Document ID: SEC-2008-1418-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-10-14T04:00Z

[Federal Register: October 14, 2008 (Volume 73, Number 199)]
[Notices]               
[Page 60738-60740]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14oc08-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58739; File No. SR-FINRA-2008-005]

 
Self-Regulatory Organizations: Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of Proposed Rule Change as Modified by Amendment 
No. 1 Thereto To Adopt Rule 12905 of the Code of Arbitration Procedure 
for Customer Disputes and Rule 13905 of the Code of Arbitration 
Procedure for Industry Disputes To Permit Submissions Under Limited 
Circumstances to Arbitrators After a Case Has Closed

October 6, 2008.

I. Introduction

    On February 7, 2008, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') (f/k/a/ National Association of Securities Dealers, 
Inc. (``NASD'')) filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend the NASD Code of Arbitration Procedure 
for Customer Disputes (``Customer Code'') and the NASD Code of 
Arbitration Procedure for Industry Disputes (``Industry Code'') to 
permit submissions to arbitrators after a case has closed only under 
limited, enumerated circumstances. The proposed rule change was 
published for comment in the Federal Register on March 18, 2008.\3\ The 
Commission received 13 comment letters in response to the proposed rule 
change.\4\ On June

[[Page 60739]]

19, 2008, FINRA responded to the comment letters \5\ and submitted 
Amendment 1 to the proposed rule change. This order provides notice of 
the proposed rule change, as modified by Amendment No. 1, and approves 
the proposed rule change as amended on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 34-57525 (March 18, 
2008); 73 FR 15815-15817 (March 25, 2008) (notice).
    \4\ The following submitted comment letters: Steven B. Caruso, 
Maddox Hargett & Caruso, P.C. (March 21, 2008) (``Caruso letter''); 
Jeff Sonn, Sonn, Erez, PLC (March 26, 2008) (``Sonn letter''); Seth 
E. Lipner, Professor of Law, Zicklin School of Business, Baruch 
College, CUNY, Member, Deutsch Lipner (March 28, 2008) (``Lipner 
letter''); Steve Buchwalter, Attorney (March 29, 2008 and May 15, 
2008) (``Buchwalter letters''); William A. Jacobson, Associate 
Clinical Professor, Director, Cornell Securities Law Clinic, Cornell 
Law School (March 31, 2008) (``Cornell letter''); Scott R. Shewan, 
Born, Pape & Shewan, LLP (April 1, 2008) (``Shewan letter''); Barry 
D. Estell, Attorney (April 9, 2008) (``Estell letter''); Timothy 
Canning, Canning & Associates (April 10, 2008); Joseph Fogel, Fogel 
Associates (April 11, 2008) (``Fogel letter''); David P. Neuman, 
Stoltmann Law Offices, P.C. (April 14, 2008) (``Neuman letter''); 
Debra B. Hayes, Attorney (April 15, 2008) (``Hayes letter''); Karen 
Tyler, President, North American Securities Administrators 
Association (``NASAA''), Inc., and North Dakota Securities 
Commissioner (April 17, 2008) (``NASAA letter''); and Laurence S. 
Schultz, President, Public Investors Arbitration Bar Association 
(``PIABA'') (April 18, 2008) (``PIABA letter'').
    \5\ See Letter from Margo A. Hassan, Counsel, FINRA, to Florence 
E. Harmon, Deputy Secretary, Commission (June 19, 2008).
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II. Description of the Proposed Rule Change

    FINRA initially proposed to adopt Rule 12905 of the Customer Code 
and Rule 13905 of the Industry Code to permit submissions to 
arbitrators after a case has closed only under the following 
circumstances: (1) As ordered by a court; (2) at the request of any 
party within 30 days of service of an award or notice that a matter has 
been closed, for ministerial matters; or (3) if all parties agree and 
submit documents within 30 days of service of an award or notice that a 
matter has been closed.
    After reviewing the comments, FINRA amended its proposed rule 
change on June 19, 2008, so that submissions to arbitrators after a 
case has closed would only be permitted under the following 
circumstances: (1) As ordered by a court; \6\ (2) at the request of any 
party within 10 days of service of an award or notice that a matter has 
been closed, for typographical or computational errors or mistakes in 
the description of any person or property referred to in the award; or 
(3) if all parties agree and submit documents within 10 days of service 
of an award or notice that a matter has been closed.\7\ If the Director 
determines submissions made pursuant to circumstances (2) and (3) 
comply with the grounds for submission, the proposed rules would 
require the Director to forward the submissions, along with any 
responses from the parties, to the arbitrators. The arbitrators have 
the discretion under the proposed rules to decline the requests made 
pursuant to circumstances (2) and (3). Under the proposed rules, the 
requests would be considered denied unless the arbitrators rule within 
10 days after the Director forwards the documents. The proposed rules 
would not allow any requests to extend the time period for the payment 
of any award pursuant to Rule 12904 for customer disputes or to Rule 
13904 for industry disputes.
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    \6\ The Director, as defined in Rule 12100 of the Customer Code 
and Rule 13100 of the Industry Code, will forward documents 
submitted pursuant to this circumstance, along with any responses 
from parties, to the arbitrators.
    \7\ Unilateral requests to reopen closed cases for expungement 
relief would not be permitted (Conversation between Margo A. Hassan, 
Counsel, FINRA and Lourdes Gonzalez, Assistant Chief Counsel--Sales 
Practices, Office of Chief Counsel of the Division of Trading and 
Markets, U.S. Securities and Exchange Commission on July 10, 2008).
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III. Summary of Comments Received and FINRA Response

    As noted above, the Commission received 13 comment letters on the 
proposed rules.\8\ Twelve commenters opposed the proposal; \9\ one 
commenter supported the proposal but urged FINRA to make clear that the 
time period to pay an award would not be extended by the proposed rule 
change.\10\ A number of commenters argued that the term ``ministerial 
matters'' lacked specificity and requested further clarification.\11\ 
Others predicted that permitting unilateral motions relating to 
ministerial matters would increase litigation costs for parties and 
that the rules would delay award payments.\12\ Several commenters 
maintained that the rules would allow expungement to be accomplished 
without any outside oversight.\13\ Other commenters suggested that the 
rule change should not allow a member or associated person to extend 
the 30-day period for payment of award.\14\ A number of commenters 
stated that the proposed rule conflicts with the policy of finality in 
arbitration.\15\ Several commenters argued that it is against the 
public interest to allow a party to raise an issue it did not raise 
during the hearing.\16\
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    \8\ See supra, note 4.
    \9\ See Caruso, Sonn, Buchwalter (March 29, 2008 and May 15, 
2008), Cornell, Shewan, Estell, Fogel, Neuman, Hayes, NASAA and 
PIABA letters.
    \10\ See Lipner letter.
    \11\ See, e.g., Caruso, Sonn, Cornell, Shewan, Estell, Hayes, 
NASAA and PIABA letters.
    \12\ See, e.g., Buchwalter, Cornell, Shewan, Estell, Fogel, 
Neuman, Hayes and PIABA letters.
    \13\ See, e.g., Estell, NASAA and PIABA letters.
    \14\ See, e.g., Lipner and Cornell letters.
    \15\ See, e.g., Buchwalter, Cornell, Estell, Hayes, Shewan, 
NASAA and PIABA letters.
    \16\ See, e.g., Cornell, Estell and PIABA letters.
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    In response to the comments, on June 19, 2008, FINRA filed 
Amendment No. 1 to the proposed rule change to address potential 
ambiguities in the rules and further limit the circumstances under 
which a party may make a request under the rules. In particular, FINRA 
proposed to shorten the time limit for requests made by the parties 
from 30 to 10 days to expedite requests under the rules and to avoid 
delays in award payments. FINRA also proposed to clarify that such a 
request would not extend the time period for paying an award. In 
addition, FINRA proposed to clarify the scope of the term ``ministerial 
matters'' by limiting the grounds for unilateral requests to 
typographical or computational errors, such as an addition mistake when 
computing forum fees, or to mistakes in the description of a person or 
property, such as an incorrect reference to the title of an account in 
an award.
    Several commenters questioned whether there is sufficient need for 
the proposed rules given what they view as the limited number of 
requests to permit submissions to arbitrators after a case has 
closed.\17\ FINRA responded that it receives an estimated 150 or more 
such requests per year, which is a significant number in FINRA's 
view.\18\ FINRA also stated that it believes the proposal would add 
transparency to the forum's process for considering such requests.\19\
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    \17\ See, e.g., Cornell, Shewan, NASAA and PIABA letters.
    \18\ See supra, note 5.
    \19\ Id.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing Amendment, 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-2008-005 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-2008-005. 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, Amendment No. 1, 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

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available for inspection and copying in the Commission's Public 
Reference Room, on official business days between the hours of 10 a.m. 
and 3 p.m. Copies of the 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-2008-005 and should be submitted 
on or before November 4, 2008.

V. Discussion and Findings

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act, and 
the rules and regulations thereunder that are applicable to a national 
securities association.\20\ In particular, the Commission finds that 
the proposed rule change, as amended, is consistent with the provisions 
of Section 15A(b)(6) of the Act, which provides that the rules of a 
national securities association should be designed ``in general, to 
protect investors and the public interest[.]'' The Commission concludes 
that the proposed rule change would strictly limit the circumstances 
under which a party would be permitted to submit documents to 
arbitrators in closed cases, add transparency to the process for 
considering such requests and support a fair arbitration process. The 
Commission finds that it is in the public interest to approve the 
proposed rule change as soon as possible to expedite its 
implementation. Accordingly, the Commission believes good cause exists, 
consistent with Sections 6(b)(5) and 19(b)(2) of the Act to approve on 
an accelerated basis the proposed rule change as modified by Amendment 
No. 1.
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    \20\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition and capital 
formation. See 15 U.S.C. 78c(f).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-FINRA-2008-005), as modified 
by Amendment No. 1 thereto, be, and hereby is, approved on an 
accelerated basis.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-24241 Filed 10-10-08; 8:45 am]

BILLING CODE 8011-01-P