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[Federal Register Volume 89, Number 220 (Thursday, November 14, 2024)]
[Notices]
[Pages 90131-90133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-26420]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101561; File No. SR-FINRA-2024-018]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 13606 (Record of Proceedings) 
To Provide Customers Access to a Copy of the Official Record of an 
Expungement Hearing

November 7, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 1, 2024, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA. FINRA has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend Rule 13606 of the Code of Arbitration 
Procedure for Industry Disputes (``Industry Code'') to provide that the 
Director (``Director'') of FINRA Dispute Resolution Services (``DRS'') 
will provide a copy of the official record of an expungement hearing 
held pursuant to Rule 13805, and any transcription if the recording is 
transcribed, to any customers, upon request, who attend and participate 
in the expungement hearing, or who provide their position on the 
expungement request in writing. The proposed rule change would also 
amend Rule 12606 of the Code of Arbitration Procedure for Customer 
Disputes (``Customer Code'' and together with the Industry Code, 
``Codes'') and Rule 13606 to remove references to ``tape'' as a form of 
media that is used to record arbitration proceedings in the DRS 
arbitration forum.
    The text of the proposed rule change is available on FINRA's 
website at http://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 13606 provides that the Director of DRS will make a tape, 
digital, or other recording of every hearing \4\ and the Director will 
provide a copy of the recording to any party upon request.\5\ In 
addition, Rule 13606 provides that the panel may order the parties to 
provide

[[Page 90132]]

a transcription of the recording.\6\ If the panel orders a 
transcription of the recording, then copies of the transcription must 
be provided to each arbitrator, served on each party, and filed with 
the Director of DRS.\7\ The recording made by the Director is the 
official record of the hearing, even if it is transcribed.\8\
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    \4\ The term ``hearing'' means the hearing on the merits of an 
arbitration under Rule 13600. See Rule 13100(o).
    \5\ See Rule 13606(a)(1). Recordings made pursuant to Rule 
13606(a)(1) are provided to parties free of charge.
    \6\ See Rule 13606(a)(2). Under the Codes, the term ``panel'' 
means the arbitration panel, whether it consists of one or more 
arbitrators. See Rules 12100(u) and 13100(s). Unless otherwise 
specified, this rule filing uses the term ``panel'' to mean either a 
panel or single arbitrator.
    \7\ See Rule 13606(a)(2). The panel will determine which party 
or parties must pay the cost of making the transcription and copies. 
Id.
    \8\ See Rule 13606(a)(3).
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    Rule 13606 also provides that any party may make a stenographic 
record of a hearing.\9\ If a party makes a stenographic record, then 
the panel may determine in advance that the stenographic record will be 
the official record of the hearing,\10\ and if the panel makes that 
determination, then the Director will not make a recording of the 
hearing and a copy of the stenographic record must be provided to each 
arbitrator, served on each other party, and filed with the 
Director.\11\
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    \9\ See Rule 13606(b)(1).
    \10\ See supra note 9.
    \11\ See Rule 13606(b)(1) and (2).
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    Effective October 16, 2023, FINRA amended the Codes to modify the 
process relating to the expungement of customer dispute 
information.\12\ As part of these amendments, FINRA revised Rule 13805 
relating to a request to expunge customer dispute information filed by 
an associated person separate from a customer arbitration (``straight-
in request''), to make clear that any customer whose customer 
arbitration, civil litigation or customer complaint is a subject of the 
straight-in request must be provided with access to all documents 
relevant to the expungement request that are filed in the straight-in 
request.\13\ In addition, Rule 13805 makes clear that customers are 
entitled to attend and participate in all aspects of the prehearing 
conferences and expungement hearing.\14\
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    \12\ See Securities Exchange Act Release No. 97294 (April 12, 
2023), 88 FR 24282 (April 19, 2023) (Order Approving File No. SR-
FINRA-2022-024). See also Regulatory Notice 23-12 (August 2023), 
https://www.finra.org/rules-guidance/notices/23-12.
    \13\ See Rule 13805(b)(1)(B)(ii).
    \14\ See Rule 13805(c)(3)(A).
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    If a customer chooses to attend and participate in the expungement 
hearing, the customer or the customer's representative must be allowed 
to: (1) introduce evidence; (2) testify and call witnesses to testify; 
(3) state objections to evidence and cross-examine the party requesting 
expungement and any other witnesses called by the party requesting 
expungement; and (4) present opening and closing arguments if any party 
is permitted to do so.\15\ Customers may also provide their position on 
the expungement request in writing.\16\ The amendments do not, however, 
discuss the ability of customers to obtain a copy of the official 
record of the expungement hearing which is required to be made under 
Rule 13606. The amendments also do not discuss the ability of customers 
to obtain a copy of any transcription of the recording, if the panel 
orders the parties to provide a transcription under Rule 13606.
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    \15\ See Rule 13805(c)(5)(A) through (D).
    \16\ See Rule 13805(c)(3)(A).
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    If a customer attends and participates in an expungement hearing, 
or provides their position on the expungement request in writing, FINRA 
believes that the customer should also be able to obtain a copy of the 
official record of the hearing, and any transcription if the recording 
is transcribed. Allowing customers to obtain a copy of the official 
record or any transcription could provide such customers with greater 
assurance that the panel has considered all issues raised and enhance 
their understanding of the panel's decision, which may increase 
confidence in the expungement process.
    Accordingly, FINRA is proposing to add new paragraph (c) to Rule 
13606 to provide that the Director will provide a copy of the official 
record of an expungement hearing held pursuant to Rule 13805, and any 
transcription if the recording is transcribed, to any customers, upon 
request, who attend and participate in the expungement hearing, or who 
provide their position on the expungement request in writing.\17\ 
Although a non-party to the straight-in request, a customer may 
determine to attend and participate in the expungement hearing in 
person, by video conference, by telephone or by submitting their 
position on the expungement request in writing.\18\ Like parties to the 
proceeding, customers who attend or participate in expungement hearings 
have an interest in the hearing, and should be able to obtain a copy of 
the official record of the hearing and any transcription if the 
recording is transcribed. In addition, FINRA believes the proposed rule 
change is contemplated by the recent amendments to Rule 13805 which 
make clear that customers, although non-parties, can attend and 
participate in all aspects of expungement hearings under Rule 
13805.\19\
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    \17\ See proposed Rule 13606(c).
    \18\ See Rule 13805(c)(3)(A) and (B).
    \19\ See Rule 13805(c)(3)(A). FINRA notes that the recent 
amendments to Rule 13805 also provide a mechanism for state 
securities regulators to attend and participate in expungement 
hearings in straight-in requests. See Rule 13805(c)(6). FINRA is not 
proposing to amend Rule 13606 to provide state securities regulators 
with a copy of the official record of an expungement hearing held 
pursuant to Rule 13805, or any transcription if the recording is 
transcribed, because state securities regulators can seek access to 
such records or transcriptions pursuant to their separate authority.
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    FINRA is also proposing amendments to Rules 12606 and 13606 of the 
Codes to remove references to ``tape.'' \20\ With the accessibility and 
convenience of advanced technology, tape recordings are no longer used 
to record hearings in the DRS arbitration forum. Thus, the proposed 
rule change would update the Codes to more accurately reflect the 
current practice of making digital or other recordings to record 
hearings in the DRS arbitration forum.\21\
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    \20\ See proposed Rules 12606(a)(1) and (b)(1) and 13606(a)(1) 
and (b)(1).
    \21\ The proposed rule change would apply to all members, 
including members that are funding portals or have elected to be 
treated as capital acquisition brokers (``CABs''), given that the 
funding portal and CAB rule sets incorporate the impacted FINRA 
rules by reference.
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The implementation date will be 30 days after the date 
of filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\22\ which requires, among 
other things, that FINRA rules must 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.
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    \22\ 15 U.S.C. 78o-3(b)(6).
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    FINRA believes that the proposed rule change will protect investors 
and the public interest because it will allow customers who determine 
to attend and participate in expungement hearings, or provide their 
position in writing, under Rule 13805, to obtain a copy of the official 
record of the hearing, and any transcription if the recording is 
transcribed, upon request. Although a non-party to the straight-in 
request, a customer may determine to attend and participate in the 
expungement hearing or submit their position on the expungement request 
in writing pursuant to Rule 13805(c)(3)(A). Thus, customers who attend 
and participate in the hearing, like the parties to the proceeding, 
have an interest in the proceeding and should be able to obtain a copy 
of the official record of the

[[Page 90133]]

hearing, and any transcription if the recording is transcribed.
    In addition, the proposed rule change will protect investors and 
the public interest by updating the Codes to more accurately reflect 
DRS' current practice of making digital or other recordings to record 
hearings in the DRS arbitration forum.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change would 
allow customers who attend and participate in expungement hearings, or 
provide their position in writing, under Rule 13805, to obtain a copy 
of the official record of the hearing that is required to be made under 
Rule 13606. The proposed rule change provides to non-party customers 
the potential benefits of having a copy of the official record that are 
currently available to parties to the dispute. These benefits may 
include greater assurance that arbitrators have considered all issues 
raised and enhance their understanding of the decision, which may 
increase confidence in the expungement process. FINRA does not 
anticipate an impact on its member firms or their associated persons.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \23\ and Rule 19b-
4(f)(6) thereunder.\24\
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(6).
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    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 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 [email protected]. Please include 
File Number SR-FINRA-2024-018 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-FINRA-2024-018. 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 such filing also will be available for inspection and 
copying at the principal office of FINRA. 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-FINRA-2024-018 and 
should be submitted on or before December 5, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-26420 Filed 11-13-24; 8:45 am]
BILLING CODE 8011-01-P
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