Federal Register / Vol. 89, No. 12 / Thursday, January 18, 2024 / Notices 3481 

12 15 U.S.C. 78s(b)(3)(A)(ii). 

13 17 CFR 240.19b–4(f)(2). 

14 17 CFR 200.30–3(a)(12). 

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

2See 17 CFR 240.19b–4. 

3See Exchange Act Release No. 98703 (Oct. 6, 

2023), 88 FR 71051 (Oct. 13, 2023) (File No. SR– 

FINRA–2023–013) (‘‘Notice’’). 

4The comment letters are available at https://

www.sec.gov/comments/sr-finra-2023-013/ 

srfinra2023013.htm. 

5See letter from Kristine Vo, Assistant General 

Counsel, FINRA, to Lourdes Gonzalez, Assistant 

Chief Counsel, Division of Trading and Markets, 

Commission, dated November 9, 2023. This letter 

is available at https://www.finra.org/sites/default/ 

files/2023-11/SR-FINRA-2023-013- 

ExtensionNo1.pdf. 

6See letter from Kristine Vo, Assistant General 

Counsel, Office of General Counsel, FINRA, to 

Vanessa Countryman, Secretary, Commission, dated 

January 8, 2024 (‘‘FINRA Response’’). 

7See FINRA Rules 12208, 13208, and 14106. 

8Notice at 71051. 

9 Id. 

10 Id. at 71051–52. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to section 

19(b)(3)(A)(ii) of the Act 12 and Rule 

19b–4(f)(2) 13 thereunder. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NYSECHX–2023–25 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–NYSECHX–2023–25. This 

file number should be included on the 

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 (http://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–NYSECHX–2023–25 and should be 

submitted on or before February 8, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00919 Filed 1–17–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99335; File No. SR–FINRA– 

2023–013] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving a 

Proposed Rule Change To Amend the 

FINRA Codes of Arbitration Procedure 

and Code of Mediation Procedure To 

Revise and Restate the Qualifications 

for Representatives in Arbitrations and 

Mediations 

January 11, 2024. 

I. Introduction 

On October 5, 2023, 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 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend the FINRA Code of Arbitration 

Procedure for Customer Disputes 

(‘‘Customer Code’’), the Code of 

Arbitration Procedure for Industry 

Disputes (‘‘Industry Code’’), and the 

Code of Mediation Procedure 

(‘‘Mediation Code’’) (collectively, the 

‘‘Codes’’), to revise and restate the 

qualifications for representatives in 

arbitrations and mediations in the forum 

administered by FINRA Dispute 

Resolution Services (‘‘DRS’’). 

The proposed rule change was 

published for public comment in the 

Federal Register on October 13, 2023.3

The public comment period closed on 

November 3, 2023. The Commission 

received comment letters related to this 

filing.4 On November 9, 2023, FINRA 

consented to an extension of 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 to January 11, 

2024.5 On January 8, 2024, FINRA 

responded to the comment letters 

received in response to the Notice.6 This 

order approves the proposed rule 

change. 

II. Description of the Proposed Rule 

Change 

A. Background 

The Codes currently permit parties to 

arbitrations and mediations in the DRS 

forum to represent themselves, to be 

represented by an attorney at law in 

good standing, or to be represented by 

a non-attorney representative (‘‘NAR’’).7

Some NARs receive compensation in 

connection with their representation of 

parties (‘‘compensated NARs’’).8 Other 

NARs assist parties with their cases 

without compensation 

(‘‘uncompensated NARs’’).9 In addition, 

although the practice is not specifically 

addressed by the Codes, law students 

sometimes represent parties while 

practicing under the supervision of an 

attorney through securities arbitration 

clinics (‘‘SACs’’).10


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11 Id. at 71052. 

12 Id. at 71054. 

13 Id. 

14 Id. 

15 Id. at 71053. 

16 Id. 

17 Id. 

18See id. at n.16 (stating that ‘‘[g]enerally, 

licensed attorneys are required to have: (1) 

completed a bachelor’s degree program (or its 

equivalent) and a legal education as required by a 

licensing state; (2) passed a state bar exam; (3) 

passed the Multistate Professional Responsibility 

Examination; (4) passed a licensing state’s character 

and fitness review, which includes questions about 

academic conduct at law school, criminal history, 

social conduct in general and any applicable 

disciplinary actions; and (5) taken a [legally] 

binding oath with a licensing state’s supreme court 

or high-court equivalent. In addition, many states 

require attorneys to complete continuing legal 

education, including ethics credits, to maintain a 

law license. In addition, all jurisdictions require 

lawyers to abide by rules of professional conduct, 

which are enforced through state disciplinary 

processes.’’). 

19 Id. at 71053. 

20FINRA stated that the amendments would be 

effective for arbitrations and mediations filed in the 

DRS forum on or after the effective date. Notice at 

71055. 

21Notice at 71054. 

22 Id. As noted above, an arbitrator may also 

address issues regarding the qualifications of a 

person to represent a party in the DRS forum. See 

Notice at 71053 n.21 (citing dismissed cases 

involving findings that a compensated NAR’s 

representation of an investor constituted the 

unauthorized practice of law). 

23Proposed Rules 12208(b)(1)(C), 13208(b)(1)(C), 

and 14106(b)(1)(C). 

24Proposed Rules 12208(b)(1)(C), 13208(b)(1)(C), 

and 14106(b)(1)(C). Under the Customer Code and 

Industry Code, the term ‘‘Director’’ means the 

Director of DRS. See FINRA Rules 12100(m), 12103, 

13100(m), and 13103. Under the Mediation Code, 

the term ‘‘Director’’ refers to the Director of 

Mediation of DRS. See FINRA Rules 14100(d) and 

14103. The Party Portal provides forum users with 

a secure, online location for claim filing and 

interactions relating to case administration. Parties 

use the Party Portal to, among other things, file 

claims, pay filing fees, receive documents from and 

send documents to DRS, receive service of claims, 

submit answers to claims, submit additional case 

documents, view the status of cases, select 

arbitrators, schedule hearings and send documents 

to other Party Portal case participants. See, e.g., 

FINRA Rules 12300, 12302, 12402, 12403, 13300, 

13302, and 13404. Since mediation is voluntary in 

all instances, DRS permits parties to a mediation 

proceeding to use the Party Portal on a voluntary 

basis to submit and view their mediation case 

information and documents. See FINRA Rule 

14109(b) and (h); see also Notice at 71054 n.37. 

25See Notice at 71051–52. 

26See proposed Rules 12208(b)(1)(B), 

13208(b)(1)(B), and 14106(b)(1)(B). 

27See proposed Rules 12208(b)(1)(B), 

13208(b)(1)(B), and 14106(b)(1)(B). 

In response to DRS forum users’ 

concerns regarding the conduct of 

compensated NARs, FINRA reviewed 

their representation of parties in 

arbitrations and mediations in the DRS 

forum.11 FINRA found that 

compensated NARs represent customers 

in a small percentage (one percent) of 

the customer cases in the DRS forum.12

Nevertheless, FINRA identified several 

allegations of improper conduct by 

compensated NARs in connection with 

their representation of parties in the 

DRS forum.13 In contrast, FINRA did not 

identify any allegations of improper 

conduct by uncompensated NARs or 

law students.14 FINRA expressed 

concern that parties may be harmed 

when compensated NARs are found to 

be engaged in the unauthorized practice 

of law under the law of the relevant 

United States (‘‘U.S.’’) jurisdiction.15

FINRA highlighted that compensated 

NARs have, for example, been enjoined 

from continuing their representation of 

parties during pending arbitrations after 

courts determined that the 

representation constituted the 

unauthorized practice of law.16 DRS 

arbitrators have also issued awards 

dismissing claims, or finding against 

investors, after determining that a 

compensated NAR’s representation of 

an investor constituted the 

unauthorized practice of law in the 

jurisdiction.17

Moreover, FINRA expressed concern 

that NARs are not subject to 

professional qualification requirements, 

ethical rules, disciplinary processes, 

and client protections that the states and 

other U.S. jurisdictions apply to 

attorneys who represent parties in the 

DRS forum.18 As such, customers of 

compensated NARs do not benefit from 

the client protections and disciplinary 

processes that apply to attorneys and 

may have limited recourse if they are 

harmed by the misconduct of 

compensated NARs.19

For the reasons discussed above, 

FINRA filed the proposed rule change to 

revise and restate the qualifications for 

representatives of parties using the DRS 

forum, as described below.20

B. Proposed Rule Change 

FINRA Rules 12208(c), 13208(c), and 

14106(c) currently prohibit 

compensated and uncompensated NARs 

from representing parties in arbitration 

and mediation if: (1) state law prohibits 

such representation; (2) the prospective 

representative is currently suspended or 

barred from the securities industry in 

any capacity; or (3) the prospective 

representative is currently suspended 

from the practice of law or disbarred.21

FINRA Rules 12208(d), 13208(d), and 

14106(d) further provide that issues 

regarding the qualifications of a person 

to represent a party in arbitration or 

mediation are governed by applicable 

law and may be determined by an 

appropriate court or other regulatory 

agency.22

1. Disallowing Compensated NARs in 

the DRS Forum 

The proposed rule change would 

prohibit a person who is not an attorney 

and who receives compensation in any 

manner in connection with the 

representation (i.e., a compensated 

NAR) from representing a party at any 

stage of an arbitration or mediation 

proceeding. Specifically, the proposed 

rule change would state that any party 

in an arbitration or mediation 

proceeding held in a U.S. hearing 

location may be represented by ‘‘a 

person who is not an attorney, who has 

not received, and will not receive, 

compensation in any manner in 

connection with the representation.’’ 23

To help ensure that a NAR is not 

receiving compensation in connection 

with their representation of a party in 

the DRS forum, proposed Rules 

12208(b)(1)(C), 13208(b)(1)(C), and 

14106(b)(1)(C) would require the NAR 

and the party being represented to attest 

that the NAR is not receiving 

compensation. Specifically, the 

proposed rule change would state that a 

party could be represented in arbitration 

or mediation by an uncompensated 

NAR, provided that ‘‘prior to the 

representation, the person or the party 

files with the Director through the Party 

Portal a written statement, signed by the 

person and the party, attesting that the 

person has not received, and will not 

receive, compensation in connection 

with the representation.’’ 24

2. Codifying the Role of Law Students 

and SACs 

The Codes do not specifically address 

the representation of parties in the DRS 

forum by law students supervised by 

attorneys through SACs.25 The proposed 

rule change would amend the Codes to 

codify the current practice of allowing 

a party to be represented by an enrolled 

law student participating in a law 

school clinical program or its equivalent 

and practicing under the supervision of 

an attorney.26 Specifically, the proposed 

rule change would state that any party 

in an arbitration or mediation 

proceeding held in a U.S. hearing 

location may be represented by ‘‘a 

student enrolled in a law school 

participating in a law school clinical 

program or its equivalent and practicing 

under the supervision of an attorney.’’ 27

3. Persons Prohibited From 

Representing Parties in the DRS Forum 

The Codes currently provide that nonattorneys may not represent a party if 

state law prohibits such representation, 

the person is currently suspended or 

barred from the securities industry in 


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28See FINRA Rules 12208(c), 13208(c), and 

14106(c). 

29See proposed Rules 12208(b)(2)(A), 

13208(b)(2)(A), and 14106(b)(2)(A). 

30See proposed Rules 12208(b)(2)(C), 

13208(b)(2)(C), and 14106(b)(2)(C). The prohibitions 

would not apply retroactively to persons who are 

suspended or barred from the securities industry 

and who are representing a party in a proceeding 

at the time of the effective date of the proposed rule 

change. See Notice at 71055 n.50. The proposed 

rule change would apply to arbitrations and 

mediations filed in the DRS forum on or after the 

effective date and would preclude such 

representation going forward. Notice at 71055. 

31See proposed Rules 12208(b)(2)(D), 

13208(b)(2)(D), and 14106(b)(2)(D). This prohibition 

would not apply retroactively to persons who are 

suspended or denied the privilege of appearing or 

practicing before the Commission and who are 

representing a party in a proceeding at the time of 

the effective date of the proposed rule change. See 

Notice at 71055 n.51. The proposed rule change 

would apply to arbitrations and mediations filed in 

the DRS forum on or after the effective date and 

would preclude representation by such parties 

going forward. Notice at 71055. 

32Proposed Rules 12208(b)(2)(D), 13208(b)(2)(D), 

and 14106(b)(2)(D). 

33FINRA Rules 12208(d) and 13208(d); see 

FINRA Rule 14106(d). 

34FINRA Rules 12208(d) and 13208(d); see 

FINRA Rule 14106(d). 

35Notice at 71055. 

36Proposed Rules 12208(d) and 13208(d); see 

proposed Rule 14106(d). 

37 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). 

38 15 U.S.C. 78o–3(b)(6). 

39See Notice at 71052. 

40FINRA also stated that although compensated 

NARs may be subject to state laws governing 

general business practices, they are not subject to 

the specific and extensive professional qualification 

requirements, ethical rules, disciplinary processes 

and client protections that the states and other U.S. 

jurisdictions apply to attorneys who represent 

parties in the DRS forum. Further, compensated 

NARs’ interactions with customers are not subject 

to regulation like the state disciplinary rules on 

lawyer advertising and solicitation. See Notice at 

71052–53. 

41Notice at 71055–56; see also Notice at 71054, 

71058. FINRA acknowledged that for claims of 

$100,000 or less, an attorney may believe that their 

share of a potential award might be too small to 

justify the effort, not all investors will qualify for 

assistance by SACs, and that investors may 

ultimately have to represent themselves. Id. 

42See letters from Steven B. Caruso, dated 

October 7, 2023 (‘‘Caruso Letter’’); Joseph C. Peiffer, 

President, Public Investors Advocate Bar, to 

Vanessa Countryman, Secretary, Commission, dated 

November 3, 2023 (‘‘PIABA Letter’’); Mark Quinn, 

Director of Regulatory Affairs, Cetera Financial 

Group, to Secretary, Commission, dated November 

3, 2023 (‘‘Cetera Letter’’); Christine Lazaro, 

Supervising Attorney, Elizabeth Allhusen, Legal 

Intern, Camille Perbost, Legal Intern, and Elissa 

Germaine, Supervising Attorney, Securities 

Arbitration Clinic of St. John’s University School of 

Law, to Vanessa Countryman, Secretary, 

Commission, dated November 3, 2023 (‘‘St. John’s 

Letter’’); see also letter from Lynne Brundage, dated 

January 5, 2024 (describing an experience with the 

DRS forum that is outside the scope of the proposed 

rule change). 

43PIABA Letter at 1. 

any capacity, or the person is currently 

suspended from the practice of law or 

disbarred.28 The proposed rule change 

would retain the substance of these 

provisions, while also stating that the 

laws of U.S. jurisdictions that are not 

states may also disqualify the person 

from representing a party.29 The 

proposed rule change would also apply 

these prohibitions generally to all 

persons, including attorneys.30

Furthermore, the proposed rule change 

would specifically preclude a person 

who is currently suspended from or 

denied the privilege of appearing or 

practicing before the Commission from 

representing a party in the DRS forum.31

Specifically, the proposed rule change 

would state that no person may 

represent a party in an arbitration or 

mediation proceeding held in a U.S. 

hearing location if: ‘‘(A) the laws of a 

state of the United States, the District of 

Columbia, or commonwealth, territory, 

or possession of the United States with 

jurisdiction over the representation 

prohibit the representation; (B) the 

person is currently suspended or barred 

from the securities industry in any 

capacity; (C) the person is currently 

suspended from the practice of law or 

disbarred; or (D) the person is currently 

suspended from or denied the privilege 

of appearing or practicing before the 

Securities and Exchange 

Commission.’’ 32

4. Determinations of Qualifications of 

Representatives 

The Codes currently provide, in part, 

that ‘‘[i]ssues regarding the 

qualifications of a person to represent a 

party in arbitration [or mediation] are 

governed by applicable law and may be 

determined by an appropriate court or 

other regulatory agency.’’ 33 The Codes 

also currently provide that ‘‘[i]n the 

absence of a court order, the arbitration 

[or mediation] proceeding shall not be 

stayed or otherwise delayed pending 

resolution of such issues.’’ 34 To 

improve the clarity of these provisions, 

the proposed rule change would make 

non-substantive changes to them.35

Specifically, the proposed rule change 

would state that ‘‘[a] challenge to the 

qualifications of a representative made 

outside of the [arbitration or mediation] 

proceeding shall not stay or otherwise 

delay the [arbitration or mediation] 

proceeding in the absence of a court 

order.’’ 36

III. Discussion and Commission 

Findings 

After careful review of the proposed 

rule change and the comment letters, 

the Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder that are 

applicable to a national securities 

association.37 Specifically, as explained 

in more detail below, the Commission 

finds that the proposed rule change is 

consistent with Section 15A(b)(6) of the 

Act, which requires, among other 

things, that FINRA rules be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest.38

A. Disallowing Compensated NARs in 

the DRS Forum 

1. General Prohibition 

As noted above, FINRA is proposing 

to amend the Codes to revise and restate 

the qualifications for representatives of 

parties using the DRS forum to disallow 

compensated NARs from representing 

parties in the DRS forum. FINRA is 

proposing these rule changes in 

response to several allegations of 

improper conduct by compensated 

NARs in connection with their 

representation of parties in the DRS 

forum (e.g., compensated NARs 

aggressively soliciting customers to 

bring claims in the DRS forum).39

Specifically, FINRA stated that 

compensated NARs have a pecuniary 

incentive to engage in misconduct when 

seeking new client relationships or 

bringing claims in the DRS forum, and 

that parties harmed by such conduct 

lack recourse against compensated 

NARs who are not directly regulated.40

Nevertheless, while FINRA 

acknowledged that as a result of 

disallowing compensated NARs, some 

parties may have difficulty in obtaining 

counsel, FINRA stated that the proposed 

rule change ‘‘balances the need for 

parties, including investors, to be able to 

avail themselves of representation in the 

DRS forum with protecting those 

parties, the integrity of the DRS forum, 

and the public interest generally from 

the potential harmful conduct and lack 

of recourse that may come from 

representation by compensated 

NARs.’’ 41

Commenters generally supported the 

proposed rule change.42 One commenter 

stated that ‘‘it is in the best interest of 

investors to disallow compensated 

[NARs] from representing customer 

claimants in FINRA arbitration.’’ 43 A 

second commenter similarly stated that 

the proposed rule change would 

‘‘reduce the risk that parties, including 

investors, may be significantly harmed 

by the activities of compensated 


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44Caruso Letter at 3. 

45Cetera Letter at 2. 

46St. John’s Letter at 1. 

47See supra notes 12–13. 

48See supra note 18. 

49See supra note 40 and Notice at 71061. 

50See Notice at 71052–53. 

51See Caruso Letter, PIABA Letter, Cetera Letter, 

and St. Johns Letter. 

52See Notice at 71055. 

53 Id. 

54See Caruso Letter, PIABA Letter, Cetera Letter, 

and St. Johns Letter. 

55St John’s Letter at 2. 

56See Cetera Letter at 2; see also Caruso Letter 

(stating that the Commission should approve the 

proposed rule change codifying the current practice 

governing SACs on an expedited basis). 

57See Cetera Letter at 2–3. While the proposed 

rule change does not identify programs that are 

‘‘equivalent’’ to a law school clinic at this time, it 

leaves open the opportunity to capture such a 

program if one were to come forward. 

NARs.’’ 44 A third commenter stated that 

‘‘NARs have a greater propensity than 

attorneys to engage in improper or 

disruptive conduct.’’ 45 A fourth 

commenter agreed with each of FINRA’s 

concerns, stating that the proposed rule 

change is ‘‘important and necessary to 

protect investors from improper conduct 

by compensated [NARs,] . . . who are 

not governed by the same constraints as 

licensed attorneys or law students under 

the supervision of licensed 

attorneys. . . . [A]nd individuals who 

fall prey to incompetent representation 

by a NAR may not have any method of 

recourse.’’ 46

Compensated NARs represent 

claimants in a small percentage of the 

overall customer cases in the DRS forum 

but have demonstrated a higher 

propensity to engage in improper 

conduct in connection with their 

representation than their counterparts, 

including uncompensated NARs.47

Similarly, compensated NARs are less 

likely to be subject to professional 

qualification requirements, ethical rules, 

disciplinary processes, and client 

protections than attorneys who 

represent parties in the DRS forum.48

Further, compensated NARs’ 

interactions with customers are not 

subject to regulation like the state 

disciplinary rules on lawyer advertising 

(e.g., failure to disclose disciplinary 

history or assuring customers that they 

would recover investments).49 Thus, to 

the extent compensated NARs 

aggressively solicit customers to bring 

claims in the DRS forum, pursue 

frivolous claims, charge clients nonrefundable fees, or engage in additional 

misconduct, including the unauthorized 

practice of law, customers generally 

would not have recourse that would be 

available had they engaged an 

attorney.50 By prohibiting compensated 

NARs from representing parties in the 

DRS forum, the proposed rule change 

removes the participation of individuals 

who have a financial incentive to engage 

in improper conduct in connection with 

their representation of parties in the 

DRS forum. As such, excluding 

compensated NARs from the DRS forum 

is a reasonable approach to help ensure 

that persons representing claimants in 

the DRS forum for compensation adhere 

to professional standards and can be 

held to account when they do not (e.g., 

attorneys) or lack the pecuniary 

incentive to engage in improper conduct 

(e.g., uncompensated NARs). 

The Commission recognizes that some 

claimants with smaller claims who 

might have otherwise considered 

representation by a compensated NAR 

may have more difficulty obtaining 

representation as a result of the 

proposed rule change. Similarly, 

claimants with smaller claims may 

incur additional costs to retain an 

attorney or risk worse outcomes by 

representing themselves at a hearing. 

However, these concerns are 

outweighed by the threat of harm, 

including harm to investors, presented 

by compensated NARs whose 

interactions with customers are not 

subject to professional standards of 

conduct. Furthermore, because 

compensated NARs represent only a 

small percentage (one percent) of parties 

in the DRS forum, the potential impact 

of the proposed rule change on 

representation within the DRS forum 

may be limited and is thus a reasonable 

way for FINRA to prevent potential 

harms caused by compensated NARs 

without unduly impacting 

representation within the DRS forum. 

2. Statement of No Compensation for 

Uncompensated NAR Representation 

As noted above, the proposed rule 

change provides that a party could be 

represented in arbitration or mediation 

by an uncompensated NAR, provided 

that prior to the representation, the 

uncompensated NAR or party files the 

required written attestation with the 

Director of DRS. Commenters generally 

supported the proposed rule change.51

The proposed rule change requiring a 

written attestation that a NAR has not 

received and will not receive 

compensation in connection with its 

representation of a party is a reasonable 

obligation that would permit FINRA to 

verify that the NAR is uncompensated 

and help to ensure that all parties are 

aware of this requirement, thus 

supporting the regulatory goal of 

excluding compensated NARs from the 

DRS forum. For these reasons, the 

proposed rule change is reasonable. 

B. Codifying the Role of Law Students 

and SACs 

As noted above, FINRA stated that it 

is proposing to amend the Codes to 

codify the current practice whereby a 

party may be represented by a student 

enrolled in a law school participating in 

a law school clinical program or its 

equivalent and practicing under the 

supervision of an attorney. FINRA 

stated that SACs and the law students 

who participate in these programs 

provide an inexpensive option for 

customers who qualify and may not be 

able to find or afford an attorney. 

Moreover, these representations may be 

regulated by state rules that govern the 

performance of legal services by law 

students and the attorneys who 

supervise them.52 Accordingly, FINRA 

stated that it would be appropriate to 

codify the role of law students in 

providing representation to investors 

through SACs.53

Commenters generally supported the 

proposed rule change.54 One of these 

commenters stated that for a clinic that 

provides pro bono representation to 

investors who otherwise are unable to 

find an attorney due to the size of their 

claims or the uncertainty of 

collectability, ‘‘it is critical that law 

school students in clinic programs 

remain able to represent customers in 

the DRS forum to fill the access to 

justice gap with ethical representation 

for investors who cannot otherwise 

afford it.’’ 55 Similarly, a second 

commenter stated that it supports the 

proposed rule change ‘‘because it 

benefits both the parties and the system 

by helping to assure that parties have 

access to expertise that they may lack or 

cannot afford to pay for.’’ 56 In order to 

improve parties’ access to 

representation in the DRS forum, this 

commenter recommended that FINRA 

study what it means to be the 

‘‘equivalent’’ to a law school clinic 

within the meaning of the proposed rule 

change. Specifically, the commenter 

suggested that FINRA (1) determine if 

such institutions exist and, if they do, 

(2)(a) consider what qualifications or 

restrictions may be necessary to allow 

them to represent parties in the DRS 

forum and (b) consider and publish 

standards for programs that would 

satisfy the ‘‘or equivalent’’ provision in 

proposed Rule 12208(b)(1)(B).57 In 

response, FINRA stated that it included 

the ‘‘or equivalent’’ provision in the 

proposed rule change ‘‘to account for 

flexibility in law school programs (e.g., 

a law school without a formal clinical 

program, but that has students 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 12 / Thursday, January 18, 2024 / Notices 3485 

58FINRA Response at 2. 

59 Id. 

60See FINRA Rules 12208(c), 13208(c), and 

14106(c). 

61Notice at 71055. 

62 Id. at 71055. 

63 Id. 

64 Id. 

65See proposed Rules 12208(b)(2)(D), 

13208(b)(2)(D), and 14106(b)(2)(D). FINRA stated 

that this prohibition would not apply retroactively 

to persons who were suspended or denied the 

privilege of appearing or practicing before the 

Commission prior to the effective date of the 

proposed rule change. See Notice at 71055 n.51. 

66Notice at 71055. 

67See Caruso Letter, PIABA Letter, Cetera Letter, 

and St. Johns Letter. 

68See Caruso Letter, PIABA Letter, Cetera Letter, 

and St. Johns Letter. 

69 15 U.S.C. 78o–3(b)(6). 

70 15 U.S.C. 78s(b)(2). 

71 17 CFR 200.30–3(a)(12). 

providing legal services under the 

supervision of a law school 

professor).’’ 58 Further, while FINRA is 

not aware of any such programs at this 

time, should one arise, FINRA would 

‘‘make an evaluation on a case-by-case 

basis and provide guidance as 

appropriate.’’ 59

Currently, a party in arbitration or 

mediation may be represented by a 

student enrolled in a law school 

participating in a law school clinical 

program or its equivalent and practicing 

under the supervision of an attorney. 

This practice, however, is not currently 

codified in the FINRA rulebook. 

Accordingly, parties may not be aware 

that this option is available when they 

are seeking representation. The 

proposed rule change should help make 

customers seeking to use the forum 

aware of this alternative option for 

representation. Similarly, it should also 

provide clarity to law school students 

and the attorneys that supervise them. 

Law school clinical programs lack the 

pecuniary incentive to engage in the 

conflicted conduct described above and 

are under the supervision of attorneys, 

thus helping to ensure that a customer’s 

representative is subject to professional 

standards of conduct. As such, the 

proposed rule change reasonably 

balances the needs of customers who 

might otherwise be unable to obtain 

legal representation with protecting 

parties from the conflicts associated 

with compensated NARs. 

C. Persons Prohibited From 

Representing Parties in the DRS Forum 

As noted above, the Codes currently 

provide that non-attorneys may not 

represent a party if state law prohibits 

such representation, the person is 

currently suspended or barred from the 

securities industry in any capacity, or 

the person is currently suspended from 

the practice of law or disbarred.60 The 

proposed rule change is retaining the 

substance of the current provisions but 

would expand the scope of the rule in 

three ways. 

First, the proposed rule change would 

add that the laws of U.S. jurisdictions 

that are not states (i.e., the District of 

Columbia, or a commonwealth, 

territory, or possession of the United 

States) may also disqualify the person 

from representing a party.61 FINRA 

stated that the current rule’s prohibition 

on representing a party if state law 

prohibits the representation does not 

fully address FINRA’s concerns with the 

unauthorized practice of law by 

compensated NARs because it is not 

always clear in advance of the 

arbitration or mediation whether a 

compensated NAR’s representation of a 

party in arbitration or mediation in a 

particular jurisdiction is legally 

permissible. As such, incorporating this 

new, broader standard into the proposed 

rule change would help protect the 

integrity and quality of the DRS forum 

and protect investors by incorporating 

the disqualification provisions of all 

relevant jurisdictions.62

Second, the proposed rule change 

would prohibit all persons, not just nonattorneys, from practicing in the DRS 

forum who meet the aforementioned 

conditions.63 FINRA stated that all 

persons, including attorneys, should be 

prohibited from practicing in the DRS 

forum if these conditions apply.64

Third, the proposed rule change 

would preclude a person who is 

currently suspended from, or denied the 

privilege of, appearing or practicing 

before the Commission from 

representing a party in the DRS forum.65

As with the above changes, FINRA 

stated that incorporating this standard 

into the proposed rule change would 

help protect the integrity and quality of 

the DRS forum and protect investors.66

Commenters generally supported the 

proposed rule change.67

The proposed rule change’s expansion 

of the categories of persons prohibited 

from representing parties in the DRS 

forum are reasonable to help prohibit 

problematic representatives from 

appearing in the DRS forum. 

Specifically, expanding the rule to 

provide that the laws of any U.S. 

jurisdiction, and not only states, may 

disqualify the person from representing 

a party helps ensure that persons in all 

relevant jurisdictions are covered by the 

rules’ prohibitions. Similarly, 

expanding the prohibitions to apply to 

all persons, not just attorneys, helps 

ensure that any person with a 

demonstrated track record of 

misconduct would be precluded from 

representing parties in the DRS forum. 

Further, precluding a person who is 

currently suspended from, or denied the 

privilege of, appearing or practicing 

before the Commission from 

representing a party in the DRS forum 

precludes another group of persons with 

a demonstrated track record of 

misconduct from representing parties in 

the DRS forum. By excluding 

problematic representatives from, and at 

the beginning of, the DRS process, the 

proposed change is a reasonable way to 

help enhance the integrity of those 

individuals representing parties in the 

DRS forum. 

D. Determinations of Qualifications of 

Representatives 

As noted above, the proposed rule 

change would make some clarifying 

changes to the current provision that 

prevents delay of a proceeding while a 

challenge to the qualifications of a 

person to represent a party is resolved 

outside of the DRS forum. Specifically, 

the proposed rule change would 

simplify the Codes’ language to state 

that a challenge to the qualifications of 

a representative made outside of the 

arbitration proceeding shall not stay or 

otherwise delay the proceeding in the 

absence of a court order. Commenters 

generally supported the proposed rule 

change.68 The proposed change makes 

no substantive changes to the rule, and 

reasonably clarifies the language 

regarding challenges outside of the DRS 

forum that could affect the progression 

of an active proceeding. 

IV. Conclusion 

For the reasons set forth above, the 

Commission finds that the proposed 

rule change is consistent with Section 

15A(b)(6) of the 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.69

It is therefore ordered pursuant to 

Section 19(b)(2) of the Act 70 that the 

proposal (SR–FINRA–2023–013), be and 

hereby is approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.71

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00856 Filed 1–17–24; 8:45 am] 

BILLING CODE 8011–01–P 


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