Document ID: SEC-2022-0726-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2022-05-24T04:00Z

[Federal Register Volume 87, Number 100 (Tuesday, May 24, 2022)]
[Notices]
[Pages 31592-31594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11062]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94942; File No. SR-FINRA-2022-012]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 13000 Series (Code of 
Arbitration Procedure for Industry Disputes) To Align the Code With the 
Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act 
of 2021

May 18, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on May 13, 2022, 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 Exchange Act,\3\ which renders the proposed rule change 
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 the Code of Arbitration Procedure for 
Industry Disputes (``Code'') to align the Code with the Ending Forced 
Arbitration of Sexual Assault and Sexual Harassment Act of 2021 
(``Act''). The proposed rule change would also make a conforming 
amendment to FINRA Rule 2263.
    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
Background
    The Act was signed into law on March 3, 2022, and took effect 
immediately.\4\ The Act amends Title 9 of the Federal Arbitration Act 
\5\ by providing in relevant part:
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    \4\ Ending Forced Arbitration of Sexual Assault and Sexual 
Harassment Act of 2021, Public Law 117-90, 136 Stat. 26 (2022). The 
Act applies with respect to any dispute or claim that arises or 
accrues on or after the date of enactment of the Act.
    \5\ 9 U.S.C. 2.

    Notwithstanding any other provision of this title, at the 
election of the person alleging conduct constituting a sexual 
harassment dispute or sexual assault dispute, or the named 
representative of a class or in a collective action alleging such 
conduct, no predispute arbitration agreement or predispute joint-
action waiver shall be valid or enforceable with respect to a case 
which is filed under Federal, Tribal, or State law and relates to 
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the sexual assault dispute or the sexual harassment dispute.

    The Act prohibits mandatory arbitration of sexual assault and 
sexual harassment claims by permitting persons alleging conduct 
constituting a sexual assault dispute or sexual harassment dispute to 
elect not to enforce predispute arbitration agreements in cases that 
relate to those disputes.\6\ However, the Act does not prohibit parties 
from agreeing to arbitrate such claims after a dispute has arisen.\7\
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    \6\ The Act also permits persons alleging conduct constituting a 
sexual assault dispute or sexual harassment dispute to elect not to 
enforce predispute joint-action waivers in cases that relate to 
those disputes. The Act defines ``predispute joint-action waiver'' 
as an agreement that ``would prohibit, or waive the right of, one of 
the parties to the agreement to participate in a joint, class, or 
collective action in a judicial, arbitral, administrative, or other 
forum, concerning a dispute that has not yet arisen at the time of 
the making of the agreement.'' See supra note 4. FINRA rules are 
consistent with this provision of the Act because FINRA rules 
provide that class action and statutory collective action claims may 
not be arbitrated under the Code. See FINRA Rule 13204.
    \7\ See H.R. Rep. No. 117-234, at 18 (2022) (``The Committee 
states that pursuant to clause 3(c)(4) of House Rule XIII, H.R. 4445 
improves access to justice for survivors of sexual assault and 
harassment by allowing these parties to elect arbitration after a 
dispute has arisen''). The applicability of the Act to an agreement 
to arbitrate and the validity and enforceability of an agreement to 
which the Act applies shall be determined by a court, rather than an 
arbitrator, irrespective of whether the party resisting arbitration 
challenges the arbitration agreement specifically or in conjunction 
with other terms of the contract containing such agreement, and 
irrespective of whether the agreement purports to delegate such 
determinations to an arbitrator. See supra note 4.
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    FINRA Rule 13201 relates to the arbitration at FINRA Dispute 
Resolution Services' (``DRS'') forum of statutory employment 
discrimination claims (``SD claims'').\8\ Specifically, FINRA Rule 
13201(a) provides that ``[an SD claim] is not required to be arbitrated 
under the Code. Such a claim may be arbitrated only if the parties have 
agreed to arbitrate it either before or after the dispute arose.'' 
Although FINRA rules do not require arbitration of SD claims under the 
Code, in practice, employment agreements may require

[[Page 31593]]

associated persons to arbitrate such claims.
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    \8\ FINRA Rule 13100(bb) provides that ``[t]he term `statutory 
employment discrimination claim' means a claim alleging employment 
discrimination, including a sexual harassment claim, in violation of 
a statute.'' FINRA rules do not explicitly address the treatment of 
sexual assault claims.
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    In light of the changes set forth in the Act, FINRA is proposing 
amendments to its rules to align the rules to the Act and make other 
conforming changes.\9\
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    \9\ 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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Proposed Amendments to FINRA Rule 13100
    FINRA is proposing to amend FINRA Rule 13100 to add definitions of 
``sexual assault claim'' and ``sexual harassment claim'' that are 
consistent with the definitions of ``sexual assault dispute'' and 
``sexual harassment dispute'' in the Act.\10\ Specifically, proposed 
FINRA Rule 13100(aa) would provide that ``[t]he term `sexual assault 
claim' means a claim involving a nonconsensual sexual act or sexual 
contact, as such terms are defined in section 2246 of title 18 of the 
United States Code or similar applicable Tribal or State law, including 
when the victim lacks capacity to consent.'' In addition, proposed 
FINRA Rule 13100(bb) would provide that ``[t]he term `sexual harassment 
claim' means a claim relating to conduct that is alleged to constitute 
sexual harassment under applicable Federal, Tribal, or State law.'' 
\11\
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    \10\ Under FINRA Rule 13100(e), ``[t]he term `claim' means an 
allegation or request for relief.'' Under FINRA Rule 13100(n), 
``[t]he term `dispute' means a dispute, claim or controversy. A 
dispute may consist of one or more claims.''
    \11\ The proposed rule change would also remove the reference to 
``sexual harassment'' from the definition of SD claim in FINRA Rule 
13100(bb). See supra note 8.
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Proposed Amendments to FINRA Rule 13201
    FINRA is proposing to amend FINRA Rule 13201 to align it with the 
Act by adding new paragraph (c) to provide that a party alleging a 
sexual assault or sexual harassment claim that has agreed to arbitrate 
before the dispute arose may elect post dispute not to arbitrate the 
claim under the Code.\12\ Proposed paragraph (c) would also provide 
that the claim may be arbitrated if the parties agreed to arbitrate it 
after the dispute arose. Further, paragraph (c) would provide that 
sexual assault and sexual harassment claims would be administered in 
the forum under FINRA Rule 13802, which establishes the procedural 
requirements for administering SD claims in DRS's arbitration forum 
today.\13\
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    \12\ The proposed rule change would also amend the title of 
FINRA Rule 13201 to clarify that the rule applies to sexual assault 
claims and sexual harassment claims.
    \13\ FINRA Rule 13802 sets forth requirements as to the number 
of arbitrators on the panel, the composition of the panel, the 
filing fee, the relief available, and the availability of attorneys' 
fees. FINRA is proposing to amend FINRA Rule 13802 to add the terms 
``sexual assault claim'' and ``sexual harassment claim'' to the 
title and throughout the rule to clarify that it also applies to 
these types of claims.
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Proposed Amendments to FINRA Rule 13803
    FINRA is proposing amendments to FINRA Rule 13803 to ensure that 
sexual assault and sexual harassment claims are administered 
consistently with how SD claims are currently administered in DRS's 
arbitration forum.\14\ Under the current framework, sexual harassment 
and sexual assault claims would be administered under FINRA Rule 13803 
to the extent such claims constitute SD claims. The proposed rule 
change would add the terms ``sexual assault claim'' and ``sexual 
harassment claim'' to the title of FINRA Rule 13803 and throughout the 
rule to make explicit that it applies to the coordination of sexual 
assault and sexual harassment claims filed in court and other related 
claims that may be filed at DRS's arbitration forum.\15\
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    \14\ Under FINRA Rule 13803, if an associated person files an SD 
claim in court and asserts related claims in DRS's arbitration 
forum, a respondent who is named in both proceedings may bring a 
motion to compel the related arbitration claims to the same court 
proceeding. If the respondent does so, the respondent must assert 
all related claims it has against the associated person in the same 
court proceeding. FINRA Rule 13803 also permits the respondent to 
compel arbitration of related claims that are subject to mandatory 
arbitration. This provision applies where the respondent has not 
exercised its option to combine all claims in court.
    \15\ Similarly, FINRA proposes to add the terms ``sexual assault 
claim'' and ``sexual harassment claim'' to other rules in the Code 
that reference SD claims to ensure that sexual assault and sexual 
harassment claims are administered consistently with how SD claims 
are currently administered in DRS's arbitration forum. See FINRA 
Rules 13402 (Composition of Arbitration Panels in Cases Not 
Involving a Statutory Discrimination Claim), 13510 (Depositions); 
Part VIII (Simplified Arbitration; Default Proceedings; Statutory 
Employment Discrimination Claims; and Injunctive Relief).
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Proposed Amendments to FINRA Rule 2263
    FINRA is proposing a conforming amendment to FINRA Rule 2263 to 
incorporate the language in proposed FINRA Rule 13201(c) into the 
written statement a member firm must provide to an associated person 
regarding the predispute arbitration clause in Form U4. Thus, firms 
would be required to disclose to the associated person that a party 
alleging a sexual assault or sexual harassment claim that has agreed to 
arbitrate before the dispute arose may elect post dispute not to 
arbitrate such a claim under the Code, and that such a claim may be 
arbitrated if the parties have agreed to arbitrate it after the dispute 
arose.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the Commission waive the 
requirement that the proposed rule change not become operative for 30 
days after the date of the filing. The operative date will be the date 
of the filing of the proposed rule change.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Exchange Act,\16\ 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. FINRA believes that the proposed 
rule change serves to align FINRA rules with the Act, which prohibits 
mandatory arbitration of sexual assault and sexual harassment claims. 
The proposed rule change would create parity between FINRA rules and 
the Act as to the circumstances under which sexual assault and sexual 
harassment claims may be arbitrated at DRS's forum. The proposed 
conforming amendments would also make clear that when such claims are 
arbitrated at DRS's forum, they will be processed like SD claims. Thus, 
the proposed rule change will enable DRS to continue to administer a 
fair dispute resolution forum and meet its investor protection goals in 
a manner consistent with the Act.
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    \16\ 15 U.S.C. 78o-3(b)(6).
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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 Exchange Act. The proposed rule 
change aligns FINRA rules with other requirements to which firms are 
subject and would not have additional economic impacts on firms or 
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.

[[Page 31594]]

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 Exchange Act \17\ and 
Rule 19b-4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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 Exchange 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 Exchange 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-2022-012 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-2022-012. 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 10:00 a.m. and 
3:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FINRA-2022-012 and should be submitted 
on or before June 14, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11062 Filed 5-23-22; 8:45 am]
BILLING CODE 8011-01-P