Document ID: SEC-2022-1289-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2022-09-28T04:00Z

[Federal Register Volume 87, Number 187 (Wednesday, September 28, 2022)]
[Notices]
[Pages 58854-58856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21031]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95871; File No. SR-FINRA-2022-026]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Change References in the Codes of Arbitration 
Procedure From the Neutral List Selection System to the List Selection 
Algorithm

September 22, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on September 15, 2022, 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 prepared by FINRA. FINRA has designated the proposed rule change 
as constituting a ``non-controversial'' rule change under paragraph 
(f)(6) of Rule 19b-4 under the Act,\3\ which renders the proposal 
effective upon receipt of this filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to change references in the Codes of Arbitration 
Procedure (``Codes'') from the Neutral List Selection System to the 
list selection algorithm.
    The text of the proposed rule change is available on FINRA's 
website 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,

[[Page 58855]]

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
    From November 1998 until October 2006, the Neutral List Selection 
System (``NLSS'') was the computer system that generated lists of 
arbitrators from FINRA Dispute Resolution Services' (``DRS'') rosters 
of arbitrators for the selected hearing location for each arbitration 
proceeding. In October 2006, DRS replaced the NLSS with the Mediation 
and Arbitration Tracking and Retrieval Interactive Case System 
(``MATRICS'').\4\ As a result, all of the information contained in the 
NLSS was transferred to MATRICS such that MATRICS now contains the list 
selection algorithm DRS uses to generate lists of arbitrators from its 
rosters of arbitrators.\5\ However, the Codes refer to the NLSS as a 
computer system that governs arbitrator list selection in the DRS 
arbitration forum.\6\
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    \4\ MATRICS is an internal, web-based computer system used to 
manage all arbitration and mediation cases in the DRS arbitration 
forum and to maintain DRS's rosters of arbitrators and mediators.
    \5\ See Securities Exchange Act Release No. 51339 (March 9, 
2005), 70 FR 12763 (March 15, 2005) (Order Approving File No. SR-
NASD-2004-164); see also Notice to Members 07-07 (February 2007) 
(announcing the effective date of April 16, 2007 for the amendments 
discussed in File No. SR-NASD-2004-164).
    \6\ In February 2022, the Audit Committee of FINRA's Board of 
Governors engaged Lowenstein Sandler LLP to provide an independent 
review and analysis in connection with a Fulton County (Georgia) 
Superior Court decision vacating an arbitration award in favor of 
Wells Fargo Clearing Services, LLC. See Order Granting Mot. to 
Vacate Arb. Award and Den. Cross Mot. to Confirm Arb. Award at 37, 
Leggett v. Wells Fargo Clearing Servs., LLC, No. 2019-CV-328949 (Ga. 
Super. Ct., January 25, 2022). In its report, Lowenstein Sandler 
made several recommendations to provide greater transparency and 
consistency in the arbitrator selection process, one of which was to 
make technical amendments to the Codes to clarify the automated 
system used by DRS for arbitrator selection. See https://www.finra.org/sites/default/files/2022-06/report-independent-review-drs-arbitrator-selection-process.pdf. Since publication of the 
report, the Fulton County (Georgia) Superior Court's decision was 
reversed by the Court of Appeals of Georgia. See Wells Fargo 
Clearing Servs. v. Leggett, No. A22A1149, 2022 Ga. App. (Ct. App. 
August 2, 2022).
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    FINRA is proposing to update the Codes by making technical, non-
substantive changes to remove references to the NLSS from those rules 
describing arbitrator list selection and instead refer to the ``list 
selection algorithm.'' \7\ The proposed rule change would provide 
greater transparency and consistency regarding arbitrator list 
selection, as the Codes would reflect and align with DRS's existing 
practices, processes and systems relating to arbitrator list selection.
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    \7\ See proposed Rules 12400 (List Selection Algorithm and 
Arbitrator Rosters), 12402 (Cases with One Arbitrator), 12403 (Cases 
with Three Arbitrators), 12404 (Additional Parties), 12800 
(Simplified Arbitration), 12801 (Default Proceedings), 13400 (List 
Selection Algorithm and Arbitrator Rosters), 13403 (Generating and 
Sending Lists to the Parties), 13406 (Appointment of Arbitrators; 
Discretion to Appoint Arbitrators Not on List), 13407 (Additional 
Parties), 13411 (Replacement of Arbitrators), 13800 (Simplified 
Arbitration), 13801 (Default Proceedings) and 13803 (Coordination of 
Sexual Assault Claims, Sexual Harassment Claims or Statutory 
Employment Discrimination Claims Filed in Court and in Arbitration).
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    In the proposed rule change, FINRA is not proposing any changes to 
the list selection algorithm, or any of DRS's existing practices, 
processes and systems related to arbitrator list selection.\8\
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    \8\ The proposed rule change would apply to all members, 
including members that are funding portals or have elected to be 
treated as capital acquisition brokers (``CABs''), given that the 
funding portal and CAB rule sets incorporate the impacted FINRA 
rules by reference.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Exchange Act,\9\ 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 
will provide greater transparency to members and the public regarding 
arbitrator list selection by updating FINRA rules to reflect and align 
with DRS's existing practices, processes and systems related to 
arbitrator list selection.
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    \9\ 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 Exchange Act. The proposed rule 
change brings transparency and consistency to FINRA rules without 
adding any burden on member firms.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 [email protected]. Please include 
File Number SR-FINRA-2022-026 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2022-026. 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

[[Page 58856]]

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 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 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.
    All submissions should refer to File Number SR-FINRA-2022-026 and 
should be submitted on or before October 19, 2022.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21031 Filed 9-27-22; 8:45 am]
BILLING CODE 8011-01-P