Document ID: SEC-2012-0332-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-02-28T05:00Z

[Federal Register Volume 77, Number 39 (Tuesday, February 28, 2012)]
[Notices]
[Pages 12092-12094]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-4596]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66442; File No. SR-FINRA-2012-012]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating To 
Raising the Limit for Simplified Arbitration

February 22, 2012.
    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 
February 9, 2012, 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 FINRA's Customer and Industry Codes

[[Page 12093]]

of Arbitration Procedure to raise the limit for simplified arbitration 
from $25,000 to $50,000.
    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 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
    FINRA is proposing to amend FINRA Rules 12401 (Number of 
Arbitrators) and 12800 (Simplified Arbitration) of the Code of 
Arbitration Procedure for Customer Disputes (``Customer Code''), and 
FINRA Rules 13401 (Number of Arbitrators) and 13800 (Simplified 
Arbitration) of the Code of Arbitration Procedure for Industry Disputes 
(``Industry Code''), to raise the limit for simplified arbitration from 
$25,000 to $50,000.
    Currently, FINRA offers streamlined arbitration procedures for 
claimants seeking damages of $25,000 or less. Under the simplified 
arbitration rules, one chair-qualified arbitrator decides a claim and 
issues an award based on the written submissions of the parties, 
unless, in a customer case, the customer requests a hearing, or, in an 
industry case, the claimant requests a hearing. FINRA also streamlines 
discovery for these cases.
    The $25,000 threshold has been in place since 1998 \3\ and, at that 
time, captured 21 percent of all cases filed with the forum. Currently, 
the $25,000 threshold captures ten percent of FINRA's caseload. 
Statistics for 2011 indicate that raising the threshold to $50,000 
would increase the percentage of claims administered under simplified 
arbitration to 17 percent of the claims filed with the forum. FINRA 
staff believes that raising the threshold for simplified arbitration to 
$50,000 would benefit forum users in a number of ways.
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    \3\ In 1998, FINRA raised the amount in dispute for simplified 
arbitration from $10,000 to $25,000. See NASD, Notice to Members 98-
90 (New Arbitrator List Selection Rules And Monetary Thresholds For 
Simplified And Single Arbitrator Cases Take Effect).
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    First, forum fees for simplified arbitration claims would be 
reduced. Under FINRA Rules 12800 and 13800, no hearing is held unless 
the customer or claimant requests one.\4\ Under the current fee 
schedule, FINRA charges $450 per hearing session for claims between 
$25,000 and $50,000. Under the proposed rule change, parties who choose 
to have their dispute resolved ``on the papers'' (i.e., based on the 
pleadings and other materials submitted by the parties) would save the 
$450 hearing session fee.\5\ In the event that a case would have 
required two hearing sessions (one full day), the fee savings would be 
$900.\6\ Further, under Rules 12903 and 13903 (Process Fees Paid by 
Members), members are assessed a non-refundable hearing process fee of 
$1,000 for claims between $25,000.01 and $50,000 when a hearing date 
and location are set. Under the proposal, if the dispute is resolved on 
the papers, members would not have to pay this fee.
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    \4\ Under the simplified procedures for customer cases, only the 
customer may request a hearing (regardless of whether the customer 
or the firm initiated the arbitration). Under the simplified 
procedures in the Industry Code, only the claimant may request a 
hearing.
    \5\ Under Rules 12100(n) and 13100(n), a hearing session means 
any meeting between the parties and arbitrators of four hours or 
less, including a prehearing conference.
    \6\ Since the arbitrator assesses the hearing session fees, 
either the claimant or the respondent could realize the savings.
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    Second, parties would save the time and expense of preparing for, 
scheduling, and traveling to the hearing.
    Third, customers who are not able to retain an attorney to handle 
their case because of the small amount in dispute, and who are not 
comfortable appearing at an evidentiary hearing without representation, 
would have the flexibility to choose whether to request a hearing.
    Finally, raising the limit for cases decided on the papers would 
reduce the time to process the cases because the arbitrator and parties 
would not need to coordinate their calendars to schedule a hearing.
    For the reasons stated above, FINRA is proposing to amend Rules 
12401(a) and 13401(a) to provide that if the amount of a claim is 
$50,000 or less, exclusive of interest and expenses, the panel would 
consist of one arbitrator and the claim would be subject to the 
simplified arbitration rules. FINRA would amend Rules 12401(c) and 
13401(c) to state that if the amount of a claim is more than $50,000, 
but not more than $100,000, exclusive of interest and expenses, the 
panel will consist of one arbitrator unless the parties agree in 
writing to three arbitrators. The provisions relating to claims of more 
than $100,000 would remain the same.
    FINRA is proposing to amend Rules 12800(a) and 13800(a) to provide 
that the simplified arbitration rules apply to claims involving $50,000 
or less, exclusive of interest and expenses. FINRA would amend Rules 
12800(e) and 13800(e) to state that if any pleading increased the 
amount in dispute to more than $50,000, FINRA would no longer 
administer the claim under the simplified arbitration rules.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ 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 raising the threshold for 
simplified arbitration would, as referenced above, improve efficiency 
and reduce fees for claims up to $50,000, enhancing the forum for its 
users.
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    \7\ 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 will:

[[Page 12094]]

    (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 email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2012-012 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-2012-012. 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 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-2012-012 and should be 
submitted on or before March 20, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4596 Filed 2-27-12; 8:45 am]
BILLING CODE 8011-01-P