Proposed Rule

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NFA periodically reviews its arbitration rules to ensure that the program is operating effective. Staff also monitors rule proposals from similar forums to see if they would improve and enhance our arbitration program. As a result, the Board adopted both material and technical amendments to the current rules to help achieve NFA's goals. The material changes include:

  • Codifying NFA's policy that the parties must submit all subpoena requests to the arbitrators;
  • Assessing the parties a fee for filing certain pre-hearing motions, and compensating the arbitrators for deciding those motions; and
  • Allowing NFA arbitrators to order evidence depositions in extraordinary circumstances.

Non-Party Subpoena Requests

Most discovery involves the parties to the dispute requesting documents and information from each other. However, the parties occasionally find that they need documents or other written information that they can only obtain from a non-party.

When a party needs documents or information from a non-party, the requesting party will contact the non-party and ask for the desired information. If the non-party refuses to comply with the request, the next step the requesting party will take depends on whether the non-party is an NFA Member or Associate.

If the non-party is a Member or Associate, the requesting party will notify NFA about the specific information requested, why the information is necessary, and the party's efforts to obtain the information voluntarily. The arbitrators will then decide whether to order the non-party Member or Associate to produce the requested documents or information.

If the non-party is not a Member or Associate, the requesting party may ask the arbitrators to issue a subpoena requiring the non-party to produce the requested documents. If the arbitrators issue the subpoena, the courts can enforce it.

In both situations, the non-party may decline to provide the information because it has a substantial objection to the request or wants a formal order before producing the information. NFA always gives the non-party and the other parties to the arbitration a chance to tell the arbitrators if they object to all or any portion of the request and why.

The law in certain states, however, allows attorneys to subpoena non-parties directly. For example, a respondent's attorney may subpoena the claimant's account records from a bank, or the claimant's attorney may subpoena the respondent's phone records from a telephone company.

Although attorneys hardly ever attempt to issue a subpoena on their own in NFA cases, when it does happen staff tries to encourage the attorney to make the request to the arbitrators. We are successful most of the time, but we still periodically encounter an attorney who ignores staff and attempts to issue a subpoena on his own. When that happens, disputes regarding the subpoena's propriety or scope usually arise, which raises the question of whether the non-party should produce the documents.

NFA feels strongly that the arbitrators in NFA arbitration proceedings should decide whether to issue a subpoena instead of attorneys issuing subpoenas on their own. The arbitrators are in the best position to consider not only objections from the non-party and the other parties in the arbitration, but also other relevant issues such as the subpoena's scope and the propriety of the information as well as whether to grant, deny, or limit the request.

NFA discussed this matter with the CPO/CTA, FCM and IB Advisory Committees, which generally agreed that NFA arbitrators should decide subpoena requests.

Pre-hearing Motions

NFA's rules specify the type of motions that NFA prohibits, as well as the types of motions NFA permits and the time for filing them. The arbitrators also hold pre-hearing conferences to resolve discovery disputes, set deadlines for filing other motions, and select hearing dates. Even though these procedures work well, the parties often file motions after the pre-hearing conference is over, including motions to compel discovery, motions for summary judgment, and requests for telephonic testimony. Therefore, the arbitrators still devote a lot of time and energy to deciding pre-hearing motions.

NFA discussed this matter with the Advisory Committees, which felt that NFA should compensate the arbitrators for the time they spend deciding pre-hearing motions after the pre-hearing conference is over. The Committees also recommended that NFA pass those costs on to the parties by assessing a motion fee.

Therefore, each arbitrator would be paid $125, with an additional $50 honorarium to the chairperson of a three-person panel. Consequently, the motion fee would be $125 for a one-arbitrator case and $425 for a three-arbitrator case. These fees are the same as we pay arbitrators to decide a case without an oral hearing. NFA would initially collect the motion fee from the party filing the motion. However, the arbitrators can waive the fee in their discretion or assess it against the party who actually caused the filing of the motion.1

Other forums, such as NYSE and NASD, recently started paying their arbitrators for deciding motions submitted on the papers after the pre-hearing conference. NFA's proposal is consistent with those forums.

Evidence Depositions

Under NFA's discovery procedures, the parties may mutually agree to depositions and may offer depositions, or portions of them, as evidence at the hearing. However, NFA arbitrators may not order depositions.

There are two types of depositions. In a discovery deposition, a party will depose someone to learn about facts and information that will help in developing the case, but the party may or may not use the information at the hearing. In an evidence deposition, a party will depose a witness who likely will be unable to attend a hearing and then offer the deposition at the hearing in lieu of the witness' live testimony.

Arbitration forums have traditionally opposed depositions because of their formality and costs. However, NFA believes that there are circumstances when it may be appropriate for the arbitrators to order evidence depositions. For example, it may be proper to take an evidence deposition of a witness who is unable to attend the hearing because the person is ill or cannot be otherwise required to attend the hearing (e.g., a person who resides in a foreign country). Other forums, such as NASD and NYSE, permit their arbitrators to order depositions in limited circumstances, similar to those mentioned above.

NFA discussed this issue with the Advisory Committees. They all agreed that allowing the arbitrators to order evidence depositions in extraordinary circumstances would be beneficial. Therefore, the amendments to the rules allow the arbitrators to order evidence depositions in extraordinary circumstances. They do not authorize discovery depositions, however.

Technical Amendments

One technical amendment to the arbitration rules clarifies when the arbitration panel must make its decision. NFA's rules currently require the arbitration panel to "render" its award within 30 days after the record is closed. Over the last few years, staff has encountered situations where a party has interpreted the word "render" to mean service of the award by NFA on the parties when it is really intended to indicate when the arbitrators must notify NFA of their decision. In addition, although parties infrequently file motions to vacate an NFA arbitration award, this language has also confused courts on a few occasions. Therefore, changing the language in the arbitration rules will make it clear that the arbitrators must notify NFA of their decision within 30 days.

Another technical change clarifies who can represent parties in an NFA arbitration proceeding. Several years ago, NFA amended the arbitration rules to state that a party may be represented by an attorney-at-law authorized to practice law in the highest court of any state, or by a family member or other person who is representing the party without compensation, or by an officer, partner or employee of the party.

Since NFA adopted that change, there have been some situations where a person participates in a case as an unpaid representative for a party, even though the person has an interest in the outcome of the proceeding. For example, a CTA may represent his customers in a case alleging that an FCM improperly executed a block order that the CTA placed on their behalf. Even if the CTA's customers are not compensating him for representing them in the arbitration proceedings, he clearly has an important stake in the outcome of the cases.

NFA does not want to prevent a family member or friend from assisting a customer with his or her case, especially since many customers who file claims at NFA are elderly. However, NFA did not intend to allow a person with an interest in the case to act as an unpaid representative. Amendments to Section 7 of the Code and Section 6 of the Rules are designed to prohibit this type of representation.

Finally, Section 9 of the arbitration rules allows NFA to determine the place and time of the hearing, although NFA usually tries to accommodate the parties' preferences as indicated by the Claimant in the arbitration Claim or by the Respondent in its Answer. However, there have been problems with Respondents who file late Answers indicating a site choice after arbitrators have already been appointed, or are about to be selected, in another location. These situations are frustrating to NFA, the other parties and, depending on where NFA is in the arbitrator selection process, are an inefficient use of resources. Therefore, amendments to Section 9 indicate that NFA will only consider site choices made in a timely filed pleading (i.e., Claim or Answer).

NFA respectfully requests that the Commission review and approve the proposed amendments to Sections 7, 8(e) and (h), 9(b) and (d) and 10(a) of NFA's Code of Arbitration and Sections 6(a), 7(f) and (i), 9(b) and (d) and 10(a) of NFA's Member Arbitration Rules.

1 NFA would not apply the motion fee to a request for a preliminary hearing or a postponement since separate fees are assessed for those motions.

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