Code after the dispute     of the Association for the
                  arises; and                          arbitration of any dispute, claim,
                                                       or controversy arising out of or
              •   The dispute is between a             in connection with the business
                  customer and a member,               of any member of the
                  associated person of a member,       Association, or arising out of
                  or other related party; and          the employment or termination
                                                       of employment of associated
              •   The dispute arises in connection     person(s) with any member,
                  with the business activities of a    with the exception of disputes
                  member or an associated person,      involving the insurance
                  except disputes involving the        business of any member which
                  insurance business activities of a   is also an insurance company:
                  member that is also an insurance
                  company.                             (a) between or among
                                                       members;
                                                       (b) between or among
                                                       members and associated
                                                       persons;

                                                       (c) between or among
                                                       members or associated
                                                       persons and public customers,
                                                       or others; and




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SUBJECT          NEW RULE                               OLD RULE                             COMMENTS


                                                        (d) between or among
                                                        members, registered clearing
                                                        agencies with which the
                                                        Association has entered into an
                                                        agreement to utilize the
                                                        Association's arbitration
                                                        facilities and procedures, and
                                                        participants, pledgees, or other
                                                        persons using the facilities of a
                                                        registered clearing agency, as
                                                        these terms are defined under
                                                        the rules of such a registered
                                                        clearing agency

Claims Against   12202. Claims Against Inactive         10301. Required Submission           The phrase “a claim
Inactive         Members                                                                     involving a member” has
Members                                                 (a) . . . A claim involving a        been changed to “a claim
                 A claim by or against a member in      member in the following              by or against a member”
                 one of the following categories is     categories shall be ineligible for   to clarify that the rule does
                 ineligible for arbitration under the   submission to arbitration under      not apply to claims that
                 Code unless the customer agrees in     the Code unless the customer         may tangentially involve a
                 writing to arbitrate after the claim   agrees in writing to arbitrate the   member firm that falls into
                 arises:                                claim after it has arisen:           one of the enumerated
                                                                                             categories, but that are
                 •   A member whose membership is       (1) A member whose                   not by or against such a
                     terminated, suspended, cancelled   membership is terminated,            member firm.
                     or revoked;                        suspended, canceled, or
                                                        revoked;
                 •   A member that has been expelled    (2) A member that has been
                     from NASD; or




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SUBJECT          NEW RULE                                    OLD RULE                            COMMENTS


                                                             expelled from the NASD; or
                 •   A member that is otherwise              (3) A member that is otherwise
                     defunct.                                defunct.

Denial of NASD   12203. Denial of NASD Forum                 10301. Required Submission          To give the Director more
Forum                                                        (b) Under this Code, the            flexibility in addressing
                 (a) The Director may decline to permit      Director of Arbitration, upon       security concerns and
                 the use of the NASD arbitration forum       approval of the Executive           other unusual but serious
                 if the Director determines that, given      Committee of the National           situations that may require
                 the purposes of NASD and the intent         Arbitration and Mediation           immediate resolution, the
                 of the Code, the subject matter of the      Committee, or the National          rule expands the grounds
                 dispute is inappropriate, or that           Arbitration and Mediation           upon which the Director
                 accepting the matter would pose a           Committee, shall have the right     may deny access to the
                 risk to the health or safety of             to decline the use of its           forum. The requirement
                 arbitrators, staff, or parties or their     arbitration facilities in any       that the NAMC or its
                 representatives. Only the Director or       dispute, claim, or controversy,     Executive Committee must
                 the President of NASD Dispute               where, having due regard for        approve decisions by the
                 Resolution may exercise the                 the purposes of the Association     Director to deny the forum
                 Director’s authority under this rule.       and the intent of this Code,        has been deleted.
                                                             such dispute, claim, or             However, the rule
                 (b) Disputes that arise out of              controversy is not a proper         provides that the
                 transactions in a readily identifiable      subject matter for arbitration.     Director’s authority under
                 market may be referred to the                                                   this rule may not be
                 arbitration forum for that market, if the   (c) Claims which arise out of       delegated or exercised by
                 claimant agrees.                            transactions in a readily           anyone other than the
                                                             identifiable market may, with       Director or the President
                                                             the consent of the Claimant, be     of NASD Dispute
                                                             referred to the arbitration forum   Resolution.
                                                             for that market by the
                                                             Association.




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SUBJECT        NEW RULE                                    OLD RULE                             COMMENTS



Class Action   12204. Class Action Claims                  10301. Required Submission           No substantive change.
Claims                                                     (d) Class Action Claims
               (a) Class action claims may not be                                               Rule 12204(b) clarifies
               arbitrated under the Code.                   (1) A claim submitted as a          when a party may opt out
                                                           class action shall not be eligible   of a class action so an
               (b) Any claim that is based upon the        for arbitration under this Code      individual claim may be
               same facts and law, and involves the        at the Association.                  arbitrated, and the
               same defendants as in a court-              (2) Any claim filed by a member      procedure a party would
               certified class action or a putative        or members of a putative or          use to do so.
               class action, or that is ordered by a       certified class action is also
               court for class-wide arbitration at a       ineligible for arbitration at the
               forum not sponsored by a self-              Association if the claim is
               regulatory organization, shall not be       encompassed by a putative or
               arbitrated under the Code, unless the       certified class action filed in
               party bringing the claim files with         federal or state court, or is
               NASD one of the following:                  ordered by a court to an arbitral
               (1) a copy of a notice filed with the       forum not sponsored by a self-
               court in which the class action is          regulatory organization for
               pending that the party will not             classwide arbitration. However,
               participate in the class action or in any   such claims shall be eligible for
               recovery that may result from the           arbitration in accordance with
               class action, or has withdrawn from         paragraph (a) or pursuant to
               the class according to any conditions       the parties' contractual
               set by the court; or                        agreement, if any, if a claimant
                                                           demonstrates that it has
               (2) a notice that the party will not        elected not to participate in the
               participate in the class action or in any   putative or certified class action
               recovery that may result from the           or, if applicable, has complied
               class action.                               with any conditions for
                                                           withdrawing from the class




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SUBJECT   NEW RULE                                    OLD RULE                             COMMENTS


          (c) The Director will refer to a panel      prescribed by the court.
          any dispute as to whether a claim is
          part of a class action, unless a party      Disputes concerning whether a
          asks the court hearing the class            particular claim is
          action to resolve the dispute within 10     encompassed by a putative or
          days of receiving notice that the           certified class action shall be
          Director has decided to refer the           referred by the Director of
          dispute to a panel.                         Arbitration to a panel of
                                                      arbitrators in accordance with
          (d) A member or associated person           Rule 10302 or Rule 10308, as
          may not enforce any arbitration             applicable. Either party may
          agreement against a member of a             elect instead to petition the
          certified or putative class action with     court with jurisdiction over the
          respect to any claim that is the subject    putative or certified class action
          of the certified or putative class action   to resolve such disputes. Any
          until:                                      such petition to the court must
                                                      be filed within ten business
          •   The class certification is denied;      days of receipt of notice that
                                                      the Director of Arbitration is
          •   The class is decertified;               referring the dispute to a panel
                                                      of arbitrators.
          •   The member of the certified or          (3) No member or associated
              putative class is excluded from the     person shall seek to enforce
              class by the court; or                  any agreement to arbitrate
                                                      against a customer, other
          •   The member of the certified or          member or person associated
              putative class elects not to            with a member who has
              participate in the class or             initiated in court a putative
              withdraws from the class                class action or is a member of a
              according to conditions set by the      putative or certified class with
              court, if any.                          respect to any claims



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SUBJECT   NEW RULE                                  OLD RULE                             COMMENTS


                                                    encompassed by the class
          This paragraph does not otherwise         action unless and until: (A) the
          affect the enforceability of any rights   class certification is denied; (B)
          under the Code or any other               the class is decertified; (C) the
          agreement.                                customer, other member or
                                                    person associated with a
                                                    member is excluded from the
                                                    class by the court; or (D) the
                                                    customer, other member or
                                                    person associated with a
                                                    member elects not to
                                                    participate in the putative or
                                                    certified class action or, if
                                                    applicable, has complied with
                                                    any conditions for withdrawing
                                                    from the class prescribed by
                                                    the court.

                                                    (4) No member or associated
                                                    person shall be deemed to
                                                    have waived any of its rights
                                                    under this Code or under any
                                                    agreement to arbitrate to which
                                                    it is party except to the extent
                                                    stated in this paragraph.




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SUBJECT       NEW RULE                                   OLD RULE                            COMMENTS


Shareholder   12205. Shareholder Derivative                                                  New rule. Similar to
Derivative    Actions                                                                        NYSE Rule 600(e).
Actions
              Shareholder derivative actions may
              not be arbitrated under the Code.

Time Limits   12206. Time Limits                         10304. Time Limitation Upon         No substantive change.
                                                         Submission
              (a) Time Limitation on Submission
              of Claims                                  (a) No dispute, claim, or
                                                         controversy shall be eligible for
              No claim shall be eligible for             submission to arbitration under
              submission to arbitration under the        this Code where six (6) years
              Code where six years have elapsed          have elapsed from the
              from the occurrence or event giving        occurrence or event giving rise
              rise to the claim. The panel will          to the act or dispute, claim or
              resolve any questions regarding the        controversy. The panel will
              eligibility of a claim under this rule.    resolve any questions
                                                         regarding the eligibility of a
              (b) Dismissal under Rule                   claim under this Rule.

              Dismissal of a claim under this rule       (b) Dismissal of a claim under
              does not prohibit a party from             this Rule does not prohibit a
              pursuing the claim in court. By filing a   party from pursuing the claim
              motion to dismiss a claim under this       in court. By requesting
              rule, the moving party agrees that if      dismissal of a claim under this
              the panel dismisses a claim under this     Rule, the requesting party
              rule, the non-moving party may             agrees that if the panel
              withdraw any remaining related claims      dismisses a claim under the
              without prejudice and may pursue all       Rule, the party that filed the
              of the claims in court.                    dismissed claim may withdraw




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SUBJECT   NEW RULE                                     OLD RULE                             COMMENTS


                                                       any remaining related claims
          (c) Effect of Rule on Time Limits for        without prejudice and may
          Filing Claim in Court                        pursue all of the claims in court.

          The rule does not extend applicable                        ***
          statutes of limitations; nor shall the
          six-year time limit on the submission        10307. Tolling of Time
          of claims apply to any claim that is         Limitation(s) for the
          directed to arbitration by a court of        Institution of Legal
          competent jurisdiction upon request of       Proceedings and Extension
          a member or associated person.               of Time Limitation(s) for
          However, where permitted by                  Submission to Arbitration
          applicable law, when a claimant files a
          statement of claim in arbitration, any
                                                       (a) Where permitted by
          time limits for the filing of the claim in
                                                       applicable law, the time
          court will be tolled while NASD retains
                                                       limitations which would
          jurisdiction of the claim.
                                                       otherwise run or accrue for the
                                                       institution of legal proceedings
          (d) Effect of Filing a Claim in Court        shall be tolled where a duly
          on Time Limits for Filing in                 executed Submission
          Arbitration                                  Agreement is filed by the
                                                       Claimant(s). The tolling shall
          If a party submits a claim to a court of     continue for such period as the
          competent jurisdiction, the six-year         Association shall retain
          time limitation will not run while the       jurisdiction upon the matter
          court retains jurisdiction of the claim      submitted.
          matter.
                                                       (b) The six (6) year time
                                                       limitation upon submission to
                                                       arbitration shall not apply when
                                                       the parties have submitted the




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SUBJECT        NEW RULE                                  OLD RULE                            COMMENTS


                                                         dispute, claim or controversy to
                                                         a court of competent
                                                         jurisdiction. The six (6) year
                                                         time limitation shall not run for
                                                         such period as the court shall
                                                         retain jurisdiction upon the
                                                         matter submitted.

Extension of   12207. Extension of Deadlines             10314. Initiation of                The rule is intended to
Deadlines                                                Proceedings                         provide more guidance to
               (a) The parties may agree in writing to                                       parties and arbitrators
               extend or modify any deadline for:        (a) (5) The time period to file     regarding when and under
                                                         any pleading, whether such be       what circumstances
               •   Serving an answer;                    denominated as a Claim,             deadlines established by
                                                         Answer, Counterclaim, Cross-        the panel and the Code
               •   Returning arbitrator or chairperson   Claim, Reply, or Third-Party        may be modified or
                   lists;                                Pleading, may be extended for       extended.
                                                         such further period as may be
               •   Responding to motions; or             granted by the Director of          For example, the rule
                                                         Arbitration or with the consent     gives the Director limited
               •   Exchanging documents or witness       of the initial claimant.            authority to extend or
                   lists.                                Extensions of the time period to    modify any deadline or
                                                         file an Answer are disfavored       time period set by the
               If the parties agree to extend or         and will not be granted by the      Code for good cause.
               modify a deadline under this rule, they   Director except in extraordinary    Although good cause is a
               must notify the Director of the new       circumstances.                      lower standard than
               deadline in writing.                                                          extraordinary
                                                                                             circumstances, which
               (b) The panel may extend or modify                                            refers to unexpected and
               any deadline listed in paragraph (a),                                         uncontrollable events such
                                                                                             as a weather-related or




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SUBJECT          NEW RULE                                   OLD RULE                           COMMENTS


                 or any other deadline set by the panel,                                       security emergency, good
                 either on its own initiative or upon                                          cause is not a negligible
                 motion of a party.                                                            standard. In the context of
                                                                                               the rule, the good cause
                 (c) The Director may extend or modify                                         requirement means that
                 any deadline or time period set by the                                        extensions of Code
                 Code for good cause. The Director                                             deadlines by the Director
                 may also extend or modify any                                                 are generally disfavored,
                 deadline or time period set by the                                            and that the Director must
                 panel in extraordinary circumstances.                                         take into account the
                                                                                               effect of the extension on
                                                                                               all parties before granting
                                                                                               such a request.
Representation   12208. Representation of Parties           10316. Representation by           After Code Revision, SEC
of Parties             (a) Representation by a              Counsel                            approved proposal to
                 Party                                                                         address representation of
                                                            All parties shall have the right   parties in arbitration and
                          Parties may represent
                                                            to representation by counsel at    mediation (SR-NASD-
                 themselves in an arbitration held in a
                                                            any stage of the proceedings.      2006-109) on September
                 United States hearing location. A
                                                                                               26, 2007.
                 member of a partnership may
                 represent the partnership; and a bona
                 fide officer of a corporation, trust, or
                 association may represent the
                 corporation, trust, or association.

                       (b) Representation by an
                 Attorney
                        At any stage of an arbitration
                 proceeding held in a United States
                 hearing location, all parties shall have




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SUBJECT   NEW RULE                                  OLD RULE   COMMENTS


          the right to be represented by
          [counsel during any stage of an
          arbitration] an attorney at law in good
          standing and admitted to practice
          before the Supreme Court of the
          United States or the highest court of
          any state of the United States, the
          District of Columbia, or any
          commonwealth, territory, or
          possession of the United States,
          unless state law prohibits such
          representation.

                 (c) Representation by Others
                  Parties may be represented in
          an arbitration by a person who is not
          an attorney, unless:
                 •       state law prohibits such
          representation, or
                  •      the person is currently
          suspended or barred from the
          securities industry in any capacity, or
                 •     the person is currently
          suspended from the practice of law or
          disbarred.


                 (d) Qualifications of




                                                                          35
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SUBJECT       NEW RULE                                  OLD RULE                          COMMENTS


              Representative
              Issues regarding the qualifications of
              a person to represent a party in
              arbitration are governed by applicable
              law and may be determined by an
              appropriate court or other regulatory
              agency. In the absence of a court
              order, the arbitration proceeding shall
              not be stayed or otherwise delayed
              pending resolution of such issues.

Legal         12209. Legal Proceedings                  10106. Legal Proceedings          No substantive change.
Proceedings
              During an arbitration, no party may       No party shall, during the
              bring any suit, legal action, or          arbitration of any matter,
              proceeding against any other party        prosecute or commence any
              that concerns or that would resolve       suit, action, or proceeding
              any of the matters raised in the          against any other party
              arbitration.                              touching upon any of the
                                                        matters referred to arbitration
                                                        pursuant to this Code.




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SUBJECT           NEW RULE                                    OLD RULE                          COMMENTS


Ex Parte          12210. Ex Parte Communications                                                New rule. The rule
Communi-                                                                                        reflects current NASD
cations           (a) Except as provided in Rule 12211,                                         practice. The NASD
                  no party, or anyone acting on behalf                                          Arbitrators’ Manual and
                  of a party, may communicate with any                                          NASD arbitrator training
                  arbitrator outside of a scheduled                                             materials currently direct
                  hearing or conference regarding an                                            arbitrators to avoid ex
                  arbitration unless all parties or their                                       parte communications with
                  representatives are present.                                                  parties, and arbitrators
                                                                                                receive training on how
                  (b) No party, or anyone acting on                                             and why to do so.
                  behalf of a party, may send or give
                  any written motion, request,
                  submission or other materials directly
                  to any arbitrator, unless the arbitrators
                  and the parties agree, or the Code
                  provides otherwise.

Direct            12211. Direct Communication                 10334. Direct Communication       No substantive change.
Communication     Between Parties and Arbitrators             Between Parties and
Between Parties                                               Arbitrators                       After filing the Code
and Arbitrators   (a) This rule provides procedures                                             Revision, NASD filed the
                  under which parties and arbitrators         (a) This rule provides            following proposal to
                  may communicate directly.                   procedures under which parties    adopt old Rule 10334: SR-
                                                              and arbitrators may               NASD-2003-163. The
                  (b) Only parties that are represented       communicate directly.             SEC approved the
                  by counsel may use direct                                                     proposal and NASD has
                  communication under this rule. If,          (b) Only parties that are         incorporated the rule
                  during the proceeding, a party              represented by counsel may        language in the new
                  chooses to appear pro se (without           use direct communication          Code, where appropriate.
                  counsel), this rule shall no longer         under this Rule. If, during the



                                                                                                                             37
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SUBJECT   NEW RULE                                   OLD RULE                              COMMENTS


          apply.                                     proceeding, a party chooses to
                                                     appear pro se (without
          (c) All arbitrators and all parties must   counsel), this Rule shall no
          agree to the use of direct                 longer apply.
          communication during the Initial
          Prehearing Conference or a later           (c) All arbitrators and all parties
          conference or hearing before it can be     must agree to the use of direct
          used.                                      communication during the
                                                     Initial Prehearing Conference or
          (d) Parties may send the arbitrators       a later conference or hearing
          only items that are listed in an order.    before it can be used.

          (e) Parties may send items by regular      (d) Parties may send the
          mail, overnight courier, facsimile, or     arbitrators only items that are
          email. All the arbitrators and parties     listed in an order.
          must have facsimile or email
          capability before such a delivery          (e) Parties may send items by
          method may be used.                        regular mail, overnight courier,
                                                     facsimile, or email. All the
          (f) Copies of all materials sent to        arbitrators and parties must
          arbitrators must also be sent at the       have facsimile or email
          same time and in the same manner to        capability before such a
          all parties and the Director. Materials    delivery method may be used.
          that exceed 15 pages, however, shall
          be sent to the Director only by regular    (f) Copies of all materials sent
          mail or overnight courier.                 to arbitrators must also be sent
                                                     at the same time and in the
          (g) The Director must receive copies       same manner to all parties and
          of any orders and decisions made as        the Director. Materials that
          a result of direct communications          exceed 15 pages, however,
          among the parties and the arbitrators.     shall be sent to the Director




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SUBJECT     NEW RULE                                  OLD RULE                            COMMENTS


                                                      only by regular mail or
            (h) Parties may not communicate           overnight courier.
            orally with any of the arbitrators
            outside the presence of all parties.      (g) The Director must receive
                                                      copies of any orders and
            (i) Any party or arbitrator may           decisions made as a result of
            terminate the direct communication        direct communications among
            order at any time, after giving written   the parties and the arbitrators.
            notice to the other arbitrators and the
            parties.                                  (h) Parties may not
                                                      communicate orally with any of
                                                      the arbitrators outside the
                                                      presence of all parties.

                                                      (i) Any party or arbitrator may
                                                      terminate the direct
                                                      communication order at any
                                                      time, after giving written notice
                                                      to the other arbitrators and the
                                                      parties.


Sanctions   12212. Sanctions                          10305. Dismissal of                 The rule incorporates and
                                                      Proceedings                         codifies the sanctions
            (a) The panel may sanction a party for                                        provisions in the old
                                                      (b) The arbitrators may dismiss
            failure to comply with any provision in                                       NASD Discovery Guide.
                                                      a claim, defense, or proceeding
            the Code, or any order of the panel or                                        The rule is intended to
                                                      with prejudice as a sanction for
            single arbitrator authorized to act on                                        provide more guidance to
                                                      willful and intentional material
            behalf of the panel. Unless prohibited                                        parties and arbitrators
                                                      failure to comply with an order
            by applicable law, sanctions may                                              regarding the scope of
                                                      of the arbitrator(s) if lesser
            include, but are not limited to:                                              arbitrator authority to
                                                      sanctions have proven




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SUBJECT     NEW RULE                                  OLD RULE                  COMMENTS


                                                      ineffective.              address noncompliance
            •   Assessing monetary penalties                                    with the new Code or
                payable to one or more parties;                                 orders of the panel. The
                                                                                rule also provides that the
            •   Precluding a party from presenting                              panel may sanction a
                evidence;                                                       party in egregious
                                                                                situations.
            •   Making an adverse inference
                against a party;

            •   Assessing postponement and/or
                forum fees; and

            •   Assessing attorneys’ fees, costs
                and expenses.

            (b) The panel may initiate a
            disciplinary referral at the conclusion
            of an arbitration.

            (c) The panel may dismiss a claim,
            defense or arbitration with prejudice
            as a sanction for material and
            intentional failure to comply with an
            order of the panel if prior warnings or
            sanctions have proven ineffective.


Hearing     12213. Hearing Locations                  10315. Determination of   After filing the Code
Locations                                             Hearing Location          Revision, NASD filed the
            (a) U.S. Hearing Location                                           following proposals to




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SUBJECT   NEW RULE                                    OLD RULE                             COMMENTS


                                                      (a) Designation of Time and          amend old Rule 10315:
               (1) The Director will decide           Place of Hearing                     SR-NASD-2004-042. The
             which of NASD’s hearing locations                                             SEC approved the
             will be the hearing location for the     The Director shall determine         proposal and NASD has
             arbitration. Generally, the Director     the time and place of the first      incorporated the rule
             will select the hearing location         meeting of the arbitration panel     language in the rule,
             closest to the customer’s                and the parties, whether the         where appropriate.
             residence at the time of the events      first meeting is a pre-hearing
             giving rise to the dispute.              conference or a hearing, and
                                                      shall give notice of the time and
               (2) Before arbitrator lists are sent   place at least 15 business days
             to the parties under Rule 12403,         prior to the date fixed for the
             the parties may agree in writing to      first meeting by personal
             a hearing location other than the        service, registered or certified
             one selected by the Director.            mail to each of the parties
                                                      unless the parties shall, by their
              (3) The Director may change the         mutual consent, waive the
             hearing location upon motion of a        notice provisions under this
             party, as set forth in Rule 12503.       Rule. The arbitrators shall
                                                      determine the time and place
               (4) After the panel is appointed,      for all subsequent meetings,
             the panel may decide a motion            whether the meetings are pre-
             relating to changing the hearing         hearing conferences, hearings,
             location.                                or any other type of meetings,
                                                      and shall give notice as the
          (b) Foreign Hearing Location                arbitrators may determine.
                                                      Attendance at a meeting
               (1) If the Director and all parties    waives notice thereof.
             agree, parties may have their
             hearing in a foreign hearing             (b) Foreign Hearing Location
             location and conducted by foreign           (1) If the Director and all




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SUBJECT   NEW RULE                                 OLD RULE                           COMMENTS


            arbitrators, provided that the         parties agree, parties may have
            foreign arbitrators have:              their hearing in a foreign
                                                   hearing location and conducted
            (A) met NASD background
                                                   by foreign arbitrators, provided
            qualifications for arbitrators;
                                                   that the foreign arbitrators
            (B) received training on NASD          have:
            arbitration rules and procedures;      (A) met NASD background
            and                                    qualifications for arbitrators;
            (C) satisfied at least the same        (B) received training on NASD
            training and testing requirements      arbitration rules and
            as those arbitrators who serve in      procedures; and
            U. S. locations of NASD.               (C) satisfied at least the same
                                                   training and testing
              (2) The parties shall pay an         requirements as those
            additional surcharge for each day      arbitrators who serve in U. S.
            of hearings held in a foreign          locations of NASD.
            hearing location. The amount of           (2) The parties shall pay an
            the surcharge will be determined       additional surcharge for each
            by the Director and must be            day of hearings held in a
            agreed to by the parties before the    foreign hearing location. The
            foreign hearing location may be        amount of the surcharge will be
            used. This surcharge shall be          determined by the Director and
            specified in the agreement to use      must be agreed to by the
            a foreign hearing location and         parties before the foreign
            shall be apportioned equally           hearing location may be used.
            among the parties, unless they         This surcharge shall be
            agree otherwise. The foreign           specified in the agreement to
            arbitrators shall have the authority   use a foreign hearing location
            to apportion this surcharge as         and shall be apportioned
            provided in Rule 12902(c).             equally among the parties,
                                                   unless they agree otherwise.




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SUBJECT   NEW RULE                 OLD RULE                          COMMENTS


                                   The foreign arbitrators shall
                                   have the authority to apportion
                                   this surcharge as provided in
                                   Rules 10205 and 10332.




                                                                                43
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SUBJECT       NEW RULE                                  OLD RULE                           COMMENTS


Payment of    12214. Payment of Arbitrators             IM-10104. Arbitrators'             The amount of the
Arbitrators                                             Honorarium                         honorarium in Simplified
              (a) Except as provided in paragraph                                          Arbitrations is in the
              (b) and in Rule 12800, NASD will pay      All persons selected to serve as   Simplified Arbitration Rule.
              the panel an honorarium, as follows:      arbitrators pursuant to the        (See Rule 12800.)
                                                        Association's Code of
              • $200 to each arbitrator for each        Arbitration Procedure shall be     The reference to
              hearing session in which he or she        paid an honorarium for each        expenses for travel to a
              participates;                             hearing session (including a       cancelled hearing has
                                                        prehearing conference) in          been removed from this
              • an additional $75 per day to the        which they participate.            rule. NASD has a
              chairperson for each hearing on the                                          comprehensive policy
              merits;                                   The honorarium shall be $200
                                                                                           regarding arbitrator travel
                                                        for each hearing session and
              • $50 for travel to a hearing             $75 per day additional
                                                                                           expenses. NASD’s policy
              session that is postponed pursuant to                                        for reimbursement of
                                                        honorarium to the chairperson
              Rule 12601; and                                                              travel expenses is
                                                        of the panel. The honorarium
                                                                                           available at
              • $100 for each arbitrator if a           for a case not requiring a
                                                                                           www.nasd.com.
              hearing session other than a              hearing shall be $125.
              prehearing conference is postponed        The honorarium for travel to a     After filing the Code
              within 10 business days before a          canceled hearing session shall     Revision, NASD filed the
              scheduled hearing session pursuant        be $50. If a hearing session       following proposals to
              to Rules 12601(a)(2) and (b)(2).          other than a prehearing            amend old IM-10104: SR-
                                                        conference is adjourned            NASD-2004-042, SR-
              (b) The Director may authorize a          pursuant to Rule 10319(d),         NASD-2005-052 and SR-
              higher or additional honorarium for the   each arbitrator shall receive an   NASD-2006-101. The
              use of a foreign hearing location.        additional honorarium of $100.     SEC approved these
                                                                                           proposals and NASD has
              (c) Payment for Deciding Discovery-       The Director may authorize a       incorporated the rule
              Related Motions Without a Hearing         higher or additional honorarium    language in the rule,
              Session                                   for the use of a foreign hearing   where appropriate.




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SUBJECT   NEW RULE                                   OLD RULE    COMMENTS


                                                     location.
              (1) NASD will pay each arbitrator
          an honorarium of $200 to decide a
          discovery-related motion without a
          hearing session. This paragraph does
          not apply to cases administered under
          Rule 12800.

              (2) For purposes of paragraph
          (c)(1), a discovery-related motion and
          any replies or other correspondence
          relating to the motion shall be
          considered to be a single motion.

              (3) The panel will allocate the cost
          of the honoraria under paragraph
          (c)(1) to the parties pursuant to Rule
          12902(c).

          (d) Payment for Deciding Contested
          Subpoena Requests Without a
          Hearing Session
             (1) The honorarium for deciding
          one or more contested motions
          requesting the issuance of a
          subpoena without a hearing session
          shall be $200. The honorarium shall
          be paid on a per case basis to each
          arbitrator who decides the contested
          motion(s). The parties shall not be
          assessed more than $600 in fees




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SUBJECT   NEW RULE                                   OLD RULE   COMMENTS


          under this paragraph in any arbitration
          proceeding. The honorarium shall not
          be paid for cases administered under
          Rule 12800.
              (2) For purposes of paragraph
          (d)(1), a contested motion requesting
          the issuance of a subpoena shall
          include a motion requesting the
          issuance of a subpoena, the draft
          subpoena, a written objection from the
          party opposing the issuance of the
          subpoena, and any other documents
          supporting a party’s position.

              (3) The panel will allocate the cost
          of the honorarium under paragraph
          (d)(1) to the parties pursuant to Rule
          12902(c).




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SUBJECT          NEW RULE                                  OLD RULE                            COMMENTS



PART III

INITIATING AND
RESPONDING
TO CLAIMS

Filing and       12300. Filing and Serving                 10314. Initiation of                To make rules shorter and
Serving          Documents                                 Proceedings                         easier to read, the
Documents                                                                                      substance of old Rule
                 (a) Initial statements of claim must be   (c) Service and Filing with the     10314 has been broken
                 filed with the Director, with enough      Director of Arbitration             into several rules. Please
                 copies for each other party and each                                          see new Rules 12300-
                 arbitrator. The number of arbitrators      (1) Service may be effected by     12306; Rule 12308; and
                 is determined in accordance with Rule     mail or other means of delivery.    Rules 12312-12314.
                 12401. The Director will serve the        Service and filing are
                 statement of claim on the other           accomplished on the date of         This rule is intended to
                 parties, and send copies of the           mailing either by first-class       provide general
                 statement of claim to each arbitrator.    postage pre-paid or by means        information about when
                                                           of overnight mail service or, in    and how pleadings must
                 (b) The parties must serve all other      the case of other means of          be filed and served.
                 pleadings and other documents             service, on the date of delivery.   Paragraph (f) imposes a
                 directly on each other party. Parties     Filing with the Director of         new requirement on
                 must serve all pleadings on all parties   Arbitration shall be made on the    parties to notify the
                 at the same time and in the same          same date as service on a           Director of any changes in
                 manner, unless the parties agree          party                               address during an
                 otherwise.                                                                    arbitration.

                 (c) Unless the Code provides
                 otherwise, parties must also file all
                 pleadings and other documents with




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SUBJECT   NEW RULE                                   OLD RULE   COMMENTS


          the Director, with additional copies for
          each arbitrator. Pleadings and other
          documents must be filed with the
          Director at the same time and in the
          same manner in which they are
          served on the other parties. Parties
          filing pleadings and other documents
          with the Director must include a
          certificate of service stating the
          names of the parties served, the date
          and method of service, and the
          address(es) to which service was
          made.

          (d) Pleadings and other documents
          may be filed and served by: first class
          mail; overnight mail or delivery
          service; hand delivery; facsimile; or
          any other method, including electronic
          mail, that is approved or required by
          the panel.

           (e) Filing and service are
          accomplished on the date of mailing
          either by first-class postage prepaid
          mail or overnight mail service, or, in
          the case of other means of service, on
          the date of delivery. Whenever
          pleadings and other documents must
          be filed with the Director and served
          on the other parties, filing and service




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SUBJECT   NEW RULE                                  OLD RULE   COMMENTS


          must occur on the same day and in
          the same manner, unless the parties
          agree or the panel directs otherwise.

          (f) A party must inform the Director
          and all other parties in writing of any
          change of address during an
          arbitration.




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SUBJECT      NEW RULE                                    OLD RULE                          COMMENTS


Service on   12301. Service on Associated                10314. Initiation of              NASD did not intend to
Associated   Persons                                     Proceedings                       make any substantive
Persons                                                                                    changes to old Rule
             (a) The Director will serve the initial     (c) Service and Filing with the   10314, which permitted
             statement of claim on an associated         Director of Arbitration           (but does not require) the
             person directly at the person’s                                               Director to serve
             residential address or usual place of       (2) If a member firm and a        statements of claim on
             abode. If service cannot be                 person associated with the        active associated persons
             completed at the person’s residential       member firm are named parties     through their firms when
             address or usual place of abode, the        to an arbitration proceeding at   the associated person
             Director will serve the initial statement   the time of the filing of the     and the firm were
             of claim on the associated person at        Statement of Claim, service on    respondents. In practice,
             the person’s business address.              the person associated with the    however, NASD rarely
                                                         member firm may be made on        uses this form of service.
             (b) If a member and a person                the associated person or the      Rule 12301 was amended
             currently associated with the member        member firm, which shall          to reflect current practice
             are named as respondents to the             perfect service upon the          concerning service in the
             same arbitration, and the Director          associated person. If the         forum and to clarify that
             cannot complete service as provided         member firm does not              the rule applies to initial
             in paragraph (a), then the Director         undertake to represent the        statements of claim only.
             may serve the member with the initial       associated person, the member
             statement of claim on behalf of the         firm shall serve the associated
             associated person. If service is made       person with the Statement of
             on the member, the member must              Claim, shall advise all parties
             serve the associated person, even if        and the Director of Arbitration
             the member will not be representing         of that fact, and shall provide
             the associated person in the                such associated person's
             arbitration. If the member is not           current address.
             representing the associated person in
             the arbitration, the member must
             notify, and provide the associated




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SUBJECT             NEW RULE                                   OLD RULE                           COMMENTS


                    person’s current address to, all parties
                    and the Director.

Filing an Initial   12302. Filing an Initial Statement of      10314. Initiation of               No substantive change,
Statement of        Claim                                      Proceedings                        except that Rule 12302(c)
Claim                                                                                             codifies current practice,
                    (a) Filing Claim with the Director                                            and provides notice to
                                                               Except as otherwise provided       claimants that they must
                         (1) To initiate an arbitration, a     herein, an arbitration             pay all fees required at
                    claimant must file the following with      proceeding under this Code         the time of filing.
                    the Director:                              shall be instituted as follows:
                                                                                                  After the Code Revision,
                    • Signed and dated Uniform                 (a) Statement of Claim             SEC approved
                    Submission Agreement; and                                                     amendment to Rule
                                                                   (1) The Claimant shall file
                                                                                                  12302(a)(2) that removes
                                                               with the Director of Arbitration
                    • A statement of claim specifying          an executed Submission
                                                                                                  the 50 page limit on
                    the relevant facts and remedies                                               statements of claim filed
                                                               Agreement, a Statement of
                    requested.                                                                    through the online claim
                                                               Claim of the controversy in
                                                                                                  filing system (SR- FINRA-
                                                               dispute, together with the
                    The claimant may include any                                                  2007-042) on January 29,
                                                               documents in support of the
                    additional documents supporting the                                           2008.
                                                               Claim, and the required
                    statement of claim.                        deposit. Sufficient additional
                                                               copies of the Submission
                         (2) A claimant may use the online     Agreement and the Statement
                    claim notification and filing procedure    of Claim and supporting
                    to complete part of the arbitration        documents shall be provided to
                    claim filing process through the           the Director of Arbitration for
                    Internet. To commence this process,        each party and each arbitrator.
                    a claimant may complete a Claim            The Statement of Claim shall
                    Information Form that can be               specify the relevant facts and
                    accessed through www.finra.org. In         the remedies sought. The




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SUBJECT   NEW RULE                                   OLD RULE                           COMMENTS


          completing the Claim Information           Director of Arbitration shall
          Form, the claimant may attach an           endeavor to serve promptly by
          electronic version of the statement of     mail or otherwise on the
          claim, and any additional documents        Respondent(s) one (1) copy of
          supporting the statement of claim, to      the Submission Agreement and
          the form. Once this online form has        one (1) copy of the Statement
          been completed, a FINRA Dispute            of Claim.
          Resolution Tracking Form will be           (2) A Claimant or counsel
          generated and displayed for the            (referred to herein collectively
          claimant to reproduce as necessary.        as “Claimant”) may use the
          The claimant shall then file with the      online claim notification and
          Director the rest of the materials         filing procedure to complete
          required in subparagraph (1) of the        part of the arbitration claim
          rule, along with a hard copy of the        filing process through the
          FINRA Dispute Resolution Tracking          Internet. To commence this
          Form.                                      process, a Claimant may
                                                     complete a Claim Information
          (b) Number of Copies                       Form that can be accessed
                                                     through an NASD Web site. In
          The claimant must file enough copies       completing the Claim
          of the statement of claim, if it has not   Information Form, the Claimant
          been submitted electronically, and the     may attach an electronic
          signed Uniform Submission                  version of the Statement of
          Agreement, and any additional              Claim to the form, provided it
          materials, for the Director, each          does not exceed 50 pages.
          arbitrator and each other party.           Once this online form has been
                                                     completed, an NASD Dispute
          (c) Fees                                   Resolution Tracking Form will
                                                     be generated and displayed for
          At the time the statement of claim is      the Claimant to reproduce as
          filed, the claimant must pay all           necessary. The Claimant shall




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SUBJECT         NEW RULE                                   OLD RULE                         COMMENTS


                required filing fees.                      then file with the Director of
                                                           Arbitration the rest of the
                (d) Service by Director                    materials required in
                                                           subparagraph (1), above, along
                Unless the statement of claim is           with a hard copy of the NASD
                deficient under Rule 12307, the            Dispute Resolution
                Director will send a copy of the           Tracking Form.
                Uniform Submission Agreement, the
                statement of claim, and any additional
                materials filed by the claimant, to each
                other party, and to each arbitrator
                once the panel has been appointed.

Answering the   12303. Answering the Statement of          10314. Initiation of             Rule 12303(b) provides
Statement of    Claim                                      Proceedings                      that parties serving third
Claim                                                                                       party claims must include
                                                       (b) Answer – Defenses,
                (a) Respondent(s) must directly serve Counterclaims, and/or Cross-          all materials served by the
                each other party with the following                                         parties or the Director up
                                                       Claims
                documents within 45 days of receipt of                                      until that point in the
                the statement of claim:                                                     proceeding. This
                                                       (1) Within 45 calendar days          provision is intended to
                • Signed and dated Uniform             from receipt of the Statement of     ensure that newly added
                    Submission Agreement; and          Claim, Respondent(s) shall           parties are able to obtain
                                                       serve each party with an             all relevant materials in a
                • An answer specifying the relevant executed Submission                     timely manner, and to
                    facts and available defenses to    Agreement and a copy of the          expedite and streamline
                    the statement of claim.            Respondent's Answer.                 the administration of the
                                                       Respondent's executed                arbitration. This will not
                The respondent may include any         Submission Agreement and             apply to copies of the new
                additional documents supporting the    Answer shall also be filed with      Code or new Discovery
                answer to the statement of claim.      the Director of Arbitration with     Guide, which NASD will




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SUBJECT   NEW RULE                                  OLD RULE                           COMMENTS


          Parties that fail to answer in the time   sufficient additional copies for   continue to provide.
          provided may be subject to default        the arbitrator(s) along with any
          proceedings under Rule 12801.             deposit required under the
                                                    schedule of fees. The Answer
          (b) The answer to the statement of        shall specify all relevant facts
          claim may include any counterclaims       and available defenses to the
          against the claimant, cross claims        Statement of Claim submitted
          against other respondents, or third       and may set forth any related
          party claims, specifying all relevant     Counterclaim the
          facts and remedies requested, as well     Respondent(s) may have
          as any additional documents               against the Claimant, any
          supporting such claim. When serving       Cross-Claim the Respondent(s)
          a third party claim, the respondent       may have against any other
          must provide each new respondent          named Respondent(s), and any
          with copies of all documents              Third-Party Claim against any
          previously served by any party, or        other party or person based
          sent to the parties by the Director.      upon any existing dispute,
                                                    claim, or controversy subject to
          (c) At the same time that the answer      arbitration under this Code.
          to the statement of claim is served on
          the other parties, the respondent must                  ***
          file copies of the Uniform Submission
          Agreement, the answer to the              10314. Initiation of
          statement of claim, and any additional    Proceedings
          documents, with the Director, with
                                                    (b) Answer – Defenses,
          enough copies for the Director and
                                                    Counterclaims, and/or Cross-
          each arbitrator.
                                                    Claims
          (d) If the answer to the statement of
          claim contains any counterclaims,         (3) Respondent(s) shall serve
          cross claims or third party claims, the   each party with a copy of any




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SUBJECT         NEW RULE                                   OLD RULE                            COMMENTS


                respondent must pay all required filing    Third-Party Claim. The Third-
                fees.                                      Party Claim shall also be filed
                                                           with the Director of Arbitration
                                                           with sufficient additional copies
                                                           for the arbitrator(s) along with
                                                           any deposit required under the
                                                           schedule of fees.

Answering       12304. Answering Counterclaims             10314. Initiation of                As part of the effort to
Counterclaims                                              Proceedings                         standardize the time
                (a) A claimant must directly serve any                                         limits, the new Code
                                                           (b) Answer – Defenses,
                answer to a counterclaim on each                                               extends the time for
                                                           Counterclaims, and/or Cross-
                other party within 20 days of receipt of                                       answering counterclaims
                                                           Claims
                the counterclaim. At the same time,                                            from 10 days to 20 days.
                the claimant must file the answer to       (4) The Claimant shall serve
                the counterclaim with the Director with    each party with a Reply to a        (See Rule 12305, in which
                additional copies for each arbitrator.     Counterclaim within ten (10)        the time to answer a cross
                                                           days of receipt of an Answer        claim has been shortened
                (b) The answer must include the            containing a Counterclaim. The      from 45 days to 20 days.)
                relevant facts and available defenses      Reply shall also be filed with
                to the counterclaim. The claimant          the Director of Arbitration with
                may include any additional documents       sufficient additional copies for
                supporting the answer to the               the arbitrator(s).
                counterclaim.


Answering       12305. Answering Cross Claims              10314. Initiation of                The new Code shortens
Cross Claims                                               Proceedings                         the time to answer a cross
                (a) A respondent must directly serve                                           claim from 45 days to 20
                                                           (b) Answer – Defenses,
                an answer to a cross claim on each                                             days.
                                                           Counterclaims, and/or Cross-
                other party within 20 days from the




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SUBJECT           NEW RULE                                  OLD RULE                            COMMENTS


                  date that the respondent’s answer to      Claims
                  the statement of claim is due, or from    (2)(C) A Respondent,
                  the receipt of the cross claim,           Responding Claimant, Cross-
                  whichever is later. At the same time,     Claimant, Cross-Respondent,
                  the respondent must file the answer to    or Third-Party Respondent who
                  the cross claim with the Director with    fails to file an Answer within 45
                  additional copies for each arbitrator.    calendar days from receipt of
                                                            service of a Claim, unless the
                  (b) The answer must include the           time to answer has been
                  relevant facts and available defenses     extended pursuant to
                  to the cross claim. The respondent        subparagraph (5), below, may,
                  may include any additional documents      in the discretion of the
                  supporting the answer to the cross        arbitrators, be barred from
                  claim.                                    presenting any matter,
                                                            arguments, or defenses at the
                                                            hearing.

Answering Third   12306. Answering Third Party              10314. Initiation of                No substantive change.
Party Claims      Claims                                    Proceedings
                                                            (b) Answer – Defenses,
                  (a) A party responding to a third party
                                                            Counterclaims, and/or Cross-
                  claim must directly serve all other
                                                            Claims
                  parties with the following documents
                  within 45 days of receipt of the third    (3) . . . Third-Party
                  party claim:                              Respondent(s) shall answer in
                                                            the manner provided for
                  •   Signed and dated Uniform              response to the Claim, as
                      Submission Agreement; and             provided in subparagraphs (1)
                                                            and (2) above.
                  •   An answer specifying the relevant




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SUBJECT   NEW RULE                                   OLD RULE   COMMENTS


             facts and available defenses to
             the third party claim.

          The respondent may include any
          additional documents supporting the
          answer to the third party claim.

          (b) The answer to the third party claim
          may also include any counterclaims,
          cross claims, or third party claims,
          specifying all relevant facts and
          remedies requested. The answer may
          also include any additional documents
          supporting such claim. When serving
          a third party claim, the respondent
          must provide each new respondent
          with copies of all documents
          previously served by any party, or
          sent to the parties by the Director.

          (c) At the same time that the answer
          to the third party claim is served on
          the other parties, the third party
          respondent must also file copies of
          the Uniform Submission Agreement,
          the answer to the third party claim,
          and any additional documents, with
          the Director, with additional copies for
          each arbitrator.

          (d) If the answer to the third party




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SUBJECT            NEW RULE                                  OLD RULE   COMMENTS


                   claim contains any counterclaim,
                   cross claim or third party claim, the
                   party must also pay all required filing
                   fees.

Deficient Claims   12307. Deficient Claims                              New rule. The rule
                                                                        codifies current deficiency
                   (a) The Director will not serve any                  practice in the forum.
                   claim that is deficient. The reasons a
                   claim may be deficient include the
                   following:

                   •   A Uniform Submission Agreement
                       was not filed by each claimant;

                   •   The Uniform Submission
                       Agreement was not properly
                       signed and dated;

                   •   The Uniform Submission
                       Agreement does not name all
                       parties named in the claim;

                   •   The claimant did not file the
                       correct number of copies of the
                       Uniform Submission Agreement,
                       statement of claim or supporting
                       documents for service on
                       respondents and for the
                       arbitrators;




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SUBJECT   NEW RULE                                       OLD RULE   COMMENTS


          •   The claim does not specify the
              customer’s home address at the
              time of the events giving rise to
              the dispute;

          •   The claim does not specify the
              claimant’s or the claimant’s
              representative’s current address;
              or

          •   The claimant did not pay all
              required filing fees, unless the
              Director deferred the fees.

          (b) The Director will notify the claimant
          in writing if the claim is deficient. If all
          deficiencies are not corrected within
          30 days from the time the claimant
          receives notice, the Director will close
          the case without serving the claim,
          and will not refund any filing fees paid
          by the claimant.

          (c) The panel will not consider any
          counterclaim, cross claim or third
          party claim that is deficient. The
          reasons a counterclaim, cross claim
          or third party claim may be deficient
          include the reasons listed in
          paragraph (a). The Director will notify
          the party making the counterclaim,




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SUBJECT           NEW RULE                                   OLD RULE                             COMMENTS


                  cross claim or third party claim of the
                  any deficiencies in writing. If all
                  deficiencies are not corrected within
                  30 days from the time the party
                  making the counterclaim, cross claim
                  or third party claim receives notice of
                  the deficiency, the panel will proceed
                  with the arbitration as though the
                  deficient counterclaim, cross claim or
                  third party claim had not been made.

Loss of           12308. Loss of Defenses Due to             10314. Initiation of                 The order of this rule has
Defenses Due to   Untimely or Incomplete Answer              Proceedings                          been reversed, and old
Untimely or                                                                                       paragraphs (2)(A) and (B)
Incomplete        (a) If a party does not answer within      (b) Answer – Defenses,               have been condensed
Answer            the time period specified in the Code,     Counterclaims, and/or Cross-         into one.
                  the panel may, upon motion, bar that       Claims
                  party from presenting any defenses or
                  facts at the hearing, unless the time to   (2)(A) A Respondent,
                  answer was extended in accordance          Responding Claimant, Cross-
                  with the Code. The party may also be       Claimant, Cross-Respondent,
                  subject to default proceedings under       or Third-Party Respondent who
                  Rule 12801, if the conditions of Rule      pleads only a general denial to
                  12801(a) apply.                            a pleading that states specific
                                                             facts and contentions may,
                  (b) If a party answers a claim that        upon objection by a party, in
                  alleges specific facts and contentions     the discretion of the arbitrators,
                  with a general denial, or fails to         be barred from presenting any
                  include defenses or relevant facts in      facts or defenses at the time of
                  its answer that were known to it at the    the hearing.
                  time the answer was filed, the panel
                                                             (B) A Respondent, Responding



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SUBJECT   NEW RULE                                 OLD RULE                            COMMENTS


          may bar that party from presenting the   Claimant, Cross-Claimant,
          omitted defenses or facts at the         Cross-Respondent, or Third-
          hearing.                                 Party Respondent who fails to
                                                   specify all available defenses
                                                   and relevant facts in such
                                                   party's answer may, upon
                                                   objection by a party, in the
                                                   discretion of the arbitrators, be
                                                   barred from presenting such
                                                   facts or defenses not included
                                                   in such party's Answer at the
                                                   hearing.
                                                   (C) A Respondent, Responding
                                                   Claimant, Cross-Claimant,
                                                   Cross-Respondent, or Third-
                                                   Party Respondent who fails to
                                                   file an Answer within 45
                                                   calendar days from receipt of
                                                   service of a Claim, unless the
                                                   time to answer has been
                                                   extended pursuant to
                                                   subparagraph (5), below, may,
                                                   in the discretion of the
                                                   arbitrators, be barred from
                                                   presenting any matter,
                                                   arguments, or defenses at the
                                                   hearing. Such a party may also
                                                   be subject to default
                                                   procedures as provided in
                                                   paragraph (e) below




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SUBJECT     NEW RULE                                  OLD RULE                            COMMENTS




Amending    12309. Amending Pleadings                 10328. Amendments                   Under the old Code,
Pleadings                                                                                 parties may amend
            (a) Before Panel Appointment              (a) After the filing of any         pleadings at any time
                                                      pleadings, if a party desires to    prior to panel
            Except as provided in paragraph (c), a    file a new or different pleading,   appointment, but, after
            party may amend a pleading at any         such change must be made in         panel appointment, they
            time before the panel has been            writing and filed with the          must obtain approval to
            appointed.                                Director of Arbitration with        amend a pleading. This
                                                      sufficient additional copies for    means that between the
            (1) To amend a statement of claim         each arbitrator. The party filing   time that the Director
            that has been filed but not yet served    a new or different pleading shall   consolidates the arbitrator
            by the Director, the claimant must file   serve on all other parties, a       lists and the panel is
            the amended claim with the Director,      copy of the new or different        appointed, a party could
            with additional copies for each           pleading in accordance with the     amend a pleading to add
            arbitrator and each other party. The      provisions set forth in Rule        a party to the proceeding,
            Director will then serve the amended      10314(b). . . . .                   and the newly-added
            claim in accordance with Rules 12300                                          party would neither be
            and 12301.                                                                    able to participate in
                                                                                          NLSS or object to being
            (2) To amend any other pleading, a                                            added to the arbitration.
            party must serve the amended
            pleading on each party. At the same                                           To address this issue, the
            time, the party must file the amended                                         rules governing amending
            pleading with the Director, with                                              pleadings (12309) and the
            additional copies for each arbitrator.                                        application of NLSS to
            If a pleading is amended to add a                                             newly-added parties
            party to the arbitration, the party                                           (12407) provide that no
            amending the pleading must provide                                            party may be added by
            each new party with copies of all                                             amendment after ranked




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SUBJECT   NEW RULE                                OLD RULE                            COMMENTS


          documents previously served by any                                          lists are due to the
          party, or sent to the parties by the                                        Director and before a
          Director.                                                                   panel is appointed and
                                                                                      approves a request to add
          (b) After Panel Appointment             (c) After a panel has been          the party. Rule 12309(c)
                                                  appointed, no new or different      also makes clear that the
          Once a panel has been appointed, a      pleading may be filed except for    party to be added after
          party may only amend a pleading if      a responsive pleading as            panel appointment must
          the panel grants a motion to amend in   provided for in (a) above or with   be given an opportunity to
          accordance with Rule 12503. Motions     the panel’s consent.                be heard before the panel
          to amend a pleading must include a                                          can grant the motion to
          copy of the proposed amended                                                amend.
          pleading. If the panel grants the
          motion to amend, the amended                                                Rule 12407 also clarifies
          pleading does not need to be re-                                            that parties added prior to
          served on the other parties, the                                            the cut-off date may
          Director, or the panel, unless the                                          participate in NLSS, but
          panel determines otherwise.                                                 parties added by
                                                                                      amendment after panel
          (c) Amendments to Add Parties                                               appointment do not have
                                                                                      the ability to rank and
          Once the ranked arbitrator lists are                                        strike arbitrators under
          due to the Director under Rule                                              NLSS. However, they
          12404(c), no party may amend a                                              may challenge an
          pleading to add a new party to the                                          arbitrator for cause under
          arbitration until a panel has been                                          Rule 12410. (See also
          appointed and the panel grants a                                            Rule 12409.)
          motion to add the party. Motions to
          add a party after panel appointment                                         The old rules governing
          must be served on all parties,                                              answering counterclaims,
          including the party to be added, and                                        cross claims, and




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SUBJECT     NEW RULE                                  OLD RULE                             COMMENTS


            the party to be added may respond to                                           amended claims do not
            the motion in accordance with Rule                                             prohibit a party from
            12503 without waiving any rights or                                            responding to any
            objections under the Code.                                                     amended pleadings;
                                                                                           however, these rules do
            (d) Responding to an Amended                                                   not specifically permit the
            Pleading                                                                       practice. Rule 12309
                                                                                           clarifies that any party has
             Any party may file a response to an                                           a right to file a response
            amended pleading, provided the                                                 to any amended pleading
            response is filed and served within 20                                         within 20 days of receipt
            days of receipt of the amended                                                 of the amended pleading,
            pleading, unless the panel determines                                          unless the panel
            otherwise.                                                                     determines otherwise.

Answering   12310. Answering Amended                  10328. Amendments                    As part of the initiative to
Amended     Claims                                                                         standardize time limits,
Claims                                                (a) . . . The other parties may,     the rule extends the time
            (a) If a claim is amended before it has   within ten (10) business days        to answer an amended
            been answered, the respondent’s           from the receipt of service, file    pleading from 10 business
            original time to answer is extended by    a response with all other parties    days to 20 calendar days.
            20 days.                                  and the Director of Arbitration in
                                                      accordance with Rule 10314(b).
            (b) If a claim is amended after it has
            been answered, but before a panel
            has been appointed, the respondent
            has 20 days from the time the
            amended claim is served to serve an
            amended answer.

            (c) If a claim is amended after a panel




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SUBJECT         NEW RULE                                    OLD RULE                         COMMENTS


                has been appointed, the respondent
                has 20 days from the time the
                respondent receives notice that the
                panel has granted the motion to
                amend the claim to serve an amended
                answer.

                (d) The amended answer must be
                directly served on each other party.
                At the same time, the amended
                answer must also be filed with the
                Director, with additional copies for
                each arbitrator.

                (e) If the amended claim adds a new
                party to the arbitration, the new party’s
                answer is governed by Rule 12306.

Amendments to   12311. Amendments to Amount in              10328. Amendments                No substantive change.
Amount in       Dispute
Dispute                                                     (b) If a new or amended
                If an amended pleading increases the        pleading increases the amount
                amount in dispute, all filing fees,         in dispute, all filing fees,
                surcharges and process fees required        hearing session deposits,
                by the Code will be recalculated            surcharges, and process fees
                based on the new amount in dispute.         required under Rules 10332
                                                            and 10333 will be recalculated
                                                            based on the amended amount
                                                            in dispute.

Multiple        12312. Multiple Claimants                   10314. Initiation of             The provisions relating to




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SUBJECT     NEW RULE                                  OLD RULE                            COMMENTS


Claimants                                             Proceedings                         joinder and consolidation
            (a) One or more parties may join                                              of multiple parties have
            multiple claims together in the same      (d) Joinder and                     been broken into three
            arbitration if the claims contain         Consolidation Multiple              rules. (See Rules 12312,
            common questions of law or fact and:      Parties                             12313 and 12314.)

            •   The claims assert any right to      (1) Permissive Joinder. All           Rules 12312(b) and
                relief jointly and severally; or    persons may join in one action        12313(b) reflect current
                                                    as claimants if they assert any       practice in the forum
            • The claims arise out of the same      right to relief jointly, severally,   concerning severing
                transaction or occurrence, or       or arising out of the same            claims. Because there
                series of transactions or           transaction, occurrence, or           are multiple surviving
                occurrences.                        series of transactions or             panels when the Director
                                                    occurrences and if any                severs claims, there
            (b) After all responsive pleadings have questions of law or fact              would be two or more
            been served, claims joined together     common to all these claimants         panels reviewing the
            under paragraph (a) of this rule may    will arise in the action. All         Director’s decision, with
            be separated into two or more           persons may be joined in one          potentially conflicting
            arbitrations by the Director before a   action as respondents if there is     results. To avoid
            panel is appointed, or by the panel     asserted against them, jointly or     inconsistent results and to
            after the panel is appointed. A party   severally, any right to relief        expedite the arbitration
            whose claims were separated by the      arising out of the same               process, NASD currently
            Director may make a motion to the       transaction, occurrence, or           forwards any motion to
            panel in the lowest numbered case to series of transactions or                rejoin severed claims to
            reconsider the Director’s decision.     occurrences and if any                the panel on the lowest
                                                    questions of law or fact              numbered case (i.e., the
                                                    common to all respondents will        panel from the first-filed
                                                    arise in the action. A claimant       claim in the matter that
                                                    or respondent need not assert         was severed) to decide a
                                                    rights to or defend against all       motion to re-join the
                                                    the relief demanded. Judgment         claims.




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SUBJECT       NEW RULE                                 OLD RULE                             COMMENTS


                                                       may be given for one or more
                                                       of the claimants according to
                                                       their respective rights to relief,
                                                       and against one or more
                                                       respondents according to their
                                                       respective liabilities.
                                                       (2) In arbitrations where there
                                                       are multiple Claimants,
                                                       Respondents, and/or Third-
                                                       Party Respondents, the
                                                       Director of Arbitration shall be
                                                       authorized to determine
                                                       preliminarily whether such
                                                       parties should proceed in the
                                                       same or separate arbitrations.
                                                       Such determination will be
                                                       considered subsequent to the
                                                       filing of all responsive
                                                       pleadings.

Multiple      12313. Multiple Respondents              10314. Initiation of                 See comment section to
Respondents                                            Proceedings                          Rule 12312.
              (a) One or more parties may name
              one or more respondents in the same      (d) Joinder and
              arbitration if the claims contain any    Consolidation Multiple
              questions of law or fact common to all   Parties
              respondents and:

              •   The claims are asserted against      (1) Permissive Joinder. All
                  the respondents jointly and          persons may join in one action




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SUBJECT   NEW RULE                                  OLD RULE                            COMMENTS


             severally; or                        as claimants if they assert any
                                                  right to relief jointly, severally,
          • The claims arise out of the same      or arising out of the same
              transaction or occurrence, or       transaction, occurrence, or
              series of transactions or           series of transactions or
              occurrences.                        occurrences and if any
                                                  questions of law or fact
          (b) After all responsive pleadings have common to all these claimants
          been served, claims joined together     will arise in the action. All
          under paragraph (a) of this rule may    persons may be joined in one
          be separated into two or more           action as respondents if there is
          arbitrations by the Director before a   asserted against them, jointly or
          panel is appointed, or by the panel     severally, any right to relief
          after the panel is appointed. A party   arising out of the same
          whose claims were separated by the      transaction, occurrence, or
          Director may make a motion to the       series of transactions or
          panel in the lowest numbered case to occurrences and if any
          reconsider the Director’s decision.     questions of law or fact
                                                  common to all respondents will
                                                  arise in the action. A claimant
                                                  or respondent need not assert
                                                  rights to or defend against all
                                                  the relief demanded. Judgment
                                                  may be given for one or more
                                                  of the claimants according to
                                                  their respective rights to relief,
                                                  and against one or more
                                                  respondents according to their
                                                  respective liabilities.
                                                    (2) In arbitrations where there
                                                    are multiple Claimants,




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SUBJECT   NEW RULE                 OLD RULE                           COMMENTS


                                   Respondents, and/or Third-
                                   Party Respondents, the
                                   Director of Arbitration shall be
                                   authorized to determine
                                   preliminarily whether such
                                   parties should proceed in the
                                   same or separate arbitrations.
                                   Such determination will be
                                   considered subsequent to the
                                   filing of all responsive
                                   pleadings.




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SUBJECT     NEW RULE                                   OLD RULE                           COMMENTS


Combining   12314. Combining Claims                    10314. Initiation of               See comment section to
Claims                                                 Proceedings                        Rule 12312.
            Before ranked arbitrator lists are due
            to the Director under Rule 12404(c),       (d) Joinder and
            the Director may combine separate          Consolidation Multiple
            but related claims into one arbitration.   Parties
            Once a panel has been appointed, the
                                                        (3) The Director of Arbitration
            panel may reconsider the Director’s
                                                       shall be authorized to
            decision upon motion of a party.
                                                       determine preliminarily whether
                                                       claims filed separately are
                                                       related and shall be authorized
                                                       to consolidate such claims for
                                                       hearing and award purposes.

                                                       (4) Further determinations with
                                                       respect to joinder,
                                                       consolidation, and multiple
                                                       parties under this paragraph (d)
                                                       shall be made by the arbitration
                                                       panel and shall be deemed
                                                       final.




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SUBJECT         NEW RULE                                  OLD RULE                            COMMENTS



PART IV

APPOINTMENT,
DISQUALIFICA-
TION, AND
AUTHORITY OF
ARBITRATORS


Neutral List    12400. Neutral List Selection             10308. Selection of                 The substance of old Rule
Selection       System and Arbitrator Rosters             Arbitrators                         10308 has been broken
System and                                                                                    into several rules. See
Arbitrator      (a) Neutral List Selection System         (a) Definitions                     Rules 12400-12409.
Rosters
                The Neutral List Selection System is a                                        The definitions in old Rule
                                                          (3) "Neutral List Selection
                computer system that generates, on a                                          10308(a) have been
                                                          System"
                random basis, lists of arbitrators from                                       moved to Rule 12100.
                NASD’s rosters of arbitrators for the     The term "Neutral List Selection
                selected hearing location for each        System" means the software          This rule and the rules that
                proceeding. The parties will select       that maintains the roster of        follow include a series of
                their panel through a process of          arbitrators and performs            changes to the NLSS
                striking and ranking the arbitrators on   various functions relating to the   system. Those changes
                lists generated by the Neutral List       selection of arbitrators.           include:
                Selection System.
                                                                                              •   Shifting to a random
                (b) Arbitrator Rosters                                                            (as opposed to the
                                                                                                  former rotational)
                NASD maintains the following roster                                               system of generating
                of arbitrators:                                                                   arbitrator names for
                                                                                                  the lists sent to parties




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SUBJECT   NEW RULE                                   OLD RULE   COMMENTS


          •   A roster of non-public arbitrators                    (Rule 12400(a)) (SR-
              as defined in Rule 12100(p);                          NASD-2004-164
                                                                    approved by the SEC
          •   A roster of public arbitrators as                     on March 9, 2005);
              defined in Rule 12100(u); and
                                                                •   Creating a separate
          •   A roster of arbitrators who are                       list of public chair-
              eligible to serve as chairperson of                   qualified arbitrators
              a panel as described in paragraph                     from which the
              (c). Arbitrators who are eligible to                  chairperson of the
              serve as chairperson will also be                     panel will be selected
              included in the roster of public                      (Rule 12400(b) and
              arbitrators, but will only appear on                  (c));
              one list in a case.
                                                                •   Eliminating the ability
          (c) Eligibility for Chairperson                           of parties to
          Roster                                                    unilaterally request
                                                                    arbitrators with
          In customer disputes, chairpersons                        particular expertise
          must be public arbitrators. Arbitrators                   (see current Rule
          are eligible for the chairperson roster                   10308(b)(4)(B)); and
          if they have completed chairperson
          training provided by NASD or have                     •   Expanding the number
          substantially equivalent training or                      of names of proposed
          experience and:                                           arbitrators provided to
                                                                    the parties, but limiting
          •   Have a law degree and are a                           the number of
              member of a bar of at least one                       arbitrators from each
              jurisdiction and have served as an                    list that each party
              arbitrator through award on at                        may strike (Rule
              least two arbitrations administered                   12403).




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SUBJECT       NEW RULE                                   OLD RULE                COMMENTS


                  by a self-regulatory organization in
                  which hearings were held; or                                   For purposes of Rule
                                                                                 12400(c), “substantially
              •   Have served as an arbitrator                                   equivalent training or
                  through award on at least three                                experience” would include
                  arbitrations administered by a self-                           service as a judge or
                  regulatory organization in which                               administrative hearing
                  hearings were held.                                            officer, chairperson
                                                                                 training offered by another
                                                                                 recognized dispute
                                                                                 resolution forum, or the
                                                                                 like.

                                                                                 Rule 12400(b) clarifies
                                                                                 that chair-qualified
                                                                                 arbitrators will be included
                                                                                 in the public arbitrator pool
                                                                                 as well as in the public
                                                                                 chair pool. This rule will
                                                                                 not result in duplication of
                                                                                 names on the chair and
                                                                                 public lists for the same
                                                                                 case. The NLSS will not
                                                                                 allow a specific arbitrator’s
                                                                                 name to appear on both
                                                                                 lists in the same case.
Number of     12401. Number of Arbitrators               10308. Selection of     Under the rule:
Arbitrators                                              Arbitrators
              (a) Claims of $25,000 or Less                                      •   For claims under
                                                         (b)(1) Composition of       $25,000, the single
              If the amount of a claim is $25,000 or     Arbitration Panel           arbitrator could no




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SUBJECT   NEW RULE                                     OLD RULE                                 COMMENTS


          less, exclusive of interest and                                                           longer request a three-
          expenses, the panel will consist of                                                       arbitrator panel; and
          one arbitrator and the claim is subject      (A) Claims of $50,000 or Less
          to the simplified arbitration procedures     If the amount of a claim is              •   For claims involving
          under Rule 12800.                            $50,000 or less, the Director                between $25,000 and
                                                       shall appoint an arbitration                 $50,000, any party
          (b) Claims of More Than $25,000 Up           panel composed of one public                 could still request a
          To $50,000                                   arbitrator, unless the parties               three-arbitrator panel,
                                                       agree to the appointment of a                but the single arbitrator
          If the amount of a claim is more than        non-public arbitrator.                       could not.
          $25,000 but not more than $50,000,
          exclusive of interest and expenses,                                                   In a related change, Rule
          the panel will consist of one arbitrator       (i) If the amount of a claim is        12402(a) provides that a
          unless any party requests a panel of         $25,000 or less and an                   single arbitrator must be
          three arbitrators in its initial pleading.   arbitrator appointed to the case         from the chairperson
                                                       requests that a panel of three           roster unless the parties
          (c) Claims of More Than $50,000;             arbitrators be appointed, the            agree otherwise.
          Unspecified or Non-Monetary                  Director shall appoint an
          Claims                                       arbitration panel composed of
                                                       one non-public arbitrator and
          If the amount of a claim is more than        two public arbitrators, unless
          $50,000, exclusive of interest and           the parties agree to a different
          expenses, or is unspecified, or if the       panel composition.
          claim does not request money                 (ii) If the amount of a claim is
          damages, the panel will consist of           greater than $25,000 and not
          three arbitrators, unless the parties        more than $50,000 and a party
          agree in writing to one arbitrator.          in its initial filing or an arbitrator
                                                       appointed to the case requests
                                                       that a panel of three arbitrators
                                                       be appointed, the Director shall
                                                       appoint an arbitration panel




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                                      COMPARISON CHART OF
                    OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT          NEW RULE                                OLD RULE                           COMMENTS


                                                         composed of one non-public
                                                         arbitrator and two public
                                                         arbitrators, unless the parties
                                                         agree to a different panel
                                                         composition.

                                                          (B) Claims of More Than
                                                         $50,000
                                                         If the amount of a claim is more
                                                         than $50,000, the Director shall
                                                         appoint an arbitration panel
                                                         composed of one non-public
                                                         arbitrator and two public
                                                         arbitrators, unless the parties
                                                         agree to a different panel
                                                         composition.

Composition of   12402. Composition of Arbitration       10308. Selection of                As part of the changes to
Arbitration      Panels                                  Arbitrators                        NLSS, the rule provides
Panels                                                                                      that in single arbitrator
                 (a) If the panel consists of one        (b)(1) Composition of              cases, the single arbitrator
                 arbitrator, the arbitrator will be a    Arbitration Panel                  will be selected from the
                 public arbitrator selected from the                                        new chair-qualified roster,
                 public chairperson roster, unless the   (A) Claims of $50,000 or Less      unless the parties agree
                 parties agree in writing otherwise.                                        otherwise. (See Rules
                                                         If the amount of a claim is
                                                                                            12400(b) and (c)).
                                                         $50,000 or less, the Director
                 (b) If the panel consists of three
                                                         shall appoint an arbitration
                 arbitrators, one will be a non-public                                      The rule also provides that
                                                         panel composed of one public
                 arbitrator and two will be public                                          in three-arbitrator cases,
                                                         arbitrator, unless the parties
                 arbitrators, one of whom will be                                           one arbitrator will be




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                               COMPARISON CHART OF
             OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                               OLD RULE                                 COMMENTS


          selected from the public chairperson   agree to the appointment of a            selected from the chair-
          roster, unless the parties agree in    non-public arbitrator.                   qualified roster.
          writing otherwise.                      (i) If the amount of a claim is
                                                 $25,000 or less and an
                                                 arbitrator appointed to the case
                                                 requests that a panel of three
                                                 arbitrators be appointed, the
                                                 Director shall appoint an
                                                 arbitration panel composed of
                                                 one non-public arbitrator and
                                                 two public arbitrators, unless
                                                 the parties agree to a different
                                                 panel composition.
                                                 (ii) If the amount of a claim is
                                                 greater than $25,000 and not
                                                 more than $50,000 and a party
                                                 in its initial filing or an arbitrator
                                                 appointed to the case requests
                                                 that a panel of three arbitrators
                                                 be appointed, the Director shall
                                                 appoint an arbitration panel
                                                 composed of one non-public
                                                 arbitrator and two public
                                                 arbitrators, unless the parties
                                                 agree to a different panel
                                                 composition.

                                                 (B) Claims of More Than
                                                 $50,000
                                                 If the amount of a claim is more




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                                         COMPARISON CHART OF
                       OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT            NEW RULE                                   OLD RULE                             COMMENTS


                                                              than $50,000, the Director shall
                                                              appoint an arbitration panel
                                                              composed of one non-public
                                                              arbitrator and two public
                                                              arbitrators, unless the parties
                                                              agree to a different panel
                                                              composition.

Generating and     12403. Generating and Sending              10308. Selection of                  As part of the changes to
Sending Lists to   Lists to the Parties                       Arbitrators                          NLSS, the rule provides
the Parties                                                                                        that when the panel
                   (a) Generating Lists                       (b)(2) One List for Panel of         consists of three
                                                              One Arbitrator                       arbitrators, parties would
                   (1) If the panel consists of one                                                receive a chairperson list
                                                              If one arbitrator will serve as
                   arbitrator, the Neutral List Selection                                          as well as non-public and
                                                              the arbitration panel, the
                   System will generate a list of eight                                            public lists, as applicable,
                                                              Director shall send to the
                   public arbitrators from the NASD’s                                              and that each list would
                                                              parties one list of public
                   chairperson roster.                                                             contain eight names.
                                                              arbitrators, unless the parties
                                                              agree otherwise.
                   (2) If the panel consists of three                                              As part of the changes to
                   arbitrators, the Neutral List Selection    (3) Two Lists for Panel of           NLSS, the ability of a party
                   System will generate:                      Three Arbitrators                    to unilaterally request
                                                                                                   arbitrators with certain
                   •   A list of eight arbitrators from the   If three arbitrators will serve as   expertise in old Rule
                       NASD’s non-public arbitrator           the arbitration panel, the           10308(b)(4)(B) has been
                       roster;                                Director shall send two lists to     eliminated.
                                                              the parties, one with the names
                   •   A list of eight arbitrators from the   of public arbitrators and one        Like the old rule, Rule
                       NASD’s public arbitrator roster;       with the names of non-public         12403 states that NLSS
                       and                                    arbitrators. The lists shall         excludes arbitrators from
                                                              contain numbers of public and        the lists sent to parties




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                                COMPARISON CHART OF
              OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                      OLD RULE                               COMMENTS


          •   A list of eight public arbitrators        non-public arbitrators, in a ratio     based on current conflicts
              from the NASD’s chairperson               of approximately two to one,           of interest identified by
              roster.                                   respectively, to the extent            NLSS. NLSS will check
                                                        possible, based on the roster of       for conflicts based on
          (3) The Neutral List Selection System         available arbitrators.                 matches between
          will exclude arbitrators from the lists                                              arbitrator and party
          based upon current conflicts of               (4) Preparation of Lists               Central Registration
          interest identified within the Neutral                                               Depository numbers and
          List Selection System.                        (A) Except as provided in              the member conflicts
                                                        subparagraph (B) below, the            database maintained by
          (b) Sending Lists to Parties                  Neutral List Selection System          NASD. This is a
                                                        shall generate the lists of public     preliminary check that is
          (1) The Director will send the lists          and non-public arbitrators on a        intended to remove
          generated by the Neutral List                 rotating basis within a                arbitrators from the list
          Selection System to all parties at the        designated geographic hearing          who have an obvious
          same time, within approximately 30            site and shall exclude                 conflict with a party based
          days after the last answer is due. The        arbitrators based upon conflicts       on employment history or
          parties will also receive employment          of interest identified within the      other information
          history for the past 10 years and other       Neutral List Selection System          contained in the database.
          background information for each               database.                              It does not, nor is it
          arbitrator listed.                                                                   intended to, replace the
                                                        (B) If a party requests that the       more detailed check
                                                        lists include arbitrators with         performed by staff before
          (2) If a party requests additional
                                                        expertise classified in the            the list is generated or by
          information about an arbitrator, the
                                                        Neutral List Selection System,         parties once the lists have
          Director will request the additional
                                                        the lists may include some             been sent.
          information from the arbitrator, and
                                                        arbitrators having the
          will send any response to all of the
                                                        designated expertise.                  Rule 12403 increases the
          parties at the same time. When a
          party requests additional information,        (5) Sending of Lists to Parties        number of arbitrators on
          the Director may, but is not required         The Director shall send the lists      each list to eight, and
          to, toll the time for parties to return the   of arbitrators to all parties at the   reduces the number of




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                                    COMPARISON CHART OF
                  OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT        NEW RULE                                OLD RULE                             COMMENTS


               ranked lists under Rule 12404(c).       same time approximately 30           strikes per each
                                                       days after the last answer is        separately represented
                                                       due.                                 party to four.

                                                       (6) Information About
                                                       Arbitrators
                                                       The Director shall send to the
                                                       parties employment history for
                                                       each listed arbitrator for the
                                                       past 10 years and other
                                                       background information. If a
                                                       party requests additional
                                                       information about an arbitrator,
                                                       the Director shall send such
                                                       request to the arbitrator, and
                                                       shall send the arbitrator's
                                                       response to all parties at the
                                                       same time. When a party
                                                       requests additional information,
                                                       the Director may, but is not
                                                       required to, toll the time for the
                                                       parties to return the ranked lists
                                                       under paragraph (c)(2).




Striking and   12404. Striking and Ranking             10308. Selection of                  See comments under Rule
Ranking        Arbitrators                             Arbitrators                          12403 concerning striking
Arbitrators                                                                                 of arbitrators.
               (a) Each separately represented party   (c) Striking, Ranking, and




                                                                                                                        79
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             OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                     OLD RULE                              COMMENTS


          may strike up to four of the arbitrators     Appointing Arbitrators on
          from each list for any reason by             Lists
          crossing through the names of the
          arbitrators. At least four names must        (1) Striking and Ranking
          remain on each list.                         Arbitrators

          (b) Each separately represented party
          shall rank all remaining arbitrators on      (A) Striking An Arbitrator
          the lists in order of preference, with a
                                                       A party may strike one or more
          “1” indicating the party’s first choice, a
                                                       of the arbitrators from each list
          “2” indicating the party’s second
                                                       for any reason.
          choice, and so on. Each list of
          arbitrators must be ranked separately.       (B) Ranking - Panel of One
                                                       Arbitrator
          (c) The ranked lists must be returned
          to the Director no more than 20 days         Each party shall rank all of the
          after the date upon which the Director       arbitrators remaining on the list
          sent the lists to the parties. If the        by assigning each arbitrator a
          Director does not receive a party’s          different, sequential, numerical
          ranked lists within that time, the           ranking, with a "1" rank
          Director will proceed as though the          indicating the party's first
          party did not want to strike any             choice, a "2" indicating the
          arbitrator or have any preferences           party's second choice, and so
          among the listed arbitrators.                on.

                                                       (C) Ranking - Panel of Three
                                                       Arbitrators

                                                       Each party shall rank all of the
                                                       public arbitrators remaining on
                                                       the list by assigning each
                                                       arbitrator a different, sequential,



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                     OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT           NEW RULE                                 OLD RULE                               COMMENTS


                                                           numerical ranking, with a "1"
                                                           rank indicating the party's first
                                                           choice, a "2" indicating the
                                                           party's second choice, and so
                                                           on. Each party separately shall
                                                           rank all of the non-public
                                                           arbitrators remaining on the list,
                                                           using the same procedure.

                                                           (2) Period for Ranking
                                                           Arbitrators; Failure to Timely
                                                           Strike and Rank
                                                           A party must return to the
                                                           Director the list or lists with the
                                                           rankings not later than 20 days
                                                           after the Director sent the lists
                                                           to the parties, unless the
                                                           Director has extended the
                                                           period. If a party does not
                                                           timely return the list or lists, the
                                                           Director shall treat the party as
                                                           having retained all the
                                                           arbitrators on the list or lists
                                                           and as having no preferences.

Combining Lists   12405. Combining Lists                   10308. Selection of                    As part of the changes to
                                                           Arbitrators                            NLSS, the rule includes
                  For each arbitrator classification                                              preparing a combined
                  (public, non-public, and chairperson),   (c) Striking, Ranking, and             chairperson list as well as
                  the Director will prepare combined       Appointing Arbitrators on              public and non-public lists.




                                                                                                                                 81
                                       COMPARISON CHART OF
                     OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT          NEW RULE                                    OLD RULE                           COMMENTS


                 ranked lists of arbitrators based on        Lists                              Otherwise, the process for
                 the parties’ numerical rankings, as                                            combining lists remains
                                                             (3) Process of Consolidating
                 follows:                                                                       the same.
                                                             Parties' Rankings
                 •   The Director will add the rankings      The Director shall prepare one
                     of all claimants together, and the      or two consolidated lists of
                     rankings of all respondents             arbitrators, as appropriate
                     together, to produce separate           under paragraph (b)(2) or
                     combined ranked lists for the           (b)(3), based upon the parties'
                     claimants and the respondents.          numerical rankings. The
                                                             arbitrators shall be ranked by
                 •   The Director will then add the          adding the rankings of all
                     combined rankings of claimants          claimants together and all
                     and the respondents together, to        respondents together, including
                     produce a single combined               third-party respondents, to
                     ranking number for each                 produce separate consolidated
                     arbitrator, excluding all arbitrators   rankings of the claimants and
                     stricken by a party.                    the respondents. The Director
                                                             shall then rank the arbitrators
                 •   The Director will create separate       by adding the consolidated
                     combined ranked lists for each          rankings of the claimants, the
                     arbitrator classification in cases      respondents, including third-
                     with both public and non-public         party respondents, and any
                     arbitrators.                            other party together, to produce
                                                             a single consolidated ranking
                                                             number, excluding arbitrators
                                                             who were stricken by any party.

Appointment of   12406. Appointment of Arbitrators;          10308. Selection of                As part of the changes to
Arbitrators;     Discretion to Appoint Arbitrators           Arbitrators                        NLSS, the rule
Discretion to    Not on List                                                                    incorporates a chairperson




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                      OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT           NEW RULE                                       OLD RULE                              COMMENTS


Appoint                                                          (c) Striking, Ranking, and            list, and old Rule
Arbitrators Not   (a) If the panel consists of one               Appointing Arbitrators on             10308(c)(5), governing
on List           arbitrator, the Director will appoint the      Lists                                 selection of a chairperson,
                  highest-ranked available arbitrator                                                  has been deleted.
                                                                 (4) Appointment of
                  from the combined chairperson list.
                                                                 Arbitrators
                                                                                                       In the past, there have
                  (b) If the panel consists of three                                                   been questions regarding
                  arbitrators, the Director will appoint:        (A) Appointment of Listed             when appointment of
                                                                 Arbitrators                           arbitrators occurs. To
                  •   The highest-ranked available non-          The Director shall appoint            address this question,
                      public arbitrator from the                 arbitrators to serve on the           Rule 12406(d) clarifies
                      combined non-public arbitrator list;       arbitration panel based on the        that appointment of
                                                                 order of rankings on the              arbitrators occurs when
                  •   The highest-ranked available               consolidated list or lists, subject   the Director sends notice
                      public arbitrator from the                 to availability and                   to the parties of the names
                      combined public arbitrator list, and       disqualification.                     of the arbitrators on the
                                                                                                       panel.
                  •   The highest-ranked available               (B) Discretion to Appoint
                      public arbitrator from the                 Arbitrators Not on List               In addition, the arbitrator
                      combined chairperson list, who                                                   oath located in old Rule
                      will serve as chairperson of the           If the number of arbitrators          10327 has been moved
                      panel.                                     available to serve from the           here.
                                                                 consolidated list is not sufficient
                  (c) If the number of arbitrators               to fill a panel, the Director shall
                  available to serve from the combined           appoint one or more arbitrators
                  list(s) is not sufficient to fill an initial   to complete the arbitration
                  panel, the Director will appoint one or        panel. Unless the parties agree
                  more arbitrators of the required               otherwise, the Director may not
                  classification to complete the panel           appoint a non-public arbitrator
                  from names generated randomly by               under paragraphs (a)(4)(B) or
                  the Neutral List Selection System. If          (a)(4)(C). The Director shall




                                                                                                                                     83
                               COMPARISON CHART OF
             OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                   OLD RULE                            COMMENTS


          the Director must appoint a non-public     provide the parties information
          arbitrator, the Director may not           about the arbitrator as provided
          appoint a non-public arbitrator as         in paragraph (b)(6), and the
          defined in Rule 12100(p)(2) or (3),        parties shall have the right to
          unless the parties agree otherwise.        object to the arbitrator as
          The Director will provide the parties      provided in paragraph (d)(1).
          information about the arbitrators as       (5) Selecting a Chairperson
          provided in Rule 12403 and the
                                                     for the Panel
          parties will have the right to challenge
          the arbitrators as provided in Rule        The parties shall have seven
          12410.                                     days from the date the Director
                                                     sends notice of the names of
          (d) Appointment of arbitrators occurs      the arbitrators to select a
          when the Director sends notice to the      chairperson. If the parties
          parties of the names of the arbitrators    cannot agree, the Director shall
          on the panel. Before making any            appoint a chairperson from the
          decision as an arbitrator or attending     panel as follows:
          a hearing session, the arbitrators          (A) The Director shall appoint
          must execute NASD’s arbitrator oath        as the chairperson the public
          or affirmation.                            arbitrator who is the most highly
                                                     ranked by the parties as long
                                                     as the person is not an
                                                     attorney, accountant, or other
                                                     professional who has devoted
                                                     50% or more of his or her
                                                     professional or business
                                                     activities, within the last two
                                                     years, to representing or
                                                     advising public customers in
                                                     matters relating to disputed
                                                     securities or commodities




                                                                                                    84
                                  COMPARISON CHART OF
                OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT      NEW RULE                                    OLD RULE                              COMMENTS


                                                         transactions or similar matters.
                                                         (B) If the most highly ranked
                                                         public arbitrator is subject to the
                                                         exclusion set forth in
                                                         subparagraph (A), the Director
                                                         shall appoint as the chairperson
                                                         the other public arbitrator, as
                                                         long as the person also is not
                                                         subject to the exclusion set
                                                         forth in subparagraph (A).
                                                         (C) If both public arbitrators are
                                                         subject to the exclusion set
                                                         forth in subparagraph (A), the
                                                         Director shall appoint as the
                                                         chairperson the public arbitrator
                                                         who is the most highly ranked
                                                         by the parties.

Additional   12407. Additional Parties                   10308. Selection of                   See comments under Rule
Parties                                                  Arbitrators                           12309.
             (a) If a party is added to an arbitration
             after the Director sends the lists          (c) Striking, Ranking, and
             generated by the Neutral List               Appointing Arbitrators on
             Selection System to the parties, but        Lists
             before parties must return the ranked
             lists to the Director, the Director will    (6) Additional Parties
             send the lists to the newly added
                                                         If a party is added to an
             party, with employment history for the
                                                         arbitration proceeding before
             past 10 years and other background
                                                         the Director has consolidated
             information for each arbitrator listed.
                                                         the other parties' rankings, the




                                                                                                                         85
                               COMPARISON CHART OF
             OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                    OLD RULE                               COMMENTS


          The newly added party may rank and          Director shall send to that party
          strike the arbitrators in accordance        the list or lists of arbitrators and
          with Rule 12404. If the newly added         permit the party to strike and
          party returns the lists within 20 days      rank the arbitrators. The party
          after the date upon which the Director      must return to the Director the
          sent the lists to the party, the Director   list or lists with numerical
          will include the new party’s lists when     rankings not later than 20 days
          combining rankings under Rule               after the Director sent the lists
          12405. If the Director does not receive     to the party. The Director shall
          the list within that time, the Director     then consolidate the rankings
          will proceed as though the party did        as specified in this paragraph
          not want to strike any arbitrator or        (c).
          have any preference among the listed
          arbitrators.

          (b) Once the ranked lists are due to
          the Director under Rule 12404, no
          party may amend a pleading to add a
          new party to the arbitration until a
          panel is appointed and grants a
          motion to add the party. Motions to
          add a party must be served on all
          parties, including the party to be
          added, and the party to be added may
          respond to the motion in accordance
          with Rule 12503 without waiving any
          rights or objections under the Code. If
          the panel grants the motion to add the
          party, the newly added party may not
          strike and rank the arbitrators, but
          may challenge an arbitrator for cause




                                                                                                        86
                                   COMPARISON CHART OF
                 OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT       NEW RULE                                   OLD RULE                            COMMENTS


              in accordance with Rule 12410.


Disclosures   12408. Disclosures Required of             10312. Disclosures Required         After filing the Code
Required of   Arbitrators                                of Arbitrators and Director's       Revision, NASD filed the
Arbitrators                                              Authority to Disqualify             following proposal to
              (a) Before appointing arbitrators to a                                         adopt IM-10308: SR-
              panel, the Director will notify the        (a) Each arbitrator shall be        NASD-2005-007. The
              arbitrators of the nature of the dispute   required to disclose to the         SEC approved the
              and the identity of the parties. Each      Director of Arbitration any         proposal and NASD has
              potential arbitrator must make a           circumstances which might           incorporated the approved
              reasonable effort to learn of, and must    preclude such arbitrator from       language in the rule,
              disclose to the Director, any              rendering an objective and          where appropriate.
              circumstances which might preclude         impartial determination. Each       Otherwise, there are no
              the arbitrator from rendering an           arbitrator shall disclose:          substantive changes from
              objective and impartial determination                                          old Rule 10312.
              in the proceeding, including:
                                                         (1) Any direct or indirect
              (1) Any direct or indirect financial or    financial or personal interest in
              personal interest in the outcome of        the outcome of the arbitration;
              the arbitration;                           (2) Any existing or past
                                                         financial, business,
              (2) Any existing or past financial,        professional, family, social, or
              business, professional, family, social,    other relationships or
              or other relationships or                  circumstances that are likely to
              circumstances with any party, any          affect impartiality or might
              party’s representative, or anyone who      reasonably create an
              the arbitrator is told may be a witness    appearance of partiality or bias.
              in the proceeding, that are likely to      Persons requested to serve as
              affect impartiality or might reasonably    arbitrators must disclose any
              create an appearance of partiality or      such relationships or



                                                                                                                         87
                               COMPARISON CHART OF
             OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                   OLD RULE                            COMMENTS


          bias;                                      circumstances that they have
                                                     with any party or its counsel, or
          (3) Any such relationship or               with any individual whom they
          circumstances involving members of         have been told will be a
          the arbitrator’s family or the             witness. They must also
          arbitrator’s current employers,            disclose any such relationship
          partners, or business associates; and      or circumstances involving
                                                     members of their families or
          (4) Any existing or past service as a      their current employers,
          mediator for any of the parties in the     partners, or business
          case for which the arbitrator has been     associates.
          selected.
                                                     (b) Persons who are requested
          (b) The obligation to disclose             to accept appointment as
          interests, relationships, or               arbitrators must make a
          circumstances that might preclude an       reasonable effort to inform
          arbitrator from rendering an objective     themselves of any interests,
          and impartial determination described      relationships or circumstances
          in paragraph (a) is a continuing duty      described in paragraph (a)
          that requires an arbitrator who            above.
          accepts appointment to an arbitration
          proceeding to disclose, at any stage       (c) The obligation to disclose
          of the proceeding, any such interests,     interests, relationships, or
          relationships, or circumstances that       circumstances that might
          arise, or are recalled or discovered.      preclude an arbitrator from
                                                     rendering an objective and
          (c) The Director will inform the parties   impartial determination
          to the arbitration of any information      described in paragraph (a) is a
          disclosed to the Director under this       continuing duty that requires a
          rule unless the arbitrator who             person who accepts
          disclosed the information declines         appointment as an arbitrator to




                                                                                                    88
                               COMPARISON CHART OF
             OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                               OLD RULE                             COMMENTS


          appointment or voluntarily withdraws   disclose, at any stage of the
          from the panel as soon as the          arbitration, any such interests,
          arbitrator learns of any interest,     relationships, or circumstances
          relationship or circumstance that      that arise, or are recalled or
          might preclude the arbitrator from     discovered.
          rendering an objective and impartial
          determination in the proceeding, or                   ***
          the Director removes the arbitrator.
                                                 (e) The Director shall inform the
                                                 parties to an arbitration
                                                 proceeding of any information
                                                 disclosed to the Director under
                                                 this Rule unless either the
                                                 arbitrator who disclosed the
                                                 information withdraws
                                                 voluntarily as soon as the
                                                 arbitrator learns of any interest,
                                                 relationship, or circumstances
                                                 described in paragraph (a) that
                                                 might preclude the arbitrator
                                                 from rendering an objective and
                                                 impartial determination in the
                                                 proceeding, or the Director
                                                 removes the arbitrator.
                                                             ****
                                                 IM-10308. Arbitrators Who
                                                 Also Serve as Mediators

                                                              ****
                                                 Arbitrators who also serve as
                                                 mediators shall disclose that




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SUBJECT         NEW RULE                                   OLD RULE                         COMMENTS


                                                           fact on their arbitrator
                                                           disclosure forms.


Arbitrator      12409. Arbitrator Recusal                                                   New rule.
Recusal
                Any party may ask an arbitrator to                                          The rule provides that,
                recuse himself or herself from the                                          consistent with current
                panel for good cause. Requests for                                          case law, the subject of
                arbitrator recusal are decided by the                                       the request for recusal
                arbitrator who is the subject of the                                        must decide the request.
                request.

Removal of      12410. Removal of Arbitrator by            10308. Selection of              No substantive change.
Arbitrator by   Director                                   Arbitrators
Director                                                                                    The rule combines the
                (a) Before First Hearing Session           (d) Disqualification and         substance of old Rules
                Begins                                     Removal of Arbitrator Due to     10308(d), 10312(d), and
                                                           Conflict of Interest or Bias     10313, which all address
                Before the first hearing session                                            disqualification and
                begins, the Director may remove an         (1) Disqualification By          removal of arbitrators.
                arbitrator for conflict of interest or     Director
                bias, either upon request of a party or
                                                           After the appointment of an
                on the Director’s own initiative.
                                                           arbitrator and prior to the
                                                           commencement of the earlier of
                (1) The Director will grant a party’s
                                                           (A) the first pre-hearing
                request to remove an arbitrator if it is
                                                           conference or (B) the first
                reasonable to infer, based on
                                                           hearing, if the Director or a
                information known at the time of the
                                                           party objects to the continued
                request, that the arbitrator is biased,
                                                           service of the arbitrator, the
                lacks impartiality, or has a direct or




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SUBJECT   NEW RULE                                    OLD RULE                            COMMENTS


          indirect interest in the outcome of the     Director shall determine if the
          arbitration. The interest or bias must      arbitrator should be
          be direct, definite, and capable of         disqualified. If the Director
          reasonable demonstration, rather than       sends a notice to the parties
          remote or speculative. Close                that the arbitrator shall be
          questions regarding challenges to an        disqualified, the arbitrator will
          arbitrator by a customer under this         be disqualified unless the
          Rule will be resolved in favor of the       parties unanimously agree
          customer.                                   otherwise in writing and notify
                                                      the Director not later than 15
          (2) The Director must first notify the      days after the Director sent the
          parties before removing an arbitrator       notice.
          on the Director’s own initiative. The       (2) Removal by Director
          Director may not remove the arbitrator
          if the parties agree in writing to retain   After the commencement of the
          the arbitrator within five days of          earlier of (A) the first pre-
          receiving notice of the Director’s intent   hearing conference or (B) the
          to remove the arbitrator.                   first hearing, the Director may
                                                      remove an arbitrator from an
          (b) After First Hearing Session             arbitration panel based on
          Begins                                      information that is required to
                                                      be disclosed pursuant to Rule
          After the first hearing session begins,     10312 and that was not
          the Director may remove an arbitrator       previously disclosed.
          based only on information required to       (3) Standards for Deciding
          be disclosed under Rule 12408 that          Challenges for Cause
          was not previously known by the
          parties. The Director may exercise          The Director will grant a party’s
          this authority upon request of a party      request to disqualify an
          or on the Director’s own initiative.        arbitrator if it is reasonable to
          Only the Director or the President of       infer, based on information




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SUBJECT   NEW RULE                                  OLD RULE                            COMMENTS


          NASD Dispute Resolution may               known at the time of the
          exercise the Director’s authority under   request, that the arbitrator is
          this paragraph (b).                       biased, lacks impartiality, or
                                                    has an interest in the outcome
                                                    of the arbitration. The interest
                                                    or bias must be direct, definite,
                                                    and capable of reasonable
                                                    demonstration, rather than
                                                    remote or speculative.

                                                                   ***
                                                    (f) Challenges by Customers
                                                    In cases involving public
                                                    customers, any close questions
                                                    regarding arbitrator
                                                    classification or challenges for
                                                    cause brought by a customer
                                                    will be resolved in favor of the
                                                    customer.
                                                                   ***
                                                    10312. Disclosures Required
                                                    of Arbitrators and Director's
                                                    Authority to Disqualify
                                                    (d) Removal by Director

                                                    (1) The Director may remove
                                                    an arbitrator based on
                                                    information that is required to
                                                    be disclosed pursuant to this
                                                    Rule.




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SUBJECT          NEW RULE                              OLD RULE                              COMMENTS


                                                       (2) After the commencement of
                                                       the earlier of (A) the first pre-
                                                       hearing conference or (B) the
                                                       first hearing, the Director may
                                                       remove an arbitrator based only
                                                       on information not known to the
                                                       parties when the arbitrator was
                                                       selected. The Director's
                                                       authority under this
                                                       subparagraph (2) may be
                                                       exercised only by the Director
                                                       or the President of NASD
                                                       Dispute Resolution.
                                                       (3) The Director will grant a
                                                       party’s request to disqualify an
                                                       arbitrator if it is
                                                       reasonable to infer, based on
                                                       information known at the time
                                                       of the request, that the
                                                       arbitrator is biased, lacks
                                                       impartiality, or has an interest in
                                                       the outcome of the arbitration.
                                                       The interest or bias must be
                                                       direct, definite, and capable of
                                                       reasonable demonstration,
                                                       rather than remote or
                                                       speculative.
Replacement of   12411. Replacement of Arbitrators     10308. Selection of                   Rule 12411 consolidates
Arbitrators                                            Arbitrators                           the various old rules, but
                 (a) If an arbitrator is removed, or                                         contains no substantive




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SUBJECT   NEW RULE                                    OLD RULE                             COMMENTS


          becomes otherwise unable or                 (d) Disqualification and             change, other than
          unwilling to serve, the Director will                                            extending the option of
                                                      Removal of Arbitrator Due to
          appoint a replacement arbitrator in                                              electing to proceed with
                                                      Conflict of Interest or Bias
          accordance with this rule, unless the                                            only the remaining
          parties agree in writing to proceed         (4) Vacancies Created by             arbitrators to all stages of
          with only the remaining arbitrators.        Disqualification or                  the proceeding, but
                                                      Resignation                          eliminating the five-day
          (b) The Director will appoint as a                                               limitation on electing that
          replacement arbitrator the arbitrator       Prior to the commencement of         option, both of which are
          who is the most highly ranked               the earlier of (A) the first pre-    contained in old Rule
          available arbitrator of the required        hearing conference or (B) the        10313.
          classification remaining on the             first hearing, if an arbitrator
          combined list.                              appointed to an arbitration
                                                      panel is disqualified or is
          (c) If there are no available arbitrators   otherwise unable or unwilling to
          of the required classification on the       serve, the Director shall appoint
          consolidated list, the Director will        from the consolidated list of
          appoint an arbitrator of the required       arbitrators the arbitrator who is
          classification to complete the panel        the most highly ranked
          from names generated by the Neutral         available arbitrator of the
          List Selection System. The Director         proper classification remaining
          will provide the parties information        on the list. If there are no
          about the arbitrator as provided in         available arbitrators of the
          Rule 12403, and the parties shall           proper classification on the
          have the right to object to the             consolidated list, the Director
          arbitrator as provided in Rule 12410.       shall appoint an arbitrator of the
                                                      proper classification subject to
          (d) If the Director must appoint a non-     the limitation set forth in
          public arbitrator under paragraph (c),      paragraph (c)(4)(B). The
          the Director may not appoint a non-         Director shall provide the
          public arbitrator as defined in Rule        parties information about the




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SUBJECT   NEW RULE                                 OLD RULE                              COMMENTS


          12100(p)(2) or (3), unless the parties   arbitrator as provided in
          agree otherwise.                         paragraph (b)(6), and the
                                                   parties shall have the right to
                                                   object to the arbitrator as
                                                   provided in paragraph (d)(1).
                                                                  ***
                                                   (c) Striking, Ranking, and
                                                   Appointing Arbitrators on
                                                   Lists

                                                   (4) Appointment of
                                                   Arbitrators

                                                   (B) Discretion to Appoint
                                                   Arbitrators Not on List

                                                   If the number of arbitrators
                                                   available to serve from the
                                                   consolidated list is not sufficient
                                                   to fill a panel, the Director shall
                                                   appoint one or more arbitrators
                                                   to complete the arbitration
                                                   panel. Unless the parties agree
                                                   otherwise, the Director may not
                                                   appoint a non-public arbitrator
                                                   under paragraphs (a)(4)(B) or
                                                   (a)(4)(C). The Director shall
                                                   provide the parties information
                                                   about the arbitrator as provided
                                                   in paragraph (b)(6), and the
                                                   parties shall have the right to




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SUBJECT   NEW RULE                 OLD RULE                            COMMENTS


                                   object to the arbitrator as
                                   provided in paragraph (d)(1).

                                                ***
                                   10308. Selection of
                                   Arbitrators

                                   (a) Definitions

                                   (4) "non-public arbitrator"

                                   The term "non-public arbitrator"
                                   means a person who is
                                   otherwise qualified to serve as
                                   an arbitrator and:
                                    (A) is, or within the past three
                                   years, was:

                                   (i) associated with a broker or a
                                   dealer (including a government
                                   securities broker or dealer or a
                                   municipal securities dealer);
                                   (ii) registered under the
                                   Commodity Exchange Act;

                                   (iii) a member of a commodities
                                   exchange or a registered
                                   futures association; or

                                   (iv) associated with a person or




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SUBJECT   NEW RULE                 OLD RULE                           COMMENTS


                                   firm registered under the
                                   Commodity Exchange Act;
                                    (B) is retired from engaging in
                                   any of the business activities
                                   listed in subparagraph (4)(A);
                                   (C) is an attorney, accountant,
                                   or other professional who has
                                   devoted 20 percent or more of
                                   his or her professional work, in
                                   the last two years, to clients
                                   who are engaged in any of the
                                   business activities listed in
                                   subparagraph (4)(A); or

                                   (D) is an employee of a bank or
                                   other financial institution and
                                   effects transactions in
                                   securities, including
                                   government or municipal
                                   securities, and commodities
                                   futures or options or supervises
                                   or monitors the compliance with
                                   the securities and commodities
                                   laws of employees who engage
                                   in such activities.

                                                ***
                                   10313. Disqualification or
                                   Other Disability of Arbitrators




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SUBJECT   NEW RULE                 OLD RULE                             COMMENTS


                                   (a) In the event that any
                                   arbitrator, after the
                                   commencement of the earlier of
                                   (1) the first pre-hearing
                                   conference or (2) the first
                                   hearing but prior to the
                                   rendition of the award, should
                                   become disqualified, resign,
                                   die, refuse or otherwise be
                                   unable to perform as an
                                   arbitrator, the Director shall
                                   appoint a replacement
                                   arbitrator to fill the vacancy and
                                   the hearing shall continue. In
                                   the alternative, if all parties
                                   agree to proceed with any
                                   remaining arbitrator(s), they
                                   shall inform the Director in
                                   writing within 5 business days
                                   of notification of the vacancy,
                                   and the remaining arbitrator(s)
                                   shall continue with the hearing
                                   and determination of the
                                   controversy.
                                   (b) The Director shall inform the
                                   parties as soon as possible of
                                   the name and employment
                                   history of the replacement
                                   arbitrator for the past 10 years,
                                   as well as information disclosed
                                   pursuant to Rule 10312. A party




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SUBJECT         NEW RULE                               OLD RULE                             COMMENTS


                                                       may make further inquiry of the
                                                       Director concerning the
                                                       replacement arbitrator's
                                                       background. If the arbitration
                                                       proceeding is subject to Rule
                                                       10308, the party may exercise
                                                       his or her right to challenge the
                                                       replacement arbitrator within
                                                       the time remaining prior to the
                                                       next scheduled hearing session
                                                       by notifying the Director in
                                                       writing of the name of the
                                                       arbitrator challenged and the
                                                       basis for such challenge. If the
                                                       arbitration proceeding is not
                                                       subject to Rule 10308, within
                                                       the time remaining prior to the
                                                       next scheduled hearing session
                                                       or the 10 day period provided
                                                       under Rule 10311, whichever is
                                                       shorter, a party may exercise
                                                       the party's right to challenge the
                                                       replacement arbitrator as
                                                       provided in Rule 10311.

Director’s      12412. Director’s Discretionary        10308. Selection of                  No substantive change.
Discretionary   Authority                              Arbitrators
Authority
                The Director may exercise              (e) Discretionary Authority
                discretionary authority and make any   The Director may exercise
                decision that is consistent with the   discretionary authority and




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SUBJECT           NEW RULE                                    OLD RULE                             COMMENTS


                  purposes of the Code to facilitate the      make any decision that is
                  appointment of arbitrators and the          consistent with the purposes of
                  resolution of arbitrations.                 this Rule and the Rule 10000
                                                              Series to facilitate the
                                                              appointment of arbitration
                                                              panels and the resolution of
                                                              arbitration disputes.

Jurisdiction of   12413. Jurisdiction of Panel and            10324. Interpretation of             No substantive change.
Panel and         Authority to Interpret the Code             Provisions of Code and
Authority to                                                  Enforcement of Arbitrator
Interpret the     The panel has the authority to              Rulings
Code              interpret and determine the
                  applicability of all provisions under the   The arbitrators shall be
                  Code. Such interpretations are final        empowered to interpret and
                  and binding upon the parties.               determine the applicability of all
                                                              provisions under this Code and
                                                              to take appropriate action to
                                                              obtain compliance with any
                                                              ruling by the arbitrator(s). Such
                                                              interpretations and actions to
                                                              obtain compliance shall be final
                                                              and binding upon the parties.


Determinations    12414. Determinations of                    10325. Determination of              Rule 12414 reflects that
of Arbitration    Arbitration Panel                           Arbitrators                          under the new Code, and
Panel                                                                                              applicable law, some
                  All rulings and determinations of the       All rulings and determinations       decisions may be made by
                  panel must be made by a majority of         of the panel shall be by a           a single member of a
                  the arbitrators, unless the parties         majority of the arbitrators.         three-arbitrator panel.




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SUBJECT   NEW RULE                               OLD RULE   COMMENTS


          agree, or the Code or applicable law
          provides, otherwise.                              For example, Rule 12503
                                                            provides that some
                                                            motions may be decided
                                                            by a single arbitrator.
                                                            Also, applicable law may
                                                            permit a single arbitrator
                                                            to issue a subpoena.
                                                            (See Rule 12512.)




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SUBJECT      NEW RULE                                  OLD RULE   COMMENTS


PART V

PREHEARING
PROCEDURES
AND
DISCOVERY
Initial      12500. Initial Prehearing                            New rule.
Prehearing   Conference
Conference                                                        The rule codifies NASD’s
             (a) After the panel is appointed, the                current practice of
             Director will schedule an Initial                    scheduling an initial pre-
             Prehearing Conference before the                     hearing conference in
             panel, except as provided in                         every case unless the
             paragraph (c) of this rule.                          parties provide certain
                                                                  scheduling and other
             (b) The Initial Prehearing Conference                information.
             will generally be held by telephone.
             Unless the parties agree otherwise,
             the Director must notify each party of
             the time and place of the Initial
             Prehearing Conference at least 20
             days before it takes place.

             (c) At the Initial Prehearing
             Conference, the panel will set
             discovery, briefing, and motions
             deadlines, schedule subsequent
             hearing sessions, and address other
             preliminary matters. The parties may
             agree to forgo the Initial Prehearing
             Conference only if they jointly provide




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SUBJECT   NEW RULE                                    OLD RULE   COMMENTS


          the Director with the following
          information, in writing, with additional
          copies for each arbitrator, before the
          Initial Prehearing Conference is
          scheduled to be held:

          •   A statement that the parties
              accept the panel;

          •   Whether any other prehearing
              conferences will be held, and if so,
              for each prehearing conference, a
              minimum of four mutually
              agreeable dates and times, and
              whether the chairperson or the full
              panel will preside;

          •   A minimum of four sets of mutually
              agreeable hearing dates;

          •   A discovery schedule;

          •   A list of all anticipated motions,
              with filing and response due
              dates; and

          •   A determination regarding whether
              briefs will be submitted, and, if so,
              the due date for the briefs and any
              reply briefs.




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SUBJECT       NEW RULE                                   OLD RULE                            COMMENTS


Other         12501. Other Prehearing                    10321. General Provisions           No substantive change.
Prehearing    Conferences                                Governing Pre-Hearing
Conferences                                              Proceedings
              (a) A prehearing conference may be
              scheduled upon the joint request of
                                                         (d) Pre-Hearing Conference
              the parties or at the discretion of the
              Director. The Director will set the time
              and place of the prehearing                 (1) Upon the written request of
              conference and appoint a person to         a party, an arbitrator, or at the
              preside.                                   discretion of the Director of
                                                         Arbitration, a pre-hearing
              (b) At a party’s request, or at the        conference shall be scheduled.
              discretion of the panel, the panel may     The Director of Arbitration shall
              schedule one or more additional            set the time and place of a pre-
              prehearing conferences regarding any       hearing conference and appoint
              outstanding preliminary matters,           a person to preside. The pre-
              including:                                 hearing conference may be
                                                         held by telephone conference
              •   Discovery disputes;                    call. The presiding person shall
                                                         seek to achieve agreement
              •   Motions;                               among the parties on any issue
                                                         which relates to the pre-hearing
              •   Witness lists and subpoenas;           process or to the hearing,
                                                         including but not limited to
              •   Stipulations of fact;                  exchange of information,
                                                         exchange or production of
                                                         documents, identification of
              •   Unresolved scheduling issues;
                                                         witnesses, identification and
                                                         exchange of hearing
              •   Contested issues on which the
                                                         documents, stipulation of facts,
                  parties will submit briefs; and
                                                         identification and briefing of




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SUBJECT       NEW RULE                                  OLD RULE                          COMMENTS


              •   Any other matter that will simplify   contested issues, and any other
                  or expedite the arbitration.          matters which will expedite the
                                                        arbitration proceedings.
              (c) The panel will determine the time     (2) Any issues raised at the
              and place of any additional prehearing    pre-hearing conference that are
              conferences. Prehearing conferences       not resolved may be referred to
              will generally be held by telephone.      a single member of the
              Unless the full panel is required under   arbitration panel for decision.
              Rule 12503, prehearing conferences
              may be held before a single arbitrator,
              generally the chairperson.

Recording     12502. Recording Prehearing                                                 New rule.
Prehearing    Conferences
Conferences                                                                               After filing the Code
              (a) Prehearing conferences will not be                                      Revision, NASD filed the
              recorded, unless the panel                                                  following proposal to
              determines otherwise, either on its                                         amend old Rule 10326:
              own initiative or upon motion of a                                          SR-NASD-2006-102. The
              party.                                                                      SEC approved the
                                                                                          proposal and NASD has
              (b) If a prehearing conference is                                           incorporated the approved
              recorded, it may be recorded using                                          language in the rule,
              any of the methods discussed under                                          where appropriate.
              Rule 12606. The Director will provide
              a copy of the recording to any party
              upon request for a nominal fee.

Motions       12503. Motions                                                              New rule.

              (a) Motions




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SUBJECT   NEW RULE                                   OLD RULE   COMMENTS



          (1) A party may make motions in
          writing, or orally during any hearing
          session. Before making a motion, a
          party must make an effort to resolve
          the matter that is the subject of the
          motion with the other parties. Every
          motion, whether written or oral, must
          include a description of the efforts
          made by the moving party to resolve
          the matter before making the motion.

          (2) Written motions are not required to
          be in any particular form, and may
          take the form of a letter, legal motion,
          or any other form that the panel
          decides is acceptable. Written
          motions must be served directly on
          each other party, at the same time
          and in the same manner. Written
          motions must also be filed with the
          Director, with additional copies for
          each arbitrator, at the same time and
          in the same manner in which they are
          served on the parties.

          (3) Written motions must be served at
          least 20 days before a scheduled
          hearing, unless the panel decides
          otherwise.




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SUBJECT   NEW RULE                                  OLD RULE   COMMENTS


          (4) Motions to amend a pleading after
          panel appointment pursuant to Rule
          12309(b) must be accompanied by
          copies of the proposed amended
          pleading when the motion is served
          on the other parties and filed with the
          Director. If the panel grants the
          motion, the amended pleading does
          not have to be served again, unless
          the panel determines otherwise. If a
          party moves to amend a pleading to
          add a party, the motion must be
          served on all parties, including the
          party to be added, and the party to be
          added may respond to the motion in
          accordance with paragraph Rule
          12309(c) without waiving any rights or
          objections under the Code.

          (b) Responding to Motions

          Parties have 10 days from the receipt
          of a written motion to respond to the
          motion, unless the moving party
          agrees to an extension of time, or the
          Director or the panel decides
          otherwise. Responses to written
          motions must be served directly on
          each other party, at the same time
          and in the same manner. Responses
          to written motions must also be filed




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SUBJECT   NEW RULE                                     OLD RULE   COMMENTS


          with the Director, with additional
          copies for each arbitrator, at the same
          time and in the same manner in which
          they are served on the parties.

          (c) Authority to Decide Motions

          (1) The Director decides motions
          relating to use of the forum under
          Rule 12203 and removal of an
          arbitrator under Rule 12410.

          (2) Motions relating to combining or
          separating claims or arbitrations, or
          changing the hearing location, are
          decided by the Director before a panel
          is appointed, and by the panel after
          the panel is appointed.

          (3) Discovery-related motions are
          decided by one arbitrator, generally
          the chairperson. The arbitrator may
          refer such motions to the full panel
          either at his or her own initiative, or at
          the request of a party. The arbitrator
          must refer motions relating to privilege
          to the full panel at the request of a
          party.

          (4) Motions for arbitrator recusal under
          Rule 12409 are decided by the




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SUBJECT          NEW RULE                                   OLD RULE                            COMMENTS


                 arbitrator who is the subject of the
                 request.

                 (5) The full panel decides all other
                 motions, including motions relating to
                 the eligibility of a claim under Rule
                 12206, unless the Code provides or
                 the parties agree otherwise.

Reserved.        12504. Reserved.

Cooperation of   12505. Cooperation of Parties in           10321. General Provisions           The new Code codifies the
Parties in       Discovery                                  Governing Pre-Hearing               discovery procedures
Discovery                                                   Proceedings                         outlined in the old NASD
                 The parties must cooperate to the                                              Discovery Guide. (See
                 fullest extent practicable in the          (a) Requests for Documents          Rules 12505-12511.)
                 exchange of documents and                  and Information
                 information to expedite the arbitration.                                       The rules extend the time
                                                            The parties shall cooperate to      parties have to respond to
                                                            the fullest extent practicable in   Document Production
                                                            the voluntary exchange of           Lists and other requests,
                                                            documents and information to        but also provide more
                                                            expedite the arbitration.           serious consequences
                                                                                                when parties fail to
                                                                                                respond, or when parties
                                                                                                frivolously object to
                                                                                                production of documents
                                                                                                or information.


Document         12506. Document Production Lists                                               New rule. Based on the




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SUBJECT            NEW RULE                                 OLD RULE   COMMENTS


Production Lists                                                       old NASD Discovery
                   (a) Applicability of Document                       Guidelines.
                   Production Lists
                                                                       The rule clarifies that it is
                   When the Director serves the                        mandatory for parties to
                   statement of claim, the Director will               either produce documents
                   provide the NASD Discovery Guide                    on relevant document
                   and Document Production Lists to the                production lists, to explain
                   parties. Document Production Lists 1                why production is not
                   and 2 describe the documents that                   possible, or to object. The
                   are presumed to be discoverable in all              rule also extends the initial
                   arbitrations between a customer and a               time to respond to
                   member or associated person. Other                  discovery lists from 30 to
                   Document Production Lists may also                  60 days.
                   apply, depending on the specific
                   cause(s) of action alleged.                         Further, Rules 12506 and
                                                                       12507 expressly provide a
                   (b) Time for Responding to                          “good faith” standard for
                   Document Production Lists                           compliance, so that
                                                                       frivolous delays,
                   (1) Unless the parties agree                        unreasonable timeframes,
                   otherwise, within 60 days of the date               or bad-faith objections
                   that the answer to the statement of                 would be subject to
                   claim is due, or, for parties added by              sanctions under the new
                   amendment or third party claim, within              Code.
                   60 days of the date that their answer
                   is due, parties must either:

                   •   Produce to all other parties all
                       documents in their possession or
                       control that are described in the




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SUBJECT   NEW RULE                                    OLD RULE   COMMENTS


              Document Production Lists 1 and
              2, and any other Document
              Production List that is applicable
              based on the cause(s) of action
              alleged;

          •   Identify and explain the reason
              that specific documents described
              in Document Production Lists 1
              and 2, and any other Document
              Production List that is applicable
              based on the cause(s) of action
              alleged, cannot be produced
              within the required time, and state
              when the documents will be
              produced; or

          •   Object as provided in Rule 12508.

          (2) A party must act in good faith
          when complying with subparagraph
          (1) of this rule. “Good faith” means
          that a party must use its best efforts to
          produce all documents required or
          agreed to be produced. If a document
          cannot be produced in the required
          time, a party must establish a
          reasonable timeframe to produce the
          document.

          (c) Redacted Information




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SUBJECT           NEW RULE                                  OLD RULE                            COMMENTS



                  For purposes of this rule and Rule
                  12507, if a party redacts any portion
                  of a document prior to production, the
                  redacted pages (or range of pages)
                  shall be labeled “redacted.”

Other Discovery   12507. Other Discovery Requests           10321. General Provisions           See comments under Rule
Requests                                                    Governing Pre-Hearing               12506.
                  (a) Making Other Discovery                Proceedings
                  Requests
                                                             (a) Requests for Documents
                      (1) Parties may also request          and Information
                  additional documents or information
                                                            The parties shall cooperate to
                  from any party by serving a written
                                                            the fullest extent practicable in
                  request directly on the party.
                                                            the voluntary exchange of
                  Requests for information are
                                                            documents and information to
                  generally limited to identification of
                                                            expedite the arbitration. Any
                  individuals, entities, and time periods
                                                            request for documents or other
                  related to the dispute; such requests
                                                            information should be specific,
                  should be reasonable in number and
                                                            relate to the matter in
                  not require narrative answers or fact
                                                            controversy, and afford the
                  finding. Standard interrogatories are
                                                            party to whom the request is
                  generally not permitted in arbitration.
                                                            made a reasonable period of
                                                            time to respond without
                      (2) Other discovery requests may
                                                            interfering with the time set for
                  be served:
                                                            the hearing.
                  •   On the claimant, or any               (b) Document Production and
                      respondent named in the initial       Information Exchange
                      statement of claim, 45 days or




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SUBJECT   NEW RULE                                   OLD RULE                            COMMENTS


              more after the Director serves the
              statement of claim; and                 (1) Any party may serve a
                                                     written request for information
          •   On any party subsequently added        or documents ("information
              to the arbitration, 45 days or more    request") upon another party 45
              after the statement of claim is        calendar days or more after
              served on that party.                  service of the Statement of
                                                     Claim by the Director of
          At the same time, the party must           Arbitration or upon filing of the
          serve copies of the request on all         Answer, whichever is earlier.
          other parties. Any request for             The requesting party shall
          documents or information not               serve the information request
          described in applicable Document           on all parties and file a copy
          Production Lists should be specific        with the Director of Arbitration.
          and relate to the matter in                The parties shall endeavor to
          controversy.                               resolve disputes regarding an
                                                     information request prior to
          (b) Responding to Other Discovery          serving any objection to the
          Requests                                   request. Such efforts shall be
                                                     set forth in the objection.
              (1) Unless the parties agree
          otherwise, within 60 days from the
          date a discovery request other than
          the Document Production Lists is
          received, the party receiving the
          request must either:

          •   Produce the requested documents
              or information to all other parties;

          •   Identify and explain the reason




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SUBJECT        NEW RULE                                    OLD RULE                           COMMENTS


                   that specific requested documents
                   or information cannot be produced
                   within the required time, and state
                   when the documents will be
                   produced; or

               •   Object as provided in Rule 12508.

                   (2) A party must act in good faith
               when complying with subparagraph
               (1) of this rule. “Good faith” means
               that a party must use its best efforts to
               produce all documents or information
               required or agreed to be produced. If
               a document or information cannot be
               produced in the required time, a party
               must establish a reasonable
               timeframe to produce the document or
               information.

Objecting to   12508. Objecting to Discovery;              10321. General Provisions          See comments under Rule
Discovery;     Waiver of Objection                         Governing Pre-Hearing              12506.
Waiver of                                                  Proceedings
Objection      (a) If a party objects to producing any
                                                           (b) Document Production and
               document described in Document
                                                           Information Exchange
               Production Lists 1 or 2, any other
               applicable Document Production List,        (2) Unless a greater time is
               or any document or information              allowed by the requesting party,
               requested under Rule 12507, it must         information requests shall be
               specifically identify which document or     satisfied or objected to within
               requested information it is objecting to    thirty (30) calendar days from




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SUBJECT      NEW RULE                                   OLD RULE                         COMMENTS


             and why. Objections must be in             the date of service. Any
             writing, and must be served on all         objection to an information
             other parties at the same time and in      request shall be served by the
             the same manner. Objections should         objecting party on all parties
             not be filed with the Director. Parties    and filed with the Director of
             must produce all applicable listed         Arbitration.
             documents, or other requested
             documents or information not
             specified in the objection.

             (b) Any objection not made within the
                 required time is waived unless the
                 panel determines that the party
                 had substantial justification for
                 failing to make the objection within
                 the required time.
             (c) In making any rulings on
                 objections, arbitrators may
                 consider the relevance of
                 documents or discovery requests
                 and the relevant costs and
                 burdens to parties to produce this
                 information.

Motions to   12509. Motions to Compel                   10321. General Provisions        See comments under Rule
Compel       Discovery                                  Governing Pre-Hearing            12506.
Discovery                                               Proceedings
             (a) A party may make a motion asking
                                                        (b) Document Production and
             the panel to order another party to
                                                        Information Exchange
             produce documents or information if
             the other party has:                       (3) Any response to objections




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SUBJECT       NEW RULE                                   OLD RULE                          COMMENTS


                                                         to an information request shall
              •   Failed to comply with Rule 12506       be served on all parties and
                  or 12507; or                           filed with the Director of
                                                         Arbitration within ten (10)
              •   Objected to the production of          calendar days of receipt of the
                  documents or information under         objection.
                  Rule 12508.

              (b) Motions to compel discovery must
              be made, and will be decided, in
              accordance with Rule 12503. Such
              motions must include the disputed
              document request or list, a copy of
              any objection thereto, and a
              description of the efforts of the moving
              party to resolve the issue before
              making the motion.

Depositions   12510. Depositions                                                           New rule. Based on the
                                                                                           old NASD Discovery
              Depositions are strongly discouraged                                         Guide.
              in arbitration. Upon motion of a party,
              the panel may permit depositions, but
              only under very limited circumstances,
              including:

              •   To preserve the testimony of ill or
                  dying witnesses;

              •   To accommodate essential
                  witnesses who are unable or




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SUBJECT     NEW RULE                                     OLD RULE   COMMENTS


                unwilling to travel long distances
                for a hearing and may not
                otherwise be required to
                participate in the hearing;

            •   To expedite large or complex
                cases; and

            •   If the panel determines that
                extraordinary circumstances exist.

Discovery   12511. Discovery Sanctions                              New rule. Based on the
Sanctions                                                           old NASD Discovery
            (a) Failure to cooperate in the                         Guide.
            exchange of documents and
            information as required under the                       The rule codifies the
            Code may result in sanctions. The                       authority of arbitrators to
            panel may issue sanctions against                       address non-compliance
            any party in accordance with Rule                       with discovery rules or
            12212(a) for:                                           orders.

            •   Failing to comply with the
                discovery provisions of the Code,
                unless the panel determines that
                there is substantial justification for
                the failure to comply; or

            •   Frivolously objecting to the
                production of requested
                documents or information.




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SUBJECT     NEW RULE                                  OLD RULE                           COMMENTS


            (b) The panel may dismiss a claim,
            defense or proceeding with prejudice
            in accordance with Rule 12212(c) for
            intentional and material failure to
            comply with a discovery order of the
            panel if prior warnings or sanctions
            have proven ineffective.



Subpoenas   12512. Subpoenas                          10322. Subpoenas and Power         After filing the Code
                                                      to Direct Appearances              Revision, NASD filed the
            (a) To the fullest extent possible,                                          following proposal to
            parties should produce documents          (a) Subpoenas                      amend old Rule 10322:
            and make witnesses available to each                                         SR-NASD-2005-079. The
                                                      The arbitrators and any counsel
            other without the use of subpoenas.                                          SEC approved the
                                                      of record to the proceeding
            Arbitrators shall have the authority to                                      proposal and NASD has
                                                      shall have the power of the
            issue subpoenas for the production of                                        incorporated the approved
                                                      subpoena process as provided
            documents or the appearance of                                               language in the rule,
                                                      by law. All parties shall be
            witnesses.                                                                   where appropriate.
                                                      given a copy of a subpoena
            (b) A party may make a written motion     upon its issuance. Parties shall
            requesting that an arbitrator issue a     produce witnesses and present
            subpoena to a party or a non-party.       proofs to the fullest extent
            The motion must include a draft           possible without resort to the
            subpoena and must be filed with the       subpoena process.
            Director, with an additional copy for
            the arbitrator. The requesting party
            must serve the motion and draft
            subpoena on each other party, at the
            same time and in the same manner as




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SUBJECT   NEW RULE                                   OLD RULE   COMMENTS


          on the Director. The requesting party
          may not serve the motion or draft
          subpoena on a non-party.
          (c) If a party receiving a motion and
          draft subpoena objects to the scope
          or propriety of the subpoena, that
          party shall, within 10 calendar days of
          service of the motion, file written
          objections with the Director, with an
          additional copy for the arbitrator, and
          shall serve copies on all other parties
          at the same time and in the same
          manner as on the Director. The party
          that requested the subpoena may
          respond to the objections within 10
          calendar days of receipt of the
          objections. After considering all
          objections, the arbitrator responsible
          for deciding discovery-related motions
          shall rule promptly on the issuance
          and scope of the subpoena.
          (d) If the arbitrator issues a subpoena,
          the party that requested the subpoena
          must serve the subpoena at the same
          time and in the same manner on all
          parties and, if applicable, on any non-
          party receiving the subpoena.
          (e) Any party that receives documents
          in response to a subpoena served on
          a non-party shall provide notice to all




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SUBJECT           NEW RULE                                    OLD RULE                           COMMENTS


                  other parties within five days of receipt
                  of the documents. Thereafter, any
                  party may request copies of such
                  documents and, if such a request is
                  made, the documents must be
                  provided within 10 calendar days
                  following receipt of the request.


Authority of      12513. Authority of Panel to Direct         10322. Subpoenas and Power         No substantive change.
Panel to Direct   Appearances of Associated Person            to Direct Appearances
Appearances of    Witnesses and Production of
Associated        Documents Without Subpoenas                 (b) Power to Direct
Person                                                        Appearances and Production
Witnesses and     (a) Upon motion of a party, the panel       of Documents
Production of     may order the following without the
Documents         use of subpoenas:                           The arbitrator(s) shall be
Without                                                       empowered without resort to
Subpoenas         •   The appearance of any employee          the subpoena process to direct
                      or associated person of a member        the appearance of any person
                      of NASD; or                             employed or associated with
                                                              any member of the Association
                  •   The production of any documents         and/or the production of any
                      in the possession or control of         records in the possession or
                      such persons or members.                control of such persons or
                                                              members. Unless the
                  (b) Unless the panel directs                arbitrator(s) directs otherwise,
                  otherwise, the party requesting the         the party requesting the
                  appearance of witnesses by, or the          appearance of a person or the
                  production of documents from, non-          production of documents under
                  parties under this rule shall pay the       this Rule shall bear all




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SUBJECT          NEW RULE                                     OLD RULE                            COMMENTS


                 reasonable costs of the appearance           reasonable costs
                 and/or production.                           of such appearance and/or
                                                              production.

Exchange of      12514. Exchange of Documents                 10321. General Provisions           Under the old Code, the
Documents and    and Witness Lists Before Hearing             Governing Pre-Hearing               document exchange
Witness Lists                                                 Proceedings                         procedures often resulted
Before Hearing   (a) Documents and Other Materials                                                in the exchange of
                                                              (a) Pre-Hearing Exchange            material that has already
                 At least 20 days before the first                                                been exchanged.
                                                              At least twenty (20) calendar
                 scheduled hearing date, all parties          days prior to the first scheduled
                 must provide all other parties with                                              Under Rule 12514, parties
                                                              hearing date, all parties shall
                 copies of all documents and other                                                will only be required to
                                                              serve on each other copies of
                 materials in their possession or                                                 exchange copies of
                                                              documents in their possession
                 control that they intend to use at the                                           documents that have not
                                                              they intend to present at the
                 hearing that have not already been                                               already been produced to
                                                              hearing and shall identify
                 produced. The parties should not file                                            the other parties.
                                                              witnesses they intend to
                 the documents with the Director or the       present at the hearing. The
                 arbitrators before the hearing.                                                  To make witness lists
                                                              arbitrators may exclude from
                                                                                                  more useful, the rule
                                                              the arbitration any documents
                 (b) Witness Lists                                                                requires that witness lists
                                                              not exchanged or witnesses not
                                                                                                  include the names and
                                                              identified. This paragraph does
                 At least 20 days before the first                                                business affiliations of any
                                                              not require service of copies of
                 scheduled hearing date, all parties                                              witnesses the parties
                                                              documents or identification of
                 must provide each other party with the                                           intend to present at the
                                                              witnesses which parties may
                 names and business affiliations of all                                           hearing.
                                                              use for cross-examination or
                 witnesses they intend to present at          rebuttal.
                 the hearing. At the same time, all                                               The rule also strengthens
                 parties must file their witness lists with                                       the consequences of non-
                 the Director, with enough copies for                                             compliance with the rule,
                 each arbitrator.                                                                 by creating a presumption




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SUBJECT   NEW RULE                                  OLD RULE   COMMENTS


                                                               that parties may not
          (c) Exclusion of Documents or                        present any documents
          Witnesses                                            not produced, or
                                                               witnesses not identified, in
          Parties may not present any                          accordance with the rule,
          documents or other materials not                     unless the panel
          produced and or any witnesses not                    determines that good
          identified in accordance with this rule              cause exists.
          at the hearing, unless the panel
          determines that good cause exists for                And Rule 12514(c)
          the failure to produce the document or               clarifies the types of
          identify the witness. Good cause                     documents that would not
          includes the need to use documents                   be considered rebuttal
          or call witnesses for rebuttal or                    information, and therefore,
          impeachment purposes based on                        should be exchanged.
          developments during the hearing.
          Documents and lists of witnesses in
          defense of a claim are not considered
          rebuttal or impeachment information
          and, therefore, must be exchanged by
          the parties.




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SUBJECT       NEW RULE                                   OLD RULE                              COMMENTS



PART VI

HEARINGS;
EVIDENCE;
CLOSING THE
RECORD

Required      12600. Required Hearings                   10303. Hearing                        The rule clarifies that
Hearings                                                 Requirements—Waiver of                hearings are held in most
              (a) Hearings will be held, unless:         Hearing                               arbitrations, but that
                                                                                               hearings are not required
              •   The arbitration is administered        (a) Any dispute, claim or             to be held if: the arbitration
                  under Rule 12800 or Rule 12801;            controversy except as             is administered under the
                                                             provided in Rule 10203            Simplified Arbitration rule;
              •   The parties agree otherwise in             (Simplified Industry              the parties agree to waive
                  writing; or                                Arbitration) or Rule 10302        the hearing; or the
                                                             (Simplified Arbitration), shall   arbitration has been
              •   The arbitration has been settled,          require a hearing unless all      settled, withdrawn or
                  withdrawn or dismissed.                    parties waive such hearing        dismissed. (See Rules
                                                             in writing and request that       12700, 12701, and
              (b) The panel will decide the time and         the matter be resolved            12702.)
                  date of the hearing at the initial         solely upon the pleadings
                  prehearing conference or                   and documentary evidence.         The rule also incorporates
                  otherwise in another manner.                                                 the substance of old Rule
                                                         (b) Notwithstanding a written         10315 regarding
              (c) The Director will notify the parties       waiver of a hearing by the        scheduling of hearings.
              of the time and place at least 20 days         parties, a majority of the        The rule leaves the
              before the hearing begins, unless the          arbitrators may call for and      manner of notification to
              parties agree to a shorter time.               conduct a hearing. In             the Director’s discretion,
                                                             addition, any arbitrator may      and eliminates the




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SUBJECT   NEW RULE                 OLD RULE                             COMMENTS


                                      request the submission of         reference to the “place” of
                                      further evidence.                 the first hearing, because
                                                                        that is now covered by
                                               ***                      Rule 12213, regarding
                                   10315. Determination of              selection of hearing
                                   Hearing Location                     locations.

                                   (a) Designation of Time and          To standardize this
                                   Place of Hearing                     timeframe with others in
                                                                        the new Code, Rule
                                   The Director shall determine         12600(c) increases the
                                   the time and place of the first      notice period from 10 to
                                   meeting of the arbitration panel     20 days to give parties
                                   and the parties, whether the         more notice before a
                                   first meeting is a pre-hearing       hearing begins.
                                   conference or a hearing, and
                                   shall give notice of the time and
                                   place at least 15 business days
                                   prior to the date fixed for the
                                   first meeting by personal
                                   service, registered or certified
                                   mail to each of the parties
                                   unless the parties shall, by their
                                   mutual consent, waive the
                                   notice provisions under this
                                   Rule. The arbitrators shall
                                   determine the time and place
                                   for all subsequent meetings,
                                   whether the meetings are pre-
                                   hearing conferences, hearings,
                                   or any other type of meetings,




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SUBJECT        NEW RULE                                OLD RULE                            COMMENTS


                                                       and shall give notice as the
                                                       arbitrators may determine.
                                                       Attendance at a meeting
                                                       waives notice thereof.

Postponement   12601. Postponement of Hearings         10319. Adjournments                 Rule 12601 expressly
of Hearings                                                                                distinguishes between
               (a) Postponement of Hearings            (a) The arbitrator(s) may, in       when a hearing may be
                                                       their discretion, adjourn any       postponed and when a
               (1) When a Hearing Shall Be             hearing(s) either upon their own    hearing must be
               Postponed                               initiative or upon the request of   postponed. Further, the
                                                       any party to the arbitration.       rule provides that the
               A hearing shall be postponed by                                             panel may not grant
               agreement of the parties.               (b) If an adjournment requested
                                                       by a party is granted after         requests to postpone a
               (2) When a Hearing May Be               arbitrators have been               hearing that are made
               Postponed                               appointed, the party requesting     within 10 days of a
                                                       the adjournment shall pay a fee     scheduled hearing session
               A hearing may be postponed:             equal to the initial deposit of     unless the panel
                                                       hearing session fees for the        determines that good
               • By the Director, in extraordinary     first adjournment and twice the     cause exists.
               circumstances;                          initial deposit of hearing
                                                       session fees, not to exceed         After filing the Code
               • By the panel, in its own              $1,500, for a second or             Revision, NASD filed the
               discretion; or                          subsequent adjournment              following proposal to
                                                       requested by that party. The        amend old Rule 10319:
               • By the panel, upon motion of a        arbitrators may waive these         SR-NASD-2003-164. The
               party. The panel may not grant a        fees in their discretion. If more   SEC approved the
               motion to postpone a hearing made       than one party requests the         proposal and NASD has
               within 10 days of the date that the     adjournment, the arbitrators        incorporated the approved
               hearing is scheduled to begin, unless   shall allocate the fees among       language in the rule,
               the panel determines that good                                              where appropriate.




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SUBJECT   NEW RULE                                 OLD RULE                           COMMENTS


          cause exists.                            the requesting parties.

          (b) Postponement Fees                    (c) Upon receiving a third
                                                   request consented to by all
          (1) Except as otherwise provided, a      parties for an adjournment, the
          postponement fee will be charged for     arbitrator(s) may dismiss the
          each postponement agreed to by the       arbitration without prejudice to
          parties, or granted upon request of      the Claimant filing a new
          one or more parties. The fee will        arbitration.
          equal the applicable hearing session     (d) If an adjournment request is
          fee under Rule 12902. The panel          made by one or more parties
          may allocate the fee among the party     and granted within three
          or parties that agreed to or requested   business days before a
          the postponement. The panel may          scheduled hearing session, the
          also assess part or all of any           party or parties making the
          postponement fees against a party        request shall pay an additional
          that did not request the                 fee of $100 per arbitrator. If
          postponement, if the panel determines    more than one party requests
          that the non-requesting party caused     the adjournment, the arbitrators
          or contributed to the need for the       shall allocate the $100 per
          postponement. The panel may waive        arbitrator fee among the
          the fees.                                requesting parties. The
                                                   arbitrators may allocate all or
          (2) If a postponement request is made    portion of the $100 per
          by one or more parties and granted       arbitrator fee to the non-
          within three business days before a      requesting party or parties, if
          scheduled hearing session, the party     the arbitrators determine that
          or parties making the request shall      the non-requesting party or
          pay an additional fee of $100 per        parties caused or contributed to
          arbitrator. If more than one party       the need for the adjournment.
          requests the postponement, the           In the event that a request




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SUBJECT   NEW RULE                                    OLD RULE                           COMMENTS


          arbitrators shall allocate the $100 per     results in the adjournment of
          arbitrator fee among the requesting         consecutively scheduled
          parties. The arbitrators may allocate       hearing sessions, the additional
          all or portion of the $100 per arbitrator   fee will be assessed only for
          fee to the non-requesting party or          the first of the consecutively
          parties, if the arbitrators determine       scheduled hearing sessions. In
          that the non-requesting party or            the event that an extraordinary
          parties caused or contributed to the        circumstance prevents a party
          need for the postponement. In the           or parties from making a timely
          event that a request results in the         adjournment request,
          postponement of consecutively               arbitrators may use their
          scheduled hearing sessions, the             discretion to waive the fee,
          additional fee will be assessed only        provided verification of such
          for the first of the consecutively          circumstance is received.
          scheduled hearing sessions. In the
          event that an extraordinary
          circumstance prevents a party or
          parties from making a timely
          postponement request, arbitrators
          may use their discretion to waive the
          fee, provided verification of such
          circumstance is received.

          (3) No postponement fee will be
          charged if a hearing is postponed:

          •   Because the parties agree to
              submit the matter to mediation at
              NASD;

          •   By the panel in its own discretion;




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SUBJECT         NEW RULE                                   OLD RULE                          COMMENTS


                    or

                •   By the Director in extraordinary
                    circumstances.

                (c) Dismissal of Arbitration Due to
                Multiple Postponements

                If all parties jointly request, or agree
                to, more than two postponements, the
                panel may dismiss the arbitration
                without prejudice.


Attendance at   12602. Attendance at Hearings              10317. Attendance at              No substantive change.
Hearings                                                   Hearings
                The parties and their representatives                                        Rule 12602 clarifies that
                are entitled to attend all hearings.       The attendance or presence of     expert witnesses should
                Absent persuasive reasons to the           all persons at hearings           be permitted to attend all
                contrary, expert witnesses should be       including witnesses shall be      hearings. However, the
                permitted to attend all hearings. The      determined by the arbitrators.    panel has the discretion to
                panel will decide who else may attend      However, all parties to the       allow other persons to
                any or all of the hearings.                arbitration and their counsel     attend the hearing (e.g.,
                                                           shall be entitled to attend all   an individual assisting an
                                                           hearings.                         elderly or disabled party)
                                                                                             or to bar someone who
                                                                                             may be disruptive to the
                                                                                             proceeding.




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SUBJECT      NEW RULE                                  OLD RULE                             COMMENTS


Failure to   12603. Failure to Appear                  10318. Failure to Appear             No substantive change.
Appear
             If a party fails to appear at a hearing   If any of the parties, after due
             after having been notified of the time,   notice, fails to appear at a
             date and place of the hearing, the        hearing or at any continuation
             panel may determine that the hearing      of a hearing session, the
             may go forward, and may render an         arbitrators may, in their
             award as though all parties had been      discretion, proceed with the
             present.                                  arbitration of the controversy. In
                                                       such cases, all awards shall be
                                                       rendered as if each party had
                                                       entered an appearance in the
                                                       matter submitted.

Evidence     12604. Evidence                           10323. Evidence                      Rule 12604(b) clarifies
                                                                                            that a document produced
             (a) The panel will decide what            The arbitrators shall determine      in discovery is not
             evidence to admit. The panel is not       the materiality and relevance of     automatically admissible
             required to follow state or federal       any evidence proffered and           at the hearing. The
             rules of evidence.                        shall not be bound by rules          admissibility of any
                                                       governing the admissibility of       document can be
             (b) Production of documents in            evidence.                            challenged.
             discovery does not create a
             presumption that the documents are
             admissible at the hearing. A party
             may state objections to the
             introduction of any document as
             evidence at the hearing to the same
             extent that any other objection may be
             raised in arbitration.




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SUBJECT        NEW RULE                                   OLD RULE                            COMMENTS


Witness Oath   12605. Witness Oath                        10327. Oaths of the                 The arbitrator oath
                                                          Arbitrators and Witnesses           requirement has been
               All witnesses must testify under oath                                          moved to Rule 12406(d),
               or affirmation.                            Prior to the commencement of        governing appointment of
                                                          the first session, an oath or       arbitrators.
                                                          affirmation shall be
                                                          administered to the arbitrators.
                                                          All testimony shall be under
                                                          oath or affirmation.

Record of      12606. Record of Proceedings               10326. Record of                    After filing the Code
Proceedings                                               Proceedings                         Revision, NASD filed the
               (a) Tape, Digital or Other Recording                                           following proposal to
                                                          (a) A verbatim record by            amend old Rule 10326:
               (1) Except as provided in paragraph        stenographic reporter or a tape     SR-NASD-2006-102. The
               (b), the Director will make a tape,        recording of all arbitration        SEC approved the
               digital, or other recording of every       hearings shall be kept. If a        proposal and NASD has
               hearing. The Director will provide a       party or parties to a dispute       incorporated the approved
               copy of the recording to any party         elect to have the record            rule language in the rule,
               upon request for a nominal fee.            transcribed, the cost of such       where appropriate.
                                                          transcription shall be borne by
               (2) The panel may order the parties
                                                          the party or parties making the
               to provide a transcription of the
                                                          request unless the arbitrators
               recording. If the panel orders a
                                                          direct otherwise. The arbitrators
               transcription, copies of the
                                                          may also direct that the record
               transcription must be provided to
                                                          be transcribed. If the record is
               each arbitrator and each party. The
                                                          transcribed at the request of
               panel will determine which party or
                                                          any party, a copy shall be
               parties must pay the cost of making
                                                          provided to the arbitrators.
               the transcription and copies.
                                                          (b) A verbatim record of
               (3) The recording is the official record   mediation conducted pursuant



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SUBJECT           NEW RULE                                   OLD RULE                          COMMENTS


                  of the proceeding, even if it is           to the Rule 10400 Series shall
                  transcribed.                               not be kept.

                  (b) Stenographic Record

                  (1) Any party may make a
                  stenographic record of the hearing.
                  Even if a stenographic record is
                  made, the tape, digital, or other
                  recording will be the official record of
                  the proceeding, unless the panel
                  determines otherwise. If the panel
                  determines in advance that the
                  stenographic record will be the official
                  record, the Director will not record the
                  hearing.

                  (2) If the stenographic record is the
                  official record of the proceeding, a
                  copy must be provided to the Director,
                  each arbitrator, and each other party.
                  The cost of making and copying the
                  stenographic record will be borne by
                  the party electing to make the
                  stenographic record, unless the panel
                  decides that one or more other parties
                  should bear all or part of the costs.

Order of          12607. Order of Presentation of            IM-10317. Closing Arguments       This rule expands the
Presentation of   Evidence and Arguments                                                       scope of old IM-10317 to
Evidence and                                                 In response to recent questions   provide guidance to




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SUBJECT       NEW RULE                                 OLD RULE                            COMMENTS


Arguments     Generally, the claimant shall present    concerning the order of closing     parties regarding the order
              its case, followed by the respondent’s   argument in arbitration             of proceedings.
              defense. The panel has the discretion    proceedings conducted under
              to vary the order in which the hearing   the auspices of the National
              is conducted, provided that each party   Association of Securities
              is given a fair opportunity to present   Dealers, Inc., it is the practice
              its case.                                in these proceedings to allow
                                                       claimants to proceed first in
                                                       closing argument, with rebuttal
                                                       argument being permitted.
                                                       Claimants may reserve their
                                                       entire closing for rebuttal. The
                                                       hearing procedures may,
                                                       however, be varied in the
                                                       discretion of the arbitrators,
                                                       provided all parties are allowed
                                                       a full and fair opportunity to
                                                       present their respective cases.

Closing The   12608. Closing the Record                                                    New rule.
Record
              (a) The panel will decide when the                                           Under the old Code, Rule
              record is closed. Once the record is                                         10329 allowed the panel
              closed, no further submissions will be                                       to reopen the hearings
              accepted from any party.                                                     before the award is
                                                                                           rendered. This implied
              (b) In cases in which no hearing is                                          that the panel had finished
              held, the record is presumed to be                                           hearing the case and was
              closed when the Director sends the                                           in the process of
              pleadings to the panel, unless the                                           determining the award.
              panel requests, or agrees to accept,                                         However, the old Code did




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SUBJECT         NEW RULE                                   OLD RULE                         COMMENTS


                additional submissions from any party.                                      not have a rule stating
                If so, the record is presumed to be                                         when the panel could
                closed when the last such submission                                        close the record and begin
                is due.                                                                     deliberating to determine
                                                                                            the award. Rule 12608
                (c) In cases in which a hearing is held,                                    reflects current practice
                the panel will generally close the                                          and provides an
                record at the end of the last hearing                                       explanation on how a
                session, unless the panel requests, or                                      panel decides to close a
                agrees to accept, additional                                                record.
                submissions from any party. If so, the
                panel will inform the parties when the
                submissions are due and when the
                record will close.

Reopening the   12609. Reopening the Record                10329. Reopening of              No substantive change.
Record                                                     Hearings
                The panel may reopen the record on
                its own initiative or upon motion of any   Where permitted by applicable
                party at any time before the award is      law, the hearings may be
                rendered, unless prohibited by             reopened by the arbitrators on
                applicable law.                            their own motion or at the
                                                           discretion of the arbitrators
                                                           upon application of a party at
                                                           any time before the award is
                                                           rendered.




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SUBJECT          NEW RULE                                   OLD RULE                            COMMENTS



PART VII

TERMINATION
OF AN
ARBITRATION
BEFORE
AWARD

Dismissal of     12700. Dismissal of Proceedings            10305. Dismissal of                 Rule 12700 cross-
Proceedings      Prior to Award                             Proceedings                         references the sections of
Prior to Award                                                                                  the new Code that
                 (a) The panel must dismiss an              (a) At any time during the          authorize the panel to
                 arbitration or a claim at the joint        course of an arbitration, the       dismiss a claim prior to
                 request of the parties to that             arbitrators may either upon         award in certain
                 arbitration or claim. The dismissal will   their own initiative or at the      circumstances: Rule
                 be with or without prejudice,              request of a party, dismiss the     12206 (six-year eligibility
                 depending on the request of the            proceeding and refer the            rule); Rule 12212
                 parties.                                   parties to their judicial           (sanctions); and Rule
                                                            remedies, or to any dispute         12601 (postponements).
                 (b) The panel may dismiss a claim or       resolution forum agreed to by
                 an arbitration:                            the parties, without prejudice to
                                                            any claims or defenses
                 •   Upon motion of a party under Rule      available to any party.
                     12206; or                              (b) The arbitrators may dismiss
                                                            a claim, defense, or proceeding
                 •   On its own initiative under Rule       with prejudice as a sanction for
                     12212(c) or Rule 12601(c).             willful and intentional material
                                                            failure to comply with an order
                                                            of the arbitrator(s) if lesser
                                                            sanctions have proven




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SUBJECT      NEW RULE                                  OLD RULE                             COMMENTS


                                                       ineffective.

Settlement   12701. Settlement                         10306. Settlements                   The rule clarifies that
                                                                                            parties must notify the
             (a) Parties to an arbitration may agree   (a) Parties to an arbitration may    Director in writing that a
             to settle their dispute at any time.      agree to settle their dispute at     settlement has been
             Parties who settle must notify the        any time.                            reached to prevent any
             Director. The Director will continue to                                        additional fees from
             administer the arbitration, and fees      (b) If the parties agree to settle   accruing.
             may continue to accrue, until the         their dispute, they will remain
             Director receives written notice of the   responsible for payment of fees
             settlement. The parties do not need to    incurred, including fees for
             disclose the terms of the settlement      previously scheduled hearing
             agreement to the Director or to NASD      sessions and fees incurred as a
             Dispute Resolution, but members and       result of adjournments,
             associated persons may have               pursuant to Rule 10319.
             reporting obligations under the rules
             of NASD.                                  (c) The terms of a settlement
                                                       agreement do not need to be
             (b) Settling parties will remain          disclosed to the Association.
             responsible for fees incurred under       However, if the parties fail to
             the Code. If parties to a settlement      agree on the allocation of
             fail to agree on the allocation of any    outstanding fees, the fees shall
             outstanding fees, those fees will be      be divided equally among all
             divided equally among the settling        parties.
             parties, except member surcharges
             and prehearing and hearing process
             fees required by the Code, which will
             remain the responsibility of the
             member party or parties.




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SUBJECT         NEW RULE                                 OLD RULE   COMMENTS


Withdrawal of   12702. Withdrawal of Claims                         New rule.
Claims
                (a) Before a claim has been answered                This rule provides
                by a party, the claimant may withdraw               guidance to parties and
                the claim against that party with or                arbitrators regarding
                without prejudice.                                  withdrawals and prevents
                                                                    prejudice to a party that
                (b) After a claim has been answered                 has filed an answer.
                by a party, the claimant may only
                withdraw it against that party with
                prejudice unless the panel decides, or
                the claimant and that party agree,
                otherwise.




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SUBJECT       NEW RULE                                  OLD RULE                            COMMENTS



PART VIII

SIMPLIFIED
ARBITRATION
AND DEFAULT
PROCEEDINGS

Simplified    12800. Simplified Arbitration             10302. Simplified Arbitration       Under the old Code, in
Arbitration                                                                                 addition to the procedures
              (a) Applicability of Rule                 (a) Any dispute, claim, or          that are unique to
                                                        controversy arising between a       simplified arbitrations,
              This rule applies to arbitrations         public customer(s) and an           Rule 10302 repeats some,
              involving $25,000 or less, exclusive of   associated person or a member       but not all, of the general
              interest and expenses. Except as          subject to arbitration under this   provisions that apply to
              otherwise provided in this rule, all      Code involving a dollar amount      both regular and simplified
              provisions of the Code apply to such      not exceeding $25,000,              cases. Rule 12800
              arbitrations.                             exclusive of attendant costs        includes only those
                                                        and interest, shall be arbitrated   provisions that are unique
              (b) Single Arbitrator                     as hereinafter provided.            to simplified cases.
                                                        (b) The Claimant shall file with
              All arbitrations administered under       the Director of Arbitration an      Further, the rule does not
              this rule will be decided by a single     executed Submission                 include special time limits
              public arbitrator appointed from the      Agreement and a copy of the         or deadlines for pleadings
              NASD’s chairperson roster in              Statement of Claim of the           in simplified cases as the
              accordance with the Neutral List          controversy in dispute and the      old rule did, because the
              Selection System, unless parties          required deposit, together with     time limits are the same
              agree in writing otherwise.               documents in support of the         as those in regular cases.
                                                        Claim. Sufficient additional        Requests for extensions
                                                        copies of the Submission            will now be governed by
              (c) Hearings                                                                  the same rule (Rule




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SUBJECT   NEW RULE                                   OLD RULE                            COMMENTS


                                                     Agreement and the Statement         12207) as in other cases.
          (1) No hearing will be held in             of Claim and supporting             Rule 12207 provides that
          arbitrations administered under this       documents shall be provided to      deadlines set by the Code
          rule unless the customer requests a        the Director of Arbitration for     may be extended by the
          hearing.                                   each party and the arbitrator.      Director for good cause.
                                                     The Statement of Claim shall        In simplified cases, the
          (2) If no hearing is held, no initial      specify the relevant facts, the     Director will consider the
          prehearing conference or other             remedies sought and whether a       expedited nature of
          prehearing conference will be held,        hearing is demanded.                simplified cases in
          and the arbitrator will render an award                                        determining whether good
          based on the pleadings and other           (c) The Claimant shall pay a        cause exists in a given
          materials submitted by the parties. If a   non-refundable filing fee and       case.
          hearing is held, the regular provisions    shall remit a hearing session
          of the Code relating to prehearings        deposit as specified in Rule        Finally, the rule eliminates
          and hearings, including fee                10332 of this Code upon the         the ability of the single
          provisions, will apply.                    filing of the Submission            arbitrator to require a
                                                     Agreement. The final                hearing. The customer
          (d) Discovery and Additional               disposition of the fee or deposit   could still request a
          Evidence                                   shall be determined by the          hearing.
                                                     arbitrator.
          (1) Document Production Lists,                                                 And, under the rule, a
                                                     (d) The Director of Arbitration     single arbitrator can no
           described in Rule 12506, do not apply
                                                     shall endeavor to serve             longer request a three-
           to arbitrations subject to this rule.
                                                     promptly by mail or otherwise       arbitrator panel, and will
           However, the arbitrator may, in his or
                                                     on the Respondent(s) one (1)        no longer have the option
           her discretion, choose to use relevant
                                                     copy of the Submission              of dismissing without
           portions of the Document Production
                                                     Agreement and one (1) copy of       prejudice a counterclaim
           Lists in a manner consistent with the
                                                     the Statement of Claim. Within      or other responsive
           expedited nature of simplified
                                                     twenty (20) calendar days from      pleading that increased
           proceedings.
                                                     receipt of the Statement of         the amount in dispute
                                                     Claim, Respondent(s) shall          above the simplified case
          (2) The parties may request
                                                     serve each party with an



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SUBJECT   NEW RULE                                 OLD RULE                           COMMENTS


          documents and other information from     executed Submission                threshold. If a pleading
          each other. All requests for the         Agreement and a copy of            increased the amount in
          production of documents and other        Respondent's Answer.               dispute above the
          information must be served on all        Respondent's executed              threshold, the case will be
          other parties, and filed with the        Submission Agreement and           administered under the
          Director, within 30 days from the date   Answer shall also be filed with    regular provisions of the
          that the last answer is due. Any         the Director of Arbitration with   new Code.
          response or objection to a discovery     sufficient additional copies for
          request must be served on all other      the arbitrator(s) along with any
          parties and filed with the Director      deposit required under the
          within 10 days of the receipt of the     schedule of fees for customer
          requests. The arbitrator will resolve    disputes. The Answer shall
          any discovery disputes.                  designate all available
                                                   defenses to the Claim and may
          (e) Increases in Amount in Dispute       set forth any related
                                                   Counterclaim and/or related
          If any pleading increases the amount     Third-Party Claim the
          in dispute to more than $25,000, the     Respondent(s) may have
          arbitration will no longer be            against the Claimant or any
          administered under this rule, and the    other person. If the
          regular provisions of the Code will      Respondent(s) has interposed
          apply. If an arbitrator has been         a Third-Party Claim, the
          appointed, that arbitrator will remain   Respondent(s) shall serve the
          on the panel. If a three-arbitrator      Third- Party Respondent with
          panel is required or requested under     an executed Submission
          Rule 12401, the remaining arbitrators    Agreement, a copy of the
          will be appointed by the Director in     Respondent's Answer
          accordance with Rule 12406(b). If no     containing the Third-Party
          arbitrator has been appointed, the       Claim, and a copy of the
          entire panel will be appointed in        original Claim filed by the
          accordance with the Neutral List         Claimant. The Third-Party




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SUBJECT   NEW RULE                              OLD RULE                             COMMENTS


          Selection System.                     Respondent shall respond in
                                                the manner herein provided for
          (f) Arbitrator Honoraria              response to the Claim. If the
                                                Respondent(s) files a related
          NASD will pay the arbitrator an       Counterclaim exceeding
          honorarium of $125 for each           $25,000 exclusive of attendant
          arbitration administered under this   costs and interest, the arbitrator
          rule.                                 may refer the Claim,
                                                Counterclaim and/or Third-
                                                Party Claim, if any, to a panel
                                                of three (3) arbitrators in
                                                accordance with Rule 10308 or,
                                                he may dismiss the
                                                Counterclaim and/or Third-
                                                Party Claim without prejudice to
                                                the Counterclaimant(s) and/or
                                                Third-Party Claimant(s)
                                                pursuing the Counterclaim
                                                and/or Third-Party Claim in a
                                                separate proceeding. The costs
                                                to the Claimant under either
                                                proceeding shall in no event
                                                exceed the total amount
                                                specified in Rule 10332.

                                                (e) All parties shall serve on all
                                                other parties and the Director of
                                                Arbitration, with sufficient
                                                additional copies for the
                                                arbitrator(s), a copy of the
                                                Answer, Counterclaim, Third-




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SUBJECT   NEW RULE                 OLD RULE                            COMMENTS


                                   Party Claim, Amended Claim,
                                   or other responsive pleading, if
                                   any. The Claimant, if a
                                   Counterclaim is asserted
                                   against him, shall within ten
                                   (10) calendar days either (1)
                                   serve on each party and on the
                                   Director of Arbitration, with
                                   sufficient additional copies for
                                   the arbitrator(s), a Reply to any
                                   Counterclaim or, (2) if the
                                   amount of the Counterclaim
                                   exceeds the Claim, shall have
                                   the right to file a statement
                                   withdrawing the Claim. If the
                                   Claimant withdraws the Claim,
                                   the proceedings shall be
                                   discontinued without prejudice
                                   to the rights of the parties.

                                   (f) The dispute, claim or
                                   controversy shall be submitted
                                   to a single public arbitrator
                                   knowledgeable in the securities
                                   industry appointed by the
                                   Director of Arbitration. Unless
                                   the public customer demands
                                   or consents to a hearing, or the
                                   arbitrator calls a hearing, the
                                   arbitrator shall decide the
                                   dispute, claim or controversy




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SUBJECT   NEW RULE                 OLD RULE                             COMMENTS


                                   solely upon the pleadings and
                                   evidence filed by the parties. If
                                   a hearing is necessary, such
                                   hearing shall be held as soon
                                   as practicable at a locale
                                   selected by the Director of
                                   Arbitration.

                                   (g) The Director of Arbitration
                                   may grant extensions of time to
                                   file any pleading upon a
                                   showing of good cause.
                                    (h)
                                   (1) The arbitrator shall be
                                   authorized to require the
                                   submission of further
                                   documentary evidence as he, in
                                   his sole discretion, deems
                                   advisable.
                                   (2) If a hearing is demanded or
                                   consented to in accordance
                                   with paragraph (f), the General
                                   Provisions Governing Pre-
                                   Hearing Proceedings under
                                   Rule 10321 shall apply.

                                   (3) If no hearing is demanded
                                   or consented to, all requests for
                                   document production shall be
                                   submitted in writing to the
                                   Director of Arbitration within ten




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SUBJECT   NEW RULE                 OLD RULE                              COMMENTS


                                   (10) business days of
                                   notification of the identity of the
                                   arbitrator selected to decide the
                                   case. The requesting party
                                   shall serve simultaneously its
                                   request for document
                                   production on all parties. Any
                                   response or objections to the
                                   requested document production
                                   shall be served on all parties
                                   and filed with the Director of
                                   Arbitration within five (5)
                                   business days of receipt of the
                                   requests for production. The
                                   appointed arbitrator shall
                                   resolve all requests under this
                                   Rule on the papers submitted.
                                    (i) Upon the request of the
                                   arbitrator, the Director of
                                   Arbitration shall appoint two (2)
                                   additional arbitrators to the
                                   panel which shall decide the
                                   matter in controversy.
                                   (j) In any case where there is
                                   more than one (1) arbitrator,
                                   the majority shall be public
                                   arbitrators.

                                   (k) In his discretion, the
                                   arbitrator may, at the request of
                                   any party, permit such party to



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SUBJECT       NEW RULE                                 OLD RULE                           COMMENTS


                                                       submit additional
                                                       documentation relating to the
                                                       pleadings.
                                                       (l) Except as otherwise
                                                       provided herein, the general
                                                       arbitration rules of the
                                                       Association shall be applicable
                                                       to proceedings instituted under
                                                       this Rule.

Default       12801. Default Proceedings               10314. Initiation of               No substantive change.
Proceedings                                            Proceedings
              (a) Applicability of Rule
                                                       (e) Default Procedures
              A claimant may request default
              proceedings against any respondent       (1) A Respondent, Cross-
              that falls within one of the following   Respondent, or Third-Party
              categories and fails to file an answer   Respondent that fails to file an
              within the time provided by the Code.    Answer within 45 calendar days
                                                       from receipt of service of a
              •   A member whose membership            Claim, unless the time to
                  has been terminated, suspended,      answer has been extended
                  canceled, or revoked;                pursuant to paragraph (b)(5),
                                                       may be subject to default
              •   A member that has been expelled      procedures, as provided in this
                  from the NASD;                       paragraph, if it is:

              •   A member that is otherwise           (A) a member whose
                  defunct; or                          membership has been
                                                       terminated, suspended,
                                                       canceled, or revoked;



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SUBJECT   NEW RULE                                   OLD RULE                             COMMENTS


          •   An associated person whose             (B) a member that has been
              registration is terminated, revoked,   expelled from the NASD;
              or suspended.
                                                     (C) a member that is otherwise
          (b) Initiating Default Proceedings         defunct; or

          (1) To initiate default proceedings        (D) an associated person
          against one or more respondents that       whose registration is
          fail to file a timely answer, the          terminated, revoked, or
          claimant must notify the Director in       suspended.
          writing and must send a copy of the         (2) If all Claimants elect to use
          notification to all other parties at the   these default procedures, the
          same time and in the same manner as        Claimant(s) shall notify the
          the notification was sent to the           Director in writing and shall
          Director. If there is more than one        send a copy of such notification
          claimant, all claimants must agree in      to all other parties at the same
          writing to proceed under this rule         time and in the same manner
          against a defaulting respondent            as the notification was sent to
          before this rule may be used.              the Director.
          (2) If the Director receives written       (3) If the case meets the
          notice from the claimant and               requirements for proceeding
          determines that the requirements for       under default procedures, the
          proceeding under this rule have been       Director shall notify all parties.
          met, the Director will:
                                                     (4) The Director shall appoint a
                                                     single arbitrator pursuant to
          •   Notify all parties that the claim      Rule 10308 to consider the
              against the defaulting respondent      Statement of Claim and other
              will proceed under this rule; and      documents presented by the
                                                     Claimant(s). The arbitrator may
          •   Appoint a single arbitrator in         request additional information



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             OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                  OLD RULE                            COMMENTS


             accordance with the Neutral List       from the Claimant(s) before
             Selection System to consider the       rendering an award. No hearing
             statement of claim and other           shall be held, and the default
             documents presented by the             award shall have no effect on
             claimant.                              any non-defaulting party.

          (c) Hearings                              (5) The Claimant(s) may not
                                                    amend the claim to increase
          No hearing shall be held. The             the relief requested after the
          arbitrator may request additional         Director has notified the parties
          information from the claimant before      that the claim will proceed
          rendering an award.                       under default procedures.

                                                    (6) An arbitrator may not make
          (d) Amendments to Increase Relief
                                                    an award based solely on the
          Requested
                                                    non-appearance of a party. The
                                                    party who appears must
          Claimants may not amend a claim to
                                                    present a sufficient basis to
          increase the relief requested from the
                                                    support the making of an award
          defaulting respondent after the
                                                    in that party's favor. The
          Director has notified the parties that
                                                    arbitrator may not award
          the claim will proceed under this rule.
                                                    damages in an amount greater
                                                    than the damages requested in
          (e) Awards
                                                    the Statement of Claim, and
                                                    may not award any other relief
          (1) The arbitrator may not issue an
                                                    that was not requested in the
          award based solely on the
                                                    Statement of Claim.
          nonappearance of a party. Claimants
          must present a sufficient basis to        (7) If the Respondent files an
          support the making of an award. The       Answer after the Director has
          arbitrator may not award damages in       notified the parties that the
          an amount greater than the damages        claim will proceed under default




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SUBJECT   NEW RULE                                  OLD RULE                          COMMENTS


          requested in the statement of claim,      procedures but before an
          and may not award any other relief        award has been rendered, the
          that was not requested in the             proceedings under this
          statement of claim.                       paragraph shall be terminated
                                                    and the case will proceed under
          (2) The default award shall have no       the regular procedures.
          effect on any non-defaulting party.

          (f) Respondent’s Answer

          If a defaulting respondent files an
          answer after the Director has notified
          the parties that the claim against that
          respondent will proceed under this
          rule but before an award has been
          issued, the proceedings against that
          respondent under this rule will be
          terminated and the claim against that
          respondent will proceed under the
          regular provisions in the Code.




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SUBJECT            NEW RULE                                  OLD RULE                             COMMENTS



PART IX

FEES AND
AWARDS

Fees Due When      12900. Fees Due When a Claim Is           10332. Schedule of Fees for          Under the old Code,
a Claim Is Filed   Filed                                     Customer Disputes                    claimants paid a non-
                                                                                                  refundable filing fee, and
                   (a) Fees for Claims Filed by              (a) At the time of filing a Claim,   an initial hearing session
                   Customers, Associated Persons             Counterclaim, Third-Party            deposit that was
                   and Other Non-Members                     Claim or Cross-Claim, a party        refundable under certain
                                                             shall pay a non-refundable filing    circumstances. In
                   (1) Customers, associated persons,        fee and shall remit a hearing        addition, parties also paid
                   and other non-members who file a          session deposit to the               hearing session fees for
                   claim, counterclaim, cross claim or       Association in the amounts           each hearing session.
                   third party claim must pay a filing fee   indicated in the schedules           Although the filing fee and
                   in the amount indicated in the            below unless such fee or             the initial hearing session
                   schedule below. The Director may          deposit is specifically waived by    deposit were both due
                   defer payment of all or part of the       the Director of Arbitration.         upon filing, they were
                   filing fee on a showing of financial      Where multiple hearing               presented in the old Code
                   hardship. If payment of the fee is not    sessions are required, the           as separate fees, making it
                   deferred, failure to pay the required     arbitrators may require any of       hard for some parties to
                   amount will result in a deficiency        the parties to make additional       understand the total
                   under Rule 12307.                         hearing deposits for each            amount due upon filing.
                                                             additional hearing session. In
                   (See table – Fee for Claims Filed by      no event shall the amount            The new Code combines
                   Customers, Associated Persons and         deposited by all parties per         the filing fee and the
                   Other Non-Members – Exhibit 5).           hearing session exceed the           hearing session deposit
                                                             amount of the largest initial        into one single fee that is
                   (2) If the claim does not request or      hearing deposit made by any          paid when a claim is filed.




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SUBJECT   NEW RULE                                   OLD RULE                             COMMENTS


          specify money damages, the Director        party under the schedules            Although what was once
          may determine that the filing fee          below.                               the refundable hearing
          should be more or less than the                                                 session deposit will no
          amount specified in the schedule           (b) A hearing session is any         longer be paid separately,
          above, but in any event, the amount of     meeting between the parties          an amount equal to the old
          the filing fee may not be less than $50    and the arbitrator(s), including a   hearing session deposit or
          or more than $1,800.                       pre-hearing conference with an       a portion thereof may be
                                                     arbitrator, which lasts four (4)     refunded if the case is
          (b) Fees for Claims Filed by               hours or less. The forum fee for     settled at least 10 days
          Members                                    a pre-hearing conference with        prior to the hearing on the
                                                     an arbitrator shall be the           merits.
          (1) Members filing a claim,                amount set forth in the
          counterclaim, cross claim, or third        schedules below as a hearing         In addition, several sets of
          party claim must pay a filing fee in the   session deposit for a hearing        brackets in the filing fee
          amount indicated in the schedule           with a single arbitrator.            schedule have been
          below. Failure to pay the required                                              condensed. Under the old
          amount will result in a deficiency         (c) The arbitrators, in their        Code, there were 14
          under Rule 12307.                          awards, shall determine the          separate fee brackets in
                                                     amount chargeable to the             the customer filing fee
          (See table – Fee for Claims Filed by       parties as forum fees and shall      schedule. Some of the
          Members – Exhibit 5).                      determine who shall pay such         fees for different brackets
                                                     forum fees. Forum fees               were the same; others
          (2) If the claim does not request or       chargeable to the parties shall      were separated by
          specify money damages, the Director        be assessed on a per hearing         amounts ranging from $25-
          may determine that the filing fee          session basis, and the               $100. The result was a
          should be more or less than the            aggregate for each hearing           schedule that was
          amount specified in the schedule           session may equal but shall not      confusing and difficult to
          above, but in any event, the filing fee    exceed the amount of the             read.
          may not be less than $225 or more          largest initial hearing deposit
          than $3,700.                               deposited by any party, except       The new Code reorganizes
                                                     in a case where claims have          the customer filing fee




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SUBJECT   NEW RULE                                   OLD RULE                             COMMENTS


          (c) Partial Refund of Filing Fee           been joined subsequent to filing     brackets as follows: the
                                                     in which case hearing session        $25,000-$30,000 bracket
          (1) If a claim is settled or withdrawn     fees shall be computed as            ($600) and the $30,000-
          more than 10 days before the date          provided in paragraph (d). The       50,000 bracket ($625)
          that the hearing on the merits under       arbitrator(s) may determine in       have been combined, and
          Rule 12600 is scheduled to begin, a        the award that a party shall         the filing fee for the new
          party paying a filing fee will receive a   reimburse to another party any       bracket is $600; and the $1
          partial refund of the filing fee in the    non-refundable filing fee it has     million - $3 million bracket
          amount indicated in the schedule           paid. If a customer is assessed      ($1,700), the $3 million -
          below, less any other fees or costs        forum fees in connection with        $5 million bracket ($1,800),
          assessed against the party under the       an industry claim, forum fees        the $5 million - $10 million
          Code, including any hearing session        assessed against the customer        bracket ($1,800) and the
          fees assessed under Rule 12902. No         shall be based on the hearing        over $10 million bracket
          refund will be paid if the NASD            deposit required under the           ($1,800) have been
          receives notice that a claim is settled    industry claims schedule for the     combined, and the filing
          or withdrawn within 10 days of the         amount awarded to industry           fee for the new bracket is
          date that the hearing on the merits        parties to be paid by the            $1,800.
          under Rule 12600 is scheduled to           customer and not based on the
          begin.                                     size of the industry claim. No       The changes will not result
                                                     fees shall be assessed against       in a change in the total
          (See table – Partial Refund for            a customer in connection with        amount of fees paid by
          Settlement or Withdrawal More Than         an industry claim that is            customers or associated
          Ten Days Before Hearing on the             dismissed; however, in cases         persons when filing a
          Merits – Exhibit 5).                       where there is also a customer       claim, except that for
                                                     claim, the customer may be           claims of $30,000 to
          (2) If the claim does not request or       assessed forum fees based on         $50,000, the customer’s
          specify money damages, and the             the customer claim under the         overall filing fees decrease
          Director determined that the hearing       procedure set out above.             by $50, and for claims of
          session fee should be a different          Amounts deposited by a party         $1 million to $3 million, the
          amount than the amount specified in        shall be applied against forum       customer’s overall filing
          the schedule in Rule 12902, the            fees, if any. In addition to forum   fees increase by $100.




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SUBJECT   NEW RULE                                   OLD RULE                           COMMENTS


          amount of the refund will be the           fees, the arbitrator(s) may        Corresponding changes
          amount of the hearing session fee          determine in the award the         have been made to the
          determined by the Director, less any       amount of costs incurred           member filing fee
          fees or costs assessed against the         pursuant to Rules 10319,           schedule.
          party under the Code, including any        10321, 10322, and 10326 and,
          hearing session fees assessed under        unless applicable law directs
          Rule 12902.                                otherwise, other costs and
                                                     expenses of the parties and
          (d) Reimbursement of Filing Fees           arbitrator(s) which are within
                                                     the scope of the agreement of
          In the award, the panel may order a        the parties. The arbitrator(s)
          party to reimburse another party for all   shall determine by whom such
          or part of any filing fee paid.            costs shall be borne. If the
                                                     hearing session fees are not
                                                     assessed against a party who
                                                     had made a hearing deposit,
                                                     the hearing deposit will be
                                                     refunded unless the arbitrators
                                                     determine otherwise.

                                                     (d) For claims filed separately
                                                     which are subsequently joined
                                                     or consolidated under Rule
                                                     10314(d), the hearing deposit
                                                     and forum fees assessable per
                                                     hearing session after joinder or
                                                     consolidation shall be based on
                                                     the cumulative amount in
                                                     dispute. The arbitrator(s) shall
                                                     determine by whom such fees
                                                     shall be borne.




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SUBJECT   NEW RULE                 OLD RULE                           COMMENTS



                                   (e) If the dispute, claim, or
                                   controversy does not involve,
                                   disclose, or specify a money
                                   claim, the non-refundable filing
                                   fee for a public customer shall
                                   be $250 and the non-
                                   refundable filing fee for an
                                   industry party shall be $500.
                                   The hearing session deposit to
                                   be remitted by a party shall be
                                   $1,000 or such greater or
                                   lesser amount as the Director
                                   of Arbitration or the panel of
                                   arbitrators may require, but
                                   shall not exceed the maximum
                                   amount specified in the
                                   schedule.

                                   (f) The Association shall retain
                                   the total initial amount
                                   deposited as hearing session
                                   deposits by all the parties in
                                   any matter submitted and
                                   settled or withdrawn within
                                   eight business days of the first
                                   scheduled hearing session
                                   other than a pre-hearing
                                   conference.

                                   (g) Any matter submitted and




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SUBJECT   NEW RULE                 OLD RULE                             COMMENTS


                                   thereafter settled or withdrawn
                                   subsequent to the
                                   commencement of the first
                                   hearing session, including a
                                   pre-hearing conference with an
                                   arbitrator, shall be subject to an
                                   assessment of forum fees and
                                   costs incurred pursuant to
                                   Rules 10319, 10321, 10322,
                                   and 10326 based on hearing
                                   sessions held and scheduled
                                   within eight business days after
                                   the Association receives notice
                                   that the matter has been settled
                                   or withdrawn. The arbitrator(s)
                                   shall determine by whom such
                                   forum fees and costs shall be
                                   borne.

                                   (h) Reserved

                                   (i) Reserved

                                   (j) Reserved

                                   (k) Schedule of Fees

                                   For purposes of the schedule of
                                   fees, the term "claim" includes
                                   Claims, Counterclaims, Third-
                                   Party Claims, and Cross-




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SUBJECT     NEW RULE                                  OLD RULE                           COMMENTS


                                                      Claims. Any such claim made
                                                      by a customer or associated
                                                      person is treated as a customer
                                                      claim for purposes of the
                                                      schedule of fees. Any such
                                                      claim made by a member is an
                                                      industry claim.

                                                      (See Customer or Associated
                                                      Person Claimant Table in
                                                      NASD Manual.)

Member      12901. Member Surcharge                   10333. Member Surcharge            No substantive change.
Surcharge                                             and Process Fees
            (a) Member Surcharge
                                                      (a) Member Surcharge
            (1) A surcharge in the amount
            indicated in the schedule below will be   (1) Each member that is named
            assessed against each member that:        as a party to an arbitration
                                                      proceeding, whether in a Claim,
            •   Files a claim, counterclaim, cross    Counterclaim, Cross-Claim or
                claim, or third party claim under     Third-Party Claim, shall be
                the Code;                             assessed a surcharge pursuant
            •   Is named as a respondent in a         to the schedule below when the
                claim, counterclaim, cross claim,     Director of Arbitration perfects
                or third party claim filed and        service of the claim naming the
                served under the Code; or             member on any party to the
            •   Employed, at the time the dispute     proceeding.
                arose, an associated person who       (2) For each associated person
                is named as a respondent in a         who is named, the surcharge
                claim, counterclaim, cross claim,     shall be assessed against the




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SUBJECT   NEW RULE                                      OLD RULE                           COMMENTS


              or third party claim filed and            member or members that
              served under the Code.                    employed the associated
                                                        person at the time of the events
          (See table – Member Surcharge –               which gave rise to the dispute,
          Exhibit 5).                                   claim or controversy. No
                                                        member shall be assessed
          (2) If the claim does not request or          more than a single surcharge in
          specify money damages, the Director           any arbitration proceeding.
          may determine that the member                 (3) The surcharge shall not be
          surcharge should be more or less              chargeable to any other party
          than the amount specified in the              under Rules 10332(c) and
          schedule above, but in any event the          10205(c) of the Code. The
          amount of the member surcharge may            Director will refund the
          not be less than $150 or more than            surcharge paid by a member in
          $3,750.                                       an arbitration filed by a
                                                        customer if the arbitration
          (3) If the claim is filed by the member,      panel: (A) denies all of a
          the surcharge is due when the claim           customer’s claims against the
          is filed. If the claim is filed against the   member or associated person;
          member, or against an associated              and (B) allocates all forum fees
          person employed by the member at              assessed pursuant to Rule
          the time of the events giving rise to         10332(c) against the customer.
          the dispute, the surcharge is due             The Director may also refund or
          when the claim is served in                   cancel the member surcharge
          accordance with Rule 12300.                   in extraordinary circumstances.
          (4) No member shall be assessed               (See Table in NASD Manual.)
          more than a single surcharge in any
          arbitration. The panel may not                (4) For purposes of this Rule,
          reallocate a surcharge paid by a              service is perfected when the
          member to any other party.                    Director of Arbitration properly




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SUBJECT   NEW RULE                                 OLD RULE                            COMMENTS


                                                   serves the Respondents to
          (b) Refund of Member Surcharge           such proceeding under Rule
                                                   10314 of the Code.
          (1) The Director will refund the
          surcharge paid by a member in an         (5) If the dispute, claim, or
          arbitration filed by a customer if the   controversy does not involve,
          panel:                                   disclose, or specify a money
                                                   claim, the non-refundable
          •   Denies all of a customer’s claims    surcharge shall be $1,500 or
              against the member or associated     such greater or lesser amount
              person; and                          as the Director of Arbitration or
                                                   the panel of arbitrators may
          •   Allocates all fees assessed          require, but shall not exceed
              pursuant to Rule 12902(a) against    the maximum amount specified
              the customer.                        in the schedule.

          (2) The Director may also refund or
          waive the member surcharge in
          extraordinary circumstances.




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SUBJECT           NEW RULE                                   OLD RULE                             COMMENTS


Hearing Session   12902. Hearing Session Fees, and           10332. Schedule of Fees for          See comments to Rule
Fees, and Other   Other Costs and Expenses                   Customer Disputes                    12900.
Costs and
Expenses          (a) Hearing Session Fees                   (b) A hearing session is any         Rule 12902(e) clarifies that
                                                             meeting between the parties          refunds will be paid directly
                  (1) Hearing session fees will be           and the arbitrator(s), including a   to the named parties, even
                  charged for each hearing session.          pre-hearing conference with an       if a non-party made a
                  The total amount chargeable to the         arbitrator, which lasts four (4)     payment on behalf of the
                  parties for each hearing session is        hours or less. The forum fee for     named parties.
                  based on the amount in dispute, as         a pre-hearing conference with
                  specified in the schedule below. In the    an arbitrator shall be the
                  award, the panel will determine the        amount set forth in the
                  amount of each hearing session fee         schedules below as a hearing
                  that each party must pay.                  session deposit for a hearing
                                                             with a single arbitrator.
                  (See table – Hearing Session Fees –
                  Exhibit 5).                                (c) The arbitrators, in their
                                                             awards, shall determine the
                  (2) If the claim does not request or       amount chargeable to the
                  specify money damages, the Director        parties as forum fees and shall
                  may determine that the hearing             determine who shall pay such
                  session fee should be more or less         forum fees. Forum fees
                  than the amount specified in the           chargeable to the parties shall
                  schedule above, but in any event the       be assessed on a per hearing
                  hearing session fee shall not be less      session basis, and the
                  than $50 or more than $1,200 for           aggregate for each hearing
                  each hearing session.                      session may equal but shall not
                                                             exceed the amount of the
                  (3) If there is more than one claim in a   largest initial hearing deposit
                  proceeding, the amount of hearing          deposited by any party, except
                  session fees will be based on the          in a case where claims have




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SUBJECT   NEW RULE                                  OLD RULE                             COMMENTS


          largest claim in the proceeding. If any   been joined subsequent to filing
          claims are joined or combined under       in which case hearing session
          Rules 12312, 12313, or 12314, the         fees shall be computed as
          amount of those claims will be            provided in paragraph (d). The
          aggregated and they will be treated as    arbitrator(s) may determine in
          one claim for purposes of this            the award that a party shall
          paragraph.                                reimburse to another party any
                                                    non-refundable filing fee it has
          (4) If hearing session fees are           paid. If a customer is assessed
          allocated against a customer in           forum fees in connection with
          connection with a claim filed by a        an industry claim, forum fees
          member or associated person, the          assessed against the customer
          amount of hearing session fees the        shall be based on the hearing
          customer must pay must be based on        deposit required under the
          the amount actually awarded to the        industry claims schedule for the
          member or associated person, rather       amount awarded to industry
          than on the amount claimed by the         parties to be paid by the
          member or associated person. No           customer and not based on the
          hearing session fees may be               size of the industry claim. No
          assessed against a customer in            fees shall be assessed against
          connection with a claim filed by a        a customer in connection with
          member that is dismissed.                 an industry claim that is
                                                    dismissed; however, in cases
          (b) Payment of Hearing Session            where there is also a customer
          Fees                                      claim, the customer may be
                                                    assessed forum fees based on
          (1) The panel may assess the hearing      the customer claim under the
          session fees in the award, or may         procedure set out above.
          require the parties to pay hearing        Amounts deposited by a party
          session fees during the course of the     shall be applied against forum
          arbitration. The total amount that the    fees, if any. In addition to forum




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SUBJECT   NEW RULE                                 OLD RULE                           COMMENTS


          panel may require the parties to pay     fees, the arbitrator(s) may
          for each hearing session during the      determine in the award the
          course of an arbitration may not         amount of costs incurred
          exceed the total amount chargeable to    pursuant to Rules 10319,
          the parties for each hearing session     10321, 10322, and 10326 and,
          under the schedule to paragraph (a)      unless applicable law directs
          of this rule.                            otherwise, other costs and
                                                   expenses of the parties and
          (2) Any interim hearing session fee      arbitrator(s) which are within
          payments made by a party under this      the scope of the agreement of
          rule will be deducted from the total     the parties. The arbitrator(s)
          amount of hearing session fees           shall determine by whom such
          assessed against that party in the       costs shall be borne. If the
          award. If the amount of interim          hearing session fees are not
          payments is more than the amount         assessed against a party who
          assessed against the party in the        had made a hearing deposit,
          award, the balance will be refunded to   the hearing deposit will be
          that party.                              refunded unless the arbitrators
                                                   determine otherwise.
          (3) In the award, the amount of one
          hearing session fee will be deducted     (d) For claims filed separately
          from the total amount of hearing         which are subsequently joined
          session fees assessed against the        or consolidated under Rule
          party who paid the filing fee. If this   10314(d), the hearing deposit
          amount is more than any fees, costs,     and forum fees assessable per
          and expenses assessed against this       hearing session after joinder or
          party under the Code, the balance will   consolidation shall be based on
          be refunded to the party.                the cumulative amount in
                                                   dispute. The arbitrator(s) shall
          (c) Assessment of Other Costs and        determine by whom such fees
          Expenses in Award                        shall be borne.




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SUBJECT   NEW RULE                                    OLD RULE                             COMMENTS


                                                      (f) The Association shall retain
          In its award, the panel must also           the total initial amount
          determine the amount of any costs           deposited as hearing session
          and expenses incurred by the parties        deposits by all the parties in
          under the Code or that are within the       any matter submitted and
          scope of the agreement of the parties,      settled or withdrawn within
          and which party or parties will pay         eight business days of the first
          those costs and expenses.                   scheduled hearing session
                                                      other than a pre-hearing
          (d) Assessment of Hearing Session           conference.
          Fees, Costs, and Expenses in Case
          of Settlement or Withdrawal                 (g) Any matter submitted and
                                                      thereafter settled or withdrawn
          If a claim is settled or withdrawn:         subsequent to the
                                                      commencement of the first
          •   The parties will be subject to an       hearing session, including a
              assessment of hearing session           pre-hearing conference with an
              fees for hearing sessions already       arbitrator, shall be subject to an
              held.                                   assessment of forum fees and
                                                      costs incurred pursuant to
          •   If NASD receives a settlement or        Rules 10319, 10321, 10322,
              withdrawal notice 10 days or fewer      and 10326 based on hearing
              prior to the date that the hearing      sessions held and scheduled
              on the merits under Rule 12600 is       within eight business days after
              scheduled to begin, parties that        the Association receives notice
              paid a filing fee under Rule 12900      that the matter has been settled
              will not be entitled to any refund of   or withdrawn. The arbitrator(s)
              the filing fee.                         shall determine by whom such
                                                      forum fees and costs shall be
          •   The parties will also be                borne.
              responsible for any fee or costs




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SUBJECT        NEW RULE                                   OLD RULE                          COMMENTS


                   incurred under Rules 12502,
                   12513, 12601, or 12606 in
                   connection with such hearings. If
                   a case is settled or withdrawn and
                   the parties’ agreement fails to
                   allocate such fees and costs, the
                   fees and costs will be allocated as
                   provided by Rule 12701(b).

               (e) Refund Payments

               Any refunds of fees or costs incurred
               under the Code will be paid directly to
               the named parties, even if a non-party
               made a payment on behalf of the
               named parties.

Process Fees   12903. Process Fees Paid by                10333. Member Surcharge           No substantive change.
Paid by        Members                                    and Process Fees
Members
               (a) Each member that is a party to an      (b) Prehearing and Hearing
               arbitration in which more than             Process Fees
               $25,000, exclusive of interest and
               expenses, is in dispute must pay:          (1) Each member that is a party
                                                          to an arbitration proceeding in
               •   A non-refundable prehearing            which more than $25,000 is in
                   process fee of $750, due at the        dispute will pay:
                   time the parties are sent arbitrator
                   lists in accordance with Rule            (A) a non-refundable
                   12403(b); and                          prehearing process fee of $750,
                                                          due at the time the parties are




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              OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                   OLD RULE                            COMMENTS


          •   A non-refundable hearing process       sent arbitrator lists in
              fee, due when the parties are          accordance with Rule
              notified of the date and location of   10308(b)(5); and
              the hearing on the merits under
              Rule 12600, as set forth in the          (B) a non-refundable hearing
              schedule below. (See table –           process fee, due when the
              Hearing Process Fee Schedule –         parties are notified of the date
              Exhibit 5).                            and location of the first hearing
                                                     session, as set forth in the
          (b) If an associated person of a           schedule below.
          member is a party, the member that
          employed the associated person at          (2) If an associated person of a
          the time the dispute arose will be         member is a party, the member
          charged the process fees, even if the      that employed the associated
          member is not a party. No member           person at the time of the events
          shall be assessed more than one            which gave rise to the dispute,
          prehearing and one hearing process         claim or controversy will be
          fee in any arbitration.                    charged the process fees, even
                                                     if the member is not a party. No
          (c) The panel may not reallocate to        member shall be assessed
          any other party any prehearing and         more than one prehearing and
          hearing process fees paid by a             one hearing process fee in any
          member.                                    arbitration proceeding.

                                                     (3) The prehearing and hearing
                                                     process fees shall not be
                                                     chargeable to any other party
                                                     under Rules 10332(c) and
                                                     10205(c) of the Code. (See
                                                     Hearing Process Fee Schedule
                                                     table in NASD Manual.)




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                             COMPARISON CHART OF
           OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                 OLD RULE              COMMENTS




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                               COMPARISON CHART OF
             OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                   OLD RULE                             COMMENTS


Awards    12904. Awards                              10330. Awards                        No substantive change.

          (a) All awards shall be in writing and     (a) All awards shall be in writing
          signed by a majority of the arbitrators    and signed by a majority of the
          or as required by applicable law. Such     arbitrators or in such manner as
          awards may be entered as a judgment        is required by applicable law.
          in any court of competent jurisdiction.    Such awards may be entered
                                                     as a judgment in any court of
          (b) Unless the applicable law directs      competent jurisdiction.
          otherwise, all awards rendered under       (b) Unless the applicable law
          the Code are final and are not subject directs otherwise, all awards
          to review or appeal.                       rendered pursuant to this Code
                                                     shall be deemed final and not
          (c) The Director will serve a copy of      subject to review or appeal.
          the award on each party or the             (c) The Director will serve a
          representative of the party. The           copy of the award on each
          Director will serve the award by using party, or the representative of
          any method available and convenient the party. The Director will
          to the parties and the Director, and       serve the award by using any
          that is reasonably expected to cause       method available and
          the award to be delivered to all           convenient to the parties and
          parties, or their representative, on the the Director, and that is
          same day. Methods the Director may         reasonably expected to cause
          use include, but are not limited to, first the award to be delivered to all
          class, registered or certified mail,       parties, or their counsel, on the
          hand delivery, and facsimile or other      same day. Methods the
          electronic transmission.                   Director may use include, but
                                                     are not limited to, registered or
          (d) The panel shall endeavor to render certified mail, hand delivery,
          an award within 30 business days           and facsimile or other electronic
          from the date the record is closed.        transmission.




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                                COMPARISON CHART OF
              OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                   OLD RULE                            COMMENTS


                                                     (d) The arbitrator(s) shall
          (e) The award shall contain the            endeavor to render an award
          following:                                 within thirty (30) business days
                                                     from the date the record is
          •   The names of the parties;              closed.
                                                     (e) The award shall contain the
          •   The name of the parties’               names of the parties, the name
              representatives, if any;               of counsel, if any, a summary of
                                                     the issues, including the type(s)
          •   An acknowledgement by the              of any security or product, in
              arbitrators that they have each        controversy, the damages and
              read the pleadings and other           other relief requested, the
              materials filed by the parties;        damages and other relief
                                                     awarded, a statement of any
          •   A summary of the issues,               other issues resolved, the
              including the type(s) of any           names of the arbitrators, the
              security or product, in controversy;   dates the claim was filed and
                                                     the award rendered, the
          •   The damages and other relief           number and dates of hearing
              requested;                             sessions, the location of the
                                                     hearings, and the signatures of
          •   The damages and other relief           the arbitrators concurring in the
              awarded;                               award.
                                                     (f) All awards and their contents
                                                     shall be made publicly
          •   A statement of any other issues
                                                     available.
              resolved;
                                                     (g) Fees and assessments
                                                     imposed by the arbitrators
          •   The allocation of forum fees and
                                                     under Rules 10205 and 10332
              any other fees allocable by the
                                                     shall be paid immediately upon
              panel;
                                                     the receipt of the award by the




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                                COMPARISON CHART OF
              OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                   OLD RULE                             COMMENTS


          •   The names of the arbitrators;         parties. Payment of such fees
                                                    shall not be deemed ratification
          • The dates the claim was filed and       of the award by the parties.
               the award rendered;                  (h) All monetary awards shall
                                                    be paid within thirty (30) days of
          • The number and dates of hearing         receipt unless a motion to
               sessions;                            vacate has been filed with a
                                                    court of competent jurisdiction.
          • The location of the hearings; and       An award shall bear interest
                                                    from the date of the award: (1)
          • The signatures of the arbitrators.      if not paid within thirty (30) days
                                                    of receipt, (2) if the award is the
                                                    subject of a motion to vacate
          (f) The award may contain a rationale which is denied, or (3) as
          underlying the award.                     specified by the arbitrator(s) in
                                                    the award. Interest shall be
          (g) All awards shall be made publicly     assessed at the legal rate, if
          available.                                any, then prevailing in the state
          (h) Fees and assessments imposed          where the award was rendered,
          by the arbitrators under the Code shall or at a rate set by the
          be paid immediately upon the receipt      arbitrator(s).
          of the award by the parties. Payment
          of such fees shall not be deemed
          ratification of the award by the parties.

          (i) All monetary awards shall be paid
          within 30 days of receipt unless a
          motion to vacate has been filed with a
          court of competent jurisdiction. An
          award shall bear interest from the
          date of the award:




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                                COMPARISON CHART OF
              OLD AND NEW NASD ARBITRATION CODES FOR CUSTOMER DISPUTES

SUBJECT   NEW RULE                                     OLD RULE   COMMENTS



          •    If not paid within 30 days of
              receipt;

          •    If the award is the subject of a
              motion to vacate which is denied;
              or

          •    As specified by the panel in the
              award.
          Interest shall be assessed at the legal
          rate, if any, then prevailing in the state
          where the award was rendered, or at
          a rate set by the arbitrator(s).




                                                                             167