Document ID: SEC-2017-0772-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2017-05-15T04:00Z

[Federal Register Volume 82, Number 92 (Monday, May 15, 2017)]
[Notices]
[Pages 22363-22364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09716]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80634; File No. SR-FINRA-2017-009]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating To 
Expediting List Selection in Arbitration

May 9, 2017.
    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 26, 2017, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been 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 Rules 12402 and 12403 of the Code 
of Arbitration Procedure for Customer Disputes (``Customer Code'') and 
FINRA Rule 13403 of the Code of Arbitration Procedure for Industry 
Disputes (``Industry Code,'' and together with the Customer Code, the 
``Codes''), to provide that the Director of FINRA's Office of Dispute 
Resolution (``ODR Director'') will send the list or lists generated by 
the Neutral List Selection System (``NLSS'') \3\ to all parties at the 
same time, within approximately 30 days after the last answer is due, 
regardless of the parties' agreement to extend any answer due date.
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    \3\ NLSS is a computer system that generates, on a random basis, 
a list or lists of arbitrators from FINRA's rosters of arbitrators 
for the selected hearing location for each arbitration proceeding. 
The parties will select their panel through a process of striking 
and ranking the arbitrators on a list or lists generated by NLSS.
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    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
Background
    Under the Codes, a party must serve an answer on each other party 
to an arbitration within the timeframes specified under the applicable 
provisions of the Codes. For example, FINRA Rule 12303 requires a 
respondent to serve an answer specifying the relevant facts and 
available defenses to the statement of claim on each other party to the 
arbitration within 45 days of receipt of the statement of claim (the 
``answer due date'').\4\ If there are multiple respondents to an 
arbitration, and the respondents are added at different times, each 
respondent would have a different answer due date.\5\ The Codes require 
the ODR Director \6\ to wait until after the last answer is due \7\ to 
send the list or lists of arbitrators generated by NLSS to the parties. 
Specifically, the Codes provide that the ODR Director must send the 
list or lists of arbitrators to all parties at the same time within 
approximately 30 days after the last answer is due.\8\
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    \4\ See also FINRA Rule 13303.
    \5\ If an amended claim adds a new party to the arbitration, the 
new party would be required to serve an answer on all other parties 
within 45 days of receipt of the claim. See FINRA Rules 12306, 
12310, 13306, and 13310.
    \6\ Unless the Codes provide that the ODR Director may not 
delegate a specific function, the term includes FINRA staff to whom 
the ODR Director has delegated authority. See FINRA Rules 12100(k) 
and 13100(k). See also FINRA Rules 12103 and 13103.
    \7\ The answer due date for the last respondent added to the 
arbitration would be when the last answer is due for purposes of the 
Codes.
    \8\ The Codes also state that the parties will receive 
employment history for the past 10 years and other background 
information for each arbitrator listed. See FINRA Rules 12402, 
12403, and 13403.
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    Currently, when parties to an arbitration agree to extend the 
deadline for when an answer is due, the ODR Director uses that new, 
agreed-upon extended answer due date as the last answer due date for 
sending the arbitrator list or lists to the parties.\9\ FINRA believes 
that by sending the arbitrator list or lists after the original due 
date for the last answer, regardless of any extension, it can shorten 
the time it takes for an arbitration to conclude in those instances. 
Party agreements to extend answer due dates would no longer affect the 
timing of providing the arbitrator list or lists to the parties.
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    \9\ In 2015, parties requested an extension to answer in 
approximately 65 percent of arbitration cases served; in 2016, the 
figure was approximately 62 percent.
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Proposed Rule Change
    FINRA is proposing to amend FINRA Rules 12402(c)(1), 12403(b)(1), 
and 13403(c)(1) to provide that the ODR Director will send the list or 
lists generated by NLSS to all parties at the same time, within 
approximately 30 days after the last answer is due, regardless of the 
parties' agreement to extend any answer due date.
    As parties must return the ranked arbitrator list or lists to the 
ODR Director no more than 20 days after the date upon which the ODR 
Director sent the list or lists to the parties,\10\ sending the list or 
lists after the original due date for the last answer would give all 
parties the same amount of time to create their ranked arbitrator list 
or lists. Further, FINRA believes that sending the list or lists at 
this time would result in earlier arbitrator appointment and, 
therefore, an earlier initial prehearing conference at which the 
hearings are scheduled.\11\ In the many instances in which the parties 
agree to extend an answer due date, FINRA believes the proposed rule 
change would help arbitrations conclude in less time than they do under 
current rules.
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    \10\ See FINRA Rules 12402(d)(3), 12403(c)(3), and 13404(d).
    \11\ See FINRA Rules 12500(c) and 13500(c).
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    As noted in Item 2 of this filing, if the Commission approves the 
proposed rule change, 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 
no later than 30

[[Page 22364]]

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,\12\ 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. The proposed rule change is consistent with Section 
15A(b)(6) of the Act. The proposal would enable the parties, or their 
counsel, to evaluate and rank the arbitrator list or lists at the same 
time that they prepare their responses in those circumstances where the 
parties request an extension to answer. Thus, the proposal would 
shorten the time it takes for such arbitrations to conclude and, 
thereby, make the forum more efficient and the case administration 
process more expeditious for investors.
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    \12\ 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. Where parties agree to an 
extension or modification of any deadline for serving answers, the 
proposal would likely result in parties, or their counsels, evaluating 
the arbitrator list or lists and ranking their selections, while 
simultaneously preparing their responses. Currently, these activities 
occur serially. However, FINRA notes that parties often jointly request 
that the ODR Director send the list or lists before the last answer due 
date deadline. Therefore, FINRA believes that the proposed rule change 
would not be burdensome. As noted, the benefit to parties arises from 
concluding arbitrator selection earlier, thereby expediting the 
arbitration process. FINRA anticipates that this proposal would impose 
no significant costs to forum users.

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:

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-2017-009 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-2017-009. 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-2017-009 and should be 
submitted on or before June 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09716 Filed 5-12-17; 8:45 am]
BILLING CODE 8011-01-P