Document ID: SEC-2011-0234-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-02-22T05:00Z

[Federal Register Volume 76, Number 35 (Tuesday, February 22, 2011)]
[Notices]
[Pages 9838-9840]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3799]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63909; File No. SR-FINRA-2011-005]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Promissory Note Proceedings

February 15, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 4, 2011, 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 substantially prepared by 
FINRA. 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.
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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 Rule 13806 of the Code of Arbitration 
Procedure for Industry Disputes (``Industry Code'') to provide that 
FINRA will appoint a chair-qualified public arbitrator to a panel 
resolving a promissory note dispute instead of appointing a chair-
qualified public arbitrator also qualified to resolve a statutory 
discrimination claim.
    The text of the proposed rule change is available on FINRA's Web 
site 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. 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
    In 2009, FINRA implemented new procedures to expedite the 
administration of cases that solely involve a broker-dealer's claim 
that an associated person failed to pay money owed on a promissory 
note.\3\ Under

[[Page 9839]]

these procedures, FINRA appoints a single chair-qualified public 
arbitrator from the roster of arbitrators approved to hear statutory 
discrimination claims (a statutory discrimination qualified arbitrator) 
\4\ to resolve the dispute.\5\ These specially qualified arbitrators 
are public chair-qualified arbitrators who also are attorneys familiar 
with employment law and have at least ten years of legal experience. In 
addition, they may not have represented primarily the views of 
employers or of employees within the last five years. FINRA proposed 
using statutory discrimination qualified arbitrators because of the 
depth of their experience and their familiarity with employment law. At 
the time that FINRA filed the proposed rule change, these arbitrators 
were underutilized at the forum.
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    \3\ See Securities Exchange Act Rel. No. 60132 (June 17, 2009), 
74 FR 30191 (June 24, 2009) (File No. SR-FINRA-2009-015). FINRA 
announced implementation of New Rule 13806 (Promissory Note 
Proceedings) in Regulatory Notice 09-48. The effective date was 
September 14, 2009.
    \4\ See Rule 13802(c)(3).
    \5\ Under Rule 13806, if an associated person does not file an 
answer, or files an answer but does not assert any counterclaims or 
third party claims, regardless of the amount in dispute, a single 
statutory discrimination qualified arbitrator decides the case. If 
an associated person files a counterclaim or third party claim, 
FINRA bases panel composition on the amount of the counterclaim or 
third party claim. For counterclaims and third party claims that are 
not more than $100,000, FINRA appoints a single statutory 
discrimination qualified arbitrator. For counterclaims and third 
party claims of more than $100,000, FINRA appoints a three-
arbitrator panel comprised of a statutory discrimination qualified 
arbitrator, a public arbitrator, and a non-public arbitrator.
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    Since implementing the new procedures, FINRA has found that 
promissory note cases do not require extensive experience or depth of 
knowledge (or the limitation on representation of employers or of 
employees within the last five years). In a majority of completed 
cases, arbitrators decided the case on the pleadings and the respondent 
broker did not appear.\6\ Experience with the new procedures leads 
FINRA to propose amending the Industry Code to provide that FINRA will 
appoint a chair-qualified public arbitrator to a panel resolving a 
promissory note dispute instead of appointing a statutory 
discrimination qualified arbitrator. Chair-qualified arbitrators have 
completed chair training and are attorneys who have served through 
award on at least two cases, or, if not attorneys, are arbitrators who 
have served through award on at least three cases.\7\
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    \6\ Of the first 175 promissory note cases completed, 
arbitrators decided the case on the pleadings 76 percent of the time 
(unless the case concluded by settlement or some other means).
    \7\ See Rule 12400(c).
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    In addition, the number of promissory note cases has more than 
doubled in the past two years. As a result of this substantial 
increase, it is becoming more difficult to appoint panels solely with 
statutory discrimination qualified arbitrators to these cases. Under 
the proposed rule change, the number of arbitrators available for 
appointment in promissory note cases would increase significantly. The 
proposed rule change would ensure that FINRA has a sufficient number of 
qualified arbitrators readily available to resolve these matters.
    FINRA proposes to announce the effective date of the proposed rule 
change in a Regulatory Notice to be published no later than 60 days 
following Commission approval. The effective date will be 30 days 
following publication of the Regulatory Notice announcing Commission 
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ 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 is 
consistent with the provisions of the Act noted above because it would 
ensure that FINRA has a sufficient number of qualified arbitrators 
readily available to resolve promissory note cases.
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    \8\ 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 Act.

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.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission shall:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2011-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2011-005. This 
file number should be included on the subject line if e-mail 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 a.m. and 3 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; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-FINRA-2011-005 
and

[[Page 9840]]

should be submitted on or before March 15, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Cathy H. Ahn,
Deputy Secretary.
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    \9\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-3799 Filed 2-18-11; 8:45 am]
BILLING CODE 8011-01-P