Federal Register / Vol. 82, No. 178 / Friday, September 15, 2017 / Notices 43433 

8 Id. 

9 17 CFR 200.30–3(a)(31). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Fee Schedule, Section I.E., available here, 

https://www.nyse.com/publicdocs/nyse/markets/ 

american-options/NYSE_American_Options_Fee_

Schedule.pdf. See also Fee Schedule, Key Terms 

and Definitions (defining TCADV as ‘‘Total Industry 

Customer equity and ETF option average daily 

volume. TCADV includes OCC calculated Customer 

volume of all types, including Complex Order 

transactions and QCC transactions, in equity and 

ETF options’’). 

5The volume thresholds are based on an OFP’s 

Customer volume transacted Electronically as a 

percentage of total industry Customer equity and 

ETF options volumes as reported by the Options 

Clearing Corporation (the ‘‘OCC’’). See OCC 

Monthly Statistics Reports, available here, http://

www.theocc.com/webapps/monthly-volume-reports. 

6As an alternative to the Step Up qualification 

basis, an OFP may qualify for Tier 2 (and receive 

the same $0.18 per contract credit) by achieving 

greater than 0.75 CADV. 

7See Fee Schedule, Section I.E., n. 1 (providing 

that the credit for Customer Complex Orders is 

provided regardless of whether the Complex Order 

trades against interest in the Complex Order Book 

or with individual orders and quotes in the 

Consolidated Book). 

8See proposed Fee Schedule, Section I.E. 

9The Enhanced Credits are only available to 

those OFPs who have an Affiliated NYSE American 

Options Market Making firm or an Appointed MM 

that has committed to the 1 Year Prepayment 

Program, Balance of the Year Program, or the 3 Year 

Continued 

proceedings to determine whether the 

proposed rule change should be 

disapproved. The 45th day for this filing 

is September 15, 2017. 

The Commission is extending the 45- 

day time period for Commission action 

on the proposed rule change. The 

Commission finds that it is appropriate 

to designate a longer period within 

which to take action on the proposed 

rule change so that it has sufficient time 

to consider and take action on the 

Exchange’s proposed rule change. 

Accordingly, the Commission, 

pursuant to Section 19(b)(2) of the Act,8

designates October 30, 2017, as the date 

by which the Commission should either 

approve or disapprove, or institute 

proceedings to determine whether to 

disapprove, the proposed rule change 

(File Number SR–Phlx–2017–34). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–19581 Filed 9–14–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81569; File No. SR– 

NYSEAMER–2017–13] 

Self-Regulatory Organizations; NYSE 

American LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Modify the NYSE 

American Options Fee Schedule 

September 11, 2017. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on 

September 1, 2017, NYSE American 

LLC (the ‘‘Exchange’’ or ‘‘NYSE 

American’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the self-regulatory 

organization. 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 

The Exchange proposes to modify the 

NYSE American Options Fee Schedule 

(‘‘Fee Schedule’’). The Exchange 

proposes to implement the fee change 

effective September 1, 2017. The 

proposed change is available on the 

Exchange’s Web site at www.nyse.com, 

at the principal office of the Exchange, 

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, the 

self-regulatory organization 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 those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this filing is to modify 

the Fee Schedule, effective September 1, 

2017. Specifically, the Exchange 

proposes to amend the American 

Customer Engagement (‘‘ACE’’) Program 

to modify various credits offered and to 

establish certain credits provided 

depending on the type of Electronic 

transactions (e.g., whether it is a simple 

or complex execution). The Exchange 

also proposes to add ‘‘Simple Order’’ to 

the glossary of defined terms in the Fee 

Schedule. 

Section I.E. of the Fee Schedule 

describes the Exchange’s ACE Program. 

The ACE Program features a base tier 

and five higher tiers expressed as a 

percentage of TCADV 4 and provides 

two alternative methods by which Order 

Flow Providers (each an ‘‘OFP’’) may 

receive per contract credits for 

Electronic Customer volume that the 

OFP, as agent, submits to the Exchange.5

The Exchange proposes to modify the 

qualifications for certain of the tiers. 

Currently, an OFP that achieves 

0.75% or less of Customer Electronic 

ADV (‘‘CADV’’) as a percent of TCADV 

falls within the Base Tier and is not 

eligible to receive ACE Credits. To 

qualify for Tier 1 or 2, an OFP may 

achieve a level of CADV that is equal to 

or greater than certain percentages of the 

OFP’s October 2015 volume 

(collectively, the ‘‘Step Up’’ 

qualifications): 

• For Tier 1, an OFP qualifies by 

achieving CADV that exceeds October 

2015 volume by at least 0.20% to be 

eligible for a $0.14 per contract credit; 

• For Tier 2, the OFP may qualify by 

achieving CADV that exceeds October 

2015 volume by at least 0.35% to be 

eligible for a $0.18 per contract credit.6

An OFP that achieves Tier 2 is also 

eligible to receive a more favorable 

$0.19 per contract credit on Electronic 

Customer Complex Orders.7

The Exchange proposes to eliminate 

Step Up qualifications and to instead 

provide that OFPs may qualify for ACE 

credits based solely on percentages of 

monthly TCADV. The Exchange 

believes this proposed change would 

provide the opportunity to all Exchange 

participants to meet the same 

reasonable, yet meaningful standard to 

qualify for the ACE Program credits. 

Thus, as proposed, an OFP that achieves 

monthly CADV of at least 0.40% would 

qualify for Tier 1; and an OFP that 

achieves monthly CADV of greater than 

0.75% would qualify for Tier 2.8

Consistent with the change, the 

Exchange proposes to modify the Fee 

Schedule to reflect that an OFP that 

achieves monthly CADV of less than 

0.40% falls within the Base Tier and, as 

is the case today, would therefore be 

ineligible for ACE credits.9

mstockstill on DSK30JT082PROD with NOTICES

43434 Federal Register / Vol. 82, No. 178 / Friday, September 15, 2017 / Notices 

Prepayment Program, respectively, as described in 

Section I.D. See Fee Schedule, Section I.E. 

10See supra note 7 (regarding more favorable 

$0.19 credit available for OFPs that achieve Tier 2); 

see also Fee Schedule, Section I.E., n. 2 (regarding 

more favorable $0.25 per contract credit available 

for OFPs that achieve Tier 4 or 5, provided the OFP 

executes more than 0.50% of TCADV in Initiating 

CUBE Orders in a calendar month). 

11See supra note 9. 

12See proposed Fee Schedule, Key Terms and 

Definitions. 

13As noted herein (see supra note 7), under Tier 

2, the Exchange currently offers a credit of $0.19 per 

contract for executions of Customer Complex 

Orders. 

14See proposed Fee Schedule, Section I.E., n. 1. 

15See proposed Fee Schedule, Section I.E. 

16See proposed Fee Schedule, Section I.E., n. 1 

(making clear that the potential $0.25 credit 

available to OFPs that achieve Tiers 4 or 5 

(described supra at note 10) is an alternative more 

favorable credit to the proposed (base) credits for 

such OFPs, which range from $0.19–$0.24). OFPs 

that are eligible for more than one credit will 

always receive the more favorable credit. 

17 15 U.S.C. 78f(b). 

18 15 U.S.C. 78f(b)(4) and (5). 

The Exchange also proposes to modify 

the credits for various Tiers and to set 

forth separate credits based on 

transaction type. Currently, the ACE 

program provides various credits, 

applied on a per contract basis, on all 

Customer Electronic executions in 

Standard Options; the ACE program also 

offers more favorable credit for 

electronic Customer Complex Orders to 

OFPs that achieve Tiers 2, 4 or 5.10 An 

OFP may be eligible for enhanced ACE 

credits based on the Exchange’s 

Prepayment Programs (the ‘‘Enhanced 

Credits’’).11 The Exchange proposes to 

modify the ACE Program to reflect 

differing credits based on the execution 

of Simple Orders—sometimes referred 

to by the Exchange as single-leg 

orders—and to establish ACE credits at 

each of the five tiers for execution of 

Complex Orders. In this regard, the 

Exchange proposes to define a ‘‘Simple 

Order,’’ as ‘‘any order to purchase or sell 

contracts in a single listed option 

series’’ and to make clear that ‘‘[a] 

Simple Order is sometimes referred to 

in NYSE American Rules as a single-leg 

order (e.g., Rules 928NY and 

980NY).’’ 12

As proposed, an OFP that qualifies for 

Tier 1 would receive a credit of $0.12 

per contract on executions of Customer 

Simple Orders, or, if eligible, an 

Enhanced Credit of $0.13 per contract. 

An OFP that qualifies for Tier 1 would 

receive a credit of $0.19 per contract for 

executions of Complex Orders,13 or, if 

eligible, an Enhanced Credit of $0.20 or 

$0.21 per contract, respectively, 

depending on whether the OFP is a 

participant in the 1- or 3-Year 

Prepayment Program. 

As proposed, an OFP that qualifies for 

Tier 2 would receive a credit of $0.14 

per contract on executions of Customer 

Simple Orders, or, if eligible, an 

Enhanced Credit of $0.15 or $0.16 per 

contract, respectively, depending on 

whether a participant in the 1- or 3-Year 

Prepayment Program. The Exchange 

proposes to offer an OFP that qualifies 

for Tier 2 the same credits for 

executions of Complex Orders as is 

offered to OFPs that achieve Tier 1 (i.e., 

$0.19 per contract or, if eligible, an 

Enhanced Credit of $0.20 or $0.21 per 

contract, respectively, depending on 

whether the OFP is a participant in the 

1- or 3-Year Prepayment Program). 

For clarity purposes, the Exchange is 

proposing to specify ACE credits for 

Complex Order executions available to 

an OFP that achieve Tiers 3, 4, or 5, 

which credits are equivalent to ACE 

credits currently available to an OFP 

that achieve these Tiers. 

Consistent with the foregoing 

proposal to differentiate ACE credits for 

executions in Simple Orders and 

Complex Orders, the Exchange proposes 

to modify notes 1 and 2 to Section I.E. 

(referred to simply as ‘‘note 1’’ and 

‘‘note 2’’). Regarding note 1, the 

Exchange proposes to remove language 

made superfluous by these changes (i.e., 

to delete reference to the $0.19 credit for 

certain Complex Orders) and to make 

clear that ‘‘[t]he credit for Customer 

Complex Order executions will be 

provided regardless of whether the 

Complex Order trades against interest in 

the Complex Order Book or with 

individual orders and quotes in the 

Consolidated Book.’’ 14 In addition, the 

Exchange proposes to delete the 

reference to note 1 that appears solely 

in Tier 2 and to instead add reference 

to note 1 in each column of the table 

setting forth the proposed ACE credit for 

‘‘Complex’’ executions.15 To further 

streamline the Fee Schedule, the 

Exchange proposes to merge 

information from note 2 into proposed 

note 1 (resulting in the deletion of note 

2).16

The Exchange is also proposing a 

modification to the calculation of an 

OFP’s Electronic volume. The Exchange 

would no longer provide overweighting 

in the calculation for Customer orders 

that take liquidity. The Exchange 

believes that eliminating the 

overweighting of such orders, coupled 

with the proposed modifications to the 

ACE credits offered, should incent OFPs 

to send a variety of different orders to 

NYSE American Options, including 

Complex Orders to rest in the Complex 

Order Book. 

The proposed modifications to the 

ACE Program are designed to further 

encourage market participants to direct 

order flow to the Exchange in an effort 

to achieve the modified (more 

achievable) qualification thresholds as 

well as to encourage OFPs to direct 

Complex Order flow to the Exchange in 

an effort to qualify for the proposed 

(more favorable) rebates. To the extent 

this purposes [sic] is achieved, all 

Exchange participants would benefit 

from any additional volume and 

liquidity through increased 

opportunities to trade as well as 

enhancing price discovery. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) of the Act,17 in general, and 

furthers the objectives of Sections 

6(b)(4) and (5) of the Act,18 in particular, 

because it provides for the equitable 

allocation of reasonable dues, fees, and 

other charges among its members, 

issuers and other persons using its 

facilities and does not unfairly 

discriminate between customers, 

issuers, brokers or dealers. 

The Exchange believes that the 

proposed amendments to the ACE 

Program are reasonable, equitable and 

not unfairly discriminatory because they 

would enhance the incentives to OFPs 

to transact Customer orders on the 

Exchange, which would benefit all 

market participants by providing more 

trading opportunities and tighter 

spreads, even to those market 

participants that do not participate in 

the ACE Program. Additionally, the 

Exchange believes the proposed changes 

to the ACE Program are consistent with 

the Act because they may attract greater 

volume and liquidity to the Exchange, 

which would benefit all market 

participants by providing tighter 

quoting and better prices, all of which 

perfects the mechanism for a free and 

open market and national market 

system. 

Specifically, the Exchange believes 

that the proposal to eliminate Step Up 

qualifications (for Tiers 1 and 2) would 

provide the opportunity to all Exchange 

participants to meet the same 

reasonable, yet meaningful standard to 

qualify for the ACE Program credits. The 

Exchange believes that the proposed 

modified qualification thresholds to 

achieve Tier 1 or 2 are reasonably offset 

by the slightly reduced credits for an 

OFP’s Simple Order executions. The 

Exchange believes Tiers 1 and 2, as 

modified, would encourage market 

participants to direct order flow 

(especially Simple Orders) to the 

Exchange in an effort to achieve the 

mstockstill on DSK30JT082PROD with NOTICES

Federal Register / Vol. 82, No. 178 / Friday, September 15, 2017 / Notices 43435 

19See MIAX Options fee schedule, Section 1.a.ii. 

(Priority Customer Rebate Program), available here, 

https://www.miaxoptions.com/sites/default/files/ 

fee_schedule-files/MIAX_Options_Fee_Schedule_

08072017.pdf (offering per contracts credits ranging 

from $0.21–$0.25 for complex orders). See also The 

Chicago Board Options Exchange, Inc. (‘‘CBOE’’) fee 

schedule, Volume Incentive Program, at p. 3, 

available here, http://www.cboe.com/publish/ 

feeschedule/CBOEFeeSchedule.pdf (offering per 

contracts credits ranging from $0.20–$0.25 for 

complex orders). 

20 15 U.S.C. 78f(b)(8). 

21See supra note 19. 

22 15 U.S.C. 78s(b)(3)(A). 

23 17 CFR 240.19b–4(f)(2). 24 15 U.S.C. 78s(b)(2)(B). 

modified (more achievable) 

qualification thresholds. Further, the 

proposal to set forth ACE credits for 

Complex Orders would encourage OFPs 

that transact Customer Complex Orders 

to direct this order flow to the Exchange 

in an effort to qualify for the proposed 

(more favorable) rebates. The Exchange 

believes that all Exchange participants 

would benefit from the any [sic] 

additional volume and liquidity 

(resulting from the proposed changes) 

through increased opportunities to trade 

as well as enhancing price discovery. To 

the extent this goal is achieved, the 

Exchange would improve its overall 

competitiveness and strengthen its 

market quality for all market 

participants. The Exchange notes that 

other exchanges similarly offer credits 

for executions of Complex Orders and 

such credits are therefore not new or 

novel.19

The proposal to define ‘‘Simple 

Orders,’’ in the Fee Schedule is likewise 

reasonable, equitable and not unfairly 

discriminatory because it would add 

clarity and transparency to the Fee 

Schedule to the benefit of all market 

participants. 

The Exchange believes that the 

proposal to eliminate the overweighting 

in the calculation for Customer orders 

that take liquidity is likewise 

reasonable, equitable and not unfairly 

discriminatory because eliminating the 

overweighting of such orders, coupled 

with the proposed modifications to the 

ACE credits offered, should incent OFPs 

to send a variety of different orders to 

NYSE American Options, including 

Complex Orders to rest in the Complex 

Order Book. 

For these reasons, the Exchange 

believes that the proposal is consistent 

with the Act. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

In accordance with Section 6(b)(8) of 

the Act,20 the Exchange does not believe 

that the proposed rule change would 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

The Exchange believes the proposed 

amendments to the ACE Program are 

pro-competitive as the changes should 

encourage OFPs to direct Customer 

order flow—including Complex 

Orders—to the Exchange and any 

resulting increase in volume and 

liquidity to the Exchange would benefit 

all Exchange participants through 

increased opportunities to trade as well 

as enhancing price discovery. To the 

extent that this purpose is achieved, this 

proposal would enhance the quality of 

the Exchange’s markets and increase the 

volume of contracts traded here. In turn, 

all the Exchange’s market participants 

would benefit from the improved 

market liquidity. If the proposed 

changes make the Exchange a more 

attractive marketplace for market 

participants at other exchanges, such 

market participants are welcome to 

become ATP Holders. The Exchange 

notes that other exchanges similarly 

offer credits for executions of Complex 

Orders and such credits are not new or 

novel and would allow the Exchange to 

better compete with other options 

exchanges.21

The Exchange notes that it operates in 

a highly competitive market in which 

market participants can readily favor 

competing venues. In such an 

environment, the Exchange must 

continually review, and consider 

adjusting, its fees and credits to remain 

competitive with other exchanges. For 

the reasons described above, the 

Exchange believes that the proposed 

rule change reflects this competitive 

environment. 

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 

The foregoing rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) 22 of the Act and 

subparagraph (f)(2) of Rule 19b–4 23

thereunder, because it establishes a due, 

fee, or other charge imposed by the 

Exchange. 

At any time within 60 days of the 

filing of such 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 

under Section 19(b)(2)(B) 24 of the Act 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– 

NYSEAMER–2017–13 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–NYSEAMER–2017–13. 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 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 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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. 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 

mstockstill on DSK30JT082PROD with NOTICES

43436 Federal Register / Vol. 82, No. 178 / Friday, September 15, 2017 / Notices 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Exchange Act Release No. 81196 (July 24, 

2017), 82 FR 35248 (July 28, 2017) (File No. SR– 

FINRA–2017–025) (‘‘Notice’’). 

4See Letters from Steven B. Caruso, Maddox 

Hargett Caruso, P.C., dated July 24, 2017 (‘‘Caruso 

Letter’’); Glenn S. Gitomer, McCausland Keen + 

Buckman, dated August 14, 2017 (‘‘Gitomer 

Letter’’); Jill Gross, Professor of Law and Former 

Director, and Elissa Germaine, Supervising 

Attorney, Adjunct Professor of Law, and Director, 

Pace Law School’s Investor Rights Clinic, dated 

August 17, 2017 (‘‘Pace Letter’’); Marnie C. Lambert, 

President, Public Investors Arbitration Bar 

Association (‘‘PIABA’’), dated August 18, 2017 

(‘‘PIABA Letter’’). Comment letters are available at 

https://www.sec.gov. 

5See Letter from Margo A. Hassan, Associate 

Chief Counsel, FINRA, to Brent J. Fields, Secretary, 

U.S. Securities and Exchange Commission, dated 

August 30, 2017 (‘‘FINRA Letter’’). The FINRA 

Letter is available on FINRA’s Web site at http://

www.finra.org, at the principal office of FINRA, at 

the Commission’s Web site at https://www.sec.gov, 

and at the Commission’s Public Reference Room. 

6The subsequent description of the proposed rule 

change is substantially excerpted from FINRA’s 

description in the Notice. See Notice, 82 FR at 

35249. 

7See FINRA Rules 12100(r) and 13100(r). 

8See FINRA Rules 12100(y) and 13100(x). 

9See Exchange Act Rel. No. 74383 (Feb. 26, 

2015), 80 FR 11695 (Mar. 4, 2015) (File No. SR– 

FINRA–2014–028) (‘‘2015 Order’’). 

10See id. (stating that ‘‘the intent of the proposed 

rule change was to address concerns about 

arbitrator neutrality raised by forum users’’). 

11See 2015 Order. 

12Unless waived by FINRA at its discretion, 

arbitrator applicants must have a minimum of five 

years of paid business and/or professional 

experience and at least two years of college-level 

credits. Qualification criteria can be found at http:// 

www.finra.org/arbitration-and-mediation/finraarbitrators. See Notice, 82 FR at note 6. 

13See Notice, 82 FR at 35249. 

14 Id. 

15 Id. 

16See supra note 4. 

17 Id. 

available publicly. All submissions 

should refer to File Number SR– 

NYSEAMER–2017–13, and should be 

submitted on or before October 6, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–19584 Filed 9–14–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81572; File No. SR–FINRA– 

2017–025] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving a 

Proposed Rule Change Relating to the 

Definition of Non-Public Arbitrator 

September 11, 2017. 

I. Introduction 

On July 10, 2017, Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change to amend FINRA 

Rule 12100 of the Code of Arbitration 

Procedure for Customer Disputes 

(‘‘Customer Code’’) and FINRA Rule 

13100 of the Code of Arbitration 

Procedure for Industry Disputes 

(‘‘Industry Code’’ and, together with the 

Customer Code, ‘‘Codes’’). The proposed 

rule change would permit any person 

who is disqualified from service as a 

public arbitrator, but otherwise 

qualified to serve as an arbitrator, to 

serve as a non-public arbitrator. 

The proposed rule change was 

published for comment in the Federal 

Register on July 28, 2017.3 The public 

comment period closed on August 18, 

2017. The Commission received four 

comment letters in response to the 

Notice, all of which supported the 

proposed rule change.4 On August 30, 

2017, FINRA responded to the comment 

letters received in response to the 

Notice.5 This order approves the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 6

FINRA classifies arbitrators under the 

Codes as either ‘‘non-public’’ or 

‘‘public.’’ The non-public arbitrator 

definition lists affiliations that might 

qualify a person to serve as a non-public 

arbitrator at the forum.7 Conversely, the 

public arbitrator definition describes 

criteria that disqualify an applicant from 

inclusion on the public arbitrator 

roster.8

In 2015, the Commission approved 

amendments to the definitions of nonpublic arbitrator and public arbitrator in 

the Codes (‘‘2015 amendments’’).9

Among other things, the 2015 

amendments: (i) Provided that persons 

who worked in the financial industry 

for any duration during their careers 

would always be classified as nonpublic arbitrators; (ii) added new 

disqualifications to the public arbitrator 

definition relating to an arbitrator’s 

provision of services to parties in 

securities arbitration and litigation and 

to revenues earned from the financial 

industry by an arbitrator’s co-workers; 

and (iii) broadened the disqualifications 

to the public arbitrator definition based 

on the activities or affiliations of an 

arbitrator’s family members.10

Under the definitions as revised by 

the 2015 amendments, the non-public 

arbitrator roster is composed of 

individuals who work, or worked, in the 

financial industry, or provide services to 

the financial industry or to parties 

engaged in securities arbitration and 

litigation. The public arbitrator roster is 

composed of individuals who do not 

have any significant affiliation with the 

financial industry. The public 

arbitrators have never been employed by 

the financial industry, do not provide 

services to the financial industry or to 

parties engaged in securities arbitration 

and litigation, and do not have 

immediate family members or coworkers who do so.11

However, FINRA believes that the 

2015 amendments to the arbitrator 

definitions also created an ‘‘eligibility 

gap’’ whereby certain otherwise 

qualified arbitrators 12 could not serve 

in any capacity. For example, FINRA 

states that over 800 public arbitrators 

were disqualified from the public 

arbitrator roster under the revised 

public arbitrator definition. More than 

100 of these disqualified arbitrators did 

not meet any of the criteria outlined in 

the non-public arbitrator definition for 

service on the non-public arbitrator 

roster. Accordingly, FINRA completely 

removed them from its arbitrator 

rosters.13 In addition, FINRA stated that 

due to the 2015 amendments it had to 

reject over 140 arbitrator applicants in 

2016 who otherwise met FINRA’s 

minimum arbitrator qualifications.14

Therefore, FINRA is proposing to 

amend Rules 12100(r) in the Customer 

Code and 13100(r) in the Industry Code 

to delete the specific criteria for 

inclusion on the non-public arbitrator 

roster. Specifically, the proposed rule 

would provide that the term ‘‘nonpublic arbitrator’’ means a person who 

is otherwise qualified to serve as an 

arbitrator, and is disqualified from 

service as a public arbitrator. 

Accordingly, the proposed rule change 

would allow FINRA to appoint 

individuals who cannot be classified as 

public arbitrators to the non-public 

arbitrator roster if they meet FINRA’s 

general arbitrator qualification 

criteria.15

III. Comment Summary 

As noted above, the Commission 

received four comment letters on the 

proposed rule change, all of which 

supported the proposal.16 All four 

commenters believe that the proposal 

would expand the pool of arbitrators 

and provide greater choice of nonpublic arbitrators for parties during the 

panel selection process.17 One 

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