Document ID: SEC-2022-1487-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2022-11-16T05:00Z

[Federal Register Volume 87, Number 220 (Wednesday, November 16, 2022)]
[Notices]
[Pages 68779-68781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24959]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96298; File No. SR-FINRA-2022-024]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove 
the Proposed Rule Change, As modified by Amendment No. 1, To Amend the 
Codes of Arbitration Procedure To Modify the Current Process Relating 
to the Expungement of Customer Dispute Information

November 10, 2022.

I. Introduction

    On July 29, 2022, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change SR-FINRA-2022-024 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
Act'') \1\ and Rule 19b-4 \2\ thereunder to modify the current process 
relating to the expungement of customer dispute information.\3\ The 
proposed rule change was published for public comment in the Federal 
Register on August 15, 2022.\4\ On September 27, 2022, FINRA consented 
to an extension of the time period in which the Commission must approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to approve or disapprove the 
proposed rule change to November 11, 2022.\5\ On November 10, 2022, 
FINRA responded to the comment letters received in response to the 
Notice and filed an amendment to modify the proposed rule change 
(``Amendment No. 1'').\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See infra note 4. ``Customer dispute information'' includes 
complaints, arbitration claims, and court filings made by customers 
against broker-dealers and their associated persons. Id. at 50172.
    \4\ Exchange Act Release No. 34-95455 (August 9, 2022), 87 FR 
50170 (August 15, 2022) (File No. SR-FINRA-2022-024) (``Notice''), 
available at https://www.govinfo.gov/content/pkg/FR-2022-08-15/pdf/2022-17430.pdf.
    \5\ See letter from Mignon McLemore, Associate General Counsel, 
Office of General Counsel, FINRA, to Lourdes Gonzalez, Assistant 
Chief Counsel, Division of Trading and Markets, Commission, dated 
September 27, 2022, available at https://www.finra.org/sites/default/files/2022-09/sr-finra-2022-024-extension1.pdf.
    \6\ See letter from Mignon McLemore, Associate General Counsel, 
FINRA, to Vanessa Countryman, Secretary, Commission, dated November 
10, 2022 (``FINRA Response''), available at https://www.sec.gov/comments/sr-finra-2022-024/srfinra2022024.htm.
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    The Commission is publishing this order pursuant to Section 
19(b)(2)(B) of the Exchange Act \7\ to solicit comments on the proposed 
rule change, as modified by Amendment No. 1, and to institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change, as modified by Amendment No. 1.
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    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

A. Background

    The Central Registration Depository (``CRD'') is a licensing and 
registration system used by the Commission, state securities 
regulators, and self-regulatory organizations (``SROs'') as a source of 
regulatory information on, among other things, broker-dealers and their 
associated persons. Certain information on CRD is also released to the 
public through FINRA's BrokerCheck system.\8\ FINRA stated that it 
publishes on BrokerCheck extensive disclosure information, including 
customer dispute information for associated persons who are currently 
or were formerly registered with FINRA, to help investors make informed 
choices about the associated persons and broker-dealer firms with whom 
they may conduct business.\9\
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    \8\ A detailed description of the information made available 
through BrokerCheck is available at http://www.finra.org/investors/about-brokercheck. See Notice at note 22. The BrokerCheck website is 
available at brokercheck.finra.org.
    \9\ See Notice at 50172.
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    FINRA rules allow broker-dealers and their associated persons to 
seek expungement of customer dispute information from the CRD and 
BrokerCheck systems in certain circumstances.\10\ An associated person 
may seek expungement of customer dispute information through the FINRA 
arbitration process or by going directly to court without first going 
to arbitration.\11\
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    \10\ See, e.g., FINRA Rules 12805 (Expungement of Customer 
Dispute Information under Rule 2080), 13805 (Expungement of Customer 
Dispute Information under Rule 2080), and 2080 (Obtaining an Order 
of Expungement of Customer Dispute Information from the Central 
Registration Depository (CRD) System).
    \11\ See id.; see also Notice at 50191.

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[[Page 68780]]

B. The Proposed Rule Change

    FINRA is proposing to amend the Code of Arbitration Procedure for 
Customer Disputes (``Customer Code'') and the Code of Arbitration 
Procedure for Industry Disputes (``Industry Code'') (together, 
``Codes'') to modify the current process relating to the expungement of 
customer dispute information. The proposed rule change would impose 
requirements on expungement requests: (a) filed by an associated person 
during an investment-related, customer initiated arbitration 
(``customer arbitration''), or filed by a party to the customer 
arbitration on behalf of an associated person (``on-behalf-of 
request''), or (b) filed by an associated person separate from a 
customer arbitration (``straight-in request'').\12\
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    \12\ See Notice at 50170.
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    Specifically, the proposed rule change would: (1) require that a 
straight-in request be decided by a three-person panel that is randomly 
selected from a roster of experienced public arbitrators with enhanced 
expungement training; \13\ (2) prohibit parties to a straight-in 
request from agreeing to fewer than three arbitrators to consider their 
expungement requests, from striking any of the selected arbitrators, 
from stipulating to an arbitrator's removal, or from stipulating to the 
use of pre-selected arbitrators; (3) provide notification to state 
securities regulators of all expungement requests and a mechanism for 
state securities regulators to attend and participate in expungement 
hearings in straight-in requests; (4) impose time limits on the filing 
of straight-in requests; (5) codify and update the best practices in 
the Notice to Arbitrators and Parties on Expanded Expungement Guidance 
applicable to all expungement hearings, including amendments to 
establish additional requirements for expungement hearings, to 
facilitate customer attendance and participation in expungement 
hearings, and to codify the panel's \14\ ability to request any 
evidence relevant to the expungement request; \15\ (6) require the 
unanimous agreement of the panel to issue an award containing 
expungement relief; and (7) establish procedural requirements for 
filing expungement requests, including for on-behalf-of requests. The 
proposed rule change would also amend the Customer Code to specify 
procedures for requesting expungement of customer dispute information 
during simplified arbitrations.\16\
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    \13\ Among other requirements, public arbitrators are not 
employed in the securities industry and do not devote 20 percent or 
more of their professional work to the securities industry or to 
parties in disputes concerning investment accounts or transactions 
or employment relationships within the financial industry. See FINRA 
Rules 12100(aa) and 13100(x). Notice at note 3.
    \14\ Under the Codes, the term ``panel'' means the arbitration 
panel, whether it consists of one or more arbitrators. See FINRA 
Rules 12100(u) and 13100(s). Notice at note 4.
    \15\ See FINRA Dispute Resolution Services, Notice to 
Arbitrators and Parties on Expanded Expungement Guidance, https://www.finra.org/arbitration-mediation/notice-arbitrators-and-parties-expanded-expungement-guidance (last updated Sept. 2017).
    \16\ See Notice at 50170.
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    Amendment No. 1 would modify the proposed rule change in three 
ways. First, it would amend proposed Rules 12805(c)(3)(A) and 
13805(c)(3)(A) to state that all customers whose customer arbitrations, 
civil litigations or customer complaints are a subject of the 
expungement request are entitled to attend and participate in all 
aspects of the prehearing conferences and the expungement hearing. 
Second, it would modify proposed Rules 12805(c)(8)(C) and 
13805(c)(9)(C) to state that a panel shall not give any evidentiary 
weight to a decision by a customer or an authorized representative not 
to attend or participate in an expungement hearing when making a 
determination of whether expungement is appropriate. Finally, Amendment 
No. 1 would modify the proposed rule change to provide that an 
associated person shall not file a claim requesting expungement of 
customer dispute information from the CRD system if the customer 
dispute information is associated with a customer arbitration or civil 
litigation in which a panel or court of competent jurisdiction 
previously found the associated person liable.\17\
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    \17\ See Amendment No. 1; see also FINRA Response.
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III. Proceedings To Determine Whether To Approve or Disapprove File No. 
SR-FINRA-2022-024 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule 
change, as modified by Amendment No. 1, should be approved or 
disapproved.\18\ Institution of proceedings is appropriate at this time 
in view of the legal and policy issues raised by the proposed rule 
change, as modified by Amendment No. 1. Institution of proceedings does 
not indicate that the Commission has reached any conclusions with 
respect to the proposed rule change, as modified by Amendment No. 1.
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    \18\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\19\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis and input concerning whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Exchange 
Act and the rules thereunder.
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    \19\ Id.
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IV. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposed rule change, as modified by Amendment No. 1. In 
particular, the Commission invites the written views of interested 
persons concerning whether the proposed rule change, as modified by 
Amendment No. 1, is consistent with the Exchange Act and the rules 
thereunder.
    Although there do not appear to be any issues relevant to approval 
or disapproval that would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\20\
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    \20\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97 
(1975), grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Acts Amendments of 
1975, Report of the Senate Committee on Banking, Housing and Urban 
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 
30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by December 7, 2022. 
Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by December 21, 2022.
    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 No. SR-FINRA-2022-024 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 68781]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File No. SR-FINRA-2022-024. 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, as modified by 
Amendment No. 1, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as modified by 
Amendment No. 1, 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. If comments 
are received, any rebuttal comments should be submitted on or before 
December 21, 2022.
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    \21\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24959 Filed 11-15-22; 8:45 am]
BILLING CODE 8011-01-P