Document ID: SEC-2018-0422-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2018-03-14T04:00Z

[Federal Register Volume 83, Number 50 (Wednesday, March 14, 2018)]
[Notices]
[Pages 11256-11259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05075]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82829; File No. SR-FINRA-2018-012]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating To Eliminate the Fee for an Explained 
Decision

March 8, 2018.
    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 21, 2018, 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 ``establishing or changing a 
due, fee or other charge'' under Section 19(b)(3)(A)(ii) of the Act \3\ 
and Rule 19b-4(f)(2) thereunder,\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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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 Rules 12214(e)(1) and 12904(g)(5) 
of the Code of Arbitration Procedure for Customer Disputes (``Customer 
Code'') and FINRA Rules 13214(e)(1) and 13904(g)(5) of the Code of 
Arbitration Procedure for Industry Disputes (``Industry Code'') 
(together, ``Codes'') to eliminate the $400 fee for an explained 
decision.
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

12214. Payment of Arbitrators

    (a)-(d) No change.
    (e) Payment for Explained Decisions
    (1) The chairperson who is responsible for writing an explained 
decision pursuant to Rule 12904(g) will receive an additional 
honorarium of $400. [The panel will allocate the cost of the honorarium 
under Rule 12904(g) to the parties.]

[[Page 11257]]

    (2) No change.

12904. Awards

    (a)-(f) No change.
    (g) Explained Decisions
    (1)-(4) No change.
    (5) The chairperson will receive an additional honorarium of $400 
for writing the explained decision, as required by this paragraph (g). 
[The panel will allocate the cost of the chairperson's honorarium to 
the parties as part of the final award.]
    (6) No change.
    (h)-(j) No change.

13214. Payment of Arbitrators

    (a)-(d) No change.
    (e) Payment for Explained Decisions
    (1) The chairperson who is responsible for writing an explained 
decision pursuant to Rule 13904(g) will receive an additional 
honorarium of $400. [The panel will allocate the cost of the honorarium 
under Rule 13904(g) to the parties.]
    (2) No change.

13904. Awards

    (a)-(f) No change.
    (g) Explained Decisions
    (1)-(4) No change.
    (5) The chairperson will receive an additional honorarium of $400 
for writing the explained decision, as required by this paragraph (g). 
[The panel will allocate the cost of the chairperson's honorarium to 
the parties as part of the final award.]
    (6) No change.
    (h)-(j) No change.
* * * * *

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
    In 2009, the Commission approved amendments to the Codes that 
required arbitrators to provide an explained decision at the parties' 
joint request.\5\ An explained decision is a fact-based award stating 
the general reasons for the arbitrators' decision; it is not required 
to include legal authorities or damage calculations.\6\ The chairperson 
of the panel is responsible for drafting the explained decision and 
receives an additional $400 honorarium for doing so.\7\ Under the 
Codes, the arbitrators allocate the $400 cost to the parties as part of 
the award.\8\ FINRA began waiving the $400 fee for an explained 
decision as of January 2017.\9\ In order to remove a potential obstacle 
to parties requesting an explained decision, FINRA is proposing to 
eliminate the $400 fee for an explained decision. FINRA will continue 
to pay the $400 honorarium to the chairperson.
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    \5\ See Securities Exchange Act Release No. 59358 (Feb. 4, 
2009), 74 FR 6,928 (Feb. 11, 2009) (Approval Order for SR-FINRA 
2008-51).
    \6\ See FINRA Rules 12904(g)(2) and 13904(g)(2).
    \7\ See FINRA Rules 12904(g)(4) and 12904(g)(5); see also FINRA 
Rules 13904(g)(4) and 13904(g)(5).
    \8\ See FINRA Rules 12214(e)(1) and 12904(g)(5); see also FINRA 
Rules 13214(e)(1) and 13904(g)(5).
    \9\ Pursuant to FINRA Rules 12408 and 13412 (Director's 
Discretionary Authority), FINRA began waiving the $400 fee for an 
explained decision beginning on January 3, 2017. From January 3, 
2017 through February 14, 2018, there have been two joint requests 
for explained decisions.
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    The proposed rule change would amend FINRA Rules 12214(e)(1) and 
13214(e)(1) (Payment of Arbitrators) and FINRA Rules 12904(g)(5) and 
13904(g)(5) (Explained Decisions) to remove the provision that gives 
arbitrators express authority to allocate the $400 fee to the parties 
for an explained decision. By proposing to remove this provision, if 
parties jointly request an explained decision, the chairperson drafting 
the decision would receive $400 as currently provided in the rules; 
\10\ the fee, however, would not be assessed to the parties. FINRA 
believes the proposed rule change would remove a potential barrier to 
parties making joint requests for explained decisions.\11\
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    \10\ Since the explained decision amendments went into effect in 
2009 until the end of 2016, parties have made 40 joint requests for 
explained decisions. Of the 40 requests, there have been 32 
explained decisions issued; explained decisions were not issued for 
the remaining eight requests because either the cases settled or 
closed by other means. Parties also made two joint requests from 
January 3, 2017 through February 14, 2018.
    \11\ See supra note 10.
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    As noted in Item 2 of this filing, FINRA has filed the proposed 
rule change for immediate effectiveness. The operative date will be 
February 21, 2018.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(5) of the Act,\12\ which requires, among 
other things, that FINRA rules provide for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system that FINRA operates or 
controls. FINRA believes that the elimination of the fee will decrease 
its revenue by a de minimis amount because currently there are few 
explained decisions: over the past year, eliminating the fee would have 
decreased FINRA's program revenues by $800.\13\ Moreover, not charging 
for explained decisions removes a potential obstacle to explained 
decisions, promoting transparency of decisions.
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    \12\ 15 U.S.C. 78o-3(b)(5).
    \13\ Since 2009, there have been approximately four joint 
requests for explained decisions on average per year.
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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. A discussion of the economic 
impacts of the proposed amendments follows.
(a) Need for the Rule
    FINRA began waiving the $400 fee for an explained decision as of 
January 2017. The proposal codifies and thereby makes permanent the 
elimination of the explained decision fee.
(b) Economic Baseline
    The economic baseline for the proposal includes the current rules 
under the Codes that address the allocation of fees by arbitrators. The 
economic baseline for the proposal also includes the current practice 
of FINRA waiving the explained decision fee. The proposal is expected 
to affect parties to an arbitration including customers, member firms, 
and associated persons.
    Parties must make a joint request for an explained decision prior 
to the first scheduled hearing. Parties can benefit from an explained 
decision through a better understanding of the arbitrators' rationale 
for the award decision. An explained decision, however, could increase 
the time to resolution by providing parties with an additional basis to 
file a motion to vacate.\14\ An explained decision could also result in 
the public disclosure of information describing the potential 
wrongdoing of

[[Page 11258]]

a member firm or an associated person. This may cause a negative 
reputational effect and could lead to additional claims against the 
member firm or the associated person and a loss of business.\15\
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    \14\ Since 2009, there were seven motions to vacate out of 32 
awards that included an explained decision. Three of the motions to 
vacate relate to industry cases, and four of the motions to vacate 
relate to cases with customers as claimants.
    \15\ Among the 32 cases with an explained decision issued since 
2009, approximately two-thirds resulted in a monetary award in favor 
of the claimants, and therefore could have resulted in additional 
negative disclosure of wrongdoing by industry parties as 
respondents. Explained decisions in intra-industry arbitration cases 
could result in additional negative disclosure of wrongdoing by 
either industry party.
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    In order for parties to agree to a joint request, both parties 
would need to determine that the benefits of an explained decision are 
greater than its costs. In general, joint requests for an explained 
decision have been few. Since the explained decision rule became 
effective in 2009 until the end of 2016, there have been 40 joint 
requests for explained decisions with 32 explained decisions issued. 
There have been two additional joint requests after FINRA began waiving 
the explained decision fee in January 2017.\16\ Together, this evidence 
suggests that non-monetary costs of an explained decision are more 
important determinants to making a joint request. Otherwise, the 
waiving of the fee would have resulted in a relative increase in the 
number of joint requests.
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    \16\ Over 7,600 cases have been filed and closed by hearing or 
by papers since the beginning of 2009.
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    FINRA began waiving the explained decision fee in January 2017. 
Parties, however, could again be subject to a fee if FINRA were to 
decide to no longer waive the fee. The potential that FINRA may no 
longer waive the explained decision fee could be a constraint and 
thereby reduce the number of parties that make a joint request.
(c) Economic Impact
    The primary benefit of the proposal is the permanent removal of the 
fee that could be a barrier to jointly requesting an explained 
decision. To the extent that a potential fee is a constraint, its 
removal from the Codes could increase the number of joint requests made 
by parties. The parties that would be more likely to file a joint 
request are the parties for which the benefits of an explained decision 
are greater than its costs not including the potential fee. Other than 
the permanent elimination of the fee, the benefits and costs of an 
explained decision would remain the same.
    Whether the proposed rule change would result in any additional 
requests for an explained decision could be dependent on whether the 
fee is a factor in their decision to make a joint request. As noted 
above, few parties jointly requested an explained decision prior to 
FINRA waiving the fee, and there have been only two joint requests for 
an explained decision since the waiver. This evidence suggests that 
non-monetary costs, other than the $400 fee, are more significant 
determinants of whether parties make a joint request. The removal of 
the fee from the Codes, therefore, is likely to have little effect on 
the frequency of requests made. The benefits and costs of the proposal 
are therefore also likely to be negligible.
(d) Alternatives Considered
    A plausible alternative to the proposed amendments is an explained 
decision fee that is greater than zero but less than the $400 currently 
stated in the Codes. Similar to the current proposed amendments, this 
alternative would permanently establish the fee amount if parties 
jointly request an explained decision. A fee greater than zero but less 
than $400, however, would increase the costs to parties relative to the 
current proposal that seeks to eliminate the fee, thereby potentially 
reducing their incentives to make a joint request. As discussed above, 
the evidence suggests that the other potential costs of an explained 
decision are more significant determinants of whether parties make a 
joint request. This alternative, therefore, would increase the costs to 
parties that make a joint request but would have little effect on the 
frequency of requests made.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \17\ and paragraph (f)(2) of Rule 19b-4 
thereunder.\18\ 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.
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(2).
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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-2018-012 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2018-012. 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 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 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. 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-2018-012 and should be submitted on or before April 4, 2018.

[[Page 11259]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-05075 Filed 3-13-18; 8:45 am]
 BILLING CODE 8011-01-P