Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Notices 58007 

8The Exchange fulfilled this requirement. 

9 15 U.S.C. 78s(b)(3)(A). 

10 17 CFR 240.19b–4(f)(6). 

11 Id. 

12For purposes only of waiving the operative 

delay of this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). See also 17 CFR 200.30–3(a)(59). 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE does not believe that the 

proposed rule change will impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others. 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing rule 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 if consistent 

with the protection of investors and the 

public interest, provided that the selfregulatory organization has given the 

Commission written notice of its intent 

to file the proposed rule change at least 

five business days prior to the date of 

filing of the proposed rule change or 

such shorter time as designated by the 

Commission,8 the proposed rule change 

has become effective pursuant to 

Section 19(b)(3)(A) of the Act 9 and Rule 

19b–4(f)(6) thereunder.10

Under Rule 19b–4(f)(6) of the Act,11 a 

proposal does not become operative for 

30 days after the date of its filing, or 

such shorter time as the Commission 

may designate if consistent with the 

protection of investors and the public 

interest. The Exchange requests that the 

Commission waive the 30-day operative 

delay of this filing. The Exchange 

believes that the proposed rule change 

does not present any novel or unique 

issues because the elimination of RG01– 

61 merely brings the Exchange’s rules 

regarding transactions between related 

entities in line with the requirements in 

place at other national securities 

exchanges and the Commission. The 

Exchange also believes that acceleration 

of the operative date will allow market 

participants to realize the benefits of the 

rule change sooner. The benefits include 

providing a policy that is consistent 

with other exchanges’ and Commission 

requirements, which will reduce 

unnecessary complexity and confusion. 

The Commission believes that waiving 

the 30-day operative delay is consistent 

with the protection of investors and the 

public interest. Based on the above, the 

Commission designates the proposal as 

operative upon filing.12

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. 

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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–CBOE–2010–082 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549. 

All submissions should refer to File 

Number SR–CBOE–2010–082. This file 

number should be included on the 

subject line if e-mail 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 Web site (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 CBOE. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2010–082 and 

should be submitted on or before 

October 14, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–23775 Filed 9–22–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62930; File No. SR–FINRA– 

2010–036] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change to Amend the 

Codes of Arbitration Procedure to 

Permit Arbitrators to Make Mid-case 

Referrals 

September 17, 2010. 

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 July 12, 

2010, the Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

substantially prepared by FINRA. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to broaden an 

arbitrators’ authority to make referrals 

during an arbitration proceeding by 

amending Rule 12104 of the Code of 

Arbitration Procedure for Customer 

Disputes (‘‘Customer Code’’) and by 

creating new Rule 12902(e) to address 

the assessment of hearing session fees, 

costs, and expenses if an arbitrator 


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58008 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Notices 

3The term Director means the Director of FINRA 

Dispute Resolution, and includes FINRA staff to 

whom the Director has delegated authority. See 

Rule 12100(k) of the Customer Code and Rule 

13100(k) of the Industry Code. 

4The proposed rule would not preclude an 

arbitrator from notifying other departments of 

FINRA of its findings, as appropriate. 

5A pleading is a statement describing a party’s 

causes of action or defenses. Documents that are 

considered pleadings are: A statement of claim, an 

answer, a counterclaim, a cross claim, a third party 

claim, and any replies. Rule 12100(s) of the 

Customer Code and Rule 13100(s) of the Industry 

Code. 

6 Dispute Resolution provides copies of all 

statement of claims to Enforcement. Staff also 

provides to Enforcement copies of answers in 

disputes involving promissory notes, or responses 

to third party claims, counterclaims or cross claims. 

makes a referral during a case that 

results in panel withdrawal. Similarly, 

the proposal would amend Rule 13104 

of the Code of Arbitration Procedure for 

Industry Disputes (‘‘Industry Code’’) to 

broaden an arbitrators’ authority to 

make referrals during an arbitration 

proceeding and create new Rule 

13902(e) to address the assessment of 

hearing session fees, costs and expenses 

if an arbitrator makes a referral during 

a case that results in panel withdrawal. 

The text of the proposed rule change 

is available on FINRA’s Web site 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 

Background 

In light of recent well-publicized 

securities frauds that resulted in harm to 

investors, FINRA has reviewed its rule 

on arbitrator referrals and determined 

that it should be amended to permit 

arbitrators to make referrals during an 

arbitration proceeding—rather than 

solely at the conclusion of a matter as 

is currently the case—when the 

arbitrator has reason to believe there is 

a serious, ongoing, imminent threat to 

investors that requires immediate 

action. 

Currently, Rule 12104(b) of the 

Customer Code and Rule 13104(b) of the 

Industry Code (together, Codes), state, in 

relevant part, that any arbitrator may 

refer to FINRA for disciplinary 

investigation any matter that has come 

to the arbitrator’s attention during and 

in connection with the arbitration only 

at the conclusion of an arbitration 

(emphasis added). FINRA believes that 

restricting arbitrators from making 

referrals until the conclusion of an 

arbitration may hamper FINRA’s efforts 

to uncover fraud as early as possible. 

FINRA is proposing, therefore, to 

broaden the arbitrators’ authority under 

the Codes to make referrals during the 

prehearing, discovery, or hearing phase 

of an arbitration. Specifically, FINRA 

would amend Rules 12104 and 13104 of 

the Codes to permit referrals to the 

Director3 during the prehearing, 

discovery, or hearing phase of an 

arbitration proceeding, when the 

arbitrators have reason to believe that 

any matter or conduct poses a serious, 

ongoing, imminent threat to investors 

that requires immediate action. Further, 

FINRA would add new Rules 12902(e) 

and 13902(e) of the Codes to address the 

assessment of hearing session fees, 

costs, and expenses when an arbitrator 

referral during a case results in the 

withdrawal of the panel. 

Explanation of the Proposed Rule 

Change 

Changes to the Customer Code 

Rule 12104—Effect of Arbitration on 

FINRA Regulatory Activities 

First, FINRA proposes to add the 

phrase ‘‘Arbitrator Referral During or at 

Conclusion of Case’’ to the title of Rule 

12104 so that it reflects accurately the 

proposed changes. The new title would 

read: ‘‘Effect of Arbitration on FINRA 

Regulatory Activities; Arbitrator Referral 

During or at Conclusion of Case.’’ 

Second, the current rule would be 

rearranged to reflect the order in which 

an arbitrator may make a referral in an 

arbitration case. Subparagraph (a) would 

remain unchanged. The provision in 

current subparagraph (b) of the rule, 

which addresses arbitrator referrals 

made only at the conclusion of the case 

(hereinafter, ‘‘the post-case referral 

provision’’), would be amended and 

moved to new subparagraph (e). In its 

place, FINRA would insert new rule 

language in subparagraph (b) to address 

arbitrator referrals made during the 

prehearing, discovery, or hearing phase 

of an arbitration (hereinafter, ‘‘the midcase referral provision’’). New 

subparagraph (c) would require 

arbitrator disclosure of a mid-case 

referral and withdrawal of the panel 

upon a party’s request. New 

subparagraph (d) would address the 

administration of the case using a new 

panel. And finally, new subparagraph 

(e) would contain the rule language in 

current subparagraph (b) with some 

amendments to address post-case 

referrals. 

Rule 12104(b)—Mid-case Referral 

Provision 

Rule 12104(b) would be amended to 

state that any arbitrator may refer to 

FINRA any matter or conduct that has 

come to the arbitrator’s attention during 

the prehearing, discovery, or hearing 

phase of a case, which the arbitrator has 

reason to believe poses a serious, 

ongoing, imminent threat to investors 

that requires immediate action. The 

proposed rule would state further that 

arbitrators should not make mid-case 

referrals based solely on allegations in 

the statement of claim, counterclaim, 

cross claim, or third party claim. 

The new language of Rule 12104(b) 

would provide arbitrators with the 

express authority to alert the Director 

during a case when they learn of what 

they believe to be fraudulent activity 

that requires immediate action. This 

aspect of the rule would provide FINRA 

with a vital tool for detecting and 

minimizing the effects of potentially 

fraudulent activity as early as possible.4

Specifically, under the new rule 

language, arbitrators would be 

authorized to make mid-case referrals 

based on what they learn during the 

prehearing, discovery, or hearing phase 

of a case. Moreover, arbitrators could 

not make mid-case referrals based solely 

on allegations in the statement of claim, 

counterclaim, cross claim, or third party 

claim. This means that the mid-case 

referral would not be based solely on 

the parties’ pleadings.5 Because Dispute 

Resolution routinely provides copies of 

the arbitration claims to FINRA’s 

Enforcement division, mid-case referrals 

based only on the pleadings are not 

necessary to apprise Enforcement of 

possible wrongdoing.6 But if arbitrators 

learn of information relating to a 

serious, ongoing, imminent threat 

during the pre-hearing, discovery or 

hearing phase of a case, the new rule 

would permit any arbitrator to make a 

mid-case referral to FINRA. This rule 

would ensure that arbitrators have the 

discretion to make a mid-case referral at 

the time they become aware of evidence 

or other information that they believe 

poses a serious, ongoing, imminent 


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Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Notices 58009 

7Under Rules 12101(g) and 13101(g) of the Codes, 

the term ‘‘panel’’ means the arbitration panel, 

whether it consists of one or more arbitrators. 

8Under Rules 12100(j) and 13100(j) of the Codes, 

the term ‘‘day’’ means calendar day. 

9FINRA launched a voluntary national program 

in June 2004 to expedite arbitration proceedings in 

matters involving senior or seriously ill parties. 

Thus, staff has considerable experience in 

expediting arbitration cases when necessary. See 

Notice to Parties—Expedited Proceedings for Senior 

or Seriously Ill Parties, available at http:// 

www.finra.org/ArbitrationMediation/Parties/ 

ArbitrationProcess/NoticesToParties/P009636. 

10See Rules 12105(a) and 13105(a) of the Codes. 

11See Rules 12500(b) and 13500(b) of the Codes. 

12See Rules 12413 and 13413 of the Codes. 

13See also Rule 13604(a) of the Industry Code. 

14See Rules 12606 and 13606 of the Codes. 

15 In intra-industry cases, the impact could be on 

an associated person or on a member that is not the 

subject of the referral. 

16See infra discussion under Rules 12902(e) and 

13902(e). 

threat to investors. Moreover, by 

providing that the arbitrators could not 

make a mid-case referral based solely on 

the pleadings, the rule would help avoid 

unnecessary mid-case referrals and the 

consequent disruption to an ongoing 

case. 

The new language of Rule 12104(b) 

would also require that the matter or 

conduct that would be the subject of the 

mid-case referral should pose a serious, 

ongoing, imminent threat to investors 

that requires immediate action. 

Arbitrators should use their judgment in 

determining whether the matter or 

conduct poses such a threat before 

making a mid-case referral. 

Rule 12104(c)—Arbitrator Disclosure 

and Withdrawal 

If any arbitrator makes a mid-case 

referral under proposed Rule 12104(b), 

the Director will disclose to the parties 

the act of making such referral. Further, 

if a party requests that a referring 

arbitrator withdraw, the entire panel, at 

the time of the referral, must withdraw. 

A party must make the withdrawal 

request within 10 days of receipt of 

notice of the referral disclosure. 

First, after an arbitrator makes a midcase referral, the Director would notify 

the parties of the referral. The Director 

will notify the parties of the referral 

because a referral of a potentially 

serious, ongoing, imminent threat to 

investors could cause a party to 

question the neutrality of the arbitrators 

going forward. After receiving this 

notification, any party may request that 

the panel,7 at the time of the referral, 

withdraw from the case upon the 

Director’s disclosure of a mid-case 

referral. 

Second, the proposed rule would 

require that a party make the 

withdrawal request within 10 days8 of 

receipt of notice of the disclosure. Once 

the parties learn of the mid-case referral, 

they should decide promptly whether to 

keep the panel or request its 

withdrawal. 

Rule 12104(d)—Continuing the 

Arbitration Case With a New Panel 

Proposed Rule 12104(d) would 

address how FINRA would administer 

the arbitration case if a panel withdraws 

from the case and a new panel is 

selected by the parties. 

FINRA recognizes that the time 

required to select a new panel after the 

initial panel makes a mid-case referral 

could delay the resolution of the 

claimants’ case. To minimize potential 

delays in continuing the case, FINRA 

Dispute Resolution staff (staff) will 

endeavor to complete the arbitrator 

selection process for the new panel, 

schedule the subsequent Initial 

Prehearing Conference, and serve the 

award on an expedited basis.9 In 

addition, while staff cannot shorten the 

time requirements set forth in the 

Codes, parties may agree to modify a 

provision of the Codes by written 

agreement of all named parties.10

If the case moves forward, FINRA 

would administer the case as follows. 

First, FINRA would not close the case, 

but instead, would keep the original 

pleadings (i.e., the statement of claim, 

answer, and any other pleadings) and 

proceed with the case after party 

selection of a new panel under the 

Neutral List Selection System rules. 

Second, the new panel would 

schedule an Initial Prehearing 

Conference to set discovery, briefing, 

and motions deadlines, schedule 

subsequent hearing sessions, and 

address other preliminary matters.11 At 

this time, the new panel would also 

determine whether any orders or rulings 

from the original panel were still in 

effect, and these decisions would be 

final and binding on the parties.12

Third, the new panel would 

determine whether to permit the 

introduction of evidence and the record 

of proceedings from prior hearing 

sessions in subsequent hearing sessions, 

pursuant to Rule 12604(a).13 This would 

provide arbitrators with the discretion 

to permit access to and use of the record 

of proceedings from the hearing record, 

based on the needs of the parties and 

the relevance of the information in the 

hearing record. FINRA notes that parties 

would be permitted to object to the 

admissibility of this information, but the 

determination on admissibility would 

be within the panel’s discretion. 

The record of proceedings,14

hereinafter referred to as the hearing 

record, from the first case would not 

contain references to panel discussions 

about a mid-case referral. Such 

arbitrator deliberations are not 

contained in the hearing record because 

arbitrators discuss these types of issues 

in an executive session which is not 

recorded or made a part of the hearing 

record. As a result, the new arbitrators 

would not learn of the mid-case referral 

or its rationale from the hearing record 

of the prior hearing sessions. 

FINRA’s Assessment of the Mid-case 

Referral Provision and its Potential 

Effects on an Arbitration Case 

The proposed rule would provide an 

additional tool to strengthen FINRA’s 

regulation of its members. Though midcase referrals likely would be rare, 

FINRA recognizes that such a referral 

would have an impact on an 

investor’s 15 arbitration case. If an 

arbitrator makes a mid-case referral and 

the panel withdraws, the customer’s 

arbitration case would be delayed until 

the parties settle, continue, or begin the 

case anew, as discussed under Rule 

12104(d). Further, a customer could 

incur additional costs as a result of a 

mid-case referral, such as attorney’s 

fees. To minimize some of the 

additional expense that a customer 

could incur, FINRA is proposing to 

waive certain fees for the customer.16

Moreover, FINRA understands that 

the impact would be greatest on those 

customers whose hearings were almost 

completed. Thus, FINRA will caution 

arbitrators, in those instances, to weigh 

carefully the imminence of a possible 

threat to investors and the markets 

against the harm to the customer whose 

case would be disrupted. In close cases, 

FINRA suggests that arbitrators consider 

whether any time saved or harm averted 

by a mid-case referral warrants 

disrupting a customer’s arbitration case. 

If the arbitrators conclude that 

disruption of the investor’s case is not 

warranted, a referral at the end of the 

case may be more appropriate. 

Rule 12104(e)—Post-case Referral 

Provision 

The language in current subparagraph 

(b) of the Rule 12104, which addresses 

arbitrator referrals made only at the 

conclusion of the case, would be 

amended and moved to new 

subparagraph (e). 

The current rule states that ‘‘only at 

the conclusion of an arbitration, any 

arbitrator may refer to FINRA for 

disciplinary investigation any matter 

that has come to the arbitrator’s 

attention during and in connection with 

the arbitration, either from the record of 

the proceeding or from material or 


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58010 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Notices 

17See notes 2 and 3. 

18Under the Industry Code, a dispute must be 

arbitrated if it arises out of the business activities 

of a member or an associated person and is between 

or among members; members and associated 

persons; or associated persons. Rule 13200(a) of the 

Industry Code. 19 15 U.S.C. 78o–3(b)(6). 

communications related to the 

arbitration, which the arbitrator has 

reason to believe may constitute a 

violation of NASD or FINRA rules, the 

federal securities laws, or other 

applicable rules or laws.’’ 

The proposal would permit arbitrators 

to continue making post-case referrals. 

However, FINRA would amend the rule 

to permit arbitrators to make a post-case 

referral to the Director, rather than to 

FINRA,17 so that the provisions of Rule 

12104 are consistent. Further, FINRA 

would delete the term ‘‘disciplinary’’ to 

ensure that the scope of potential 

referrals is not limited to disciplinary 

findings, and would add the phrase ‘‘or 

conduct,’’ so that the subject-matter of 

Rule 12104 is consistent throughout the 

rule. The rule also would be amended 

to replace the reference to violations of 

‘‘NASD or FINRA rules’’ with ‘‘the rules 

of FINRA’’ because the current FINRA 

rulebook consists of FINRA Rules, 

NASD Rules, and incorporated NYSE 

Rules. 

Rule 12902—Assessment of Hearing 

Session Fees, Costs, and Expenses if an 

Arbitrator Referral During a Case Results 

in Panel Withdrawal 

FINRA is proposing to adopt new 

Rule 12902(e) to address the assessment 

of hearing session fees, costs, and 

expenses if an arbitrator makes a referral 

during a case that results in panel 

withdrawal. 

First, FINRA recognizes the potential 

impact that the panel’s withdrawal 

during the course of a hearing would 

have on the customer. Thus, FINRA is 

proposing new Rule 12902(e)(1) that 

would waive the customer’s hearing 

session fees for the sessions conducted 

prior to the referral in an effort to reduce 

the potential financial impact. 

Second, under proposed new Rule 

12902(e)(2), FINRA may waive any 

hearing session fees assessed against a 

member for hearing sessions conducted 

prior to the mid-case referral, if the 

member is not the subject of the referral. 

The proposed rule would provide 

FINRA with discretion to waive any 

hearing session fees assessed against a 

member that is named in the arbitration, 

but is not the subject of the mid-case 

referral. 

Last, under proposed new Rule 

12902(e)(3), FINRA would postpone any 

scheduled hearing sessions if a mid-case 

referral results in the withdrawal of the 

panel, so that a new panel would have 

flexibility to schedule new hearing 

sessions based on its availability. Thus, 

if any scheduled hearing sessions are 

postponed, FINRA would waive the 

postponement fees that would otherwise 

accrue. 

Changes to the Industry Code 

Rule 13104—Effect of Arbitration on 

FINRA Regulatory Activities 

FINRA also is proposing to amend 

Rule 13104 of the Industry Code to 

broaden the arbitrators’ authority to 

make referrals during an arbitration 

proceeding in intra-industry cases. The 

reasons for the proposed changes to 

Rule 13104 are the same as those for 

Rule 12104 of the Customer Code 

discussed above. 

Rule 13902—Assessment of Hearing 

Session Fees, Costs, and Expenses if an 

Arbitrator Referral During a Case Results 

in Panel Withdrawal 

FINRA also is proposing to adopt new 

Rule 13902(e) to address the assessment 

of hearing session fees, costs, and 

expenses on member firms and 

associated persons if an arbitrator makes 

a referral during a case that results in 

panel withdrawal. 

Under proposed new Rule 

13902(e)(1), FINRA would waive the 

hearing session fees for sessions 

conducted prior to the referral for 

associated persons 18 who are not the 

subject of the referral in order to reduce 

the potential financial impact on these 

parties. 

Further, under proposed new Rule 

13902(e)(2), FINRA may waive any 

hearing session fees assessed against a 

member for hearing sessions conducted 

prior to the mid-case referral, if the 

member is not the subject of the referral. 

The proposed rule would provide 

FINRA with discretion to waive any 

hearing session fees assessed against a 

member that is named in the arbitration, 

but is not the subject of the mid-case 

referral. 

Finally, under proposed new Rule 

13902(e)(3), FINRA would postpone any 

scheduled hearing sessions if a mid-case 

referral results in the withdrawal of the 

panel, so that a new panel would have 

flexibility to schedule new hearing 

sessions based on its availability. Thus, 

if any scheduled hearing sessions are 

postponed, FINRA would waive the 

postponement fees that would otherwise 

accrue. 

Benefits of the Proposed Rule Change 

FINRA believes that the benefits of 

the proposal outweigh the potential 

burden that a mid-case referral could 

present to the individual investor. For 

example, if the proposed rule is invoked 

and arbitrators make a mid-case referral, 

the proposal would mitigate somewhat 

the harm to these investors by waiving 

the hearing session fees for sessions 

conducted prior to the referral. 

Moreover, FINRA believes that if 

arbitrators make a mid-case referral and 

a serious, ongoing fraud is exposed, it is 

likely that either the arbitration would 

cease because of regulatory intervention 

or the party who is the subject of the 

referral would attempt to settle, rather 

than risk continuing with the case. 

FINRA anticipates that given the 

rigorous criteria for making a referral 

under the proposed rule change, midcase referrals will be extremely rare. 

FINRA notes that arbitrators make a 

relatively small number of referrals 

under the current rule, which permits 

post-case referrals only. However, 

regardless of the number of mid-case 

referrals that the proposal may generate, 

FINRA believes that the consequences 

of one widespread fraud, which could 

prove to be financially devastating to 

many investors, outweigh the potential 

harm to an individual investor whose 

arbitration is interrupted. 

In addition to the benefits of the 

proposal, FINRA believes that its 

mission of investor protection and 

market integrity requires that it review 

continually its rules with the goal of 

improving their effectiveness and 

relevance. As such, FINRA believes that 

the Codes should not contain a rule that, 

on its face, requires an arbitrator who 

has reason to believe that there is a 

serious, ongoing, imminent threat to 

investors to wait until a case is 

concluded before making a referral. In 

light of the recent well-publicized 

fraudulent schemes, FINRA believes 

inaction is antithetical to its mission 

and is, therefore, proposing this rule to 

prevent potential harm to investors and 

the markets. Moreover, FINRA’s 

effectiveness as a regulator would be 

enhanced if it could be alerted earlier to 

a situation indicating the existence of a 

market manipulation scheme or other 

ongoing fraud, and it could take earlier 

action. 

FINRA believes the proposal would 

strengthen its regulation of its members 

and would provide an additional layer 

of protection to investors and the 

markets from fraudulent securities 

market schemes. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,19 which 


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20 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19d–1(c)(2). 

3 17 CFR 240.19d–1(c)(1). 

4The Commission adopted amendments to 

paragraph (c) of Rule 19d–1 to allow self-regulatory 

organizations (‘‘SROs’’) to submit for Commission 

approval plans for the abbreviated reporting of 

minor disciplinary infractions. See Securities 

Exchange Act Release No. 21013 (June 1, 1984), 49 

FR 23828 (June 8, 1984). Any disciplinary action 

taken by an SRO against any person for violation 

of a rule of the SRO which has been designated as 

a minor rule violation pursuant to such a plan filed 

with the Commission shall not be considered ‘‘final’’ 

for purposes of Section 19(d)(1) of the Act if the 

sanction imposed consists of a fine not exceeding 

$2,500 and the sanctioned person has not sought an 

adjudication, including a hearing, or otherwise 

exhausted his administrative remedies. 

5On August 13, 2010, the Exchange’s application 

for registration as a national securities exchange, 

including the rules governing the BATS YExchange, was approved. See Securities Exchange 

Act Release No. 62716 (August 13, 2010), 75 FR 

51295 (August 19, 2010) (File No. 10–198). 

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. The proposed rule 

change is consistent with FINRA’s 

statutory obligations under the Act to 

protect investors and the public interest 

because the proposal would help FINRA 

detect potential market manipulation or 

fraud at an earlier stage, which could 

minimize the financial losses of 

investors as well as the effects 

fraudulent schemes could have on the 

securities markets. Thus, the proposed 

rule change would strengthen FINRA’s 

ability to carry out its regulatory 

mission and provide another layer of 

protection to investors and the markets 

against fraud. 

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. 

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 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve such proposed 

rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be 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. 

Interested persons are also invited to 

submit written data, views and 

arguments concerning an arbitration 

panel’s withdrawal. 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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–FINRA–2010–036 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2010–036. This file 

number should be included on the 

subject line if e-mail 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 Web site (http://www.sec.gov/ 

rules/sro.shtml). Comments are also 

available for Web site 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. All comments received will be 

posted without change; the Commission 

does not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2010–036 and 

should be submitted on or before 

October 14, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–23776 Filed 9–22–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62924; File No. 10–198] 

Self-Regulatory Organizations; BATS 

Y-Exchange, Inc.; Notice of Filing of 

Proposed Minor Rule Violation Plan 

September 16, 2010. 

Pursuant to Section 19(d)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19d–1(c)(2) 

thereunder,2 notice is hereby given that 

on September 10, 2010, the BATS YExchange, Inc. (‘‘BATS Y-Exchange’’ or 

‘‘Exchange’’), filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) copies of a proposed 

minor rule violations plan with 

sanctions not exceeding $2,500 which 

would not be subject to the provisions 

of Rule 19d–1(c)(1) of the Act 3 requiring 

that a self-regulatory organization 

promptly file notice with the 

Commission of any final disciplinary 

action taken with respect to any person 

or organization.4 In accordance with 

Rule 19d–1(c)(2) under the Act, the 

Exchange proposed to designate certain 

specified rule violations as minor rule 

violations, and requests that it be 

relieved of the reporting requirements 

regarding such violations, provided it 

gives notice of such violations to the 

Commission on a quarterly basis. 

BATS Y-Exchange proposes to 

include in its proposed MRVP the 

policies and procedures currently 

included in BATS Y-Exchange Rule 8.15 

(‘‘Imposition of Fines for Minor 

Violation(s) of Rules’’).5

According to the Exchange’s proposed 

MRVP, under Rule 8.15, the Exchange 

may impose a fine (not to exceed 

$2,500) on a member or an associated 

person with respect to any rule listed in 

Rule 8.15.01. The Exchange shall serve 

the person against whom a fine is 

imposed with a written statement 

setting forth the rule or rules violated, 

the act or omission constituting each 

such violation, the fine imposed, and 

the date by which such determination 

becomes final or by which such 

determination must be contested. If the 

person against whom the fine is 

imposed pays the fine, such payment 

shall be deemed to be a waiver of such 

person’s right to a disciplinary 

proceeding and any review of the matter 


srobinson on DSKHWCL6B1PROD with NOTICES