Document ID: SEC-2012-0330-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-02-28T05:00Z

[Federal Register Volume 77, Number 39 (Tuesday, February 28, 2012)]
[Notices]
[Pages 12098-12100]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-4595]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66441; File No. SR-FINRA-2012-011]

 Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Mediator Selection

February 22, 2012.
    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 9, 2012, 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 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 amend FINRA Rule 14107 of the Code of 
Mediation Procedure (``Mediation Code'') to provide the Director of 
Mediation (``Mediation Director'') with discretion to determine whether 
parties to a FINRA mediation may select a mediator who is not on 
FINRA's mediator roster.
    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

[[Page 12099]]

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 Mediation Code to provide the 
Mediation Director with discretion to determine whether parties to 
FINRA mediation may select a mediator who is not on FINRA's mediator 
roster.
    Currently, the Mediation Code permits parties to mediation to 
select a mediator either from a list of FINRA mediators supplied by the 
Mediation Director, or from a list or other source of their own 
choosing. Although parties usually select a FINRA mediator, under the 
current provision, parties may select a mediator who is not on FINRA's 
roster. In 1995, when FINRA implemented its mediation program, FINRA 
determined to permit parties to select non-FINRA mediators to ensure 
that parties had access to a sufficient number of mediators.
    After over 15 years of administering the mediation program, FINRA's 
mediator roster includes many seasoned securities mediators and 
selection of a non-FINRA mediator raises concerns for the forum. FINRA 
staff carefully screens every mediator applicant, and the National 
Arbitration and Mediation Committee \3\ (through its Mediation 
Subcommittee), reviews and approves each application before FINRA 
places an applicant on the roster. FINRA staff conducts a background 
check of approved applicants before placing them on the mediator 
roster.\4\ FINRA staff elicits evaluations of its mediators from 
parties and counsel and conducts periodic quality control reviews of 
FINRA mediators. Non-FINRA mediators are not subject to FINRA's 
screening process, background check, and periodic evaluation.
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    \3\ The National Arbitration and Mediation Committee (NAMC) 
makes recommendations to FINRA staff regarding recruitment, 
qualification, training, and evaluation of arbitrators and 
mediators. The NAMC also makes recommendations on rules, 
regulations, and procedures that govern the conduct of arbitration, 
mediation, and other dispute resolution matters before FINRA.
    The NAMC members include investor representatives, securities 
industry professionals and FINRA arbitrators and mediators. A 
majority of the NAMC members and its chair are public (non-industry) 
representatives. This diverse composition ensures a neutral approach 
in the administration of Dispute Resolution's forum, promoting 
fairness to all parties.
    \4\ Upon approval to join the roster, FINRA mediators pay an 
annual $200 fee to remain active on the roster. Additionally, FINRA 
deducts $150 for each FINRA mediation from the mediator's 
compensation (which typically ranges from $250 to $500 per hour).
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    If a mediator expresses an interest in applying to be a FINRA 
mediator, and FINRA's program would benefit by adding the mediator, 
FINRA staff believes it would be prudent to permit a non-FINRA mediator 
to serve on a case.\5\ However, if a mediator has no interest in 
applying for FINRA's roster or FINRA believes the mediator is not 
appropriate for its forum, then the Mediation Director should have the 
discretion to deny the parties' mediator selection. Therefore, FINRA is 
proposing to amend Rule 14107(a) to state that a mediator may be 
selected, with the Mediation Director's approval upon receipt of the 
parties' joint request, from a list or other source the parties choose. 
If the Mediation Director rejects the mediator selected, the parties 
would still be able to select a FINRA approved mediator or a different 
non-FINRA mediator subject to the same conditions as the rejected 
mediator, or to mediate their dispute elsewhere.
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    \5\ If the SEC approves the proposed rule change, FINRA would 
require any non-FINRA mediator who serves on a case to pay the $200 
annual fee charged to FINRA mediators who are active on the roster 
prior to serving on the case, as well as the $150 mediation case 
fee. Further, FINRA would require the non-FINRA mediator to complete 
the application process for inclusion on the mediator roster.
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    FINRA Rule 14107(c) provides that a mediator selected or assigned 
to mediate a matter must comply with FINRA rules relating to 
disclosures required of arbitrators unless, with respect to a mediator 
selected from a source other than a list provided by FINRA, the parties 
elect to waive such disclosure. FINRA is proposing to amend Rule 
14107(c) to make clear that the paragraph applies to a non-FINRA 
mediator who is approved to serve on a FINRA mediation.
    FINRA is also proposing two housekeeping amendments to Rule 14107. 
First, to improve user citation to Rule 14107(a), FINRA is proposing to 
change the bullets in Rule 14107(a) to numbers. Second, FINRA is 
proposing to amend Rule 14107(c) to update the citation to Rule 12408 
of the Customer Code of Arbitration Procedure. Rule 12408 was re-
numbered as part of another FINRA proposed rule change and is now 
identified as Rule 12405.\6\
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    \6\ See Securities Exchange Act Release No. 63799 (Jan. 31, 
2011), 76 FR 6500 (Feb. 4, 2011) (Order Approving File No. SR-FINRA-
2010-053).
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ 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 giving the Mediation Director 
discretion to determine whether parties may select a mediator who is 
not on FINRA's mediator roster would protect the quality and integrity 
of the process for users of FINRA's mediation program.
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    \7\ 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 45 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 or disapprove 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:

[[Page 12100]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2012-011 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-2012-011. 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 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 Web site 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; 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-2012-011 and should be 
submitted on or before March 20, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-4595 Filed 2-27-12; 8:45 am]
BILLING CODE 8011-01-P