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Notice I-02-05

February 15, 2002

Amendments to NFA Code of Arbitration and Member Arbitration Rules

Introduction
On November 30, 2001, the Commodity Futures Trading Commission approved changes to NFA’s Code of Arbitration and Member Arbitration Rules (collectively referred to as the “arbitration rules”) which, among other things, shorten the arbitration timetable and modify other procedures to expedite the process for small claims; provide for a pre-hearing conference in cases with oral hearings; and impose an arbitration service fee on respondents named in cases with oral hearings. The arbitration rule changes will become effective on March 1, 2002 and apply to cases filed on or after that date. This Notice to Members explains the changes to the arbitration rules. Copies of the amended Code of Arbitration and Member Arbitration Rules will be available March 1, 2002 on NFA’s web site at www.nfa.futures.org or by contacting the Arbitration Department at (800) 621-3570.

Background
NFA periodically reviews its arbitration rules to ensure that the program is operating efficiently and that the rules are consistent with comparable forums. An Arbitration Review Team was also formed to conduct a review of the Department and its procedures and recommend any changes it felt would improve the process. Based on a review of the NFA’s arbitration rules and the recommendations of the Arbitration Review Team, NFA’s Advisory Committees, the Executive Committee, and the Board of Directors, representing every category of membership, unanimously endorsed NFA adopting these changes.

Explanation of the Rule Changes
Simplified Arbitration Process for Summary Proceedings
Previously, NFA processed all arbitration cases in essentially the same way, regardless of the claim amount or proceeding type. However, cases that qualify for summary proceedings are usually simpler and less complicated than those that require an oral hearing. These claims were identified as being suitable for shorter Answer and discovery deadlines and other simplified procedures, which result in a more efficient process for smaller claims.

The dollar limit for cases that qualify for summary proceedings is $25,000 in customer cases and $50,000 in Member cases. For these cases, the Answer deadline is reduced to 20 days and the discovery timetable is also reduced so that the parties have 20 days to request documents and written information and an additional 20 days to satisfy or object to those requests. Additionally, the arbitration rules will limit the pre-hearing motion practice for claims that qualify as summary proceedings to discovery and continuance requests. These changes to the arbitration rules apply the simplified procedures to smaller cases, even if a party asks for an oral hearing.

Pre-hearing conference and arbitration service fee
For cases with oral hearings, arbitrators will now be able to hold a pre-hearing conference shortly after the discovery deadlines pass. At the conference, the parties and arbitrators may, among other things, resolve discovery issues, identify other pre-hearing motions and schedule hearing dates. The arbitrators will generally conduct the pre-hearing conferences by telephone, although they may hold an in-person conference, if necessary. Unless otherwise ordered by the arbitrators, the parties are now required to exchange exhibits 10 days before the first scheduled oral hearing date.

Since NFA will pay the arbitrators to conduct pre-hearing conferences, NFA will begin charging respondents an arbitration service fee for cases that require an oral hearing.

Respondents will now be required to remit an arbitration service fee when they file their Answer in a case. The service fee is required only for Answers filed in customer cases over $25,000 and in Member cases over $50,000. The arbitration service fee for an Answer filed in a three-arbitrator case is $675 and $275 in a one-arbitrator case. NFA will reject an Answer if the appropriate fee is not paid, and the non-complying respondent will not be allowed to participate in the arbitration. However, the arbitrators have the authority to accept an Answer and allow the respondent to participate in the hearing if the respondent can show the arbitrators that there is a good reason for not paying the fee.

In a case where the respondent is also filing a claim (e.g., counterclaim, cross-claim, third-party claim) that requires the payment of filing and hearing fees, the respondent will be responsible for either the arbitration service fee or the hearing fee, whichever is higher.

Refunding arbitration fees
In order to encourage earlier settlements, NFA is changing the way fees are refunded. The deadline for a full refund of hearing fees has been changed and a partial refund schedule has been added. NFA will issue a full refund of the hearing and arbitration service fees if a case settles or is withdrawn at least five days before the pre-hearing conference, if one is scheduled, or at least 30 days before the regular hearing if no pre-hearing conference is scheduled. NFA will also issue a full refund of the hearing fees for a summary proceeding that settles or is withdrawn at least 15 days before the scheduled summary proceeding. Partial refunds of the hearing fee and arbitration service fee will be given for a case that settles or is withdrawn at least 15 days before the oral hearing date.

Miscellaneous
The arbitration rules are amended to clarify who will pay the additional hearing fees associated with requests for oral hearings in cases that qualify as summary proceedings and requests for two additional arbitrators in cases that qualify for one-arbitrator oral hearings. In both instances, the party making the request will pay the additional fees. However, if the single arbitrator asks NFA to appoint two more arbitrators, then the parties will equally share the increased fees.

Finally, under the Member Arbitration Rules, the hearing fees for claims between $20,000 and $100,000 and the filing fees for claims between $50,000 and $100,000 have been reduced.

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If you have any questions regarding this Notice or the changes to the arbitration rules, please contact NFA’s Arbitration Department at (800) 621-3570.

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