Document ID: SEC-2010-0224-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-02-10T05:00Z

[Federal Register: February 10, 2010 (Volume 75, Number 27)]
[Notices]               
[Page 6769-6770]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe10-146]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61497; File No. SR-FINRA-2009-073]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Amend the 
Hearing Location Rules of the Codes of Arbitration Procedure for 
Customer and Industry Disputes

February 4, 2010.

I. Introduction

    On October 28, 2009, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Rules 12213(a) and 13313(a) of the Code 
of Arbitration Procedure for Customer Disputes (``Customer Code'') and 
the Code of Arbitration Procedure for Industry Disputes (``Industry 
Code''), respectively, to expand the criteria for selecting a hearing 
location for an arbitration proceeding. The proposed rule change was 
published for comment in the Federal Register on December 30, 2009.\3\ 
The Commission received three comment letters, all of which supported 
the proposed rule change.\4\ This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 74 FR 69184 (Dec. 30, 2009).
    \4\ See letters from Steven B. Caruso, Maddox Hargett Caruso, 
P.C., dated December 29, 2009; Scott R. Shewan, President, Public 
Investors Arbitration Bar Association (``PIABA''), dated January 19, 
2010; and Jill I. Gross, Director, The Investors Rights Clinic at 
Pace University Law School, dated January 20, 2010.
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II. Description of the Proposed Rule Change

Hearing Location Selection Under the Customer Code

    Currently, Rule 12213(a) of the Customer Code states that 
generally, the Director of FINRA Dispute Resolution (``Director'') will 
select the hearing location closest to the customer's residence at the 
time of the events giving rise to the dispute. FINRA has determined 
that its policy concerning selection of a hearing location under the 
Customer Code may be broader than the rule describes.
    Under the current rule in the Customer Code, for example, if a 
customer in an arbitration proceeding lives in Hoboken, New Jersey, the 
Director will select the New York City hearing location, because this 
hearing location is closer to the customer's residence, Hoboken,\5\ 
than FINRA's Newark, New Jersey hearing location.
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    \5\ Hoboken, New Jersey is less than a mile by ferry across the 
Hudson River from FINRA's New York City hearing location.
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    There have been instances, however, in which the Director has 
granted customers' requests to select a hearing location in their state 
of residence at the time of the events giving rise to the dispute, even 
though the in-state hearing location may not be the closest hearing 
location. Thus, in the example above, if the customer requests the 
Newark, New Jersey hearing location, the Director generally will grant 
the request, even though the closest hearing location is the New York 
City location. The Director typically attempts to honor such requests 
as a convenience to public customers.
    FINRA is proposing, therefore, to amend Rule 12213(a) of the 
Customer Code to add this criterion for selecting a hearing location. 
The proposed amendment to the rule would state that the Director will 
select the hearing location closest to the customer's residence at the 
time of the events giving rise to the dispute, unless the hearing 
location closest to the customer's residence is in a different state. 
In that case, the customer may request a hearing location in the 
customer's state of residence at the time of the events giving rise to 
the dispute.
    Under the proposal, the Director would continue to select the 
hearing location closest to the customer's residence at the time of the 
events giving rise to the dispute. However, the Director would honor a 
customer's request for a different hearing location in the customer's 
state of residence.\6\ FINRA believes the proposal is customer-friendly 
because it gives customers more control over the arbitration process, 
by providing them with a choice of hearing locations.
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    \6\ If the customer requests a different hearing location other 
than the location closest to the customer's residence at the time of 
the events giving rise to the dispute and makes the request before 
the arbitrator or arbitrators are selected, the Director will grant 
the request. If the customer requests a different hearing location 
other than the location closest to the customer's residence at the 
time of the events giving rise to the dispute and makes the request 
after the arbitrator or arbitrators are selected, the customer must 
submit the request to the arbitrator or panel.
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Hearing Location Selection Under the Industry Code

    Rule 13213(a) of the Industry Code states, in relevant part, that 
in cases involving an associated person, the Director will generally 
select the hearing location closest to where the associated person was 
employed at the time of the events giving rise to the dispute. FINRA 
has not received requests from associated persons for different hearing 
locations, other than the closest hearing location under the current 
rule. However, FINRA believes that associated persons also should have 
the option to select a hearing location in their state of employment at 
the time of the events giving rise to the dispute, if the closest 
hearing location to their employment is in a different state.
    Thus, FINRA is proposing to amend Rule 13213(a) of the Industry 
Code in two ways. First, FINRA would broaden the criteria for selecting 
the appropriate hearing location by referring to the time

[[Page 6770]]

of the events giving rise to the dispute. FINRA notes that this 
amendment clarifies current practice and makes the rule language under 
the Industry Code consistent with the comparable rule under the 
Customer Code. The second change to Rule 13213(a) would allow an 
associated person to request a different hearing location, other than 
the closest hearing location. Specifically, the proposal would state 
that the Director will select the hearing location closest to where the 
associated person was employed at the time of the events giving rise to 
the dispute, unless the hearing location closest to the associated 
person's employment is in a different state. In that case, the 
associated person may request a hearing location in his or her state of 
employment at the time of the events giving rise to the dispute.
    Under the proposal, the Director would continue to select the 
hearing location closest to where the associated person was employed at 
the time of the events giving rise to the dispute. However, the 
Director would honor an associated person's request for a different 
hearing location in the associated person's state of employment.\7\ 
FINRA believes the proposal would benefit associated persons by 
providing them with a choice of hearing locations.
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    \7\ If the associated person requests a different hearing 
location other than the location closest to where the associated 
person was employed at the time of the of the events giving rise to 
dispute and makes the request before the arbitrator or arbitrators 
are selected, the Director will grant the request. If the associated 
person requests a different hearing location other than the location 
closest to where the associated person was employed at the time of 
the of the events giving rise to dispute and makes the request after 
the arbitrator or arbitrators are selected, the associated person 
must submit the request to the arbitrator or panel.
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    Three commenters addressed the proposed rule change and all three 
urged the Commission to approve it.\8\
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    \8\ In its comment, PIABA also recommended that FINRA consider 
additional changes in a future rule filing. Those suggestions are 
outside the scope of the current proposed rule change.
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III. Discussion and Commission Findings

    The Commission finds the proposed rule change to be consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities association.\9\ In particular, the 
Commission finds that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\10\ 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. The Commission believes that 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 
assist in the efficient administration of the arbitration process by 
further clarifying the procedures of selecting hearing locations.
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    \9\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-FINRA-2009-073) be, and 
hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2867 Filed 2-9-10; 8:45 am]
BILLING CODE 8011-01-P