Federal Register / Vol. 88, No. 176 / Wednesday, September 13, 2023 / Notices 62835 

8 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See FINRA Rule 12000 Series (Code of 

Arbitration Procedure for Customer Disputes). 

4See FINRA Rule 13000 Series (Code of 

Arbitration Procedure for Industry Disputes). 

5See proposed Rules 12402(b)(3), 12403(a)(4), 

13403(a)(5), 13403(b)(5). 

6See proposed Rules 12407(a), 13410(a). 

7Unless the Codes provide otherwise, the DRS 

Director may delegate their duties when it is 

appropriate. FINRA Rule 12103 (Director of FINRA 

Dispute Resolution Services). 

8See proposed Rules 12407(c), 13410(c). 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–BX–2023–021 and should be 

submitted on or before October 4, 2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–19730 Filed 9–12–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–156, OMB Control No. 

3235–0288] 

Submission for OMB Review; 

Comment Request; Extension: Form 

20–F 

Upon Written Request Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736 

Notice is hereby given that, pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.), the Securities 

and Exchange Commission 

(‘‘Commission’’) has submitted to the 

Office of Management and Budget this 

request for extension of the previously 

approved collection of information 

discussed below. 

Form 20–F (17 CFR 249.220f) is used 

to register securities of foreign private 

issuers pursuant to Section 12 of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) (15 U.S.C. 78l) or as 

annual and transitional reports pursuant 

to Sections 13 and 15(d) of the Exchange 

Act (15 U.S.C. 78m(a) and 78o(d)). The 

information required in the Form 20–F 

is used by investors in making 

investment decisions with respect to the 

securities of such foreign private 

issuers. We estimate that Form 20–F 

takes approximately 2,629.92 hours per 

response and is filed by approximately 

729 respondents. We estimate that 25% 

of the 2,629.92 hours per response 

(657.48 hours) is prepared by the issuer 

for a total reporting burden of 479,303 

(657.48 hours per response × 729 

responses). 

An agency may conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid control 

number. 

The public may view background 

documentation for this information 

collection at the following website: 

www.reginfo.gov. Find this particular 

information collection by selecting 

‘‘Currently under 30-day Review—Open 

for Public Comments’’ or by using the 

search function. Written comments and 

recommendations for the proposed 

information collection should be sent 

within 30 days of publication of this 

notice by October 13, 2023 to (i) 

www.reginfo.gov/public/do/PRAMain 

and (ii) David Bottom, Director/Chief 

Information Officer, Securities and 

Exchange Commission, c/o John 

Pezzullo, 100 F Street, NE, Washington, 

DC 20549, or by sending an email to: 

PRA_Mailbox@sec.gov. 

Dated: September 8, 2023. 

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–19792 Filed 9–12–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98317; File No. SR–FINRA– 

2022–033] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Approval of a Proposed Rule Change, 

as Modified by Amendment No. 1, To 

Amend the Codes of Arbitration 

Procedure To Make Various Clarifying 

and Technical Changes to the Codes, 

Including in Response to 

Recommendations in the Report of 

Independent Counsel Lowenstein 

Sandler LLP 

September 7, 2023. 

I. Introduction 

On December 23, 2022, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to amend the Code of Arbitration 

Procedure for Customer Disputes 3

(‘‘Customer Code’’) and the Code of 

Arbitration Procedure for Industry 

Disputes 4 (‘‘Industry Code’’) (together, 

‘‘Codes’’). The proposed rule change, as 

modified by Amendment No. 1 (defined 

below), would amend provisions of the 

Codes governing the arbitrator listselection process to: (1) exclude 

arbitrators from the arbitrator ranking 

lists based on certain conflicts of 

interest; 5 (2) permit the removal of an 

arbitrator for cause at any point after 

receipt of the arbitrator ranking lists 

until the first hearing session begins; 6

and (3) provide parties with a written 

explanation of the decision by the 

Director of FINRA Dispute Resolution 

Services (‘‘DRS Director’’) 7 to grant or 

deny a request to remove an arbitrator.8

In addition, the proposed rule change, 

as modified by Amendment No. 1, 

would amend procedural rules in the 

Codes, such as those pertaining to 

holding prehearing conferences and 


ddrumheller on DSK120RN23PROD with NOTICES1
62836 Federal Register / Vol. 88, No. 176 / Wednesday, September 13, 2023 / Notices 

9See proposed Rules 12500(b), 12501(c), 

12504(a)(5), 12600(b), 12800(c)(3)(B)(i), 13500(b), 

13501(c), 13504(a), 13600(b), 13800(c)(3)(B)(i). 

10See proposed Rules 12303(b), 12309, 13303(b), 

13309. 

11See proposed Rules 12503, 13503. 

12See proposed Rules 12700(b), 13700(b). 

13See proposed Rules 12606(a)(2), 12606(b)(2), 

13606(a)(2), 13606(b)(2). 

14See Exchange Act Release No. 96607 (Jan. 6, 

2023), 88 FR 2144 (Jan. 12, 2023) (File No. SR– 

FINRA–2022–033) (hereinafter, the ‘‘Notice’’). 

15See letter from Kristine Vo, Assistant General 

Counsel, Office of General Counsel, FINRA, to 

Lourdes Gonzalez, Assistant Chief Counsel, 

Division of Trading and Markets, U.S. Securities 

and Exchange Commission (Feb. 14, 2023), https:// 

www.finra.org/sites/default/files/2023-02/sr-finra2022-033-extension-no-1.pdf. 

16The comment letters are available at https:// 

www.sec.gov/comments/sr-finra-2022-033/

srfinra2022033.htm. 

17See letter from Kristine Vo, Assistant General 

Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, U.S. Securities and 

Exchange Commission (Apr. 11, 2023) (‘‘FINRA 

April Letter’’), https://www.sec.gov/comments/srfinra-2022-033/srfinra2022033-20164047- 

333995.pdf. 

18Exchange Act Release No. 97291 (Apr. 12, 

2023), 88 FR 23720 (Apr. 18, 2023) (File No. SR– 

FINRA–2022–033) (‘‘Order Instituting 

Proceedings’’). 

19See supra note 16. 

20See letter from Kristine Vo, Assistant General 

Counsel, Office of General Counsel, FINRA, to 

Lourdes Gonzalez, Assistant Chief Counsel, 

Division of Trading and Markets, U.S. Securities 

and Exchange Commission (July 3, 2023), https:// 

www.finra.org/sites/default/files/2023-07/sr-finra2022-033-extension-no2.pdf. 21See letter from Kristine Vo, Assistant General 

Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, U.S. Securities and 

Exchange Commission (Aug. 10, 2023) (‘‘FINRA 

August Letter’’), https://www.sec.gov/comments/srfinra-2022-033/srfinra2022033-242999-511962.pdf. 22See FINRA Rules 12101(a) (Applicability of 

[Customer] Code), 13101(a) (Applicability of 

[Industry] Code). 23See FINRA Rule 14000 Series (Code of 

Mediation Procedure) (‘‘Mediation Code’’). Because 

the proposed rule change would amend the 

Customer Code and Industry Code, and not the 

Mediation Code, this order does not provide 

background on the mediation process. 24See FINRA Rules 12200, 12201. Under FINRA 

Rule 12200, parties must arbitrate disputes about 

the non-insurance business activity of a member or 

associated person if the customer requests 

arbitration or arbitration is required by written 

agreement; under FINRA Rule 12201, parties may 

agree in writing to arbitrate their disputes about the 

non-insurance business activity of a member or 

associated person. 

25See FINRA Rules 13101 (Industry Code applies 

to any dispute filed under Rules 13200, 13201, or 

13202), 13200 (requiring arbitration ‘‘if the dispute 

arises out of the [non-insurance] business activities 

of a member or an associated person and is between 

or among’’ members and/or associated persons), 

13201 (permitting arbitration of employment 

discrimination, whistleblower, and sexual 

misconduct cases), 13202 (requiring arbitration if 

the dispute involves the business activity of a 

registered clearing agency that has entered into an 

agreement to use FINRA’s arbitration forum). 

26See FINRA Customer Code (FINRA Rule 12000 

Series), Parts III–VI; FINRA Industry Code (FINRA 

Rule 13000 Series), Parts III–VI. 

27See FINRA Rules 12401, 13401. 28See FINRA Rules 12401(a), 13401(a). 

Alternatively, parties may agree in writing to have 

a three-person panel decide their simplified case. 

See FINRA Rules 12800(b), 13800(b). 

29See FINRA Rules 12401(a), 13401(a). 

Simplified Arbitration is governed by FINRA Rule 

12800 (Simplified Arbitration) or FINRA Rule 

13800 (Simplified Arbitration), respectively. In 

general, no hearing will be held in Simplified 

Arbitration unless the customer or claimant 

requests a hearing. FINRA Rules 12800(c)(1), 

13800(c)(1). 

30See FINRA Rules 12401(b), 13401(b); see also 

FINRA Rules 12600(a), 13600(a) (hearing is required 

unless it is a Simplified Arbitration or default 

proceeding). 

31See FINRA Rules 12401(c), 13401(c); see also 

FINRA Rules 12600(a), 13600(a) (hearing is required 

unless it is a Simplified Arbitration or default 

proceeding). 

32See FINRA Rules 12400(b), 13400(b). 

33See FINRA Rules 12100(aa), 13100(x). 

34See FINRA Rules 12100(t), 13100(r). 

hearing sessions,9 initiating and 

responding to claims,10 motion 

practice,11 claim and case dismissals,12

and providing a hearing record.13

The proposed rule change was 

published for comment in the Federal 

Register on January 12, 2023.14 On 

February 14, 2023, FINRA consented to 

extend until April 12, 2023, the time 

period in which the Commission must 

approve the proposed rule change, 

disapprove the proposed rule change, or 

institute proceedings to determine 

whether to approve or disapprove the 

proposed rule change.15 The 

Commission received five comment 

letters in response to the Notice.16 On 

April 11, 2023, FINRA responded to the 

comment letters received in response to 

the Notice and filed an amendment to 

the proposed rule change (‘‘Amendment 

No. 1’’).17 On April 12, 2023, the 

Commission published a notice of filing 

of Amendment No. 1 and an order 

instituting proceedings to determine 

whether to approve or disapprove the 

proposed rule change, as modified by 

Amendment No. 1 (hereinafter referred 

to as the ‘‘proposed rule change’’ unless 

otherwise specified).18 The Commission 

received two comment letters in 

response to that notice and order.19 On 

July 3, 2023, FINRA consented to an 

extension of the time period in which 

the Commission must approve or 

disapprove the proposed rule change to 

September 8, 2023.20 On August 10, 

2023, the Commission received a letter 

from FINRA responding to comments 

received in response to the Order 

Instituting Proceedings prior to that 

date.21 This order approves the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

A. Background 

FINRA’s Dispute Resolution Services 

(‘‘DRS’’) provides a forum for disputes 

between customers, member firms, and 

associated persons of member firms 

through two non-judicial proceedings: 

arbitration 22 and mediation.23 FINRA’s 

arbitration forum accommodates two 

broad categories of proceedings, and 

each has its own rules of procedure. The 

Customer Code governs any dispute 

between a customer and a member or 

associated person.24 The Industry Code 

governs any dispute exclusively among 

associated persons and/or member 

firms.25 The Codes govern all aspects of 

an arbitration claim, including: 

initiating and responding to claims; 

appointment, disqualification, and 

authority of arbitrators; prehearing 

procedures and discovery; and hearings, 

evidence, and closing the record.26

In particular, the Codes govern the 

number of arbitrators on a panel for a 

proceeding based, in part, on the value 

of the underlying claim.27 If the amount 

of a claim is $50,000 or less, exclusive 

of interest and expenses, the panel will 

consist of one arbitrator 28 who will 

decide the claim based solely on the 

written pleadings and other materials 

submitted by the parties (‘‘Simplified 

Arbitration’’).29 If the amount of a claim 

is greater than $50,000 but not more 

than $100,000, exclusive of interest and 

expenses, the panel will consist of one 

arbitrator (unless the parties agree in 

writing to a three-arbitrator panel) who 

will decide the claim after a hearing.30

If the amount of a claim is more than 

$100,000 (exclusive of interest and 

expenses), is unspecified, or does not 

request money damages, the panel will 

consist of three arbitrators (unless the 

parties agree in writing to one arbitrator) 

who will decide the claim after a 

hearing.31

FINRA maintains a roster for each of 

the three types of arbitrators that may be 

appointed to a panel: public, nonpublic, and chairperson arbitrators.32 In 

general, a ‘‘public’’ arbitrator is a person 

who is otherwise qualified to serve as an 

arbitrator and is not disqualified from 

service as a public arbitrator due to their 

current or past ties to the financial 

industry.33 A ‘‘non-public’’ arbitrator is 

a person who is otherwise qualified to 

serve as an arbitrator and is disqualified 

from service as a public arbitrator due 

to their current or previous association 

with the financial industry.34 An 

arbitrator is eligible to serve as a 

‘‘chairperson’’ if she has completed 

FINRA’s chairperson training and (1) 

has a law degree, is a member of a bar 

of at least one jurisdiction, and has 

served as an arbitrator through award on 

at least one arbitration administered by 

a self-regulatory organization (‘‘SRO’’) 

in which hearings were held or (2) has 

served as an arbitrator through award on 


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Federal Register / Vol. 88, No. 176 / Wednesday, September 13, 2023 / Notices 62837 

35See FINRA Rules 12400(c), 13400(c). In 

customer disputes, the chairperson must be a public 

arbitrator. See FINRA Rule 12400(c). 

36See FINRA Rules 12402(b) (Generating Lists in 

Customer Cases with One Arbitrator), 12403(a) 

(Generating Lists in Customer Cases with Three 

Arbitrators), 13403(a) (Lists Generated in Disputes 

Between Members), 13403(b) (Lists Generated in 

Disputes Between Associated Persons or Between or 

Among Members and Associated Persons); see also 

FINRA Rules 12400(a), 13400(a). 

37See FINRA Rules 12402(c), 12403(b), 13403(c). 

38See FINRA Rules 12402(d)(1) (Striking and 

Ranking Arbitrators in Customer Cases with One 

Arbitrator), 12403(c)(1)(A) and (2)(A) (Striking and 

Ranking Arbitrators in Customer Cases with Three 

Arbitrators), 13404(a) and (b) (Striking and Ranking 

Arbitrators in Industry Disputes). 

39See FINRA Rules 12402(d)(2), 12403(c)(1)(B) 

and (2)(B), 13404(c). Parties must deliver their 

ranked lists to the DRS Director no more than 20 

days after the date upon which the DRS Director 

sent the lists to the parties. Except for certain pro 

se parties, parties must complete and deliver their 

ranked lists via the DR Party Portal (‘‘Portal’’). See 

FINRA Rules 12402(d)(3), 12403(c)(3), 13404(d). 

The Portal permits arbitration case participants to, 

among other things, file an arbitration claim, view 

case documents, submit documents to FINRA and 

send documents to other Portal case participants, 

and schedule hearing dates. See FINRA, Dispute 

Resolution Services: DR Portal, https:// 

www.finra.org/arbitration-mediation/dr-portal. 

40See FINRA Rules 12402(e) (Combining Lists in 

Customer Cases with One Arbitrators), 12402(f) 

(Appointment of Arbitrators in Customer Cases 

with One Arbitrator), 12403(d) (Combining Lists in 

Customer Cases with Three Arbitrators), 12403(e) 

(Appointment of Arbitrators in Customer Cases 

with Three Arbitrators), 13405 (Combining Lists in 

Industry Disputes), 13406 (Appointment of 

Arbitrators in Industry Disputes). 

41See FINRA Rule 12402(b)(1). 

42See FINRA Rule 12403(a)(1). 

43See FINRA Rules 12402(d), 12403(c)(1), 

12403(c)(2). The number of strikes available varies 

for each type of case. For a customer claim of 

$100,000 or less, each party may exercise up to four 

strikes against the list. See FINRA Rule 12402(d)(1). 

For a customer claim of more than $100,000, each 

party may exercise up to four strikes of chairqualified arbitrators, up to six strikes of public 

arbitrators, and up to 10 strikes of non-public 

arbitrators. See FINRA Rule 12403(c). 

44See FINRA Rules 12402(e), 12402(f), 12403(d), 

12403(e)(1). 

45See FINRA Rules 13403(a)(1), 13403(b)(1). For 

disputes between members, the arbitrator would 

generally be non-public unless the parties agree in 

writing otherwise. See FINRA Rule 13402(a)(1). For 

disputes between associated persons or between or 

among members and associated persons, the 

arbitrator would generally be public unless the 

parties agree in writing otherwise. See FINRA Rule 

13402(b). 

46See FINRA Rule 13403(a)(2). The panel would 

consist of three non-public arbitrators, one of which 

must be chair-qualified, unless the parties agree in 

writing otherwise. See FINRA Rule 13402(a)(1). 

47See FINRA Rule 13403(b)(2). The panel would 

consist of two public arbitrators and one non-public 

arbitrator. One of the public arbitrators would serve 

as the chairperson unless the parties agree in 

writing otherwise. See FINRA Rule 13402(b). 

48See FINRA Rule 13404. The number of strikes 

available varies for each type of case. For industry 

disputes with a single arbitrator, each party may 

exercise up to four strikes against the list. See 

FINRA Rule 13404(a). For industry disputes of more 

than $100,000 between members, each party may 

exercise up to four strikes from the chair-qualified 

non-public arbitrator list and up to eight strikes 

from the non-public arbitrator list. See FINRA Rule 

13404(b). For industry disputes of more than 

$100,000 between members and/or associated 

persons, each party exercises as many as four 

strikes against each list. See FINRA Rule 13404(a). 

49See FINRA Rules 13405, 13406. 

50See Leggett v. Wells Fargo Clearing Servs., LLC, 

No. 2019–CV–328949, 2022 WL 1522096, at *10 

(Ga. Super. Ct. Jan. 25, 2022). 

51 Id. at *10. 

52Wells Fargo Clearing Servs., LLC v. Leggett, 876 

SE2d 888, 895 (Ga. Ct. App. 2022). 

53Christopher W. Gerold, Lowenstein Sandler 

LLP, The Report of the Independent Review of 

FINRA’s Dispute Resolution Services—Arbitrator 

Selection Process at 2, https://www.finra.org/rulesguidance/guidance/reports/report-independentreview-finra-dispute-resolution-services-arbitratorselection-process (June 28, 2022) (hereinafter, the 

‘‘Lowenstein Report’’). 

54 Id. 

55 Id. at 35. 

56 Id. 

at least three arbitrations administered 

by a SRO in which hearings were 

held.35

B. The Arbitrator-Selection Process 

Whatever the size of the claim or 

nature of the dispute, the arbitratorselection process typically follows the 

same steps for each proceeding: (1) the 

Neutral List Selection System (‘‘NLSS’’), 

a computerized list-selection algorithm, 

randomly generates a list (or lists) of 

arbitrators from DRS’s rosters of eligible 

arbitrators for the selected hearing 

location for each proceeding; 36 (2) the 

DRS Director sends the list(s) to the 

parties; 37 (3) the parties exercise limited 

strikes to eliminate candidates from the 

list(s); 38 (4) the parties express 

preferences by ranking the remaining 

candidates on the list(s); 39 and (5) the 

DRS Director combines the strike and 

ranking lists to identify and appoint the 

arbitrator(s) to the panel.40

For example, for a customer claim of 

$100,000 or less, the NLSS would 

generate one list of 10 public arbitrators 

from the chairperson roster.41 For a 

customer claim of more than $100,000, 

the NLSS would generate three lists: one 

with 10 chair-qualified public 

arbitrators; one with 15 public 

arbitrators; and one with 10 non-public 

arbitrators.42 After each party exercises 

limited strikes against each list and 

ranks the remaining arbitrators on each 

list in order of preference,43 the DRS 

Director consolidates the strike and 

ranking lists and appoints the highestranking arbitrator(s) who survived the 

parties’ strikes.44

The arbitrator-selection process 

differs in industry disputes. For an 

industry claim of $100,000 or less, the 

NLSS would generate one list of 10 

arbitrators from the chairperson roster.45

For an industry claim of more than 

$100,000 between members, the NLSS 

would generate two lists: one with 10 

chair-qualified non-public arbitrators; 

and one with 20 non-public 

arbitrators.46 For an industry claim of 

more than $100,000 between associated 

persons or between or among members 

and associated persons, the NLSS would 

generate three lists: one with 10 chairqualified public arbitrators; one with 10 

public arbitrators; and one with 10 nonpublic arbitrators.47 Once the DRS 

Director sends the NLSS-generated 

list(s) to the parties, each party exercises 

limited strikes against the list(s) and 

ranks the remaining arbitrators in order 

of preference.48 The DRS Director then 

consolidates the strike and ranking 

list(s) and appoints the highest-ranking 

arbitrator(s) who survived the parties’ 

strikes.49

C. The Lowenstein Report 

In a January 2022 order, a Georgia 

trial court vacated a FINRA arbitration 

award, finding (among other things) that 

FINRA had a ‘‘secret agreement’’ with 

an attorney to remove certain arbitrators 

from any lists generated in that 

attorney’s cases.50 The trial court 

concluded that such an agreement ‘‘calls 

into question the entire fairness’’ of 

FINRA’s arbitration forum.51 The Court 

of Appeals of Georgia subsequently 

reversed the trial court’s order, holding 

(among other things) that ‘‘there is no 

evidence that [a secret] agreement was 

at play here’’ given that the arbitrator in 

question appeared on the ranking list 

notwithstanding the alleged existence of 

a ‘‘secret agreement’’ to exclude him.52

Prior to the order’s reversal on appeal, 

the Audit Committee of FINRA’s Board 

of Governors engaged a law firm, 

Lowenstein Sandler LLP 

(‘‘Lowenstein’’), to: (1) independently 

review the trial court’s finding about the 

arbitrator-selection process in that case; 

and (2) ‘‘determine generally whether 

any improvements to the arbitrator 

selection process [are] necessary to 

ensure neutrality and improve DRS’s 

transparency.’’ 53 Lowenstein began its 

review in February 2022, and in June 

2022, it delivered a 37-page report.54

The Lowenstein Report concluded that 

there was not any agreement between 

the attorney and FINRA regarding the 

panels for that attorney’s cases.55

‘‘Nonetheless, . . . Lowenstein 

identified a series of potential 

improvements to the FINRA arbitrator 

selection process intended to increase 

transparency and ensure neutrality in 

the work undertaken by DRS.’’ 56

In response to the recommendations 

made in the Lowenstein Report, FINRA 

proposed amendments to its arbitrator 

list-selection process, as well as 

additional changes to its procedural 


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57See Notice at 2144. 

58FINRA Rules 12402(b)(2), 12403(a)(3), 

13403(a)(4), 13403(b)(4). 

59Notice at 2144. 

60 Id. 

61See Lowenstein Report at 36. The Lowenstein 

Report recommended that FINRA amend Rule 

12400. Although FINRA has elected to follow this 

recommendation, it did so by amending rules 

elsewhere in the Codes. See proposed Rules 

12402(b)(3), 12403(a)(4), 13403(a)(5), 13403(b)(5). 

62See proposed Rules 12402(b)(3), 12403(a)(4), 

13403(a)(5), 13403(b)(5); Notice at 2145. 

63Proposed Rules 12402(b)(3), 12403(a)(4), 

13403(a)(5), 13403(b)(5). 

64FINRA Rules 12407(a), 13410(a). The DRS 

Director must first notify the parties before 

removing an arbitrator on the DRS Director’s own 

initiative. The DRS Director may not remove the 

arbitrator if the parties agree in writing to retain the 

arbitrator within five days of receiving notice of the 

DRS Director’s intent to remove the arbitrator. 

FINRA Rules 12407(a)(2), 13410(a)(2). 

65See Notice at 2145 (indicating that FINRA 

wants to ‘‘ensure that the parties are aware that they 

may challenge an arbitrator for cause at any point 

after receipt of the arbitrator ranking lists until the 

first hearing session begins’’). 

66See proposed Rules 12407(a), 13410(a). 

67Notice at 2145. 

68Lowenstein Report at 37. 

69Notice at 2145. 

70See proposed Rules 12407(c), 13410(c). 

71FINRA Rules 12100(y), 13100(w). 

72See FINRA Rules 12500(b), 12501(c), 13500(b), 

13501(c). 

73Notice at 2145. See FINRA, Dispute Resolution 

Services: Pre-Hearing Conferences, https:// 

www.finra.org/arbitration-mediation/prehearingconferences. 

74Proposed Rules 12500(b), 12501(c), 12504(a)(5), 

13500(b), 13501(c), 13504(a). 

75FINRA Rules 12100(o), 13100(o). 

76Notice at 2145. 

77Under the proposed rule change, a special 

proceeding (defined below) would be held by video 

conference, unless the customer requests at least 60 

days before the first scheduled hearing that it be 

held by telephone, or the parties agree to another 

type of hearing session. See proposed Rules 

12800(c) and 13800(c); see also infra notes 79–82 

and accompanying text. 

78Proposed Rules 12600(b), 13600(b). 

rules governing arbitration cases, as 

described below.57

D. Proposed Rule Change 

1. Arbitrator List-Selection 

Amendments 

The proposed changes to the 

arbitrator list-selection process would 

address: (1) manual reviews for conflicts 

of interest prior to sending the ranking 

lists to parties; (2) the timing of conflictof-interest and bias challenges to 

remove arbitrators; and (3) written 

explanations of the DRS Director’s 

decision on a party-initiated challenge 

to an arbitrator. 

a. Removal of Arbitrators for Conflicts of 

Interest Before Ranking Lists are Sent to 

the Parties 

As stated above, the NLSS randomly 

generates a list or lists of arbitrators 

from which parties in each arbitration 

case select a panel to hear and decide 

the case. As part of the list-generation 

process, the NLSS ‘‘exclude[s] 

arbitrators from the lists based upon 

current conflicts of interest.’’ 58 FINRA 

stated that DRS then ‘‘conducts a 

manual review [of the list(s)] for other 

conflicts not identified within the list 

selection algorithm.’’ 59 The Codes do 

not, however, describe this manual 

review process.60 The Lowenstein 

Report recommended that FINRA 

amend the Codes to require that, prior 

to sending the arbitrator list(s) to the 

parties, DRS’s Neutral Management 

Department must conduct a manual 

review for conflicts of interest.61 This 

proposed rule change would codify 

existing practice by expressly requiring 

the DRS Director to manually review 

arbitrators on each list for current 

conflicts of interest not identified 

within the NLSS and authorizing the 

DRS Director to remove arbitrators 

based on the existence of such 

conflicts.62 Under this proposed rule 

change, ‘‘[i]f an arbitrator is removed 

due to such conflicts, the list selection 

algorithm will randomly select an 

arbitrator to complete the list.’’ 63

b. Removal of Arbitrators for Conflicts of 

Interest or Bias After Lists are Sent to 

the Parties but Before the First Hearing 

Session 

Currently, the Codes permit the DRS 

Director to remove an arbitrator for a 

conflict of interest or bias, either upon 

request of a party or on the DRS 

Director’s own initiative, before the first 

hearing session begins.64 The Codes do 

not expressly specify, however, when 

the DRS Director may first initiate, or a 

party may first bring, such a challenge. 

FINRA stated that in practice parties 

may ‘‘challenge an arbitrator for cause at 

any point after receipt of the arbitrator 

ranking lists until the first hearing 

session begins[.]’’ 65 The proposed rule 

change would expressly codify this 

timing by authorizing the DRS Director 

to remove an arbitrator for a conflict of 

interest or bias, either upon request of 

a party or on the DRS Director’s own 

initiative, ‘‘[a]fter the Director sends the 

list(s) generated by the list-selection 

algorithm to the parties,’’ but before the 

first hearing session begins.66

c. Written Explanation of the DRS 

Director’s Decision 

Currently, the Codes do not require 

the DRS Director to issue a written 

explanation of their decision on a partyinitiated challenge to remove an 

arbitrator.67 The Lowenstein Report 

recommended that FINRA consider 

amending the Codes to require the 

issuance of a written explanation of 

such a decision upon the request of 

either party.68 FINRA stated that its 

current practice is ‘‘to provide a written 

explanation whenever a party-initiated 

challenge to remove an arbitrator is 

granted or denied, regardless of whether 

an explanation is requested by either 

party.’’ 69 The proposed rule change 

would codify this practice by expressly 

requiring the DRS Director to provide 

the parties with a written explanation of 

their decision to grant or deny a party’s 

request to remove an arbitrator.70

2. Procedural Rules Governing 

Arbitration Cases 

The proposed rule change would also 

amend certain procedural rules 

governing FINRA arbitration cases. The 

proposed rule change would address 

thirteen such procedural issues, and this 

Order discusses each in turn. 

a. Virtual Prehearing Conferences 

A ‘‘prehearing conference’’ is any 

hearing session ‘‘that takes place before 

the hearing on the merits begins.’’ 71

Currently, the Codes indicate that 

prehearing conferences may generally 

be held by telephone.72 However, 

FINRA stated that based on forum users’ 

experiences during the COVID–19 

pandemic, DRS updated its practice to 

provide that all prehearing conferences 

would be held by video.73 The proposed 

rule change would codify this practice 

by expressly requiring that prehearing 

conferences ‘‘will generally be held by 

video conference unless the parties 

agree to, or the panel grants a motion 

for, another type of hearing session.’’ 74

b. In-Person Hearings 

A ‘‘hearing’’ is ‘‘the hearing on the 

merits of an arbitration.’’ 75 Currently, 

the Codes do not establish a default 

format for hearings but FINRA stated 

that ‘‘hearings are generally held in 

person,’’ and forum users ‘‘have not 

similarly expressed a preference for 

making video conference the default for 

hearings.’’ 76 Accordingly, other than for 

special proceedings (defined below),77

the proposed rule change would provide 

that all hearings ‘‘will generally be held 

in person unless the parties agree to, or 

the panel grants a motion for, another 

type of hearing session.’’ 78

c. Virtual Option for Special 

Proceedings 

As stated above, a Simplified 

Arbitration generally is decided by a 

single arbitrator based on the parties’ 

written submissions, unless the 


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79FINRA Rules 12800, 13800. 80FINRA Rules 12800(c)(3)(B), 13800(c)(3)(B). 81Notice at 2146. 82Proposed Rules 12800(c)(3)(B)(i), 

13800(c)(3)(B)(i). 83FINRA Rules 12300(d)(1)(A), 13300(d)(1)(A). 

According to FINRA, PCI includes social security 

numbers; brokerage, bank or other financial account 

numbers; taxpayer identification numbers; and 

medical records. See FINRA, Dispute Resolution 

Services: Protecting Personal Confidential 

Information, https://www.finra.org/arbitrationmediation/protecting-personal-confidentialinformation (last visited May 11, 2023) (‘‘PCI 

Guidance’’). 

84FINRA Rules 12300(d)(1)(C), 13300(d)(1)(C). 

85Notice at 2146 and n.29 (explaining that FINRA 

Rules 12300(d)(1)(C) and 13300(d)(1)(C) would be 

deleted); proposed Rules 12300(d)(1), 13300(d)(1). 

86See Notice at 2146; see also PCI Guidance, 

supra note 83. 

87See Notice at 2146 (citing FINRA Rules 12214, 

13214). 

88FINRA Rules 12100(p), 13100(p). 

89Notice at 2146. 

90 Id. 

91 Id.; see proposed Rules 12100(p), 13100(p). 

92FINRA Rules 12100(dd), 13100(ee); see Notice 

at 2146 n.35. 

93FINRA Rules 12307(a)(1)–(3), 13307(a)(1)–(3). 

94A ‘‘third-party claim’’ is a ‘‘claim asserted 

against a party not already named in the statement 

of claim or any other previous pleading.’’ FINRA 

Rules 12100(ee), 13100(gg). 

95See Notice at 2146; FINRA Rules 12307(a)(1)– 

(3), 13307(a)(1)–(3). 

96FINRA Rules 12303(b), 13303(b); see Notice at 

2146. 

97Proposed Rules 12303(b), 13303(b). 

98Notice at 2147; see FINRA Rules 12303(b), 

13303(b). 

99Notice at 2147; see FINRA Rules 12309, 13309. 

FINRA Rules 12309(a)(2) and 13309(a)(2) address 

the amendment of a pleading to add a party, but 

they do not address the filing of a third-party claim 

other than in an amended pleading. 

100See Notice at 2147; proposed Rules 12309, 

13309. 

101 Id. 

102Notice at 2147; see proposed Rules 12309(a), 

13309(a). 

103Notice at 2147; see proposed Rules 

12309(b)(1), 13309(b) (deleting ‘‘a copy of’’). 

104Notice at 2147; see proposed Rules 

12309(c)(1), 13309(c)(1). 

customer or claimant requests a 

hearing.79 If the customer or claimant 

requests a hearing, the Codes permit the 

customer or claimant to request an 

abbreviated telephonic hearing (i.e., a 

‘‘special proceeding’’) on the merits.80

FINRA stated that it received 

indications that customers ‘‘would 

prefer also to have the option to have a 

special proceeding by video 

conference.’’ 81 The proposed rule 

change would require any special 

proceeding to be held by video 

conference, unless: (1) the customer 

requests at least 60 days before the first 

scheduled hearing that it be held by 

telephone; or (2) the parties agree to 

another type of hearing session.82

d. Redacting Confidential Information 

The Codes require a party to redact 

any personal confidential information 

(‘‘PCI’’) from documents they file with 

the DRS Director.83 Currently, this 

requirement does not apply to parties in 

a Simplified Arbitration.84 FINRA stated 

that ‘‘[d]ue to increasing concerns with 

customers’ identities being used for 

fraudulent purposes in the securities 

industry,’’ the proposed rule change 

would expand this redaction 

requirement to require a party in a 

Simplified Arbitration to redact any PCI 

from documents filed with the DRS 

Director.85 In addition, FINRA stated 

that it would ‘‘update guidance on its 

website regarding the steps parties can 

take to protect PCI, to include guidance 

to pro se parties on the importance of 

safeguarding PCI and on how to redact 

PCI from documents filed with DRS.’’ 86

e. Number of Hearing Sessions per Day 

Arbitrators are paid for each hearing 

session in which they participate.87 The 

Codes define a ‘‘hearing session’’ as 

‘‘any meeting between the parties and 

arbitrator(s) of four hours or less, 

including a hearing or a prehearing 

conference.’’ 88 FINRA stated that ‘‘some 

arbitrators have the misunderstanding 

that they may be compensated for time 

spent outside of the hearing session, 

such as on lunch breaks, because the 

Codes do not specify when the next 

hearing session begins.’’ 89

FINRA explained that DRS’s current 

practice is to calculate the total number 

of hearing hours, subtract any time 

spent for lunch, and divide the 

remainder by four (as in four hours) to 

identify the number of hearing 

sessions.90 FINRA stated that consistent 

with that practice, the proposed rule 

change would amend the definition of 

‘‘hearing session’’ to indicate that, 

during a single day, ‘‘the next hearing 

session begins after four hours of 

hearing time has elapsed.’’ 91

f. Update Submission Agreement When 

Filing a Third-Party Claim 

The Codes define the term 

‘‘Submission Agreement’’ to mean the 

agreement ‘‘that parties must sign at the 

outset of an arbitration in which they 

agree to submit to arbitration under the 

Code.’’ 92 In general, if a claim does not 

include a complete and properly 

executed Submission Agreement, the 

claim would be considered deficient 

and would not be served by the DRS 

Director on the other parties (e.g., if a 

Submission Agreement fails to name all 

of the parties named in a claim, the 

claim would be considered deficient).93

Thus, in practice, when a respondent 

includes a third-party claim 94 in their 

answer to a statement of claim, the 

respondent must serve a fully executed 

Submission Agreement and an answer 

on each other party, including the third 

party.95 However, FINRA stated that 

because the Codes do not expressly 

require the respondent to file an 

updated Submission Agreement with 

any third-party claim, respondents often 

file deficient claims because they 

neglect to add the third party to the 

Submission Agreement.96 The proposed 

rule change would address this 

confusion. Specifically, the proposed 

rule change would require a respondent 

filing an answer containing a third-party 

claim to: (1) execute a Submission 

Agreement that lists the name of the 

third-party; and (2) file the updated 

Submission Agreement with the DRS 

Director.97

g. Amending Pleadings or Filing ThirdParty Claims 

FINRA stated that the Codes do not 

include express procedures related to 

the filing of third-party claims other 

than those filed in an answer to a 

statement of claim.98 Rather, FINRA 

indicated that FINRA rules relating to 

amended pleadings currently govern the 

filing of third-party claims.99 FINRA 

stated that the proposed rule change 

would amend the Codes to expressly 

extend the procedures that apply to 

amended pleadings to the filing and 

serving of third-party claims.100 The 

proposed rule change also would 

‘‘restructure the provisions related to 

amending pleadings and filing thirdparty claims and add titles to clarify 

what processes are available based on 

various milestones in a case, including 

before and after panel appointment and 

before and after ranked arbitrator lists 

are due to the Director.’’ 101

The proposed rule change would 

make other changes to the Codes 

relating to amended pleadings, 

including specifying that: (1) arbitrators 

would be ‘‘appointed to’’ the panel, not 

placed ‘‘on’’ the panel; 102 (2) the 

version of an amended pleading or 

third-party claim that should be 

included with a motion need not be a 

hard copy; 103 (3) once the ranked 

arbitrator lists are due, no party would 

be permitted to amend a pleading to add 

a party or file a third-party claim until 

a panel has been appointed and the 

panel grants a motion to amend a 

pleading or file the third-party claim; 104

(4) service by first-class mail or 

overnight mail service would be 

accomplished on the date of mailing 

and service by any other means would 

be accomplished on the date of 


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105Notice at 2147; see proposed Rules 

12309(a)(3), 13309(a)(3). 106Notice at 2147; see proposed Rules 12309(d), 

13309(d); FINRA Rules 12310, 13310. 107 Id. 108Notice at 2147. 109FINRA Rule 12202(b). 110 Id. 111FINRA Rule 12309(b)(2). 112FINRA Rule 12309(c)(2); see supra note 39. 113See supra notes 109–112 and accompanying 

text. 114See Notice at 2147; proposed Rules 

12309(b)(2), 12309(c)(2). 

115See FINRA Rules 12312, 13312. 

116See Notice at 2147. 

117More specifically, ‘‘the [DRS] Director may 

combine separate but related claims into one 

arbitration’’ before the ranked arbitrator lists are 

due to the DRS Director. FINRA Rules 12314, 

13314; see Notice at 2147; supra note 39. 

118FINRA Rules 12314, 13314. 

119Notice at 2147. 

120 Id. 

121See Notice at 2147; Amendment No. 1 at 4. 

122Amendment No. 1 at 4 (expressing that this 

proposed rule change would ‘‘provide transparency 

and consistency regarding the current practice’’). 

‘‘Although this scenario would be rare, FINRA 

notes that under the proposed amendment, the 

default would be for the panel appointed to the 

lowest numbered case with a panel to preside over 

the combined case.’’ Id. 

123 Id.; proposed Rules 12314(b), 13314(b). 

124Notice at 2148. 

125 Id. 

126Proposed Rules 12503(d), 13503(d). 

127 Id. 

128Proposed Rules 12503(e)(3), 13503(e)(3); see 

Notice at 2148. 

129Proposed Rules 12503(e)(4), 13503(e)(4). The 

addition of the proposed text to Rules 12503(e) and 

13503(e) requires the renumbering of some 

paragraphs in that subsection. See Notice at 2148 

n.63. 

130FINRA Rules 12503(a)(4), 13503(a)(4). 

131See Notice at 2148 n.63. 

delivery; 105 (5) the provisions in the 

Codes relating to responding to 

amended pleadings would be separate 

from the current provisions relating to 

answering amended claims; 106 and (6) 

before panel appointment, the DRS 

Director would be authorized to 

determine whether any party may file a 

response to an amended pleading.107

In addition, the proposed rule change 

would update the Customer Code’s 

provisions governing ‘‘filing amended 

pleadings when a customer in an 

arbitration is notified by FINRA that a 

member or associated person in the 

arbitration has become inactive.’’ 108

Currently, under the Customer Code, if 

a respondent member or associated 

person becomes inactive during a 

pending arbitration, FINRA will notify 

the customer of the respondent’s 

inactive status.109 Within 60 days of 

receiving that notice, the customer may: 

(1) withdraw the claim(s) against the 

inactive member or associated 

person; 110 (2) amend a pleading (if a 

panel has been appointed); 111 or (3) 

amend a pleading to add a new party (if 

the notification is after the ranked 

arbitrator lists are due to the DRS 

Director).112 However, the Customer 

Code does not expressly authorize the 

customer in an arbitration to file a thirdparty claim when they are notified by 

FINRA that a member or associated 

person in the arbitration has become 

inactive.113 FINRA stated that the 

proposed rule change would modify the 

Codes relating to amended pleadings to 

expressly authorize a customer in an 

arbitration to file a third-party claim 

when they are notified by FINRA that a 

member or associated person in the 

arbitration has become inactive after a 

panel is appointed, as well as after the 

ranked arbitrator lists are due.114

h. Combining Claims 

Under the Codes, a party may move 

to join multiple claims together in the 

same arbitration if: (1) the claims 

contain common questions of law or 

fact; and (2)(a) the claims assert any 

right to relief jointly and severally, or (b) 

the claims arise out of the same 

transaction or occurrence, or series of 

transactions or occurrences (i.e., 

separate but related claims).115 The 

Codes are unclear, however, with 

respect to who has authority (e.g., the 

DRS Director or a panel) to combine 

separate but related claims in response 

to such motions after a panel has been 

appointed to one or more cases.116

Before a panel has been appointed in 

any of the arbitration cases hearing the 

separate but related claims, only the 

DRS Director is authorized to combine 

such claims into one arbitration.117

Once a panel has been appointed in at 

least one of the related cases, the Codes 

authorize the panel to ‘‘reconsider the 

Director’s decision upon motion of a 

party.’’ 118 The Codes do not address 

whether the panel has independent 

authority to combine such claims.119

Nor do the Codes specify which panel— 

if more than one has been appointed to 

hear the separate but related claims— 

may reconsider the DRS Director’s 

decision to combine the claims.120

FINRA explained the current practice 

typically is for the panel appointed to 

the ‘‘lowest-numbered case with a 

panel’’ (i.e., the case with the earliest 

filing date) to have this authority. Where 

a panel has been appointed to the 

highest-numbered case (but not any 

other case) subject to the motion to 

combine, the panel in the highestnumbered case has the authority.121

Where a panel has been appointed to a 

middle-numbered case (but not any 

other case filed earlier) subject to a 

motion to combine, the panel in that 

middle-numbered case has the 

authority.122 The proposed rule change, 

as modified by Amendment No. 1, 

would codify this existing practice.123

i. Motions in Arbitration 

The Codes do not address the timing 

of DRS’s delivery of motions, responses, 

and replies to the arbitrator(s) on a 

panel.124 In practice, however, DRS 

distributes a motion, along with all the 

related responses and replies to that 

motion, to the panel after the last reply 

date has elapsed, unless the panel 

directs otherwise.125 The proposed rule 

change would codify that practice, 

expressly providing that the DRS 

Director will send all motions, 

responses, and replies to the panel after 

the last reply date expires, unless the 

panel directs otherwise.126 If the DRS 

Director receives any submissions on 

the motion after the last reply date has 

elapsed, this proposed rule change 

would require the DRS Director to 

forward them to the panel upon receipt, 

and the panel would determine whether 

to accept them.127

In addition, this proposed rule change 

would amend the Codes to add crossreferences to: (1) FINRA Rules 12312 

(Multiple Claimants), 12313 (Multiple 

Respondents), 13312 (Multiple 

Claimants), or 13313 (Multiple 

Respondents), as applicable, to indicate 

that motions related to separating claims 

or arbitrations would be decided by the 

DRS Director before a panel is 

appointed and by the panel after the 

panel is appointed; 128 and (2) proposed 

FINRA Rules 12314 (Combining Claims) 

and 13314 (Combining Claims), as 

applicable, to indicate which panel 

among multiple cases may combine 

separate but related claims into one 

arbitration or reconsider the DRS 

Director’s decision to combine claims 

upon motion of a party.129

Finally, the Codes require a motion to 

amend a pleading after panel 

appointment to ‘‘be accompanied by 

copies of the proposed amended 

pleading when the motion is served on 

the other parties and filed with the 

Director.’’ 130 In practice, ‘‘accompanied 

by copies’’ has been interpreted to mean 

‘‘accompanied by hard copies.’’ 131 To 

clarify that parties may serve on other 

parties and file with the DRS Director 

electronic copies (as well as hard 

copies) of a proposed amendment 

pleading (i.e., to ‘‘clarify that hard 

copies are not required’’), this proposed 

rule change would provide that a 

motion to amend a pleading need only 

‘‘include,’’ rather than ‘‘be accompanied 


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132Proposed Rules 12503(a)(4), 13503(a)(4); see 

Notice at 2148 n.63 (erroneously citing proposed 

Rules 12504(a)(4) and 13504(a)(4) when describing 

this proposed rule change); FINRA April Letter at 

1 n.1 (correcting the error). 

133See FINRA Rules 12514(a), 13514(a) (‘‘The 

parties should not file the documents with the 

[DRS] Director or the arbitrators before the 

hearing.’’). 

134FINRA Rules 12514(b), 13514(b). 

135Notice at 2148. 

136 Id. 

137 Id. 

138Proposed Rule 12514(a), 13514(a); see Notice 

at 2148. 

139FINRA Rules 12606, 13606. 

140FINRA Rules 12606(a)(2), 13606(a)(2). 

141 Id. 

142 Id. 

143Notice at 2148. 

144Proposed Rules 12606(a)(2), 13606(a)(2), 

12606(b)(2), 13606(b)(2). 

145Notice at 2148. 

146 Id. 

147Proposed Rules 12606(a)(1), 13606(a)(1). 

148FINRA Rules 12300, 13300; see supra note 39. 

149 Id. 

150Notice at 2148. 

151 Id. at 2148–49. 

152 Id. at 2149. 

153Proposed Rules 12700(c), 13700(c). 

154FINRA Rule 12700(b) (citing Rule 12206); 

FINRA Rule 13700(b) (citing Rule 13306). 

155FINRA Rule 12700(b) (citing Rule 12212(c)); 

FINRA Rule 13700(b) (citing Rule 13212(c)). 

156FINRA Rule 12700(b) (citing Rule 12601(c)); 

FINRA Rule 13700(b) (citing Rule 13601(c)). 

157Proposed Rules 12700(b)(1), 13700(b)(1). The 

proposed rule change also would replace the 

bulleted list with a numbered list. Proposed Rules 

12700(b), 13700(b). 

158FINRA Rules 12100(c), 13100(c), 12904(b), 

13904(b). 

159See FINRA Rules 12904, 13904. 

by copies of,’’ the proposed amended 

pleading.132

j. Witness Lists Shall Not Be Combined 

With Document Lists 

Under the Codes, at least 20 days 

before the first scheduled hearing, all 

parties must: (1) provide all other 

parties—but not the DRS Director or 

arbitrators—with copies of all 

documents and other materials in their 

possession or control that they intend to 

use at the hearing that have not already 

been produced; 133 and (2) provide each 

other party—as well as the DRS 

Director—with the names and business 

affiliations of all witnesses they intend 

to present at the hearing.134

Separately, FINRA stated that parties 

often file a single document with the 

DRS Director that includes a list of 

documents and other materials, such as 

exhibits, they intend to use at the 

hearing that have not already been 

produced and their witness list.135

Because the list of documents and other 

materials ‘‘could contain prejudicial or 

inadmissible material, as a service to 

forum users, the DRS Director will 

manually remove this information from 

the document containing the witness 

list before forwarding [the witness list] 

to the panel.’’ 136 But, at times, the DRS 

Director ‘‘may inadvertently 

disseminate the list of documents and 

other materials to the arbitrators, which 

could reveal potentially prejudicial or 

inadmissible information to the 

arbitrators before the hearing.’’ 137

The proposed rule change protects 

against this risk of inadvertent 

disclosure by expressly providing that if 

parties create lists of documents and 

other materials in their possession or 

control that they intend to use at the 

hearing that have not already been 

produced, the parties may serve the lists 

on all other parties, but shall not 

combine the lists with the witness lists 

filed with the DRS Director pursuant to 

Rule 12514(b) or 13514(b), as 

applicable.138

k. Hearing Records 

The official record of an arbitration 

hearing is the DRS Director’s tape, 

digital, or other recording of every 

arbitration hearing; however, if a party 

chooses to make a stenographic record 

of a hearing, a panel may decide in 

advance of a hearing that a party’s 

stenographic record will be the official 

record of the hearing.139 If the DRS 

Director’s recording is the official 

record, the panel ‘‘may order the parties 

to provide a transcription of the 

recording’’ and ‘‘copies of the 

transcription must be provided to each 

arbitrator, served on each party, and 

filed with the Director.’’ 140 If a party’s 

stenographic record is the official 

record, ‘‘a copy must be provided to 

each arbitrator, served on each other 

party, and filed with the Director.’’ 141

Further, ‘‘[t]he 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.’’ 142

But the Codes do not specify which 

party must provide to each arbitrator, 

serve on each other party, and file with 

the DRS Director a copy of a 

transcription of the official record.143

The proposed rule change would assign 

that responsibility to the party or 

parties: (1) ordered to provide a 

transcription; or (2) electing to make a 

stenographic record.144

In addition, FINRA indicated that 

‘‘executive sessions’’ are not recorded 

because they are not part of the official 

record of the hearing.145 Rather, they are 

‘‘discussions among arbitrators’’ outside 

the presence of the parties, the parties’ 

representatives, witnesses, and 

stenographers.146 FINRA stated that to 

promote ‘‘transparency and 

consistency,’’ this proposed rule change 

would expressly provide that executive 

sessions would not be recorded.147

l. Dismissal of Proceedings for 

Insufficient Service 

The Codes require parties, other than 

those proceeding pro se, to serve all 

pleadings and other documents through 

the Portal.148 Service is accomplished 

on the date of submission in the 

Portal.149 If a party who is served fails 

to submit an answer, DRS reviews the 

service history with the panel and asks 

the panel to decide whether service was 

complete and sufficient before the case 

may proceed to hearing.150 Although the 

Codes do not address what action the 

panel should take if it determines that 

service was insufficient,151 current 

practice permits a panel to dismiss a 

claim or arbitration without prejudice if 

it finds insufficient service.152 The 

proposed rule change would codify this 

practice, expressly permitting a panel to 

dismiss a claim or arbitration without 

prejudice if it finds insufficient service 

upon a respondent.153

The proposed rule change would also 

make non-substantive changes to the 

Codes. FINRA Rules 12700 (Dismissal of 

Proceedings Prior to Award) and 13700 

(Dismissal of Proceedings Prior to 

Award) currently include crossreferences to specific rules in which a 

panel may dismiss a claim or an 

arbitration, including dismissals of 

time-barred claims,154 dismissals as a 

‘‘sanction for material and intentional 

failure to comply with an order of the 

panel,’’ 155 and dismissals due to 

multiple postponements.156 The rules 

do not, however, include crossreferences to FINRA rules generally 

governing motions to dismiss (i.e., 

FINRA Rules 12504 and 13504). The 

proposed rule change would amend 

Rules 12700(b) and 13700(b) to add a 

cross-reference to Rule 12504 or 13504, 

as applicable.157

m. Dismissal of Claims Requires 

Issuance of an Award 

An ‘‘award’’ is a document stating the 

final disposition of an arbitration at its 

conclusion.158 It may include, among 

other things, a ‘‘summary of the issues 

. . . in controversy,’’ the damages or 

relief requested, the damages or relief 

the panel has awarded, and the panel’s 

reasoning.159 The Codes require FINRA 

to publish awards, which it does on its 


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160See FINRA Rules 12904(h) and 13904(h); see 

also FINRA, Arbitration Awards Online, https://

www.finra.org/arbitration-mediation/arbitrationawards. 

161See FINRA Rules 12504(b), 13504(b). 

162Notice at 2149. 

163 Id. 

164 Id.; see proposed Rule 12504(b), 13504(b); 

FINRA Rules 12904(e), 13904(e) (describing 

elements of an award). 

165 In approving this rule change, the Commission 

has considered the rule’s impact on efficiency, 

competition, and capital formation. See 15 U.S.C. 

78c(f). 

166 15 U.S.C. 78o–3(b)(6). 

167See proposed Rules 12402(b)(3), 12403(a)(4), 

13403(a)(5), 13403(b)(5); Notice at 2145. 

168Proposed Rules 12402(b)(3), 12403(a)(4), 

13403(a)(5), 13403(b)(5). The DRS Director will 

send the lists generated by the NLSS to all parties 

at the same time, within approximately 30 days 

after the last answer is due, regardless of the parties’ 

agreement to extend any answer due date. See 

FINRA Rules 12402(c), 12403(b), 13403(c). 

169See Notice at 2144; Lowenstein Report at 36. 

170See Notice at 2144–45, 2149. 

171Letter from Hugh Berkson, President, Public 

Investors Advocate Bar Association (‘‘PIABA’’), to 

Vanessa Countryman, Secretary, U.S. Securities and 

Exchange Commission (Feb. 1, 2023) (‘‘PIABA 

Letter’’) at 2; letter from Elissa Germaine, 

Supervising Attorney, Fairbridge Investor Rights 

Clinic, Pace University School of Law, to Vanessa 

Countryman, Secretary, U.S. Securities and 

Exchange Commission (Feb. 2, 2023) (‘‘Pace Letter’’) 

at 1; letter from Christine Lazaro, Professor of 

Clinical Legal Education & Director of the Securities 

Arbitration Clinic, St. John’s University School of 

Law, to Vanessa Countryman, Secretary, U.S. 

Securities and Exchange Commission (Feb. 2, 2023) 

(‘‘St. John’s Letter’’) at 1; and letter from William 

Jacobson, Clinical Professor & Director, Cornell Law 

School’s Securities Law Clinic, to Vanessa 

Countryman, Secretary, U.S. Securities and 

Exchange Commission (Feb. 2, 2023) (‘‘Cornell 

Letter’’) at 1–2 (Cornell’s pagination is mistaken; 

throughout this Order, the Commission refers to the 

actual page number as it appears in the sequence 

of the PDF document). 

172PIABA Letter at 2. 

173St. John’s Letter at 1 (‘‘Codifying this process 

will help parties feel confident in the selection 

process.’’). St. John’s couples its support with a 

recommendation that FINRA ‘‘upgrad[e] the archaic 

algorithm by which the conflicts are screened,’’ 

thus ‘‘limit[ing] the necessity for manual review.’’ 

St. John’s Letter at 1. This comment is outside the 

scope of this proposed rule change, as FINRA has 

not proposed any changes to the NLSS itself. FINRA 

indicated, however, that it is in the process of 

assessing whether the NLSS remains ‘‘the most 

effective means in creating random, computergenerated arbitrator lists for the arbitrator 

participants.’’ FINRA April Letter at 4. 

174Cornell Letter at 2. 

175Letter from Aleah Jones, Pickard Djinis and 

Pisarri LLP, to Vanessa Countryman, Secretary, U.S. 

Securities and Exchange Commission (May 9, 2023) 

(‘‘Pickard Letter’’) at 3. 

176 Id. at 3 n.8 (citing FINRA, How Parties Select 

Arbitrators, https://www.finra.org/arbitration

mediation/arbitrator-selection). In the Notice, 

FINRA cited the same web page and identified the 

following potential conflicts of interest: ‘‘the 

arbitrator is employed by a party to the case; the 

arbitrator is an immediate family member or 

relative of a party to the case or a party’s counsel; 

the arbitrator is employed at the same firm as a 

party to the case; the arbitrator is employed at the 

same law firm as counsel to a party to the case; the 

arbitrator is representing a party to the case as 

counsel; the arbitrator is an account holder with a 

party to the case; the arbitrator is employed by a 

member firm that clears through a clearing agent 

that is a party to the case; or the arbitrator is in 

litigation with or against a party to the case. DRS 

may also remove an arbitrator for other reasons 

affecting the arbitrator’s ability to serve, such as if 

DRS learns the arbitrator has moved out of the 

hearing location.’’ Notice at 2145 n.11. 

177Pickard Letter at 3. 

website.160 Although the Codes permit a 

panel to grant a motion to dismiss a 

party’s entire case after the conclusion 

of that party’s case-in-chief,161 the 

Codes do not address whether such a 

dismissal requires the issuance of an 

award.162 FINRA stated that current 

practice is ‘‘to require the issuance of an 

award’’ in this situation because ‘‘the 

dismissal of all a claimant’s claims 

disposes of the case.’’ 163 The proposed 

rule change would codify this practice 

by requiring any panel that grants a 

motion to dismiss all claims to issue a 

‘‘decision’’ containing the elements of a 

written award and make the decision 

‘‘publicly available as an award.’’ 164

III. Discussion and Commission 

Findings 

After careful review of the proposed 

rule change, the comment letters, and 

FINRA’s response to the comments, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Exchange Act and 

the rules and regulations thereunder 

that are applicable to a national 

securities association.165 Specifically, 

the Commission finds that the proposed 

rule change is consistent with Section 

15A(b)(6) of the Exchange Act, which 

requires, among other things, that 

FINRA rules be designed to prevent 

fraudulent and manipulative acts and 

practices, promote just and equitable 

principles of trade, and, in general, 

protect investors and the public 

interest.166 In particular, as set forth 

below, the Commission finds that the 

proposed rule change is reasonably 

designed to protect investors and the 

public interest. It promotes transparency 

about FINRA’s arbitration process and 

helps ensure consistent requirements 

across arbitration cases. The 

Commission addresses each aspect of 

the proposed rule change, and any 

related comments, in turn. 

A. Arbitrator List-Selection 

Amendments 

1. Removal of Arbitrators for Conflicts of 

Interest Before Ranking Lists Are Sent to 

the Parties 

As stated above, the proposed rule 

change would codify existing practice 

by expressly requiring the DRS Director 

to manually review arbitrators on each 

arbitrator ranking list for current 

conflicts of interest not identified 

within the NLSS selection process and 

authorizing the DRS Director to remove 

arbitrators based on the existence of 

such conflicts before sending the 

arbitrator ranking lists to the parties.167

Under this proposed rule change, ‘‘[i]f 

an arbitrator is removed due to such 

conflicts, the list selection algorithm 

will randomly select an arbitrator to 

complete the list.’’ 168 FINRA stated that 

this proposed rule change responds to 

the Lowenstein Report’s 

recommendation that the Codes require 

DRS’s Neutral Management Department 

to conduct a manual review for conflicts 

of interest prior to sending the arbitrator 

list to the parties.169 FINRA believes 

that this proposed rule change would 

enhance the transparency of the 

arbitrator-selection process by codifying 

DRS’s practice of conducting a manual 

review for conflicts of interest that the 

NLSS may have missed prior to sending 

an arbitrator ranking list to the 

parties.170

Four commenters supported this 

proposed rule change.171 One 

commenter emphasized that this 

proposed rule change would provide 

‘‘much greater transparency to internal 

FINRA processes.’’ 172 A second 

commenter indicated that it would 

boost confidence in the arbitrator listselection process.173 A third commenter 

stated that it would promote efficiency 

and fairness in the arbitration process 

by ‘‘prevent[ing] scenarios where the 

parties would have to initiate a 

challenge to remove arbitrators due to 

blatant conflicts of interest once a panel 

has been appointed.’’ 174

A fifth commenter offered no 

objection to this proposed rule change 

provided that the DRS Director’s 

authority would be limited to ‘‘conflicts 

of interest of the type screened out by 

the [NLSS],’’ and the DRS Director 

would not have ‘‘unlimited discretion to 

strike arbitrators for potential or 

suspected conflicts of interest or 

bias.’’ 175 The commenter acknowledged 

that FINRA publishes some general 

guidance on conflicts of interest 176 but 

suggested that ‘‘the Codes define 

‘conflicts of interest’ to clarify to the 

parties what relationships will cause an 

arbitrator to be struck by NLSS or 

manually by the Director.’’ 177

In response, FINRA stated that the 

‘‘non-exhaustive list of potential 

conflicts . . . published on [its] website 


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178See FINRA August Letter at 4. 

179See proposed Rules 12402(b)(3), 12403(a)(4), 

13403(a)(5), 13403(b)(5). 

180See proposed Rules 12407(a), 13410(a). 

181See Notice at 2145. 

182See PIABA Letter at 2; Pace Letter at 1 (noting 

its ‘‘support [for] FINRA’s proposed list selection 

process amendments,’’ though it only emphasizes 

its support for the written-decision proposed rule 

change); Cornell Letter at 2; St. John’s Letter at 2. 

183See St. John’s Letter at 2. 

184See Pickard Letter at 3–4. 

185 Id. at 4. 

186See FINRA August Letter at 3–4. 

187See proposed Rules 12407(a), 13410(a). 

188See id. at 4; see also FINRA Rules 12503 

(Motions) and 13503 (Motions). 

189See FINRA August Letter at 4. 

190See FINRA Rules 12407(a) and 13410(a). 

191See proposed Rules 12407(c), 13410(c); Notice 

at 2145. 

192See Notice at 2145; Lowenstein Report at 37. 

193See PIABA Letter at 2; Cornell Letter at 2; Pace 

Letter at 2; St. John’s Letter at 2. 

194See Pace Letter at 2 (supporting the proposed 

rule change and noting the importance of 

‘‘confidence in the integrity’’ of the system). 

195 Id. at 2; Cornell Letter at 2. 

196See PIABA Letter at 2. 

197 Id. at 2. 

198See Pickard Letter at 3. 

sufficiently explains to forum users 

what types of relationships or 

connections FINRA looks for to 

determine whether a conflict of interest 

exists.’’ 178

The Commission believes that 

expressly requiring the DRS Director to 

manually review arbitrators on each 

arbitrator ranking list for current 

conflicts of interest not identified 

within the NLSS and authorizing the 

DRS Director to remove arbitrators 

based on the existence of such conflicts 

should improve fairness in the 

arbitration process. Specifically, the 

proposed rule change should help 

ensure that each arbitrator ranking list is 

composed of arbitrators that are free of 

conflicts of interest with the parties to 

the arbitration. The Commission further 

notes that the proposed rule change 

does not expand the DRS Director’s 

discretion to remove arbitrators from the 

ranking lists due to a conflict of interest. 

Instead, the DRS Director’s review of 

ranking lists will continue to be limited 

to current conflicts of interest not 

identified within the NLSS selection 

process and consistent with those 

described by FINRA on its website. For 

these reasons, the Commission finds 

that this proposed rule change is 

reasonably designed to protect investors 

and the public interest. 

2. Removal of Arbitrators for Conflicts of 

Interest or Bias After Lists Are Sent to 

the Parties but Before the First Hearing 

Session 

In addition to authorizing the DRS 

Director to remove an arbitrator for a 

conflict of interest before the NLSSgenerated ranking lists are sent to the 

parties,179 the proposed rule change 

would expressly authorize the DRS 

Director to remove an arbitrator for a 

conflict of interest or bias on the DRS 

Director’s own initiative or upon a 

party’s request ‘‘[a]fter the Director 

sends the lists generated by the list 

selection algorithm to the parties, but 

before the first hearing session 

begins.’’ 180 FINRA explained that this 

change would ‘‘ensure that the parties 

are aware that they may challenge an 

arbitrator for cause at any point after 

receipt of the arbitrator ranking lists 

until the first hearing session 

begins.’’ 181

Four commenters supported this 

proposed rule change.182 One of these 

four commenters reasoned that it 

‘‘would assist parties unfamiliar with 

the arbitration process by helping them 

understand their rights and abilities as 

it relates to challenges to remove 

arbitrators.’’ 183 A fifth commenter 

objected to the proposed rule change, 

expressing concern that parties could 

‘‘exert greater control over the arbitral 

selection process than they had under 

the previous rule set’’ and assert a 

‘‘conflict of interest or bias’’ as a form 

of gamesmanship.184 This commenter 

urged FINRA to ‘‘restore the arbitration 

ranking system previously in place.’’ 185

In response, FINRA stated that the 

proposed rule change would not amend 

the process related to the removal of 

arbitrators on the DRS Director’s own 

initiative or upon a party’s request.186

Rather, the proposed rule changes 

would clarify the timing for the process 

(i.e., after the DRS Director sends the 

lists generated by the NLSS to the 

parties, but before the first hearing 

session begins).187 Accordingly, to 

challenge an arbitrator, the Codes would 

continue to require a party to file a 

written motion with DRS and serve the 

motion on each party so that the 

motions are available to all parties.188

Thus, if a party challenges an arbitrator, 

all other parties are provided an 

opportunity to make their arguments 

prior to any decision by the DRS 

Director.189

The Commission believes the fifth 

commenter’s objection reflects a 

mistaken reading of this proposed rule 

change. The Codes currently permit the 

DRS Director to remove an arbitrator for 

a conflict of interest or bias, either upon 

request of a party or on the DRS 

Director’s own initiative at any point 

after parties’ receipt of the arbitrator 

ranking lists until the first hearing 

session begins.190 The proposed rule 

change does not alter the DRS Director’s 

or parties’ ability to challenge an 

arbitrator for cause but rather would 

make the process more transparent by 

making explicit in the rule text that 

such challenge may take place at any 

point after receipt of the arbitrator 

ranking lists until the first hearing 

session begins. The Commission 

believes that the proposed rule change 

is reasonably designed to help ensure 

that all parties are equally informed of 

their ability to challenge arbitrators for 

cause. For these reasons, the 

Commission finds that it is reasonably 

designed to protect investors and in the 

public interest. 

3. Written Explanation of DRS Director’s 

Decision 

As stated above, the proposed rule 

change would codify existing practice 

by expressly requiring the DRS Director 

to provide the parties to an arbitration 

with a written explanation of their 

decision ‘‘to grant or deny a party’s 

request to remove an arbitrator 

. . . .’’ 191 FINRA stated that it codified 

this current practice in response to a 

recommendation in the Lowenstein 

Report.192

Four commenters supported this 

proposed rule change, explaining that 

written explanations would improve 

transparency, consistency, and fairness 

in the arbitrator-removal process.193

One commenter also emphasized that 

written explanations would promote 

‘‘confidence in the integrity of the 

arbitration selection process.’’ 194 Two 

commenters indicated that written 

explanations would help parties to 

understand the DRS Director’s 

decisions.195 But another commenter 

coupled its support for this proposed 

change with a recommendation for 

improvement: the written explanations 

should be published in a ‘‘publicly 

available database, such as the one 

currently maintained for FINRA 

awards.’’ 196 According to this 

commenter, publishing such 

information—even in redacted form— 

would illuminate the nature and scope 

of the factors that FINRA considers to be 

‘‘legitimate ground[s] for a challenge to 

a potential arbitrator.’’ 197 A fifth 

commenter offered no objection to this 

proposed rule change provided, as 

stated above, that the DRS Director 

would not have unlimited authority to 

strike potential arbitrators.198

In response, FINRA acknowledged the 

commenter’s recommendation to 

publish the DRS Director’s written 

explanation in a publicly available 

database in order to enhance 

‘‘transparency regarding the arbitrator 


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199See FINRA April Letter at 4. 

200See id. at 4–5. 

201 Id. at 4. 

202See id. at 4–5. 

203 Id. at 5. 

204See supra note 77. 

205See proposed Rules 12500(b), 12501(c), 

12504(a)(5), 13500(b), 13501(c), 13504(a). 

206See Notice at 2145. 

207See Notice at 2150. 

208See Cornell Letter at 2; Pace Letter at 2; St. 

John’s Letter at 2; see PIABA Letter at 2–3 (noting 

general support for all procedural amendments, but 

not addressing this one specifically). 

209See Pace Letter at 2. 

210See Cornell Letter at 2. 

211See Pickard Letter at 4 (emphasis removed). 

212 Id. at 4. 

213See FINRA April Letter at 11. 

214 Id. 

215 Id. 

216See id. (stating that ‘‘[i]n addition, FINRA 

notes that once fully briefed, a panel will decide a 

motion regarding the hearing format based on all 

the information provided, which could include a 

party’s access to and comfort level with 

technology.’’). 

217See FINRA August Letter at 5. 

218See FINRA Rules 12600(b) and 13600(b) 

(stating that the panel will decide the time and date 

of the hearing at the initial prehearing conference 

or otherwise in another manner). 

219See Notice at 2145. 

list selection process.’’ 199 However, 

FINRA declined to make public the DRS 

Director’s written explanations to grant 

or deny a party’s request to remove an 

arbitrator.200 FINRA explained that 

these decisions have ‘‘little precedential 

value’’—and their publication therefore 

offers limited public value—because 

each decision is based on the facts and 

circumstances of a single case.201 But to 

address the commenter’s 

recommendation to enhance 

transparency, FINRA stated that it 

would publish ‘‘the most common 

reasons for granting or denying partyinitiated challenges’’ on its website.202

FINRA believes that the publication of 

this information on its website would 

make the arbitrator-challenge process 

more transparent by providing parties 

with ‘‘useful information when 

considering potential challenges to 

remove an arbitrator.’’ 203

The Commission believes that 

expressly requiring the DRS Director to 

provide the parties to an arbitration 

with a written explanation of the DRS 

Director’s decision to grant or deny a 

party’s request to remove an arbitrator 

improves the perception of fairness in 

the arbitration forum by enhancing 

transparency into the removal process. 

Because the proposed rule change 

would not expand the DRS Director’s 

discretion to remove a conflicted or 

biased arbitrator, the DRS Director’s 

authority to remove such arbitrator 

would remain limited. In addition, with 

respect to public access to decisions on 

motions to remove arbitrators, the 

Commission believes that FINRA’s 

approach of publishing the most 

common reasons for granting or denying 

such requests on its website would 

provide participants considering 

whether to file a motion to remove an 

arbitrator for conflicts or bias with a 

valuable source of information regarding 

such challenges. For these reasons, the 

Commission finds that this proposed 

rule change is reasonably designed to 

protect investors and the public interest. 

B. Procedural Amendments 

1. Virtual Prehearing Conferences 

As stated above, the Codes currently 

indicate that prehearing conferences 

will generally be held by telephone.204

The proposed rule change would 

provide that prehearing conferences 

‘‘will generally be held by video 

conference unless the parties agree to, or 

the panel grants a motion for, another 

type of hearing session.’’ 205 FINRA 

stated that parties ‘‘have expressed a 

preference for holding prehearing 

conferences by video conference[,]’’ 206

explaining that some parties ‘‘may 

perceive an increase in their ability to 

participate or interact in the hearings by 

video.’’ 207

Three commenters supported this 

proposed rule change, and a fourth did 

not address this specific issue.208 One 

commenter emphasized that video 

conferences would ‘‘enhance[ ] 

communication between the parties, 

counsel, and arbitrators [by providing] 

the ability to read body language and 

facial expressions.’’ 209 Motivated by a 

concern that video conferencing could 

impose an ‘‘undue burden on 

claimants,’’ one commenter 

recommended that this proposed rule 

change require a panel to consider the 

parties’ access to and comfort with 

technology when evaluating motions for 

hearings in formats other than video.210

A fifth commenter offered general 

support for this proposed rule change 

but recommended that this proposed 

rule change permit ‘‘another type of 

hearing session . . . if agreed to by a 

majority of the parties.’’ 211 This 

commenter explained that ‘‘the majority 

should prevail without the matter 

needing to be put to a motion and 

considered at a prehearing session’’ 

where there are more than two parties 

to an arbitration.212

In response, FINRA stated that the 

COVID–19 pandemic required the 

development of ‘‘policies and 

procedures around conducting 

arbitration cases using virtual hearings 

and [therefore FINRA] created resource 

guides for parties and arbitrators for 

such hearings.’’ 213 Approximately three 

years later, ‘‘parties have become 

proficient with using this technology 

and have embraced it as an alternative 

to other hearing methods.’’ 214 The 

proposed rule change would reflect this 

preference. FINRA also stated that it 

would update, as appropriate, the 

guidance it makes available to 

participants to help ensure that all 

participants have the information they 

need to ‘‘participate fully in virtual 

prehearing conferences.’’ 215 If a party 

nonetheless prefers to have an in-person 

prehearing conference, FINRA stated 

that it could file a motion seeking that 

relief, and the panel can consider, 

among other things, ‘‘a party’s access to 

and comfort level with technology.’’ 216

In addition, FINRA stated that it 

believes a panel, once fully briefed, is in 

the best position to determine whether 

an alternative prehearing format is more 

suitable to the parties than the proposed 

default format of video conference. 

Therefore, FINRA declined to amend 

the proposed rule change to allow a 

majority of the parties to agree to 

another type of hearing.217

The Commission believes that 

requiring prehearing conferences to be 

held by video conference provides 

parties the opportunity to see and 

interact with the other participants in 

the case, enhancing their participation. 

But because this proposed rule change 

also permits a motion by a party for 

another hearing format, every party has 

a fair opportunity to request an 

alternative format based upon, among 

other things, access to or comfort with 

technology. Furthermore, the 

Commission believes FINRA reasonably 

determined that the arbitrator panel is 

in the best positioned to evaluate and 

determine whether another prehearing 

format is appropriate in situations 

where there is not agreement among the 

parties to another type of hearing. For 

these reasons, the Commission finds 

that this proposed rule change is 

reasonably designed to protect investors 

and the public interest. 

2. In-Person Hearings 

The proposed rule change would also 

amend the provision governing the 

format for hearings on the merits of a 

case. Currently, the Codes do not 

articulate a definitive format for 

hearings.218 FINRA stated, however, 

that ‘‘hearings are generally held in 

person,’’ and forum users ‘‘have not 

similarly expressed a preference for 

making video conference the default for 

hearings.’’ 219 The proposed rule change 

would codify existing practice, 


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220See proposed Rules 12600(b), 13600(b); but 

see supra note 77. 

221See proposed Rules 12800(c)(3)(B)(i), 

13800(c)(3)(B)(i). 

222See Notice at 2146. 

223PIABA Letter at 3; Cornell Letter at 2–3; Pace 

Letter at 2; St. John’s Letter at 2; Pickard Letter at 

4. 

224Cornell Letter at 3; see Pace Letter at 2. 

225St. John’s Letter at 2. 

226See Notice at 2146 and n.29 (explaining that 

FINRA Rules 12300(d)(1)(C) and 13300(d)(1)(C) 

would be deleted); proposed Rules 12300(d)(1), 

13300(d)(1). 

227See Notice at 2146. 

228See FINRA Rules 12300(d)(1)(A), 

13300(d)(1)(A). 

229See Notice at 2146. 

230 Id.; see PCI Guidance, supra note 83. 

231See PIABA Letter at 3; Cornell Letter at 3; Pace 

Letter at 2; St. John’s Letter at 2; Pickard Letter at 

5. 

232See PIABA Letter at 3; Cornell Letter at 3; Pace 

Letter at 2–3; St. John’s Letter at 2. 

233See Cornell Letter at 3. 

234See PIABA Letter at 3; Pace Letter at 2–3; St. 

John’s Letter at 2. 235See PIABA Letter at 3 (stating that FINRA 

should post the guidance on the ‘‘case’s docket/ 

portal’’); Pace Letter at 3 (stating that FINRA should 

post the guidance on the Portal in a ‘‘visible and 

accessible manner, at the point in time when 

customers are likely to be uploading documents 

that may contain PCI’’ to help ‘‘ensure that 

guidance on PCI redaction is sufficiently beginnerand user-friendly and is not overlooked by pro se 

parties’’). 

236See Pace Letter at 3. 

237See St. John’s Letter at 2. 

238 Id. 

239See FINRA April Letter at 5–6. 

240 Id. at 6 (noting that waiver ‘‘would defeat the 

purpose of the Proposal’’). 

241 Id.; see also FINRA Rules 12300(d)(1)(A) and 

13300(d)(1)(A) (stating that ‘‘if the Director receives 

a claim . . . with the full Social Security number, 

taxpayer identification number or financial account 

number, the Director will deem the filing deficient 

under Rule 12307 and will request that the party 

refile the document in compliance with this 

paragraph.’’); see also FINRA April Letter at 6 n.20 

(emphasizing that FINRA would treat any filed 

claim or document as deficient or improper if it 

contained certain PCI). 

providing that all hearings ‘‘will 

generally be held in person unless the 

parties agree to, or the panel grants a 

motion for, another type of hearing 

session.’’ 220 No commenter offered 

specific support or opposition to this 

proposed change. 

In light of FINRA’s experience with 

forum users, the Commission believes 

FINRA’s determination to require that 

hearings on the merits generally be held 

in person is reasonable. It will clarify 

the default format of the hearing, which 

should enhance transparency and 

efficiency, and eliminate potential 

misunderstandings among parties. For 

these reasons, the Commission finds 

that this proposed rule change is 

reasonably designed to protect investors 

and the public interest. 

3. Virtual Option for Special 

Proceedings 

As stated above, the proposed rule 

change would require parties to hold 

special proceedings in Simplified 

Arbitrations by video conference, 

unless: (1) the claimant requests at least 

60 days before the first scheduled 

hearing that it be held by telephone; or 

(2) the parties agree to another type of 

hearing session.221 This proposed rule 

change follows FINRA’s receipt of 

‘‘suggestions from customers that they 

would prefer . . . to have the option to 

have a special proceeding by video 

conference.’’ 222

Four commenters supported this 

proposed rule change, and a fifth offered 

no objection.223 One commenter 

emphasized that it would ‘‘facilitate 

more accurate communication 

compared to telephone conferences’’ by 

permitting participants to view facial 

expressions and reactions.224 Another 

commenter indicated that video 

conferences would permit ‘‘investors 

with small claims to present their case 

to the arbitrator without added expenses 

or travel.’’ 225

The Commission believes that 

requiring parties to hold special 

proceedings in Simplified Arbitrations 

by video conference (with limited 

exceptions) should improve the format 

and delivery of claimants’ cases to 

arbitrators in Simplified Arbitration. In 

addition, given the proliferation of 

video-conferencing technology to the 

public, this proposed rule change 

should not impose logistical or financial 

burdens on parties. At the same time, 

however, the proposed rule change 

makes clear the flexibility to alter the 

format of these hearings as necessary 

where a claimant requests or the parties 

agree. For these reasons, the 

Commission finds that this proposed 

rule change is reasonably designed to 

protect investors and the public interest. 

4. Redacting Confidential Information 

As stated above, the proposed rule 

change would require any party in a 

Simplified Arbitration to redact any PCI 

from documents filed with the DRS 

Director.226 FINRA stated that this 

change would address ‘‘increasing 

concerns with customers’ identities 

being used for fraudulent purposes in 

the securities industry.’’ 227 It would 

also align the redaction requirements for 

Simplified Arbitrations with those of 

other arbitration cases.228 FINRA 

acknowledged that it previously 

declined to extend this requirement to 

Simplified Arbitrations due to a concern 

that pro se litigants would have 

difficulty complying.229 To address this 

concern, FINRA stated that it would 

update guidance on its website 

regarding how to redact PCI from 

documents filed with DRS.230

Four commenters broadly supported 

FINRA’s effort to protect investors’ PCI 

in Simplified Arbitrations, and a fifth 

offered no objection.231 But the four 

supportive commenters each expressed 

concern that this proposed rule change 

would disproportionately impact pro se 

claimants who may lack the 

technological experience to effectively 

and efficiently redact PCI.232

Notwithstanding that concern, one 

commenter concluded that ‘‘the benefits 

to privacy outweigh the increased 

complexity, assuming that the guidance 

provided by FINRA adequately assists 

pro se parties in making redactions.’’ 233

The other three supportive 

commenters recommended changes to 

the rule or its implementation to help 

mitigate their concern over pro se 

parties.234 Two of these commenters 

suggested that FINRA post redaction 

guidance both on its website and the 

Portal.235 One commenter emphasized 

the importance of FINRA providing 

clear, comprehensive, and plain-English 

guidance for the benefit of pro se 

claimants, as well as ‘‘examples of what 

a properly redacted document looks 

like, and basic suggestions about how to 

make the redactions.’’ 236 For cases in 

which claimants are unable to redact 

PCI notwithstanding the guidance, 

another commenter recommended that 

FINRA either apply the required 

redactions itself or permit investors to 

waive the redaction of their own PCI.237

The commenter explained that this 

alternative approach would prevent 

‘‘dismissals either due to pro se filers’ 

inability to comply with the rule, or 

their abandoning their case because they 

don’t fully understand how to 

accomplish the redaction.’’ 238

In response, FINRA stated that it 

would provide clear, plain English 

guidance on the steps pro se parties can 

take to protect PCI and on how to redact 

PCI from documents filed with DRS on 

both its website and the Portal.239 But 

FINRA declined to permit pro se 

investors to waive the redaction of their 

own PCI because it would undermine 

this proposed rule change’s effort to 

‘‘safeguard investors’ information and 

their financial resources.’’ 240 FINRA 

also declined to make the redactions 

itself, explaining that FINRA rules 

require the application of redactions 

before a document is ever filed with 

FINRA.241 In sum, ‘‘FINRA believes the 

benefits of safeguarding customers’ 

identities and sensitive information 

balance the concerns relating to pro se 


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242See FINRA April Letter at 7. 

243See Notice at 2146 (citing FINRA Rules 12214, 

13214). 

244 Id. 

245 Id.; see proposed Rules 12100(p), 13100(p). 

246See Cornell Letter at 3. 

247See Pickard Letter at 5. 

248 Id. at 5. 

249See FINRA August Letter at 5. 

250 Id. 

251See proposed Rules 12303(b), 13303(b). 

252See Notice at 2146. 

253 Id. at 2146–47 (explaining that the proposed 

rule change aims ‘‘[t]o clarify to parties the 

requirements related to third party claims and 

Submission Agreements’’). 

254See Pickard Letter at 5. 

255See Cornell Letter at 3. 

256See Notice at 2147; see generally proposed 

Rules 12309, 13309. 

257Notice at 2147; see FINRA Rules 12303(b), 

13303(b). 

258Notice at 2147; see proposed Rules 12309(a), 

13309(a). 

259Notice at 2147; see proposed Rules 

12309(b)(1), 13309(b) (deleting ‘‘a copy of’’). 

260Notice at 2147; see proposed Rules 

12309(c)(1), 13309(c)(1). 

261Notice at 2147; see proposed Rules 

12309(a)(3), 13309(a)(3). 

262Notice at 2147; see proposed Rules 12309(d), 

13309(d); FINRA Rules 12310, 13310. 

263Notice at 2147; see proposed Rules 12309(d), 

13309(d); FINRA Rules 12310, 13310. 

264Proposed Rules 12309(b)(2), 12309(c)(2). 

parties’ lack of experience with filing 

claims in the forum.’’ 242

The Commission believes that 

requiring customers to redact PCI from 

any document they submit to DRS 

should help prevent substantial harm to 

investors. Absent this proposed rule 

change, unredacted PCI filed in 

Simplified Arbitrations could be 

misused by third parties. The 

Commission acknowledges commenters’ 

concern that pro se investors might 

struggle to comply with the new 

redaction requirements and believes 

FINRA’s plan to publish plain-English 

guidance should aid pro se investors in 

complying with these obligations 

without diminishing FINRA’s efforts to 

protect PCI. For these reasons, the 

Commission finds that this proposed 

rule change is reasonably designed to 

protect investors and the public interest. 

5. Number of Hearing Sessions per Day 

As stated above, arbitrators receive 

compensation for each hearing session 

in which they participate.243 To 

calculate the number of hearing sessions 

per day, FINRA explained that DRS’s 

current practice is to calculate the total 

number of hearing hours, subtract any 

time spent for lunch, and divide the 

remainder by four (as in four hours).244

Consistent with this methodology, this 

proposed rule change would amend the 

definition of ‘‘hearing session’’ to 

indicate that, during a single day, ‘‘the 

next hearing session begins after four 

hours of hearing time has elapsed.’’ 245

One commenter supported this 

proposed rule change.246 Another 

commenter offered no objection to this 

proposed rule change so long as it 

‘‘would not cause the party to whom 

fees are assessed . . . to pay for ‘session 

time’ not actually spent in session.’’ 247

More broadly, this commenter requested 

‘‘greater clarity . . . as it is unclear . . . 

whether fees for two full sessions will 

be assessed after four hours and one 

minute of hearing time have 

elapsed.’’ 248

In response, FINRA stated that after 

four hours and one minute of hearing 

time have elapsed, it would pay 

arbitrators for two hearing sessions to 

ensure that they are compensated for 

their time and service to the DRS 

forum.249 FINRA further stated that it 

would update its arbitrator guidance to 

encourage arbitrators to be efficient in 

managing the time during hearings to 

minimize, whenever possible, the 

number of hearing sessions held.250

The Commission believes that 

aligning the Codes’ definition of 

‘‘hearing session’’ with FINRA’s current 

practice for calculating the number of 

hearing sessions in a single day 

promotes transparency and clarity in the 

way DRS calculates the number of 

hearing sessions. As such, the proposed 

rule change should help parties to an 

arbitration better understand the fees 

charged in a proceeding and better plan 

the presentation of their claim. For these 

reasons the Commission finds that this 

proposed rule change is reasonably 

designed to protect investors and the 

public interest. 

6. Update Submission Agreement When 

Filing a Third-Party Claim 

As stated above, the proposed rule 

change would expressly require a 

respondent filing an answer with a 

third-party claim to (1) execute a 

Submission Agreement that lists the 

name of the third-party and (2) file the 

updated Submission Agreement with 

the DRS Director.251 FINRA stated that 

failing to file an updated Submission 

Agreement makes a third-party claim 

deficient under existing rules, and that 

the prevalence of this mistake currently 

causes time-consuming delays in 

arbitration.252 The proposed rule change 

would help ‘‘avoid potential delay and 

slower case processing times’’ by 

emphasizing the parties’ obligations 

under the rules.253

One commenter offered no objection 

to this proposed rule change.254 Another 

commenter supported this proposed 

rule change, explaining that it has ‘‘no 

drawbacks’’ because it would ‘‘add 

clarification and prevent delays.’’ 255

The Commission believes that by 

addressing the apparent confusion that 

results in filing of deficient claims, this 

proposed rule change helps ensure more 

consistent compliance with forum rules 

and prevent unnecessary delays in case 

processing. For these reasons, the 

Commission finds that this proposed 

rule change is reasonably designed to 

protect investors and the public interest. 

7. Amending Pleadings or Filing ThirdParty Claims 

As stated above, the proposed rule 

change would modify several 

procedures related to the filing of 

amended pleadings and third-party 

claims. First, the proposed rule change 

would expand the application of FINRA 

Rules 12309 and 13309 (Amending 

Pleadings) from just amended pleadings 

to both amended pleadings and thirdparty claims.256 FINRA stated that these 

proposed rule changes would help 

address the current absence of express 

provisions governing the filing of thirdparty claims other than in a 

respondent’s answer to a claim.257

Second, the proposed rule change 

would make other changes to the Codes 

relating to amended pleadings, 

including specifying that: arbitrators are 

‘‘appointed to’’ the panel, not placed 

‘‘on’’ the panel; 258 an amended 

pleading or third-party claim that is 

included with a motion need not be a 

hard copy; 259 once the ranked arbitrator 

lists are due, no party may amend a 

pleading to add a party or file a thirdparty claim until a panel has been 

appointed and the panel grants a motion 

to amend a pleading or file the thirdparty claim; 260 service by first-class 

mail or overnight mail service is 

accomplished on the date of mailing; 

service by any other means is 

accomplished on the date of 

delivery; 261 the provisions in the Codes 

relating to responding to amended 

pleadings are separate from the current 

provisions relating to answering 

amended claims; 262 and before panel 

appointment, the DRS Director would 

be authorized to determine whether any 

party may file a response to an amended 

pleading.263 Third, the proposed rule 

change would expressly permit a 

customer to file a third-party claim if a 

respondent becomes an inactive FINRA 

member or associated person.264


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265PIABA Letter at 3; Cornell Letter at 3–4 

(stating that this proposed rule change would codify 

respondents’ current ability to file third-party 

claims, create the same procedures for filing thirdparty claims as those for amending a complaint, and 

promote simplicity and fairness in the process). 

266Pickard Letter at 5. 

267See proposed Rules 12314(b), 13314(b); see 

also Amendment No. 1 at 4. 

268See Notice at 2147. 

269See id. 

270Pickard Letter at 5. 

271Cornell Letter at 4. 

272 Id. 

273FINRA April Letter at 7–8. 

274Proposed Rules 12314(b)(1), 13314(b)(1); 

FINRA April Letter at 7–8; see also Amendment No. 

1 at 4. 

275Proposed Rules 12503(d), 13503(d). 

276 Id. 

277See Notice at 2148 (stating that ‘‘[i]n practice, 

DRS sends all motions and all responses to the 

panel after the last reply date has elapsed, unless 

otherwise directed by the panel.’’). 

278Proposed Rules 12503(e)(3), 13503(e)(3) 

(adding cross-references to Rules 12312, 12313, 

13312, and 13313, as applicable, which identify the 

circumstances in which the DRS Director or a panel 

may separate claims or arbitrations). 

279Proposed Rules 12503(e)(4), 13503(e)(4) 

(adding cross-reference to proposed Rules 12314 or 

13314, as applicable, which articulates who has 

authority to decide motions to combine claims). 

The addition of the proposed text to Rules 12503(e) 

and 13503(e) requires the renumbering of certain 

paragraphs in that subsection. See Notice at 2148 

n.63. 

280See proposed Rules 12503(a)(4), 13503(a)(4). 

281See Cornell Letter at 4. Another commenter 

offered no objection. See Pickard Letter at 5. 

282See FINRA Rules 12514(a), 13514(a) (stating 

that ‘‘[t]he parties should not file the documents 

with the [DRS] Director or the arbitrators before the 

hearing.’’). 

283FINRA Rules 12514(b), 13514(b). 

Two commenters supported these 

proposed rule changes,265 and a third 

offered no objection.266

The Commission believes that by 

addressing procedural and other 

ambiguities in the relevant rules, these 

proposed rule changes should enhance 

the transparency of the forum’s 

procedures and promote their consistent 

and efficient application. For this these 

reasons, the Commission finds that the 

proposed rule changes are reasonably 

designed to protect investors and the 

public interest. 

8. Combining Claims 

As stated above, the proposed rule 

change would address which panel 

among those in multiple cases involving 

separate but related claims would 

decide a motion to combine such claims 

into a single arbitration or reconsider 

the DRS Director’s previous decision on 

a motion to combine such claims.267

Specifically, the original proposed rule 

change would have set forth rules 

governing two scenarios: (1) if a panel 

has been appointed to the lowest 

numbered case, the panel in that case 

would have the above-referenced 

authority; and (2) if a panel has been 

appointed to the highest numbered case 

(i.e., the case with the latest filing date), 

but not to the lowest numbered case, the 

panel appointed to the highest 

numbered case would have the abovereferenced authority.268 FINRA stated 

that this original proposed rule change 

would have codified current practice.269

One commenter offered no objection 

to this proposed rule change.270 A 

second commenter stated that as 

originally proposed, the proposed rule 

change would promote clarity and 

efficiency by codifying current 

practice.271 However, this commenter 

noted that this original proposed rule 

change had an apparent gap—it did not 

address ‘‘what happens if a panel has 

only been appointed to cases numbered 

in the middle (i.e.[,] neither the lowest 

nor the highest) if more than two 

combinable claims are involved.’’ 272

In its response, FINRA amended the 

proposed rule change to address this 

commenter’s concerns. FINRA 

explained that the original proposed 

rule change addressed the two most 

common situations in which a motion to 

combine claims is filed.273 But to 

provide greater clarity, FINRA amended 

this proposed rule change to provide 

that ‘‘[i]f a panel has been appointed to 

one or more cases [involving separate 

but related claims], the panel appointed 

to the lowest-numbered case with a 

panel’’ has the authority to: (1) combine 

separate but related claims into one 

arbitration; and (2) reconsider the DRS 

Director’s decision on such a motion to 

combine claims.274

The Commission believes that by 

addressing ambiguities in the Codes and 

codifying existing practice, the 

proposed rule change enhances the 

transparency of the forum’s procedures 

and promotes their consistent 

application in all arbitration cases. In 

addition, this proposed rule change 

should enhance the efficiency of the 

arbitration process by reducing the 

number of arbitrations hearing separate 

but related claims. For these reasons, 

the Commission finds that this proposed 

rule change is reasonably designed to 

protect investors and the public interest. 

9. Motions in Arbitration 

As stated above, the proposed rule 

change would amend FINRA’s rules 

governing parties’ motions in 

arbitration. First, the proposed rule 

change would require the DRS Director 

to send all motions, responses, and 

replies to the panel after the last reply 

date expires, unless the arbitrator panel 

directs otherwise.275 If the DRS Director 

receives any submissions on the motion 

after the last reply date has elapsed, this 

proposed rule change would require the 

DRS Director to forward the 

submissions to the panel upon receipt, 

and the panel would determine whether 

to accept them.276 FINRA stated that 

this proposed rule change would codify 

an existing practice, bringing 

transparency and consistency to 

arbitration.277

Second, the proposed rule change 

would add cross-references to rules 

governing motions to separate or 

combine claims or arbitrations. In 

particular, the proposed rule change 

would clarify: (1) that the DRS Director 

may decide a motion to separate claims 

or arbitrations prior to panel 

appointment, but the panel assumes that 

authority upon its appointment; 278 and 

(2) which panel among multiple cases 

may combine separate but related 

claims into one arbitration or reconsider 

the DRS Director’s decision to combine 

claims upon motion of a party (as 

discussed above).279

Third, the proposed rule change 

would clarify if a motion to amend a 

pleading is made after panel 

appointment, the amended pleading 

that should be included with the motion 

does not need to be a hard copy.280

One commenter supported these 

proposed rule changes, characterizing 

them as ‘‘clear benefit[s] for both 

claimants and respondents’’ that do not 

alter current procedures.281

The Commission believes that by 

identifying and reducing ambiguity, the 

proposed rule change makes the 

arbitration process more transparent and 

promotes uniformity across arbitration 

cases. For these reasons, the 

Commission finds that the proposed 

clarifications are reasonably designed to 

protect investors and the public interest. 

10. Witness Lists Shall Not Be 

Combined With Document Lists 

As stated above, the Codes require 

that at least 20 days before the first 

scheduled hearing, all parties must: (1) 

provide all other parties—but not the 

DRS Director or arbitrators—with copies 

of all documents and other materials in 

their possession or control that they 

intend to use at the hearing that have 

not already been produced; 282 and (2) 

provide each other party—as well as the 

DRS Director—with the names and 

business affiliations of all witnesses 

they intend to present at the hearing.283

Separately, FINRA stated that in 

addition to producing copies of 

documents and other materials they 

intend to use at the hearing, parties 

often produce and file with the DRS 


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284Notice at 2148. 285 Id.; see FINRA Rules 12514(a), 13514(a). 286See Notice at 2148; see also FINRA Rules 

12514(a), 13514(a). 287See Notice at 2148. 288Proposed Rule 12514(a), 13514(a); see Notice 

at 2148. 289Pickard Letter at 6 (indicating that arbitrators 

‘‘prefer identifying admissible documents and 

materials prior to the hearing to avoid mid-hearing 

delays, and may use exhibit lists before and during 

the hearing for ease of reference.’’). 290Cornell Letter at 4. 

291Current FINRA Rules 12606(a)(1), 13606(a)(1). 292FINRA Rules 12606(a)(3), 13606(a)(3). 293FINRA Rules 12606(b)(1), 13606(b)(1). 294FINRA Rules 12606(a)(2), 13606(a)(2). 

295FINRA Rules 12606(b)(2), 13606(b)(2). 

296 Id. 

297Notice at 2148. 

298Proposed Rules 12606(a)(2), 13606(a)(2), 

12606(b)(2), 13606(b)(2). 

299Pickard Letter at 6. 

300Cornell Letter at 5. 

301See id. 

302 Id. 303FINRA April Letter at 9 n.28 and 

accompanying text. 304 Id. 305See id. 306 Id. 307 Id. 308 Id. 

Director a single document listing such 

documents and other materials.284

FINRA explained that even though 

FINRA Rules 12514(a) and 13514(a) 

indicate that ‘‘parties should not file the 

documents with the [DRS] Director or 

arbitrators before the hearing,’’ the 

Codes do not currently include language 

regarding the sharing of document lists 

that parties may choose to create before 

the hearing.285 As such, parties who 

choose to create document lists, often 

file such lists with the DRS Director, 

along with the witness list.286 When 

parties file combined lists, FINRA stated 

that it endeavors to remove any 

potentially prejudicial or inadmissible 

materials (typically found in a party’s 

list of documents) from the combined 

lists before forwarding the witness lists 

to the arbitrators.287 To better protect 

against the risk of inadvertent disclosure 

of prejudicial or inadmissible materials, 

the proposed rule change would 

expressly provide that if a party creates 

a list of documents and other materials 

in their possession or control that they 

intend to use at the hearing that have 

not already been produced, it may serve 

the list on all other parties, but shall not 

combine the list with the witness list 

filed with the DRS Director pursuant to 

Rule 12514(b) or 13514(b), as 

applicable.288

One commenter offered ‘‘no strong 

objection,’’ but observed that FINRA 

arbitrators prefer identifying admissible 

documents and materials prior to the 

hearing to avoid mid-hearing delays.289

A second commenter supported this 

proposed rule change, emphasizing that 

it would reduce work for the DRS 

Director and minimize unintentional 

disclosures of confidential information 

to arbitrators without imposing a 

significant burden on the parties.290

The Commission believes the 

proposed rule change would reduce the 

risk of unintentional disclosure of 

prejudicial information to arbitrators 

without imposing a new obligation 

upon the parties. By more clearly setting 

forth the requirements of parties in 

arbitration, the proposed rule change 

would enhance the fairness of the 

arbitration process by helping to limit 

the exposure of prejudicial or 

inadmissible materials to the panel. For 

these reasons, the Commission finds 

that this proposed rule change is 

reasonably designed to protect investors 

and the public interest. 

11. Hearing Records 

a. Allocation to Parties of 

Responsibilities for Hearing Records 

The Codes require the DRS Director to 

‘‘make a tape, digital, or other recording 

of every hearing.’’ 291 The official record 

of an arbitration hearing is the DRS 

Director’s tape, digital, or other 

recording of every arbitration 

hearing; 292 however, if a party chooses 

to make a stenographic record of a 

hearing, a panel may decide in advance 

of the hearing that the stenographic 

record will be the official record of the 

hearing.293 If the DRS Director’s 

recording is the official record, the 

panel ‘‘may order the parties to provide 

a transcription of the recording’’ and 

‘‘copies of the transcription must be 

provided to each arbitrator, served on 

each party, and filed with the 

Director.’’ 294 If a party’s stenographic 

record is the official record, ‘‘a copy 

must be provided to each arbitrator, 

served on each other party, and filed 

with the Director.’’ 295 Further, ‘‘[t]he 

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.’’ 296 But the Codes 

do not specify which party must 

provide to each arbitrator, serve on each 

other party, and file with the DRS 

Director a copy of the official record.297

The proposed rule change would assign 

that responsibility to the party or 

parties: (1) ordered to provide a 

transcription of the DRS Director’s 

recording; or (2) electing to make a 

stenographic record.298

One commenter offered no 

objection.299 A second commenter 

opposed this proposed rule change as 

drafted.300 Specifically, the commenter 

opposed the appropriateness of 

requiring a claimant with limited 

financial means to produce a 

transcription of a hearing record.301

Noting the ‘‘high costs’’ associated with 

the provision of a transcription of a 

hearing record, the commenter 

recommended that FINRA: ‘‘(1) provide 

guidelines on the circumstances under 

which the panel might order hearing 

records from a party; (2) consider only 

allowing the panel to order hearing 

records from member firms; and (3) 

provide waivers or other forms of 

financial and legal assistance to indigent 

parties who cannot afford to provide the 

hearing records and whose case might 

be jeopardized as a result.’’ 302

In response, FINRA declined to 

amend this proposed rule change.303

FINRA explained that in cases where 

the DRS Director’s recording is the 

official record, a panel usually orders a 

transcript of the recording only upon a 

motion of a party, and that because the 

digital recording made by the DRS 

Director continues to be the official 

record of a hearing, these motions are 

rare.304 When such a motion is made, 

the parties may litigate the motion by 

addressing, among other things, whether 

a transcript should be ordered at all or 

which party should bear the burden of 

generating the transcript.305 In that 

process, a party could raise—and an 

arbitration panel would be wellpositioned to consider—objections 

based on financial grounds.306 For that 

reason, FINRA also declined ‘‘to provide 

for waivers or other forms of financial 

and legal assistance to parties who may 

not have the financial resources to pay 

for hearing records.’’ 307 FINRA 

indicated, however, ‘‘that guidance on 

the process for ordering a transcript 

from a party may be helpful to the 

parties in preparing their case,’’ so it 

stated that it would provide such 

guidance on its website if the 

Commission approves this proposed 

rule change.308

The Commission believes it is 

reasonable that FINRA has determined 

to rest the obligation of providing, 

serving, and filing a transcription or 

stenographic record on the party 

responsible for creating that record (in 

the case of a transcription) or on the 

party that elected to make the record (in 

the case of a stenographic record). 

Clearly identifying the party responsible 

for providing, serving, and filing a 

transcription or stenographic record 

should help clarify the obligations of the 

parties. Additionally, the panel should 

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309Current FINRA Rules 12606(a)(1), 13606(a)(1). 

310Notice at 2148. 

311See id. 

312Proposed Rules 12606(a)(1), 13606(a)(1). 

313 Id. 

314See Pickard Letter at 6. 

315FINRA Rules 12300, 13300; see supra note 39. 

316Notice at 2148. 

317 Id. at 2148–49. 

318Proposed Rules 12700(c), 13700(c); see Notice 

at 2148–49. 

319Cornell Letter at 5. 

320Pickard Letter at 6. 

321See supra notes 158–159 and accompanying 

text. 

322See supra note 160. 

323See FINRA Rules 12504(b), 13504(b). 

324Notice at 2149. 

325 Id. 

326 Id.; see proposed Rule 12504(b), 13504(b); 

FINRA Rules 12904(e), 13904(e) (describing 

elements of an award). 327Cornell Letter at 5. 328Pickard at 6–7. Another commenter asserted 

that the proposed rule change would improperly 

amend the meaning of ‘‘final award’’ to include a 

panel’s dismissal of some, but not all, of a 

claimants’ claims. See letter from Anonymous to 

Vanessa Countryman, Secretary, U.S. Securities and 

Exchange Commission (Sep. 5, 2023). The 

Commission believes that this comment 

misinterprets the proposed rule change. In the 

Notice, FINRA stated that currently a panel renders 

a written award if it grants a motion to dismiss all 

of a claimant’s claims at the conclusion of the case 

in chief. See Notice at 2149. The proposed rule 

change would codify this practice. See proposed 

Rules 12504(b); 13504(b). FINRA further stated that 

if a panel grants a motion to dismiss some but not 

all of the claimant’s claims, the hearing would 

proceed as to the remaining claims and at the 

conclusion of the hearing, the panel would issue an 

award that disposes of each claim. See Notice at 

2149 n.84 (citing FINRA Dispute Resolution 

Services Arbitrator’s Guide, https://www.finra.org/ 

sites/default/files/arbitrators-ref-guide.pdf). The 

proposed rule change is not modifying this practice. 

329 Id. at 6. 

330 Id. 

331 Id. This commenter also asked FINRA to 

develop a mechanism to remove information from 

or redact records in its public arbitration award 

database. Id. at 7–8. As FINRA has not proposed 

rules related to the redaction or removal of 

information from that database, this comment is 

outside the scope of this proposed rule change. 

332See FINRA August Letter at 7. 

related issues raised by the parties. For 

these reasons, this proposed rule change 

is reasonably designed to protect 

investors and the public interest. 

b. Record of Executive Sessions 

As noted above, the Codes require the 

DRS Director to ‘‘make a tape, digital, or 

other recording of every hearing.’’ 309

Although the Codes do not specifically 

state that executive sessions will not be 

recorded, as a matter of practice, 

executive sessions are not recorded 

because they are not part of the official 

record of the hearing.310 Rather, 

executive sessions are ‘‘discussions 

among arbitrators’’ outside the presence 

of the parties, the parties’ 

representatives, witnesses, and 

stenographers.311 The proposed rule 

change would codify this practice by 

providing that the DRS Director will not 

make an official recording of any 

executive sessions, i.e., discussions 

among arbitrators outside the presence 

of the parties, witnesses, and 

stenographers.312 FINRA stated that this 

proposed rule change would promote 

‘‘transparency and consistency’’ by 

codifying an existing practice.313

One commenter addressed this 

proposed rule change, offering no 

objection.314

The Commission believes that 

maintaining the confidentiality of 

executive session deliberations 

encourages candid discourse about a 

case among arbitrators. Specifically, the 

expectation of a private deliberation that 

is not recorded, in which each arbitrator 

can speak candidly, provides an 

opportunity to sharpen their 

assessments of a case and helps promote 

sound decision-making. For these 

reasons, the Commission finds that this 

proposed rule change is reasonably 

designed to protect investors and the 

public interest. 

12. Dismissal of Proceedings for 

Insufficient Service 

As stated above, the Codes require 

parties, other than those proceeding pro 

se, to serve all pleadings and other 

documents through the Portal.315 If a 

party who is served fails to submit an 

answer, DRS reviews the service history 

with the panel and asks the panel to 

decide whether service was complete 

and sufficient before the case may 

proceed to hearing.316 Although the 

Codes do not address what action the 

panel should take if it determines that 

service was insufficient, current practice 

permits a panel to dismiss a claim or 

arbitration without prejudice (i.e., a 

party can refile their claim in the future) 

if it finds insufficient service.317 To 

promote ‘‘transparency and 

consistency,’’ the proposed rule change 

would expressly permit a panel to 

dismiss a claim or arbitration without 

prejudice if it finds insufficient service 

upon a respondent.318

One commenter supported this 

proposed rule change, agreeing that it 

codifies current practice and ‘‘ensures 

that errors and misunderstandings are 

minimized.’’ 319 A second commenter 

offered no objection.320

The Commission believes that 

permitting a panel to dismiss a claim or 

arbitration without prejudice if it finds 

insufficient service of a pleading or 

other document reasonably balances a 

respondent’s need for appropriate notice 

with a party’s ability to refile a claim 

without prejudice so the case can move 

forward. The Commission also believes 

that the proposed rule change would 

promote transparency about FINRA’s 

arbitration process and help ensure 

consistent procedures across arbitration 

cases. For these reasons, the 

Commission finds that this proposed 

rule change is reasonably designed to 

protect investors and the public interest. 

13. Dismissal of Claims Requires 

Issuance of an Award 

As stated above, an award is a 

document stating the final disposition of 

a case.321 The Codes require FINRA to 

publish awards, which it does on its 

website.322 Currently, although the 

Codes permit a panel to grant a motion 

to dismiss a party’s entire case after the 

conclusion of that party’s case-inchief,323 the Codes do not specifically 

address whether such a dismissal 

requires the issuance, and publication, 

of an award.324 FINRA stated that as the 

dismissal of all a claimant’s claims 

disposes of a case, it is current practice 

to require the issuance, and publication, 

of an award for such dismissals.325 The 

proposed rule change would codify this 

practice by requiring a panel granting a 

motion to dismiss all claims to issue a 

‘‘decision’’ containing the elements of a 

written award and make the decision 

‘‘publicly available as an award.’’ 326

One commenter supported this 

proposed rule change.327 A second 

commenter objected to the proposed 

rule change, stating that the publication 

of an award dismissing all of a 

claimant’s claims would negatively 

impact the respondent’s reputation.328

Specifically, because all arbitration 

awards are published in a ‘‘permanent, 

unredacted database,’’ they ‘‘reiterate 

the details of the customer complaint 

information about each broker, 

regardless of the complaint’s merit.’’ 329

Similarly, because a motion to dismiss 

will be granted after claimant’s case-inchief and before respondents present 

their own case, the award ‘‘will not 

reflect any defense by 

[r]espondent[.]’’ 330 The commenter 

concluded that ‘‘[i]f a customer 

complaint has so little merit that it is 

disposed of through a Motion to Dismiss 

. . . , there is no regulatory purpose in 

ensuring that the member firm and/or 

registered representatives implicated by 

the complaint continue to have their 

reputations tainted by the 

allegations.’’ 331

In response, FINRA acknowledged 

that the award may not reflect any 

defense raised by respondents.332

However, FINRA stated that the Codes 

permit arbitrators to include a rationale 

underlying the award to provide 


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62850 Federal Register / Vol. 88, No. 176 / Wednesday, September 13, 2023 / Notices 

333See id.; see also FINRA Rules 12904(f) and 

13904(f). 

334See FINRA August Letter at 7 (citing FINRA 

By-Laws, Article V, Sections 2(c), 3(a) and 3(b)). 

335See id. at 7 n.30. 

336FINRA Rule 8312 (FINRA BrokerCheck 

Disclosure) governs the information FINRA releases 

to the public through its BrokerCheck system. 

Information available to investors through 

BrokerCheck includes, among other things, 

information reported on the most recently filed 

‘‘Registration Forms’’ (with limited exceptions) for 

both member firms and registered individuals, and 

summary information about certain arbitration 

awards against the firm involving a securities or 

commodities dispute with a public customer; see 

also FINRA Rule 8312(b)(2)(A) (using the term 

‘‘Registration Forms’’ to refer collectively to Form 

U4, the Uniform Termination Notice for Securities 

Industry Registration (Form U5), the Uniform 

Disciplinary Action Reporting Form (Form U6), the 

Uniform Application for Broker-Dealer Registration 

(Form BD), and the Uniform Request for BrokerDealer Withdrawal (Form BDW)). The BrokerCheck 

website is available at brokercheck.finra.org. 

337 15 U.S.C. 78o–3(b)(6). 

338 15 U.S.C. 78s(b)(2). 

339 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 92844 

(January 4, 2023), 88 FR 1438. 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 96963, 

88 FR 12710 (February 28, 2023). 

6See Securities Exchange Act Release No. 97263, 

88 FR 22498 (April 13, 2023). 

7 15 U.S.C. 78s(b)(2). 

8See Securities Exchange Act Release No. 97844, 

88 FR 44423 (July 12, 2023). 

9All comments received by the Commission on 

the proposed rule change are available on the 

Commission’s website at: https://www.sec.gov/ 

comments/sr-nasdaq-2022-079/srnasdaq2022079.

htm. 

relevant context.333 In addition, FINRA 

stated that after a panel dismisses a case 

at the conclusion of the case-in-chief, 

the firm must file an amended Uniform 

Application for Securities Industry 

Registration or Transfer (‘‘Form U4’’) for 

the associated person to report the final 

disposition of the case as dismissed.334

FINRA stated that along with the final 

disposition, an associated person can 

provide a brief summary or add context 

on Form U4 regarding the circumstances 

leading to the customer arbitration, as 

well as the current status or final 

disposition.335 This updated 

information is subsequently disclosed 

on the associated person’s BrokerCheck 

report, which is publicly available to 

investors.336

The Commission believes that this 

proposed rule change should promote 

transparency about FINRA’s arbitration 

process and help ensure consistent 

treatment of awards. Specifically, the 

proposed rule change equally requires 

all arbitration awards, including awards 

granting a motion to dismiss all claims, 

to be published. These published 

awards should provide current and 

future parties to an arbitration with data 

that could help inform the 

administration of their cases. The 

Commission acknowledges the 

commenter’s concern that a published 

award granting a motion to dismiss all 

claims may not reflect any defense 

raised by respondents. However, these 

concerns should be ameliorated by the 

fact that the Codes permit arbitrators to 

include a rationale underlying the 

award, providing relevant context to the 

dismissal of the claim such as the 

circumstances under which the claim 

was dismissed. In addition, an 

associated person may provide context 

on Form U4 regarding the circumstances 

leading to the customer arbitration, as 

well as the claim’s current status or final 

disposition. For these reasons, the 

Commission finds that this proposed 

rule change is reasonably designed to 

protect investors and the public interest. 

IV. Conclusion 

For the reasons set forth above, the 

Commission finds that the proposed 

rule change, as modified by Amendment 

No. 1, is consistent with Section 

15A(b)(6) of the Exchange Act, which 

requires, among other things, that 

FINRA rules be designed to prevent 

fraudulent and manipulative acts and 

practices, promote just and equitable 

principles of trade, and, in general, 

protect investors and the public 

interest.337

It is therefore ordered pursuant to 

Section 19(b)(2) of the Exchange Act 338

that the proposed rule change (SR– 

FINRA–2022–033), as amended by 

Amendment No. 1, be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.339

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–19729 Filed 9–12–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98321; File No. SR– 

NASDAQ–2022–079] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Amendment No. 2 and Order 

Granting Accelerated Approval of a 

Proposed Rule Change, as Modified by 

Amendment No. 2, To Amend Rules 

4702(b)(14) and (b)(15) Concerning 

Dynamic M–ELO Holding Period 

September 7, 2023. 

I. Introduction 

On December 21, 2022, The Nasdaq 

Stock Market LLC (‘‘Nasdaq’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

replace the static holding period 

requirements for Midpoint Extended 

Life Orders and Midpoint Extended Life 

Orders Plus Continuous Book with 

dynamic holding periods. The proposed 

rule change was published for comment 

in the Federal Register on January 10, 

2023.3 On February 22, 2023, pursuant 

to Section 19(b)(2) of the Act,4 the 

Commission designated a longer period 

within which to approve the proposed 

rule change, disapprove the proposed 

rule change, or institute proceedings to 

determine whether to disapprove the 

proposed rule change.5 On March 9, 

2023, the Exchange filed Amendment 

No. 1 to the proposed rule change, 

which amended and superseded the 

proposed rule change as originally filed. 

On April 7, 2023, the Commission 

provided notice of filing of Amendment 

No. 1 and instituted proceedings to 

determine whether to approve or 

disapprove the proposed rule change, as 

modified by Amendment No. 1.6 On 

July 6, 2023, pursuant to Section 

19(b)(2) of the Act,7 the Commission 

designated a longer period on 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change.8 On July 18, 2023, the 

Exchange filed Amendment No. 2 to the 

proposed rule change, which amended 

and superseded the proposed rule 

change as amended by Amendment No. 

1. The Commission received comments 

on the proposed rule change.9 The 

Commission is publishing this Notice 

and Order to solicit comment on 

Amendment No. 2 in Sections II and III 

below, which sections are being 

published verbatim as filed by the 

Exchange, and to approve the proposed 

rule change, as modified by Amendment 

No. 2, on an accelerated basis. 

II. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Rules 4702(b)(14) and (b)(15) of the 

Exchange’s Rulebook to replace the 

static holding period requirements for 

Midpoint Extended Life Orders and 

Midpoint Extended Life Orders Plus 

Continuous Book with dynamic holding 

periods. This Amendment No. 2 


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