Document ID: SEC-2009-0657-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to Expedited Administration of Promissory Note Cases
Posted Date: 2009-05-14T04:00Z

[Federal Register: May 14, 2009 (Volume 74, Number 92)]
[Notices]               
[Page 22788-22789]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my09-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59885; File No. SR-FINRA-2009-015]

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

May 7, 2009.
    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 April 17, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) 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 adopt Rule 13806 of the Code of Arbitration 
Procedure for Industry Disputes (``Industry Code''), to establish 
procedures to expedite the administration of arbitrations in which a 
member's only claim is that an associated person failed to pay money 
owed on a promissory note; and to amend Rules 13214 and 13600 of the 
Industry Code to make conforming changes. 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 the Industry Code to establish new 
procedures to expedite the administration of promissory note cases. 
Proposed new Rule 13806 would apply to arbitrations solely involving a 
member's claim that an associated person failed to pay money owed on a 
promissory note. In order to proceed under the new rule, a claimant 
would not be permitted to include any additional allegations in the 
Statement of Claim. FINRA is also proposing to amend Rules 13214 and 
13600 of the Industry Code to make conforming changes.
    In the absence of additional allegations by members or associated 
persons, promissory note cases involve straightforward contracts with 
few documents being entered into evidence. The new procedures would 
streamline the process for promissory note cases and reduce expenses 
for the parties while maintaining the procedural safeguards in the 
Industry Code for the associated person against whom a member asserts a 
claim.
    Specifically, under the proposed procedures:
     Parties would choose a single public arbitrator from the 
roster of arbitrators approved to hear statutory discrimination 
claims,\3\ unless an associated person files a counterclaim or third 
party claim of more than $100,000, exclusive of interest or expenses, 
or the counterclaim or third party claim is unspecified or does not 
request money damages.\4\ FINRA believes that the arbitrators on this 
roster would be especially suited to resolve these disputes because of 
the depth of their experience and their familiarity with employment 
law;
     If the associated person does not file an answer, 
simplified discovery procedures would apply \5\ and, regardless of the 
amount in controversy, the single arbitrator would render an award 
based on the pleadings and other materials submitted by the parties. 
The arbitrator would be paid an honorarium of $125 for each arbitration 
resolved in this manner;\6\
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    \3\ See Rule 13802(c)(3). These specially qualified arbitrators 
are attorneys familiar with employment law who have at least ten 
years of legal experience. In addition, a chair or single arbitrator 
may not have represented primarily the views of employers or of 
employees within the last five years. Primarily means 50 percent or 
more of the arbitrator's business or professional activities within 
the last five years.
    \4\ The $100,000 threshold was chosen because FINRA recently 
raised the threshold for a single chair-qualified arbitrator in all 
cases to $100,000. Under the rule change, if the amount of a claim 
is more than $100,000, exclusive of interest and expenses, or is 
unspecified, or if the claim does not request money damages, the 
panel will consist of three arbitrators, unless the parties agree in 
writing to one arbitrator. See Exchange Act Release No. 59340 
(February 2, 2009), 74 FR 6335 (February 6, 2009) (SR-FINRA-2008-
047).
    \5\ Rule 13800(d) (Simplified Arbitration--Discovery and 
Additional Evidence) provides for limited discovery in arbitrations 
involving $25,000 or less, exclusive of interest and expenses.
    \6\ In simplified arbitration proceedings administered under 
Rules 12800 and 13800 (Simplified Arbitration), the arbitrator 
honorarium is $125. The honorarium under proposed Rule 13806 is 
intended to be consistent with these rules.
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     If the associated person files an answer (but does not 
seek any additional relief or assert any counterclaims or third party 
claims), regular discovery procedures would apply \7\ and, regardless 
of the amount in controversy, the single arbitrator would hold a 
hearing; and
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    \7\ The 13500 series of rules would provide for prehearing 
procedures and discovery in these cases.
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     If the associated person files a counterclaim or third 
party claim, then regular discovery procedures would apply and panel 
composition would be based on the amount of the counterclaim or third 
party claim. If the counterclaim and/or third party claim is not more 
than $100,000, exclusive of interest and expenses, the Director \8\ 
would appoint a single public arbitrator from the roster of arbitrators 
approved to hear statutory discrimination claims. If the counterclaim 
and/or third party claim is more than $100,000, exclusive of interest 
and expenses, then the Director would appoint a three-arbitrator panel. 
The Director would appoint one public arbitrator from the roster of 
arbitrators approved to hear statutory discrimination claims who would 
serve as chairperson, one arbitrator from the public roster, and one 
arbitrator from the non-public roster. If the counterclaim or third 
party claim is filed after a single arbitrator is appointed, and a 
three-arbitrator panel is required, the Director would retain

[[Page 22789]]

the appointed arbitrator as chair and appoint two additional 
arbitrators (one public and one non-public arbitrator). Regardless of 
whether the panel is composed of one or three arbitrators, FINRA would 
pay the arbitrators the honoraria provided for in the Industry Code for 
arbitrations resolved by a hearing.
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    \8\ Rule 13100(k) defines the term ``Director'' to mean the 
``Director of FINRA Dispute Resolution. Unless the Code provides 
that the Director may not delegate a specific function, the term 
includes FINRA staff to whom the Director has delegated authority.''
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    FINRA is proposing to amend Rule 13214 (Payment of Arbitrators) to 
reflect that the rule applies to arbitrator honoraria except as 
specified in new Rule 13806(f) or as specifically excluded in Rule 
13214. Under the proposal, FINRA would pay an arbitrator an honorarium 
of $125 for each arbitration in which the associated person does not 
file an answer and the award is based on the arbitrator's review of the 
pleadings and other materials submitted by the parties. As these are 
expedited proceedings, FINRA would not pay an honorarium for resolving 
a discovery-related motion without a hearing session or for resolving a 
contested motion concerning issuance of a subpoena without a hearing 
session. In instances where full discovery would be conducted under the 
13500 series of rules, FINRA would pay the honorarium prescribed in 
Rule 13214 for discovery-related motions without a hearing session and 
for contested motions concerning issuance of a subpoena without a 
hearing session.
    FINRA is also proposing to amend Rule 13600 (Required Hearings) to 
reflect that a hearing will be held unless new Rule 13806(e)(1) 
provides otherwise. Under the proposal, if the associated person does 
not file an answer, no initial prehearing conference or hearing would 
be held. Generally, in the absence of additional allegations by members 
or associated persons, promissory note cases involve straight forward 
contracts with few documents entered into evidence. FINRA believes 
that, in these situations, promissory note cases would be processed 
more quickly and efficiently and expenses would be reduced for the 
parties and the forum if the arbitrator were to render the award on the 
pleadings and other materials submitted by the parties.\9\
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    \9\ The rationale for the proposed rule change was confirmed in 
a phone conversation with Margo Hassan and Ken Andrichik of FINRA, 
on May 6, 2009.
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    As noted in Item 2 of this filing, FINRA will 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,\10\ 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. Generally, in the absence of additional allegations by 
members or associated persons, promissory note cases involve straight 
forward contracts with few documents entered into evidence. FINRA 
believes that, under the proposal, these promissory note cases would be 
processed more quickly and efficiently and expenses would be reduced 
for the parties and the forum. FINRA does not believe that the new 
procedures would negatively impact its administration of other cases 
filed with the forum.
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    \10\ 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 35 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:
    (A) By order approve 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-2009-015 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-2009-015. 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 inspection 
and copying 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. 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-2009-015 and should be submitted on or before June 4, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-11263 Filed 5-13-09; 8:45 am]

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