After a year and a half, 38 comment letters and four amendments to the proposed rule, the SEC announced on January 3, 2007, that it has approved some of NASD’s proposed changes to Rule 10322 of the NASD Code of Arbitration Procedure, pertaining to subpoenas and the power to direct appearances, and has approved Amendment No. 4 to the same rule on an accelerated basis. See Order Approving Proposed Rule Change and Amendment Nos. 1, 2 and 3 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 4 to Revise Rule 10322 of the NASD Code of Arbitration Procedure Pertaining to Subpoenas and the Power to Direct Appearances, Release No. 34-55038, 72 Fed. Reg. 1353 (Jan. 11, 2007).
NASD amended the proposed rule four times, and the SEC has given final approval for three of those four amendments. The SEC has also approved the proposed fourth amendment on an accelerated basis, inviting comment until February 1, 2007. After the comment period ends, the SEC anticipates that Amendment No. 4 will become effective. The proposed amendments that have been approved and Amendment No. 4 will make some significant changes to the subpoena process in NASD arbitrations.
First, the new rule will remove any power from counsel to issue subpoenas. Now, all subpoenas must be approved by the arbitration panel, specifically by the public arbitrator in charge of issuing discovery rulings. Second, it will provide a formal process by which objections to subpoenas and responses to such objections can be submitted to and considered by the panel. The party requesting a subpoena must file a written motion to have a subpoena issued. The motion cannot be served on the non-party, and the rule gives the opposing party ten calendar days to submit written objections to the request for a subpoena. Thereafter, if objections are submitted, the party requesting the subpoena has ten calendar days to respond to the opposition’s objections.
Third, the new rule will specify that the arbitration panel can determine who will bear the costs incurred as a result of subpoenaing documents. The new rule’s default, however, is that whoever requested the documents must bear the reasonable financial burden of their production. Fourth, the new rule specifies the required procedure to be followed after subpoenaed documents are received. When documents are received, the party who receives the subpoenaed documents must give notice to the other party within five days of the receipt of such documents. If the other party makes a request for the documents, the documents must be provided within ten calendar days of the request.
The new rule also addresses the power of arbitrators to direct the appearance of persons employed or associated with members. It specifies that arbitrators are empowered without resort to the subpoena process to direct the appearance of such persons. Also, it specifies that an arbitrator, without resort to the subpoena process, can direct production of any records in the possession or control of persons associated with or employed by members or from the members themselves.
This new rule provides uniformity throughout the country regarding the role of arbitration panels in the subpoena process. It also establishes concrete deadlines for subpoena objections and responses as well as how they must be handled by the arbitration panel. Moreover, the new rule provides a framework for how parties in arbitration must notify each other of the receipt of subpoenaed documents. The SEC has already approved the majority of the amendments to the rule; after February 1, 2007, Amendment No. 4’s changes will also go into effect.