Document ID: SEC-2008-0989-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-07-16T04:00Z

[Federal Register: July 16, 2008 (Volume 73, Number 137)]
[Notices]               
[Page 40890-40891]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16jy08-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58124; File No. SR-FINRA-2008-031]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change to Amend the 
Arbitration Uniform Submission Agreement and Related Rules

July 9, 2008.
    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 
Financial Industry Regulatory Authority, Inc. (``FINRA'') (f/k/a 
National Association of Securities Dealers, Inc. (``NASD'')) filed with 
the Securities and Exchange Commission (``Commission'') on June 19, 
2008, the proposed rule change as described in Items I, II, and III 
below, which Items have been substantially prepared by FINRA Dispute 
Resolution. 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 Dispute Resolution is proposing to amend the Uniform 
Submission Agreement (``USA''), which parties must sign prior to 
entering into arbitration, and certain rules of the Code of Arbitration 
Procedure for Customer Disputes (``Customer Code'') and the Code of 
Arbitration Procedure for Industry Disputes (``Industry Code'') that 
contain references to the agreement. The proposed revisions to the USA 
would: (1) Clarify what the parties are attesting to when they execute 
the USA; (2) require parties to indicate in what capacity they are 
signing the agreement; (3) convert the USA to a FINRA-specific 
agreement; and (4) use plain English to make the agreement easier to 
read.
    The text of the proposed rule change is available at FINRA, the 
Commission's Public Reference Room, and http://www.finra.org/web/
groups/rules_regs/documents/rule_filing/p038800.pdf. The text of the 
proposed Submission Agreement is available at FINRA, the Commission's 
Public Reference Room, and http://www.finra.org/web/groups/rules_regs/
documents/rule_filing/p038817.pdf.

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

(a) Purpose
    The USA is an agreement that claimants and respondents 
(hereinafter, collectively referred to as ``parties'') must sign prior 
to entering into arbitration. Rule 12302(a) of the Customer Code and 
Rule 13302(a) of the Industry Code require a claimant to file a signed 
and dated USA and a statement of claim to initiate an arbitration. 
Similarly, Rule 12303(a) of the Customer Code and Rule 13303(a) of the 
Industry Code require a respondent to directly serve each other party 
with a signed and dated USA and an answer within 45 days of receipt of 
the statement of claim. By signing the USA, the parties agree to submit 
to the arbitration process, and to be bound by the determination that 
may be rendered by the arbitrator(s).
    FINRA proposes to amend the USA to: (1) Clarify what the parties 
are attesting to when they execute the agreement; (2) require parties 
to indicate in what capacity they are signing the agreement; (3) 
convert it to a FINRA-specific agreement; and (4) use plain English to 
make the agreement easier to read. FINRA also proposes to amend the 
rules of the Customer Code and the Industry Code that refer to the USA.
    First, FINRA proposes to amend paragraph 2 of the USA to clarify 
what the parties are attesting to when they execute the agreement. 
Currently, this section states that the parties have read the 
procedures and rules relating to arbitration. FINRA understands that 
few investors who are represented by counsel actually read the relevant 
self-regulatory organization (SRO) rules (such as the Customer Code). 
Rather, in most cases, these investors are relying on their attorneys 
or other representatives to know the rules. Thus, some investors have 
been reluctant to sign a statement that they have read all the relevant 
rules. In light of these concerns, FINRA is proposing to amend 
paragraph 2 to permit parties to certify that they or their 
representatives read the relevant procedures and rules and that the 
parties agree to be bound by them. FINRA believes that the provision as 
proposed to be amended would reflect more accurately what the parties 
are attesting to when they execute the USA. The new language would make 
clear that the parties themselves are bound by the procedures and 
rules, whether or not they read them personally.
    Second, FINRA proposes to require that parties indicate in what 
capacity they are signing the agreement. Because the USA is a contract 
between the parties and FINRA's dispute resolution forum, FINRA must 
ensure that the parties entering the agreement have the authority or 
standing to sign the agreement. In those cases in which the signatory 
is not an individually named party, the signatory must state the 
capacity in which he or she is acting if other than an individual and 
sign in that capacity, so that FINRA can determine from the statement 
of claim and other supporting information whether he or she is 
authorized to enter the agreement. For example, a person signing as the 
trustee of a family trust would sign his or her name exactly as shown 
on the trust documents and then write ``Trustee'' on the line below the 
instruction ``State Capacity if other than individual (example: 
Executor, Trustee, Corporate Officer).'' This change would simply 
formalize an existing practice. Currently, if a party fails to sign the 
USA in the capacity in which he or she is submitting the claim, FINRA 
classifies the claim as deficient, which can delay the arbitration and 
increase the party's costs. FINRA believes that the proposed change 
would clarify how the agreement must be signed, and should help 
expedite the processing of claims, thereby minimizing unnecessary 
delays and expenses that parties could incur.
    Third, FINRA proposes to convert the USA into a FINRA-specific 
agreement.

[[Page 40891]]

The USA was designed by the Securities Industry Conference on 
Arbitration (SICA) \3\ a number of years ago and was intended to be 
used by the ten SROs that offered an arbitration forum at that time. 
Thus, the language is generic and references to rules or procedures 
include broad terms to encompass the rules from the various SROs. Over 
the years, most SROs have closed their arbitration forums and 
contracted with FINRA to handle their arbitrations. In addition, on 
August 6, 2007, FINRA consolidated its dispute resolution program with 
that of the New York Stock Exchange, Inc.\4\ As a result, FINRA now 
handles over 99 percent of all arbitrations filed with SROs. In light 
of these changes, FINRA proposes to convert the USA to a FINRA-specific 
agreement by removing references to ``sponsoring organization'' and 
replacing them with references to FINRA; expressly referencing the 
FINRA Code of Arbitration Procedure;\5\ and removing the term 
``Uniform'' from the title of the agreement. FINRA believes these 
changes would minimize confusion for parties concerning the 
applicability of the form and would clarify which FINRA rules apply in 
the arbitration context.
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    \3\ SICA was formed in 1977 to develop and maintain a Uniform 
Code of Arbitration and to provide a forum for the discussion of new 
developments in securities arbitration among SRO arbitration forums 
and participants in those forums. The membership currently includes 
representatives of each securities SRO that currently runs an 
arbitration forum, three ``public'' members, and representatives 
from the Securities Industry and Financial Markets Association 
(SIFMA) and the North American Securities Administrators Association 
(NASAA).
    \4\ See Securities Exchange Act Release No. 56145 (July 26, 
2007), 72 FR 42169 (August 1, 2007) (SR-NASD-2007-023) (approval 
order).
    \5\ The Submission Agreement's use of the term ``FINRA Code of 
Arbitration Procedure'' means the Customer Code or the Industry 
Code, as applicable.
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    Fourth, FINRA proposes to make minor stylistic changes to the 
document, such as defining ``undersigned parties'' as ``parties'' after 
the first usage, moving the reference to cross-claims and dividing a 
long sentence in paragraph 4 into two sentences.\6\ FINRA believes 
these changes will make the agreement easier to read.
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    \6\ In the proposed definition of ``Submission Agreement'' 
(proposed NASD Rules 12100 (x) and 13100 (z)), FINRA is not 
proposing to replace references to ``NASD Submission Agreement'' 
with ``FINRA Submission Agreement'' at this time, because those 
changes have been proposed as part of a separate rule filing 
(FINRA's Proposed Rule Change to Adopt NASD Rules 4000 Through 1000 
Series and the 12000 Through 14000 Series as FINRA Rules in the New 
Consolidated FINRA Rulebook (SR-FINRA-2008-021) (See Exhibit 5 at 
pp. 530 and 550-551).
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    Finally, FINRA proposes to amend Rules 12100(x), 12100(y), 
12302(a)(1), (b), and (d), 12303(a) and (c), 12306(a) and (c), and 
12307(a) of the Customer Code to conform the references to the USA to 
the proposed changes to the agreement. FINRA proposes to amend Rules 
13100(z)--(bb), 13302(a)(1), (b), and (d), 13303(a) and (c), 13306(a) 
and (c), and 13307(a) of the Industry Code for the same reason.
    (b) 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 the Association's 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 the proposed rule change 
would enhance the efficiency of the forum in processing claims, by 
clarifying the terms of the agreement and improving its readability. 
Moreover, the proposed rule change is consistent with FINRA's statutory 
obligations under the Act to prevent fraudulent and manipulative 
practices by requiring that signers of the agreement indicate in what 
capacity they are signing, so that FINRA can ensure that signers of the 
agreement are authorized to do so.
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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 would result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

(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 by FINRA.

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-2008-031 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-2008-031. 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 inspection 
and copying 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. 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 the File 
Number SR-FINRA-2008-031 and should be submitted on or before August 6, 
2008.
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    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Florence Harmon,
Acting Secretary.
[FR Doc. E8-16228 Filed 7-15-08; 8:45 am]

BILLING CODE 8010-01-P