Document ID: SEC-2010-0271-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-02-23T05:00Z

[Federal Register Volume 75, Number 35 (Tuesday, February 23, 2010)]
[Notices]
[Pages 8169-8171]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-3393]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61517; File No. SR-FINRA-2010-006]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend the 
Codes of Arbitration Procedure To Provide for Attorney Representation 
of Non-Party Witnesses in Arbitration

February 16, 2010.
    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 January 22, 2010, the 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 amend Rule 12602 of the Code of Arbitration 
Procedure for Customer Disputes (``Customer Code'') and Rule 13602 of 
the Code of Arbitration Procedure for Industry Disputes (``Industry 
Code'') (together, ``Codes'') to provide that a non-party witness may 
be represented by an attorney at an arbitration hearing while the 
witness is testifying.
    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

[[Page 8170]]

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 Rules 12602 and 13602 of the Codes to 
provide that a non-party witness has the right to be represented by an 
attorney at an arbitration proceeding held in a United States hearing 
location while the witness is testifying. The attorney would have to be 
in good standing and admitted to practice before the Supreme Court of 
the United States or the highest court of any State of the United 
States, the District of Columbia, or any commonwealth, territory, or 
possession of the United States, unless State law prohibits such 
representation. Under the proposed rule change, the panel would 
determine the extent to which the attorney could participate at the 
hearing.
    The Codes expressly allow a party to be represented at any stage in 
an arbitration proceeding.\3\ They do not address representation of a 
non-party witness. FINRA believes that a non-party witness should be 
entitled to be represented by an attorney while he or she is 
testifying. Currently, under the Codes, the arbitration panel 
determines if a non-party witness' attorney may attend a hearing.\4\ A 
non-party witness may testify at a hearing: (1) Voluntarily; (2) 
pursuant to a subpoena; \5\ or (3) in compliance with an arbitrator's 
order for an associated person to appear and give testimony.\6\
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    \3\ Rules 12208 and 13208 (Representation of Parties) provide 
that parties have the right to be represented by an attorney at any 
stage in an arbitration proceeding. They also allow parties to be 
represented by a person who is not an attorney subject to certain 
limitations.
    \4\ Rules 12602 and 13602 (Attendance at Hearings) provide that 
parties and their representatives are entitled to attend all 
hearings and that, absent persuasive reasons to the contrary, expert 
witnesses should also be permitted to attend all hearings. The panel 
determines who else may attend any or all hearings.
    \5\ Rules 12512 and 13512 (Subpoenas) provide that arbitrators 
have the authority to issue subpoenas for the production of 
documents or the appearance of witnesses. The rules permit a party 
to make a written motion requesting that an arbitrator issue a 
subpoena to a party or a non-party.
    \6\ Rules 12513 and 13513 (Authority of Panel to Direct 
Appearances of Associated Person Witnesses and Production of 
Documents Without Subpoenas) provide that the panel may order the 
appearance of any employee or associated person of a FINRA member.
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    While the proposed rule change would apply to all non-party 
witnesses, in many instances when a non-party is testifying at a FINRA 
arbitration hearing, the non-party witness is an associated person who 
handled the customer claimant's account, but was not named as a 
respondent in the case. Under the current Codes, the arbitrators 
determine whether an associated person can bring an attorney to a 
hearing. FINRA does not believe that arbitrators have been denying 
requests by non-party witnesses to be represented by counsel while 
testifying; nevertheless, to assure due process in its dispute 
resolution forum, FINRA believes that the Codes should expressly 
provide that a non-party witness is entitled to be represented by an 
attorney while testifying.
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. The proposed rule change is consistent with FINRA's 
statutory obligations under the Act to protect investors and the public 
interest because the proposal would enhance fairness in the arbitration 
process by ensuring that a non-party witness may be represented by 
counsel during his or her testimony.
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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 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-2010-006 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-2010-006. 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 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

[[Page 8171]]

should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-FINRA-2010-006 
and should be submitted on or before March 16, 2010.

    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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3393 Filed 2-22-10; 8:45 am]
BILLING CODE 8011-01-P