Document ID: SEC-2013-1162-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-06-27T04:00Z

[Federal Register Volume 78, Number 124 (Thursday, June 27, 2013)]
[Notices]
[Pages 38771-38776]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15367]

[[Page 38771]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69825; File No. SR-FINRA-2013-018]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change Relating to FINRA 
Rule 8313 (Release of Disciplinary Complaints, Decisions and Other 
Information) as Modified by Amendment No. 1

June 21, 2013.

I. Introduction

    On March 5, 2013, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) \1\ of the 
Securities Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to amend FINRA Rule 8313 (Release 
of Disciplinary Complaints, Decisions and Other Information), which 
governs the release of disciplinary and other information by FINRA to 
the public. In addition, the proposed rule change would make conforming 
amendments to certain rules in the FINRA Rule 9000 Series (Code of 
Procedure) and add a provision to FINRA Rule 9268 (Decision of Hearing 
Panel or Extended Hearing Panel) regarding the effective date of 
sanctions. The proposed rule change was published for comment in the 
Federal Register on March 25, 2013.\4\ The Commission received five 
comment letters on the proposal.\5\ On June 17, 2013, FINRA responded 
to the comments \6\ and filed Amendment No. 1 to the proposed rule 
change.\7\ This order approves the proposed rule change, as modified by 
Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 69178 (March 25, 
2013), 78 FR 17975 (``Notice'').
    \5\ See Letters from William A. Jacobson, Associate Clinical 
Professor of Law and Ali N. Wright, Cornell Law Student, Cornell Law 
School, to Elizabeth M. Murphy, Secretary, Securities and Exchange 
Commission, dated April 15, 2013 (``Cornell Letter''); David T. 
Bellaire, Executive Vice President and General Counsel, Financial 
Services Institute, to Elizabeth M. Murphy, Secretary, Commission, 
dated April 15, 2013 (``FSI Letter''); Jenice L. Malecki, Malecki 
Law, to Elizabeth M. Murphy, Secretary, Commission, dated April 15, 
2013 (``Malecki Letter''); Jason R. Doss, Executive Vice President/
President-Elect, Public Investors Arbitration Bar Association, to 
Elizabeth M. Murphy, Secretary, Commission, dated April 15, 2013 
(``PIABA Letter''); Kevin M. Carroll, Managing Director and 
Associate General Counsel, to Elizabeth M. Murphy, Secretary, 
Commission, dated April 15, 2013 (``SIFMA Letter'').
    \6\ See Letter from Erika Lazar, Assistant General Counsel, 
FINRA, to Elizabeth M. Murphy, Secretary, Commission, dated June 17, 
2013.
    \7\ In Amendment No. 1, FINRA proposes to amend the proposed 
rule change to retain the requirement in Rule 8313(a) that in 
response to a request, FINRA will release a copy of any identified 
disciplinary complaint or disciplinary decision to the requesting 
party. FINRA proposed to eliminate this provision in light of the 
proposed adoption of general standards for the release of 
disciplinary complaints, disciplinary decisions, and other 
information to the public. However, FINRA believes that maintaining 
this provision in the proposed rule clarifies that FINRA will 
continue to respond to requests for, and provide access to, 
identified complaints and decisions. The amendment is technical and 
therefore not subject to notice and comment.
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II. Description of the Proposal

    As further described below, FINRA proposes to amend Rule 8313 to 
establish general standards for the release of disciplinary information 
to the public. The amendment would provide greater information 
regarding FINRA's disciplinary actions, clarify the scope of 
information subject to Rule 8313 and eliminate from the rule provisions 
that do not address the release of information by FINRA to the public. 
The proposed rule would also make conforming amendments to certain 
rules in the FINRA Rule 9000 Series and add a provision to FINRA Rule 
9268 regarding the effective date of sanctions.

A. Disciplinary Complaints and Disciplinary Decisions

    Rule 8313(a) currently provides that in response to a request, 
FINRA shall release any identified disciplinary complaint or 
disciplinary decision issued by FINRA (or any subsidiary or Committee 
thereof) to the requesting party. Absent a specific request for an 
identified complaint or decision, Rule 8313 provides publicity 
thresholds for the release of information with respect to disciplinary 
complaints and disciplinary decisions to the public.\8\
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    \8\ Rule 8313 provides for the release of ``information with 
respect to'' disciplinary complaints and decisions in light of 
FINRA's practice to issue, in addition to the complaints or 
decisions themselves, information, for example, in press releases or 
summaries of complaints and decisions that meet the current 
publicity thresholds, or are otherwise permitted to be released 
under the rule.
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    The publicity thresholds of Rule 8313(b)(1) currently require FINRA 
to make public information with respect to any disciplinary complaint 
that contains an allegation of a violation of a ``designated'' statute, 
rule, or regulation of the Commission, FINRA, or the Municipal 
Securities Rulemaking Board (``MSRB''), as determined by the FINRA 
Regulation Board of Directors (``Board'').\9\ In addition, FINRA may 
release to the public information with respect to any complaint or 
group of complaints that involves a significant policy or enforcement 
determination where release of the information is deemed by FINRA's 
Chief Executive Officer (``CEO'') (or such other senior officer as the 
CEO may designate) to be in the public interest.
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    \9\ FINRA has identified the rules in NASD Notice to Members 97-
42 (July 1997).
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    Pursuant to the current publicity thresholds of Rule 8313(c)(1), 
FINRA releases to the public information with respect to any 
disciplinary decision that: (1) Imposes a suspension, cancellation, or 
expulsion of a member; (2) imposes a suspension or revocation of the 
registration of an associated person; (3) imposes a suspension or bar 
of a member or associated person from association with all members; (4) 
imposes monetary sanctions of $10,000 or more upon a member or 
associated person; or (5) contains an allegation of a violation of a 
designated rule. FINRA may also release information with respect to any 
disciplinary decision or group of decisions that involves a significant 
policy or enforcement determination where its release is deemed by 
FINRA's CEO, or his designee, to be in the public interest. Current 
Rule 8313(c)(1) contains an omnibus provision permitting FINRA to 
release information on any disciplinary or other decision issued 
pursuant to the Rule 9000 Series not specifically enumerated, 
regardless of the sanctions imposed, if the names of the parties and 
other identifying information is redacted. Rule 8313(c)(1)(A) and 
(c)(1)(B) currently sets forth redaction standards for the release of 
information with respect to disciplinary decisions where information 
regarding the decision has previously been released to the public in 
unredacted form, where only certain respondents in a decision on appeal 
meet one or more of the publicity thresholds, or where an underlying 
Office of Hearing Officers (``OHO'') decision meets a publicity 
threshold, but a later National Adjudicatory Council (``NAC'') decision 
on the matter does not meet a threshold.
    The FINRA Disciplinary Actions online database (``FDA'') became 
available in May 2011. It provides interested parties with greater 
access to information regarding FINRA's disciplinary actions.\10\ The 
FDA contains copies of FINRA's disciplinary actions (dating back to 
early 2005) that are eligible for publication under Rule

[[Page 38772]]

8313. Interested parties may search the database to obtain copies of 
disciplinary complaints and disciplinary decisions as well as to find 
actions involving violations of a particular rule or statute, or other 
criteria of interest to them.\11\ However, the publicity thresholds in 
Rule 8313 limit disciplinary information available for publication in 
the FDA (or otherwise available for release by FINRA).
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    \10\ The FDA is available at http://www.finra.org/Industry/Enforcement/DisciplinaryActions/FDAS/.
    \11\ The FDA also includes decisions issued by the SEC and 
federal appellate courts that relate to FINRA disciplinary actions 
that have been appealed.
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    FINRA proposes to eliminate the restrictions on publication by 
eliminating the provision addressing the release of ``identified'' 
disciplinary complaints and disciplinary decisions in Rule 8313(a) as 
well as the publicity thresholds in 8313(b)(1) and (c)(1).\12\ In their 
place, the proposed rule change would adopt general standards for the 
release of disciplinary complaints, disciplinary decisions, and other 
information to the public. Specifically, under proposed Rule 8313(a) 
FINRA will release to the public a copy of, and in FINRA's discretion, 
information with respect to any disciplinary complaint or disciplinary 
decision it issues.\13\ Subject to limited exceptions, FINRA would 
release such information in unredacted form.\14\
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    \12\ In light of the elimination of the publicity thresholds, 
the proposed rule change also would delete from Rule 8313 the 
redaction standards made necessary by the publicity thresholds in 
current paragraphs (c)(1)(A) and (c)(1)(B).
    \13\ The proposed rule change would eliminate as unnecessary 
references to ``groups of'' disciplinary complaints and disciplinary 
decisions. See Rule 8313(b)(1) and (c)(1). FINRA does not view the 
proposed rule change as distinguishing between the release of 
individual, versus groups of, disciplinary complaints and 
disciplinary decisions.
    \14\ See Notice at 6.
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B. Temporary Cease and Desist Orders (``TCDOs'')

    Rule 8313(c)(1) currently states that FINRA shall release to the 
public information with respect to any TCDO. The proposed rule change 
would retain this provision with minor changes as part of proposed Rule 
8313(a)(2) to provide that FINRA will release to the public a copy of, 
and in FINRA's discretion information with respect to, any order or 
decision issued by FINRA under the Rule 9800 Series.

C. Statutory Disqualification Decisions

    Rule 8313 does not address the release of statutory 
disqualification decisions to the public. Pursuant to the omnibus 
provision in Rule 8313(c)(1), discussed above, FINRA currently releases 
information on statutory disqualification decisions issued by the NAC 
pursuant to the Rule 9520 Series with the names of members and 
associated persons redacted. In addition, FINRA currently does not 
disclose the identity of the statutorily disqualified individuals or 
member firms. Under proposed Rule 8313(a)(2) FINRA will release to the 
public unredacted copies of, and in FINRA's discretion, information 
with respect to statutory disqualification decisions, notifications, 
and notices issued pursuant to the Rule 9520 Series by either the NAC 
or FINRA's Member Regulation Department (``Member Regulation'') that 
will be filed with the SEC.\15\
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    \15\ All statutory disqualification decisions issued by the NAC 
are filed with the Commission. In contrast, depending on the nature 
of the disqualifying event, Member Regulation may or may not have to 
file a notice of its approval of an application for relief (referred 
to as a 19h-1 notice or notification) with the Commission. For 
example, Member Regulation may approve the association of a person 
without filing a 19h-1 notice or notification with the SEC when the 
disqualifying event consists of an injunction that was entered more 
than 10 years ago. See also Rule 19h-1 under the Act.
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D. Expedited Proceeding Decisions

    Rules 9552 through 9558 \16\ currently provide a procedural 
mechanism for FINRA to address certain types of misconduct (e.g., a 
failure to pay fees or dues or a failure to meet eligibility or 
qualification standards) more expeditiously than would be possible 
using the FINRA disciplinary process.
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    \16\ See Rule 9552 (Failure to Provide Information or Keep 
Information Current), Rule 9553 (Failure to Pay FINRA Dues, Fees and 
Other Charges), Rule 9554 (Failure to Comply with an Arbitration 
Award or Related Settlement or an Order of Restitution or Settlement 
Providing for Restitution), Rule 9555 (Failure to Meet the 
Eligibility or Qualification Standards or Prerequisites for Access 
to Services), Rule 9556 (Failure to Comply with Temporary and 
Permanent Cease and Desist Orders), Rule 9557 (Procedures for 
Regulating Activities Under Rules 4110, 4120 and 4130 Regarding a 
Member Experiencing Financial or Operational Difficulties), and Rule 
9558 (Summary Proceedings for Actions Authorized by Section 
15A(h)(3) of the Act).
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    Rule 8313(c)(1) currently states that FINRA may release to the 
public information with respect to any decision issued pursuant to the 
Rule 9550 Series imposing a suspension or cancellation of a member, or 
a suspension or bar of the association of a person with a member, 
unless FINRA determines otherwise. Separately, the ``Notice to 
Membership'' provisions in Rules 9552 through 9556 and 9558 through 
9559 currently state that FINRA shall provide notice of any final 
action it takes under the rules in the next notice of Disciplinary and 
Other FINRA Actions. The Notice to Membership provision in Rule 9557 
requires notice when FINRA imposes a suspension pursuant to the rule, 
but does not reference final FINRA action because the procedural 
mechanisms in Rule 9557 differ from the other rules in the expedited 
proceedings series.
    Proposed Rule 8313(a)(2) would require FINRA to release to the 
public information with respect to any suspension, cancellation, 
expulsion or bar that constitutes final FINRA action imposed pursuant 
to Rules 9552 through 9556 and 9558 and information with respect to any 
suspension imposed pursuant to Rule 9557. FINRA would also be required 
to release a copy of, and information with respect to, any decision 
issued pursuant to Rule 9559 (Hearing Procedures for Expedited 
Proceedings under the Rule 9550 Series) that constitutes final FINRA 
action. Accordingly, the proposed rule change would delete the ``Notice 
to Membership'' provisions in Rules 9552 through 9559.

E. Summary Actions

    Rule 8313 currently does not specifically address the release of 
information regarding summary actions taken by FINRA pursuant to Rule 
8320 (Payment of Fines, Other Monetary Sanctions, or Costs; Summary 
Action for Failure to Pay). Proposed Rule 8313(a)(3) would codify 
FINRA's practice by expressly requiring FINRA to release to the public 
information with respect to the summary suspension or expulsion of a 
member or the summary revocation of the registration of a person 
associated with a member for a failure to pay fines, other monetary 
sanctions, or costs pursuant to Rule 8320.

F. Membership and Continuing Membership Application (``MAP'') Appeals

    Rule 8313(l) currently provides that FINRA shall release to the 
public, in the form issued by the NAC, information with respect to any 
MAP appeal decision issued by the NAC pursuant to NASD Rule 1015 
(Review by National Adjudicatory Council). The NAC in its discretion 
may redact certain information from such decisions before they are 
issued.
    Proposed Rule 8313(a)(4) would require FINRA to release to the 
public a copy of, and in FINRA's discretion, information with respect 
to any MAP appeal decision issued by FINRA pursuant to NASD Rules 1015 
and 1016 (Discretionary Review by FINRA Board). The proposed rule would 
also require FINRA to release copies of, and information with respect 
to, such decisions to the public in redacted form; provided, however, 
the NAC or the Board, in its discretion, may determine

[[Page 38773]]

to release such decisions and information in unredacted form.

G. Permissive Publication of Certain Decisions and Notices

    FINRA does not currently publish decisions or notices issued 
pursuant to Rule 6490 and the Rule 9700 Series. However, if FINRA 
determines that there is public benefit to releasing a specific 
decision or notice issued under these rules to provide guidance to 
other firms or to alert the public to an investor protection issue, it 
would do so.\17\ The proposed rule change would add Rule 8313(a)(5) 
that would permit FINRA to release to the public a copy of, and 
information with respect to, any decision or notice issued pursuant to 
Rule 6490 (Processing of Company-Related Actions),\18\ the Rule 9600 
Series (Procedures for Exemptions),\19\ the Rule 9700 Series 
(Procedures on Grievances Concerning the Automated Systems),\20\ and 
any other decision appealable to the Commission under Section 19(d) of 
the Act.
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    \17\ In general, FINRA does not release copies of, or 
information with respect to, decisions or notices addressing 
company-related actions or grievances concerning the automated 
systems.
    \18\ Under Rule 6490, FINRA's Operations Department reviews and 
processes documents related to announcements for Exchange Act Rule 
10b-17 Actions and Other Company-Related Actions to facilitate the 
orderly trading and settlement of OTC securities.
    \19\ The Rule 9600 Series allows a member seeking exemptive 
relief, as permitted under certain FINRA and NASD rules and MSRB 
Rule G-37, to file a written application with the appropriate 
department or staff of FINRA. The proposed rule change would make 
conforming amendments to Rule 9620, which governs exemption 
decisions issued under the Rule 9600 Series, to reflect the 
permissive nature of proposed Rule 8313(a)(5).
    \20\ The Rule 9700 Series sets forth procedures for redress for 
persons aggrieved by the operations of any automated quotation, 
execution, or communication system owned or operated by FINRA, or 
its subsidiaries, and approved by the SEC, not otherwise provided 
for by the FINRA rules.
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    FINRA currently posts to its Web site exemption decisions for 
several rules listed in Rule 9610, in large part, to provide guidance 
to members, investors, and other interested parties to assist them in 
understanding the rationale for the decisions to grant or deny requests 
for exemptive relief.\21\ With respect to exemption decisions, the 
proposed rule change would permit exemption decisions issued under the 
Rule 9600 Series to be released to the public because Rule 9610, which 
governs the application for exemptive relief, authorizes members to 
request relief from a diverse set of member conduct rules. Proposed 
Rule 8313(a)(5) would also provide for the release of ``any other 
decision'' appealable to the Commission under Section 19(d) of the Act.
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    \21\ Consistent with current practice under the Rule 9600 
Series, FINRA will continue to consider statements included by an 
applicant to show good cause to treat a decision as confidential in 
whole or in part.
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H. Publication of Information Deemed by FINRA's CEO To Be in the Public 
Interest

    As discussed above, notwithstanding the existing publicity 
thresholds, FINRA Rule 8313(b)(1) and (c)(1) currently allows FINRA to 
release information with respect to any disciplinary complaint or 
disciplinary decision that involves a significant policy or enforcement 
determination where the release of such information is deemed by 
FINRA's CEO to be in the public interest. Consistent with these 
provisions, proposed Rule 8313(a)(6) would allow FINRA to release to 
the public a copy of, and information with respect to, any complaint, 
decision, order, notification, or notice issued under FINRA rules, 
where the release of such information is deemed by FINRA's CEO (or such 
other senior officer as the CEO may designate) to be in the public 
interest.

I. Release Specifications

    Rule 8313 currently requires copies of, and information with 
respect to, disciplinary complaints and disciplinary decisions released 
to the public to be accompanied by certain disclosure statements 
regarding their status.\22\ Proposed Rule 8313(b)(1) would modify the 
disclosure to state that a disciplinary complaint represents the 
initiation of a formal proceeding by FINRA in which findings as to the 
allegations in the complaint have not been made and does not represent 
a decision as to any of the allegations contained in the complaint.
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    \22\ See Notice at 16.
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    Similarly, Rule 8313(a)(2) through (a)(4) and (c)(2) currently 
requires copies of, and information with respect to, disciplinary 
decisions released to the public to be accompanied by disclosure 
statements. Proposed Rule 8313(b)(2) would require copies of, and 
information with respect to, any disciplinary decision or other 
decision, order, notification, or notice released to the public 
pursuant to Rule 8313(a) before the time period provided for an appeal 
or call for review has expired, to indicate that the findings and 
sanctions imposed therein are subject to review and modification by 
FINRA or the Commission. Disclosures relating to a pending appeal or 
call for review will include the same information.

J. Discretion To Redact Certain Information or Waive Publication

    As discussed above, FINRA has determined that, subject to limited 
exceptions, disciplinary information should be released to the public 
in unredacted form. With respect to the limited exceptions, proposed 
Rule 8313(c)(1) would permit FINRA, notwithstanding the requirements of 
proposed Rule 8313(a), to redact, on a case-by-case basis, confidential 
customer information, including customer identities, or information 
that raises significant identity theft, personal safety, or privacy 
concerns that are not outweighed by investor protection concerns. FINRA 
takes the same approach with respect to the release of information in 
BrokerCheck.\23\
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    \23\ See Rule 8312(d) (FINRA BrokerCheck Disclosure).
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    Similarly, proposed Rule 8313(c)(2) would adopt with minor changes 
a statement from current Rule 8313(c)(1) that provides FINRA with 
discretion to waive the requirement to release a disciplinary or other 
decision. The proposed rule change would expand this provision to give 
FINRA discretion to waive the requirement to release any item under 
paragraph (a) of the proposed rule. Accordingly, proposed Rule 
8313(c)(2) would provide that notwithstanding paragraph (a) of the 
proposed rule, FINRA may determine, in its discretion, to waive the 
requirement to release a copy of, or information with respect to, any 
disciplinary complaint, disciplinary decision or other decision, order, 
notification, or notice under those extraordinary circumstances where 
the release of such information would violate fundamental notions of 
fairness or work an injustice.

K. Notification of Appeals of FINRA Decisions

    Rule 8313(g) currently requires FINRA to provide notice to the 
membership and the press when a FINRA disciplinary decision that meets 
certain publicity thresholds has been appealed to the Commission. The 
notice must be released as soon as possible after the Commission 
notifies FINRA of the appeal and it must state whether the 
effectiveness of the Board's decision has been stayed pending the 
outcome of proceedings before the Commission. Proposed Rule 8313(d) 
would adopt this provision with minor changes eliminating the publicity 
thresholds and the limitation on notification to the membership and the 
press. Under the proposed rule FINRA must provide notice to the public 
when a disciplinary

[[Page 38774]]

decision of FINRA is appealed to the Commission and the notice shall 
state whether the effectiveness of the decision has been stayed pending 
the outcome of proceedings before the Commission.
    The proposed rule change would delete Rule 8313(h) and (i) because 
they limit notice to the membership based on the publicity thresholds 
that would be eliminated under proposed Rule 8313(d). FINRA notes that 
the FDA includes decisions issued by federal appellate courts that 
relate to FINRA disciplinary actions that have been appealed.

L. Provisions Outside the Scope of Rule 8313

    Certain provisions in the current Rule 8313 are outside the purview 
of the rule, which is intended solely to address the release of 
disciplinary and other information by FINRA to the public. FINRA moved 
those provisions to other rules as appropriate.\24\ FINRA has indicated 
that it would announce the effective date of the proposed rule change 
in a Regulatory Notice to be published no later than 60 days following 
Commission approval, and that the effective date will be no later than 
120 days following publication of the Regulatory Notice announcing 
Commission approval. Once effective, the proposed rule change will 
govern the release of disciplinary and other information for all new 
and pending matters.\25\
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    \24\ See Notice at 21-22.
    \25\ Offers of settlement and AWCs are entered into with the 
express agreement that the publication of such items will be 
pursuant to Rule 8313. Accordingly, publication of any order 
accepting an offer of settlement or AWC entered into prior to the 
effective date of the proposed rule change would be governed by the 
version of the rule in effect as of the date of such offer or AWC.
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III. Summary of Comment Letters and FINRA's Response

    As noted above, the Commission received five comment letters on the 
proposed rule change.\26\ The comment letters expressed general support 
for FINRA's initiative, but each comment letter raised concerns with 
particular aspects of the proposal. The comments and FINRA's response 
\27\ thereto is summarized below.
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    \26\ See note 5, supra. FINRA did not address the concerns 
raised by the SIFMA Letter that were outside the scope of the 
proposed rule.
    \27\ FINRA Letter.
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A. Comments Relating To General Release Standards

    One commenter opposed the elimination of the requirement that FINRA 
release identified complaints and decisions to the requesting party, 
arguing that removal of the requirement for FINRA to release such 
information makes FINRA's obligation to respond to requests 
unclear.\28\ The commenter noted that some information can only be 
obtained by a request to FINRA, such as pre-2005 decisions that are not 
posted on the FDA, and that absent an express mechanism to access the 
information, investors will not be aware that they can request the 
information directly from FINRA.\29\ In response to this concern, FINRA 
amended the proposed rule change to retain the requirement in Rule 8313 
that FINRA release identified complaints and decisions to a requesting 
party.\30\
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    \28\ See PIABA Letter, p. 3.
    \29\ Id.
    \30\ See FINRA Letter, p. 2.
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    Another commenter expressed concern about the discretion FINRA 
would have regarding whether to release information with respect to 
disciplinary complaints and disciplinary decisions to the public, and 
requested that FINRA provide guidance on its discretionary powers.\31\ 
In response, FINRA explained that its current practice is to issue 
information, such as press releases or monthly summaries of complaints 
or decisions, along with the disciplinary complaints and decisions it 
releases.\32\ FINRA stated that it intends to continue its practice of 
releasing monthly summaries of complaints and decisions, and with 
respect to the issuance of press releases in connection with 
disciplinary decisions, issue press releases in situations where there 
is a significant policy or investor protection reason to do so.\33\ 
FINRA, however, stated that it does not believe that it necessary or 
appropriate to further delineate the specific circumstance when it may 
release such summary information or press releases.\34\
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    \31\ See Cornell Letter, p. 2.
    \32\ See FINRA Letter, p. 2.
    \33\ See FINRA Letter, p. 3.
    \34\ Id.
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    Another commenter suggested that complaints that have been 
dismissed or withdrawn not be posted on FDA and questioned the 
propriety of publicizing such complaints given that it draws attention 
to actions that pose reputational harm to firms and representatives, 
but were found lacking on the merits.\35\ In response, FINRA stated 
that it believes that including the subsequent decision or order helps 
to ensure the public has a full understanding of the status of a filed 
disciplinary complaint.\36\ FINRA also noted that complaints that have 
been withdrawn or dismissed are not removed from BrokerCheck, so they 
are publicly available through that source.\37\ In addition, FINRA 
noted that the Commission does not remove the original Order 
Instituting Proceedings from the public record when an Administrative 
Law Judge grants a staff motion to withdraw a complaint or when the 
Commission, on appeal issues an opinion.
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    \35\ See FSI Letter, p. 3.
    \36\ See FINRA Letter, p. 3.
    \37\ Id.
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    One commenter opposed FINRA's proposal to provide for the 
permissive publication of exemptive decisions or notices issued 
pursuant to the Rule 9600 Series (Procedures for Exemptions), and 
argued that publication should be mandatory.\38\ The commenter 
suggested that FINRA should be required to identify and codify the 
criteria governing the exercise of its discretion to release exemption 
decisions.\39\ In response, FINRA stated that it does not believe that 
mandatory publication of all exemption decisions would benefit members, 
investors, and other interested parties because Rule 9610 covers a 
diverse set of rules, and the exemption decisions and notices generally 
are not disciplinary in nature, are often highly fact-specific, and may 
contain proprietary and confidential information.\40\
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    \38\ See PIABA Letter, p. 2.
    \39\ See PIABA Letter, p. 2-3.
    \40\ See FINRA Letter, p. 3.
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B. Comments Relating To Release Specifications

    One commenter opposed the proposed elimination of language from 
current Rule 8313(a)(1) that directs the recipient of a complaint to 
``contact the respondent before drawing any conclusions regarding the 
allegations in the complaint.'' \41\ The commenter stated that this 
language is important because it provides notice to the public that 
firms are responsive to concerns relating to allegations and should be 
contacted with questions.\42\ FINRA disagreed with the commenter, and 
asserted that the language is unnecessary because the recipient of 
information released pursuant to Rule 8313 can contact a respondent at 
any time.\43\ Further, FINRA stated that it does not believe that its 
rules should be the basis to provide notice to the public that firms 
are responsive to concerns relating to allegations in a complaint.\44\
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    \41\ See FSI Letter, p. 3.
    \42\ Id.
    \43\ See FINRA Letter, p. 4.
    \44\ Id.

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[[Page 38775]]

C. Comments Relating To Discretion To Redact Information or Waive 
Publication

    Three commenters raised concerns about FINRA's proposed Rule 
8313(c)(1) that would permit FINRA to redact, on a case-by-case basis, 
confidential customer information, and would provide FINRA with the 
discretion to waive the requirement to release a disciplinary or other 
decision under those extraordinary circumstances where the release of 
such information would violate fundamental notions of fairness or work 
an injustice.\45\ More specifically, one commenter requested guidance 
regarding the circumstances under which FINRA would exercise the 
discretion to redact information or waive publication, and suggested 
accepting comment from members and the public on instances where the 
exercise of such discretion would be appropriate.\46\ Another commenter 
stated that the phrase ``violate fundamental notions of fairness or 
work an injustice'' in the Rule is vague and could present challenges 
for uniform application.\47\ The commenter suggested that if FINRA 
exercises its discretion to waive publication, it should release the 
type of document or the information being withheld, the date of the 
document, and the reason for withholding.\48\ A third commenter opposed 
FINRA's discretion to waive publication stating that the deterrent 
effect of publication of disciplinary information would be undermined 
if certain information is withheld out of concern for firms and their 
associated persons.\49\
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    \45\ See FSI Letter, p. 4; Malecki Letter, p. 2; and PIABA 
Letter, p. 1.
    \46\ See FSI Letter, p. 4.
    \47\ See Malecki Letter, p. 2.
    \48\ Id.
    \49\ See PIABA Letter, p. 1.
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    In response to these comments, FINRA stated that it believes it is 
necessary to balance investor protection benefits with the harm that 
might result if confidential customer information or information that 
raises personal safety or privacy concerns is released to the public 
when considering whether to release information.\50\ FINRA believes 
that its proposed authority to redact, on a case-by-case basis, 
confidential customer information or information that raises identity 
theft, personal safety or privacy concerns that do not outweigh 
investor protection considerations is consistent with FINRA's approach 
with respect to the release of information in BrokerCheck pursuant to 
Rule 8312.\51\ FINRA further believes that it is appropriate for it to 
retain its current discretionary authority to waive the requirement to 
release information to the public in the event FINRA is presented with 
truly unique circumstances where the release of information would 
violate fundamental notions of fairness or work an injustice.\52\
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    \50\ See FINRA Letter, p. 5.
    \51\ See FINRA Letter, p. 4.
    \52\ Id.
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IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to a national securities association.\53\ In particular, the Commission 
finds that the proposed rule change is consistent with Section 15(b)(6) 
of the Act,\54\ which requires, among other things, that the rules of a 
national securities association be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \53\ In approving the proposed rule change, the Commission has 
considered the impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \54\ 15 U.S.C. 78o(b)(6).
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    The Commission believes that the proposed rule change promotes 
transparency, consistency across FINRA's programs, and clarity 
regarding the information FINRA releases to the public and will provide 
greater access to information regarding FINRA's disciplinary actions. 
As stated in the proposal, FINRA's current rules are inconsistent 
regarding release of information given that some information not 
disclosed under the current rule is publicly available through other 
resources. For example, BrokerCheck reports include unredacted summary 
information regarding a FINRA disciplinary action that FINRA is not 
permitted to release in the monthly notice of Disciplinary and Other 
FINRA Actions or in the FDA under the current publicity thresholds 
contained in Rule 8313.\55\ FINRA believes that providing greater 
access to information regarding its disciplinary actions is in the 
public interest and will provide valuable guidance to members, 
associated persons, other regulators and the public. Accordingly, the 
Commission believes that it is appropriate for FINRA to provide general 
standards for the release of disciplinary and other information to the 
public, clarify the scope of Rule 8313 and eliminate provisions that do 
not relate to the release of information by FINRA to the public.
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    \55\ The information about members and registered persons made 
available through BrokerCheck is derived from the Central 
Registration Depository (CRD[supreg]). Information in the CRD system 
is obtained through the uniform registration forms (i.e., Forms U4, 
U5, and U6, and Forms BD, BDW, and BR).
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    As discussed above, three commenters raised concerns with the 
proposed general standards for the release of information pursuant to 
Rule 8313(a). One commenter opposed the elimination of FINRA's current 
Rule 8313(a) which required FINRA to provide any identified 
disciplinary complaint or disciplinary decision to a requesting 
party.\56\ In response to this comment, FINRA proposes to amend a 
portion of the proposed rule change to maintain the current requirement 
that FINRA release the requested information.\57\ The commenter also 
opposed FINRA's discretion to publish exemption decisions or notices 
issued pursuant to the Rule 9600 Series.\58\ Another commenter 
requested guidance for the meaning of ``at FINRA's discretion'' and 
``information with respect to'' in Rule 8313(a)(1), (2) and (4) related 
to FINRA's discretion to release information with respect to any 
disciplinary complaint or decision issued by FINRA.\59\ A third 
commenter opposed FINRA's proposal to post dismissed and withdrawn 
complaints on the FDA.\60\
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    \56\ See PIABA Letter, p. 3.
    \57\ See FINRA Letter, p. 2 and Amendment No. 1, supra note 7.
    \58\ See PIABA Letter, p. 2.
    \59\ See Cornell Letter, p. 2.
    \60\ See FSI Letter, p. 3.
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    First, the Commission agrees with FINRA's decision to maintain the 
explicit requirement to release disciplinary complaints and decisions 
in Rule 8313(a), as this will ensure that FINRA's intent to release 
disciplinary complaints and decisions upon request is clear. Second, 
the Commission believes it is appropriate for FINRA to have discretion 
to decide whether to publish exemption decisions because certain 
exemption decisions contain proprietary details and are not 
disciplinary in nature. Third, although FINRA does not delineate the 
specific circumstances in which it may release disciplinary information 
or press releases, the Commission supports FINRA's intention to 
continue to release

[[Page 38776]]

monthly summaries of complaints and press releases as it deems 
appropriate. The Commission notes that the decisions will be public. 
Fourth, the Commission believes it is appropriate for FINRA to release 
complaints that have been withdrawn or dismissed as such documents are 
publicly available on BrokerCheck. The Commission notes that any 
decision to withdraw or dismiss a disciplinary complaint or decision 
would be released as well, therefore, persons reviewing disciplinary 
information should have a complete understanding of the status of a 
filed disciplinary complaint. The Commission believes that FINRA 
responded adequately to the commenters' concerns regarding proposed 
changes to Rule 8313(a).
    As detailed above, four commenters raised concerns related to Rule 
8313(b) and (c). One commenter opposed the removal of language 
recommending that a recipient of a complaint contact the respondent 
regarding allegations made in a complaint.\61\ The same commenter 
requested guidance on when FINRA would exercise discretion to redact 
information.\62\ Another commenter indicated that the phrase ``violate 
fundamental notions of fairness or work an injustice'' is vague and may 
not be universally applied.\63\ A third commenter opposed FINRA's 
authority to use discretion in waiving publication.\64\
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    \61\ See FSI Letter, p. 4.
    \62\ Id.
    \63\ See Malecki Letter, p. 2.
    \64\ See PIABA Letter, pp. 2-3.
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    The Commission agrees that the inclusion of the disclosure 
statement language in Rule 8313(b) is not necessary because a recipient 
of a complaint may contact a respondent at any time. FINRA's proposal 
to remove the disclosure statement does not change a recipient's 
ability to contact a respondent for information. The Commission 
believes that FINRA should have discretion to redact information in 
disciplinary complaints and decisions and waive publication under 
certain circumstances in order to effectively balance investor 
protection benefits with the harm that may result from not redacting 
certain confidential information before releasing to the public. FINRA 
has had this authority since the 1990's and the Commission believes 
that FINRA will continue to exercise it appropriately.
    Accordingly, for the reasons stated above, the Commission finds 
that FINRA's proposal is consistent with Section 15A(b)(6) of the 
Act.\65\
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    \65\ 15 U.S.C. 78o-3(b)(6).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\66\ that the proposed rule change (SR-FINRA-2013-018), as modified by 
Amendment No. 1, be, and hereby is, approved.
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    \66\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\67\
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    \67\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2013-15367 Filed 6-26-13; 8:45 am]
BILLING CODE 8011-01-P