[Federal Register Volume 74, Number 120 (Wednesday, June 24, 2009)]
[Notices]
[Pages 30191-30192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-14726]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60132; File No. SR-FINRA-2009-015]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change Relating to 
Expedited Administration of Promissory Note Cases

June 17, 2009.
    On April 7, 2009, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to the Code of Arbitration 
Procedure for Industry Disputes (``Industry Code''). The proposed rule 
change was published for comment in the Federal Register on May 14, 
2009.\3\ The Commission received no comments on the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 59885 (May 7, 2009); 74 FR 
22788 (May 14, 2009).
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I. Description of the Proposal

    FINRA proposed to adopt Rule 13806 of the Code of Arbitration 
Procedure for Industry Disputes (``Industry Code''), to establish 
procedures to expedite the administration of arbitrations in which a 
member's only claim is that an associated person failed to pay money 
owed on a promissory note; and to amend Rules 13214 and 13600 of the 
Industry Code to make conforming changes.
    In order to proceed under proposed new Rule 13806, a claimant would 
not be permitted to include any additional allegations in the Statement 
of Claim. FINRA stated that, in the absence of additional allegations 
by members or associated persons, promissory note cases involve 
straightforward contracts with few documents being entered into 
evidence. The new procedures would streamline the process for 
promissory note cases and reduce expenses for the parties while 
maintaining the procedural safeguards in the Industry Code for the 
associated person against whom a member asserts a claim.
    Specifically, under the proposed procedures:
    <bullet> Parties would choose a single public arbitrator from the 
roster of arbitrators approved to hear statutory discrimination 
claims,\4\ unless an associated person files a counterclaim or third 
party claim of more than $100,000, exclusive of interest or expenses, 
or the counterclaim or third party claim is unspecified or does not 
request money damages.\5\ In FINRA's view, the arbitrators on this 
roster would be especially suited to resolve these disputes because of 
the depth of their experience and their familiarity with employment 
law;
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    \4\ See Rule 13802(c)(3). These specially qualified arbitrators 
are attorneys familiar with employment law who have at least ten 
years of legal experience. In addition, a chair or single arbitrator 
may not have represented primarily the views of employers or of 
employees within the last five years. Primarily means 50 percent or 
more of the arbitrator's business or professional activities within 
the last five years.
    \5\ The $100,000 threshold was chosen because FINRA recently 
raised the threshold for a single chair-qualified arbitrator in all 
cases to $100,000. Under the rule change, if the amount of a claim 
is more than $100,000, exclusive of interest and expenses, or is 
unspecified, or if the claim does not request money damages, the 
panel will consist of three arbitrators, unless the parties agree in 
writing to one arbitrator. See Exchange Act Release No. 59340 
(February 2, 2009), 74 FR 6335 (February 6, 2009) (SR-FINRA-2008-
047).
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    <bullet> If the associated person does not file an answer, 
simplified discovery procedures would apply \6\ and, regardless of the 
amount in controversy, the single arbitrator would render an award 
based on the pleadings and other materials submitted by the parties. 
The arbitrator would be paid an honorarium

[[Page 30192]]

of $125 for each arbitration resolved in this manner; \7\
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    \6\ Rule 13800(d) (Simplified Arbitration--Discovery and 
Additional Evidence) provides for limited discovery in arbitrations 
involving $25,000 or less, exclusive of interest and expenses.
    \7\ In simplified arbitration proceedings administered under 
Rules 12800 and 13800 (Simplified Arbitration), the arbitrator 
honorarium is $125. The honorarium under proposed Rule 13806 is 
intended to be consistent with these rules.
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    <bullet> If the associated person files an answer (but does not 
seek any additional relief or assert any counterclaims or third party 
claims), regular discovery procedures would apply \8\ and, regardless 
of the amount in controversy, the single arbitrator would hold a 
hearing; and
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    \8\ The 13500 series of rules would provide for prehearing 
procedures and discovery in these cases.
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    <bullet> If the associated person files a counterclaim or third 
party claim, then regular discovery procedures would apply and panel 
composition would be based on the amount of the counterclaim or third 
party claim. If the counterclaim and/or third party claim is not more 
than $100,000, exclusive of interest and expenses, the Director \9\ 
would appoint a single public arbitrator from the roster of arbitrators 
approved to hear statutory discrimination claims. If the counterclaim 
and/or third party claim is more than $100,000, exclusive of interest 
and expenses, then the Director would appoint a three-arbitrator panel. 
The Director would appoint one public arbitrator from the roster of 
arbitrators approved to hear statutory discrimination claims who would 
serve as chairperson, one arbitrator from the public roster, and one 
arbitrator from the non-public roster. If the counterclaim or third 
party claim is filed after a single arbitrator is appointed, and a 
three-arbitrator panel is required, the Director would retain the 
appointed arbitrator as chair and appoint two additional arbitrators 
(one public and one non-public arbitrator). Regardless of whether the 
panel is composed of one or three arbitrators, FINRA would pay the 
arbitrators the honoraria provided for in the Industry Code for 
arbitrations resolved by a hearing.
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    \9\ Rule 13100(k) defines the term ``Director'' to mean the 
``Director of FINRA Dispute Resolution. Unless the Code provides 
that the Director may not delegate a specific function, the term 
includes FINRA staff to whom the Director has delegated authority.''
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    FINRA has proposed to amend Rule 13214 (Payment of Arbitrators) to 
reflect that the rule applies to arbitrator honoraria except as 
specified in new Rule 13806(f) or as specifically excluded in Rule 
13214. Under the proposal, FINRA would pay an arbitrator an honorarium 
of $125 for each arbitration in which the associated person does not 
file an answer and the award is based on the arbitrator's review of the 
pleadings and other materials submitted by the parties. As these are 
expedited proceedings, FINRA would not pay an honorarium for resolving 
a discovery-related motion without a hearing session or for resolving a 
contested motion concerning issuance of a subpoena without a hearing 
session. In instances where full discovery would be conducted under the 
13500 series of rules, FINRA would pay the honorarium prescribed in 
Rule 13214 for discovery-related motions without a hearing session and 
for contested motions concerning issuance of a subpoena without a 
hearing session.
    FINRA, in addition, proposed to amend Rule 13600 (Required 
Hearings) to reflect that a hearing will be held unless new Rule 
13806(e)(1) provides otherwise. Under the proposal, if the associated 
person does not file an answer, no initial prehearing conference or 
hearing would be held. Generally, in the absence of additional 
allegations by members or associated persons, promissory note cases 
involve straightforward contracts with few documents entered into 
evidence. FINRA believes that, in these situations, promissory note 
cases would be processed more quickly and efficiently and expenses 
would be reduced for the parties and the forum if the arbitrator were 
to render the award on the pleadings and other materials submitted by 
the parties.\10\ In FINRA's view, the new procedures would not 
negatively impact its administration of other cases filed in the forum.
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    \10\ The rationale for the proposed rule change was confirmed in 
a phone conversation with Margo Hassan and Ken Andrichik of FINRA, 
on May 6, 2009.
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II. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\12\ in 
that it is designed, among other things, to prevent fraudulent and 
manipulative acts and practices; to promote just and equitable 
principles of trade; to remove impediments to and perfect the mechanism 
of a free and open market and a national market system; and, in 
general, to protect investors and the public interest.
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    \11\ In approving the proposed rule change, the Commission has 
considered the rule change's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the proposed rule change will protect 
the public interest by helping to ensure that promissory note cases are 
processed quickly and efficiently, and by helping to reduce expenses 
for the parties and the forum without adversely affecting the 
administration of other cases filed with the forum.

III. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities association.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-FINRA-2007-015) be and 
hereby is approved.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-14726 Filed 6-23-09; 8:45 am]
BILLING CODE 8010-01-P