Document ID: SEC-2011-0510-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-04-13T04:00Z

[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Notices]
[Pages 20757-20759]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8896]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64225; File No. SR-FINRA-2011-006]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of a Proposed Rule Change 
Relating To Motions in Arbitration

April 7, 2011.

I. Introduction

    On February 4, 2011, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') 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 FINRA Rules 12206, 
12503, and 12504 of the Code of Arbitration Procedure for Customer 
Disputes, and Rules 13206, 13503, and 13504 of the Code of Arbitration 
Procedure for Industry Disputes (collectively, ``Codes''), to provide 
moving parties with a five-day period to reply to responses to motions. 
The proposed rule

[[Page 20758]]

change was published for comment in the Federal Register on February 
22, 2011.\3\ The Commission received three comment letters on the 
proposed rule change.\4\ FINRA responded to these comments in a letter 
dated April 1, 2011.\5\ 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\ See Exchange Act Release No. 63910 (February 15, 2011), 76 
FR 9840 (February 22, 2010) (``Notice'').
    \4\ See letter from William A. Jacobson, Esq., Associate 
Clinical Professor and Director, Cornell Securities Law Clinic, and 
Negisa Balluku, Cornell Law School, dated March 15, 2011 (``Cornell 
Letter''); letter from Lisa A. Catalano, Esq., Director and 
Associate Professor of Clinical Legal Education, Christine Lazaro, 
Esq., Supervising Attorney, Clair S. Seu, Student Intern, and 
Stephen Chou, Student Intern, St. John's University School of Law 
Securities Arbitration Clinic, dated March 15, 2011 (``St. John's 
Letter''); and letter received by FINRA from David M. Foster, Esq. 
dated March 21, 2011, which addressed issues beyond the scope of the 
proposed rule change.
    \5\ See letter from Margo A. Hassan, Assistant Chief Counsel, 
FINRA, to Elizabeth M. Murphy, Secretary, Commission, dated April 1, 
2011 (``FINRA Response'').
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II. Description of Proposal

    The Codes specify time periods for a party to respond to a 
motion,\6\ including a motion to dismiss.\7\ They do not expressly 
provide time periods for the party that made the original motion (the 
``moving party'') to reply to a response, which happens on occasion. 
FINRA's practice has been to forward the reply to the arbitrators, even 
when staff already have sent the motion and response to the 
arbitrators. Since the Codes do not prescribe a time period for 
replying to responses to motions, there have been instances where 
arbitrators reviewed the motion papers and even ruled on a motion 
before receiving a reply, causing confusion and wasting time.
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    \6\ Rules 12503(b) and 13503(b) (Responding to Motions) provide, 
generally, that parties have 10 days from the receipt of a written 
motion to respond to the motion.
    \7\ Rules 12206(b) and 13206(b) (Dismissal under Rule) provide 
that parties have 30 days to respond to motions. Rules 12504(a) and 
13504(a) (Motions to Dismiss Prior to Conclusion of Case in Chief) 
provide that parties have 45 days to respond to motions.
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    FINRA proposed to amend Rules 12206 and 13206 (Time Limits), Rules 
12503 and 13503 (Motions), and Rules 12504 and 13504 (Motions to 
Dismiss), to provide a moving party with a five-day period to reply to 
a response to a motion. The proposed amendments would codify FINRA's 
practice relating to replies to responses to motions and make it 
transparent. The proposal would provide parties with an opportunity to 
brief fully the issues in dispute, and ensure that arbitrators have all 
of the motion papers before issuing a final decision on the motion.
    FINRA considered whether codifying a reply period might encourage 
additional replies to responses to motions, or cause significant delays 
in the arbitration proceeding. FINRA believes that a five-day period 
for replies gives moving parties sufficient time to react to responses 
to motions without causing significant delays to proceedings. 
Currently, FINRA Rules 12512 and 13512 (Subpoenas) provide moving 
parties with a 10-day period in which to reply to opposing parties' 
objections to motions. FINRA has not experienced any increase in 
replies related to subpoenas because of these rules and the 10-day 
reply period has not caused significant delays.
    Further, on June 21, 2010, FINRA revised its practice relating to 
responses to motions and published a Notice to Parties on its website 
stating that moving parties have five calendar days from receipt of a 
response to a motion to submit a reply to the response.\8\ After the 
five-day period, FINRA forwards to the panel at the same time the 
motion, any response to the motion, and any reply. If FINRA receives a 
reply after the five-day period expires, staff forwards the reply to 
the panel upon its receipt. However, FINRA staff does not delay sending 
the motion, response to the motion, and reply to the panel after the 
five-day period expires, and the panel may issue a decision upon 
receipt of those documents.
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    \8\ See http://www.finra.org/ArbitrationMediation/Parties/ArbitrationProcess/NoticesToParties/P121652.
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    Based on FINRA's experience with the subpoena rules and its revised 
practice relating to replies to responses, FINRA does not expect the 
proposed five-day period to result in undue delays.

III. Discussion of Comment Letters

    One commenter asked FINRA to consider amending the subpoena rules 
to provide for a five-day period to reply to responses to motions in 
order to maintain consistency in the Codes' timeframes.\9\ FINRA stated 
that as it is not amending the subpoena rules in the proposed rule 
change, the Cornell Letter is outside the scope of the proposal. 
However, FINRA did express its intention to consider the suggestion 
made in the Cornell Letter for possible future rulemaking.\10\
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    \9\ Cornell Letter.
    \10\ FINRA Response.
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    One commenter raised a concern that the proposed five-day period 
may not provide pro se claimants with adequate time to prepare their 
replies.\11\ FINRA responded that pro se claimants would have enough 
time to reply under the proposed rule change, noting that pro se 
claimants would already be aware of the issues raised in a response, 
having drafted the initial motion, and that if pro se claimants need 
additional time to reply to a response, the Director may extend the 
deadline for good cause pursuant to FINRA Rule 12207(c).\12\ This 
commenter also suggested that pro se claimants receive additional 
guidance regarding their procedural rights, including those not 
expressly codified in a rule, such as the ability to file a sur-
reply.\13\ In response, FINRA indicated that sur-replies and additional 
guidance regarding sur-replies are outside the scope of the current 
rulemaking,\14\ noting that it did not wish to encourage additional 
filings by addressing sur-replies in the Codes at this time.\15\ 
Finally, the commenter asked that FINRA amend the rules to include 
express language limiting the scope of motion replies to those issues 
and facts previously raised in the motion and response.\16\ FINRA 
responded that it does not intend to amend the proposal in response to 
this comment, as it believes that arbitrators are in the best position 
to determine the scope of motions and replies thereto and would address 
any such concerns directly with the parties.\17\
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    \11\ St. John's Letter.
    \12\ FINRA Response.
    \13\ St. John's Letter.
    \14\ Telephone conversation with Margo Hassan of FINRA on April 
6, 2011.
    \15\ FINRA Response.
    \16\ St. John's Letter.
    \17\ FINRA Response.
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IV. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change, the 
comments received, and FINRA's response to the comments, and 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.\18\ In particular, the Commission finds that 
the proposed rule change is consistent with Section 15A(b)(6) of the 
Act,\19\ which, among other things, requires that FINRA rules 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. More specifically, the 
Commission finds that the proposed rule change codifies

[[Page 20759]]

existing practice and helps to promote a fair and efficient process for 
the resolution of claims.
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    \18\ In approving this 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).
    \19\ 15 U.S.C. 78o-3(b)(6).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-FINRA-2011-006), be, and 
hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8896 Filed 4-12-11; 8:45 am]
BILLING CODE 8011-01-P