Document ID: SEC-2016-2025-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2016-11-18T05:00Z

[Federal Register Volume 81, Number 223 (Friday, November 18, 2016)]
[Notices]
[Pages 81844-81854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27739]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79296; File No. SR-FINRA-2016-029]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Rule Change Amending the Code of 
Arbitration Procedure for Customer Disputes and the Code of Arbitration 
Procedure for Industry Disputes To Require All Parties Other Than Pro 
Se Customers To File and Serve Pleadings and Documents Through the 
FINRA Office of Dispute Resolution's Party Portal and To Permit 
Mediation Parties To Use the Portal

November 14, 2016.

I. Introduction

    On July 27, 2016, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the Code of Arbitration 
Procedure for Customer Disputes (``Customer Code'') and the Code of 
Arbitration Procedure for Industry Disputes (``Industry Code'' and, 
together with the Customer Code, ``Codes''), to require all parties, 
except customers who are not represented by an attorney or other person 
(``pro se customers''), to use the FINRA Office of Dispute Resolution's 
Party Portal (``Party Portal'') to file initial statements of claim and 
to file and serve pleadings and other documents on FINRA or any other 
party. Under the proposed rule change, FINRA would require parties to 
use the Party Portal to file and serve correspondence relating to 
discovery requests, but would not permit parties to file documents 
produced in response to discovery requests through the Party Portal. 
FINRA is also proposing to amend the Code of Mediation Procedure 
(``Mediation Code'') to permit mediation parties to agree to use the 
Party Portal to submit and retrieve all documents and other 
communications. In addition, FINRA is revising other provisions in the 
Codes to conform to existing practice.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on August 17, 2016.\3\ The public comment period closed on 
September 7, 2016. On September 26, 2016, FINRA extended the time 
period in which the Commission must approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to approve or disapprove the proposed rule change to 
November 15, 2016.\4\ The Commission received five comment letters in 
response to the Notice.\5\ On October 28, 2016, FINRA responded to the 
comment letters received in response to the Notice.\6\ This order 
grants approval of the proposed rule change.
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    \3\ See Exchange Act Release No. 78549 (Aug. 11, 2016), 81 FR 
54858 (Aug. 17, 2016) (File No. SR-FINRA-2016-029) (``Notice'').
    \4\ See Letter from Margo A. Hassan, Associate Chief Counsel, 
FINRA, to Lourdes Gonzalez, Assistant Chief Counsel--Sales 
Practices, Division of Trading and Markets, Securities and Exchange 
Commission, dated September 26, 2016.
    \5\ See Letters from Steven B. Caruso, Maddox Hargett & Caruso, 
P.C., dated August 12, 2016 (``Caruso Letter''); David Lagziel, CEO, 
Conflicteam, dated August 30, 2016 (``Conflicteam Letter''); David 
T. Bellaire, Executive Vice President and General Counsel, Financial 
Services Institute (``FSI''), dated September 7, 2016 (``FSI 
Letter''); Nicole Iannarone, Assistant Clinical Professor, and 
Michael F. Williford, Student Intern, Investor Advocacy Clinic 
(``IAC''), Georgia State University College of Law, dated September 
7, 2016 (``IAC Letter''); and Hugh Berkson, President, Public 
Investors Arbitration Bar Association (``PIABA''), dated September 
7, 2016 (``PIABA Letter''). The comment letters are available on 
FINRA's Web site at http://www.finra.org, at the principal office of 
FINRA, at the Commission's Web site at https://www.sec.gov/comments/sr-finra-2016-029/finra2016029.shtml, and at the Commission's Public 
Reference Room.
    \6\ See Letter from Margo A. Hassan, Associate Chief Counsel, 
FINRA, to Brent J. Fields, Secretary, Securities and Exchange 
Commission, dated October 28, 2016 (``FINRA Letter''). The FINRA 
Letter is available on FINRA's Web site at http://www.finra.org, at 
the principal office of FINRA, at the Commission's Web site at 
https://www.sec.gov/comments/sr-finra-2016-029/finra2016029.shtml, 
and at the Commission's Public Reference Room.
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II. Description of the Proposed Rule Change \7\
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    \7\ The subsequent description of the proposed rule change is 
substantially excerpted from FINRA's description in the Notice. See 
Notice, 81 FR 54858-66.
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Background

    In 2004, FINRA implemented an online, web-based arbitration claim 
notification and filing system that allowed a claimant \8\ or 
claimant's counsel to file voluntarily an arbitration claim through 
that system (``online claim filing system'').\9\ Currently, the Codes 
allow a claimant to file a claim \10\ either in hard copy or by using 
the online claim filing system.\11\ The online claim filing system 
allows a claimant to complete forms, submit documents, and pay filing 
fees online.
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    \8\ See Rules 12100(e) and 13100(e). The term ``claimant'' means 
a party that files the statement of claim that initiates an 
arbitration proceeding.
    \9\ See Notice to Members 04-56.
    \10\ See Rules 12302(a) and 13302(a).
    \11\ See FINRA, Arbitration Online Claim Filing, available at 
http://www.finra.org/arbitration-and-mediation/online-claim-filing.
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    In June 2013, FINRA introduced a separate secure, online service 
called the Dispute Resolution Portal (``DR Portal'') to facilitate 
interactions among parties, arbitrators, mediators, and FINRA staff on 
arbitration case-related matters. As further discussed below, the DR 
Portal includes both a Party Portal and an Arbitrator and Mediator 
Portal. The Party Portal uses an invitation/registration process that 
provides a way to send and receive arbitration and mediation case 
documents. For example, once a party notifies FINRA of the name of the 
person who should be given access to the arbitration or mediation case 
file (typically the party's representative), FINRA sends an email to 
the named person with an invitation to register on the Party Portal via 
a personalized web address link that provides complete access to the 
specified case. Once registered, the representative can provide other 
individuals (such as legal assistants and co-counsel) with access to 
appropriate cases on the Party Portal.
    FINRA initially opened the Party Portal to a small number of firms 
to gain experience with the technology and to incorporate user 
feedback. Over time, FINRA expanded access to the Party Portal, and as 
of July 20, 2015, FINRA allowed all parties to use the Party Portal 
voluntarily in all arbitration and mediation cases filed as of that 
date. Through the Party Portal, parties can, among other things, 
receive documents from and send documents to FINRA, receive service 
\12\ of a claim, submit an answer to a claim, submit additional case 
documents, view the status of a case, and select arbitrators.
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    \12\ Service is the process of delivering a pleading (e.g., the 
statement of claim or answer) or other documents to the opposing 
party.
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    FINRA has periodically upgraded the Party Portal to allow parties 
to, among other things, schedule hearings, receive automated messages 
when new documents are posted, see an indication of received documents 
not yet viewed, and send documents to other Party Portal case 
participants. FINRA believes that using the online claim filing system 
improves the forum by hastening the

[[Page 81845]]

processing of claims, and reducing the burden of using hard-copy 
documents by parties and FINRA staff. Accordingly, FINRA believes that 
it would be appropriate to require parties, with limited exceptions, to 
use the Party Portal on a mandatory basis.
    The Arbitrator and Mediator Portal is open to all FINRA arbitrators 
and mediators to use on a voluntary basis. In this portal, arbitrators 
and mediators can view and update their profile and disclosure 
information, access information about their assigned cases, schedule 
hearing dates, and view case documents. FINRA believes that use of the 
Arbitrator and Mediator Portal has enhanced efficiencies at the forum.

Proposed Rule Change

    FINRA is proposing to require parties to use the Party Portal to 
submit documents and view their arbitration case information and 
documents in most instances. There would be an exception for pro se 
customers.\13\ FINRA would invite pro se customers to use the Party 
Portal, but would not require them to do so. However, if a pro se 
customer files a claim using the Party Portal, then FINRA would require 
the customer to use the Party Portal for the duration of the 
arbitration process.
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    \13\ FINRA would define pro se in the Customer Code as a party 
that is not represented by an attorney or others during an 
arbitration or mediation. FINRA would not define pro se in the 
Industry Code. Under the proposed rule change, FINRA would not 
exempt pro se parties from the requirement under the Industry Code 
to submit documents through the Party Portal.
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    FINRA would require parties to use the Party Portal to file and 
serve correspondence relating to discovery requests, but would not 
permit parties to file documents produced in response to discovery 
requests through the Party Portal. FINRA believes that maintaining the 
correspondence in the Party Portal makes sense because it is part of 
the case record. However, depending on the subject of a case, discovery 
production can be voluminous, and FINRA does not believe it would be 
efficient for the Party Portal to be used as the receptacle for 
parties' exchanged discovery. FINRA states that this approach is 
consistent with its current practice.
    Finally, under the proposed rule change, because mediation is 
voluntary in all instances, FINRA would permit parties to a mediation 
proceeding to use the Party Portal on a voluntary basis to submit and 
view their mediation case information and documents.
    FINRA is proposing to amend each of the rules in the Codes affected 
by required use of the Party Portal. The changes would update the rule 
language to reflect how parties comply with the Codes through use of 
the Party Portal. FINRA Rules 12300 and 13300 describe how parties file 
pleadings \14\ and documents with FINRA and serve pleadings and 
documents on other parties through the Party Portal. The terms ``file'' 
and ``serve''--terms associated with use of the Party Portal--are used 
throughout the Codes. Under the proposed rule change, when a party 
submits pleadings or documents through the Party Portal, the party 
would accomplish both filing with the Director \15\ and, in most 
instances, service on all other parties and the arbitrators.\16\ 
Therefore, in most of the proposed rule amendments, FINRA would delete 
references to parties filing pleadings and documents with the Director 
at the same time as on other parties, and providing copies for 
arbitrators.
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    \14\ FINRA Rule 12100 defines a pleading as ``a statement 
describing a party's causes of action or defense. Documents that are 
considered pleadings are: A statement of claim, an answer, a 
counterclaim, a cross claim, a third party claim, and any replies.''
    \15\ The Director refers to the FINRA Office of Dispute 
Resolution Director as described in FINRA Rule 12103 (Director of 
Dispute Resolution).
    \16\ For example, FINRA Rule 12304 (Answering Counterclaims) 
currently provides that a claimant must directly serve any answer to 
a counterclaim on each other party and at the same time must file 
the answer to the counterclaim with the Director with additional 
copies for the arbitrator. Under the proposed rule change, as 
described further in the discussion, once the claimant submits the 
answer through the Party Portal, the claimant has also filed the 
answer with the Director.
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    For reader convenience, the discussion below only details the 
proposed changes to the FINRA rules in the Customer Code. However, 
FINRA is proposing to make substantively similar amendments to the 
Industry Code. The primary difference between the proposed amendments 
to the Customer Code and the Industry Code is that the Customer Code 
provides an exemption from required use of the Party Portal for pro se 
customers. The Industry Code would not provide an exemption for any 
party.
    As a result of the proposed rule change, FINRA would need to update 
several cross-references in the Codes. The proposed updates are noted 
as applicable. In addition, FINRA states that its forum users have 
indicated that for ease of citation, they would prefer that FINRA use 
numbers and letters instead of bullets. Therefore, FINRA is proposing 
to replace bullets with numbers or letters in each of the rules 
affected by the proposed rule change. The proposed replacements are 
noted where applicable.
    In addition to changes in the Codes, FINRA is proposing to amend 
the Mediation Code to permit parties to agree to use the Party Portal 
to submit and retrieve all documents and other communications and to 
view mediation case information. The proposed amendments are discussed 
below.

Customer Code

FINRA Rule 12100--Definitions
    FINRA is proposing to amend FINRA Rule 12100 to add new definitions 
and to amend several definitions in the Customer Code relating to the 
required use of the Party Portal.
    Arbitrator and Mediator Portal--FINRA is proposing to add a new 
definition to the rule to define ``Arbitrator and Mediator Portal'' as 
the web-based system that allows invited arbitrators and mediators to 
access a secure section of FINRA's Web site to submit documents and 
information and to view their arbitration and mediation case 
information and documents.\17\
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    \17\ See proposed FINRA Rule 12100(a).
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    Claim Notification Letter--FINRA is proposing to add a new 
definition to the rule to define ``Claim Notification Letter'' as the 
notice that FINRA would send respondents indicating that they have been 
named as a party in a statement of claim.\18\ The new definition would 
specify that the Claim Notification Letter will provide information 
about accessing the Party Portal to obtain a copy of the statement of 
claim filed by the claimants and information about the arbitration, 
including the hearing location selected by the Director and the 
deadline for filing a statement of answer.
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    \18\ See proposed FINRA Rule 12100(f).
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    Day--In the current rule, FINRA defines the term ``day'' as a 
calendar day.\19\ The definition provides that if a deadline specified 
in the Code falls on a Saturday, Sunday or any FINRA holiday, the 
deadline is extended until the next business day. Under the proposed 
rule change, other than the statement of claim, which FINRA serves upon 
all respondents, parties will be able to serve documents on each other 
through the Party Portal on any day and at any time. Service would 
occur immediately after FINRA receives a document, regardless of the 
day or time of receipt. If, for example, a party submits a document on 
a Saturday, the Party Portal will immediately transmit the documents to 
the appropriate parties on that day. Certain deadlines in the Code are 
triggered by a party's receipt of

[[Page 81846]]

a pleading.\20\ FINRA does not believe it would be appropriate to 
trigger a deadline based on an opposing party's weekend use of the 
Party Portal. Therefore, FINRA is proposing to amend the definition of 
``day'' to clarify that if a party receives pleadings or other 
documents on a Saturday, Sunday or any FINRA holiday, the date of 
receipt shall be the next business day.
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    \19\ See FINRA Rule 12100(j).
    \20\ See FINRA Rules 12304 and 12305 for examples of deadlines 
triggered by receipt of a pleading.
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    Non-Public Arbitrator--FINRA is proposing to amend the definition 
of non-public arbitrator \21\ to update cross-references in the rule.
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    \21\ See proposed FINRA Rule 12100(r).
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    Party Portal--FINRA is proposing to add a new definition to the 
rule to define ``Party Portal'' as the Web-based system that is 
accessible by arbitration and mediation parties and their 
representatives. The Party Portal allows invited participants to access 
a secure section of FINRA's Web site to submit documents and view their 
arbitration and mediation case information and documents.\22\
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    \22\ See proposed FINRA Rule 12100(t).
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    Pro Se--FINRA is proposing to add a new definition to the rule to 
define ``Pro Se'' to mean a party that is not represented by an 
attorney or others during an arbitration or mediation.\23\
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    \23\ See proposed FINRA Rule 12100(x). FINRA does not define pro 
se in the Industry Code because there would not be an exemption for 
any pro se parties in intra-industry disputes.
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    Public Arbitrator--FINRA is proposing to amend the definition of 
Public Arbitrator \24\ to update cross-references in the rule.
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    \24\ See proposed FINRA Rule 12100(y).
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    In addition, FINRA would reletter the definitions to reflect the 
addition of the new terms.
FINRA Rule 12211--Direct Communication Between Parties and Arbitrators
    Subject to specified limitations, FINRA allows parties that are 
represented by counsel to communicate directly with arbitrators during 
an arbitration proceeding. FINRA Rule 12211, which outlines the 
procedures that parties and arbitrators must follow when they agree to 
direct communication, currently indicates that parties may send items 
by regular mail, overnight courier, facsimile, or email. Under the 
proposed rule change, because parties would be required to use the 
Party Portal for transmitting documents to each other, and would 
continue to use other methods to send items to the arbitrators, FINRA 
is proposing to: (1) Amend FINRA Rule 12211(e) to specify that parties 
are allowed to send items to the arbitrators by first-class mail, 
overnight mail service, overnight delivery service, hand delivery, 
email, or facsimile as specified in an order issued by the arbitrators; 
(2) amend Rule 12211(f) to delete the requirement that the parties send 
copies of the materials they sent to the arbitrators to each other and 
the Director at the same time and in the same manner, requiring instead 
that they serve the materials on each other and filed with the Director 
through the Party Portal; and (3) amend Rule 12211(g) to clarify that 
parties must file copies of arbitrator orders and decisions with the 
Director through the Party Portal.
    Rule 12211(b) provides that if at some point during an arbitration 
a party chooses to appear pro se, which the rule defines in a 
parenthetical as meaning ``without counsel,'' then the rule no longer 
applies. As stated above, FINRA is proposing to amend Rule 12100 to 
define pro se to mean a party that is not represented by an attorney or 
others during an arbitration or mediation. FINRA believes that the new 
definition of pro se in Rule 12100 is inconsistent with the current 
definition in Rule 12211. Therefore, FINRA is proposing to amend Rule 
12211(b) to delete the reference to ``pro se.'' Instead, the rule would 
provide that if a party chooses to appear without counsel, then the 
rule would no longer apply.\25\
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    \25\ FINRA is proposing to amend FINRA Rule 13211 to remove the 
reference to pro se in the rule. Although FINRA is not proposing to 
define pro se in the Industry Code, FINRA believes the amendment 
would add clarity to the rule and avoid forum user confusion because 
FINRA is proposing to define pro se in the Customer Code.
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FINRA Rule 12300--Filing and Serving Documents
    FINRA is proposing to delete the content in FINRA Rule 12300 
(Filing and Serving Documents) in its entirety and replace it with new 
language which describes how filing and service, among other things, 
would operate when FINRA requires parties to use the Party Portal.
    Party Portal--New Rule 12300(a)(1) would provide that parties must 
use the Party Portal to file initial statements of claim and to file 
and serve pleadings and any other documents on the Director or any 
other party. The rule would also provide that the Director may exercise 
authority to permit the use of other means of filing or service in the 
case of an extended Party Portal outage or in other extraordinary 
circumstances.\26\
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    \26\ As an example of an extraordinary circumstance, FINRA 
referenced a severe weather event causing an extended power outage.
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    Rule 12300(a)(2) would provide an exemption for pro se customers 
and would outline the procedures for pro se customers who do not wish 
to use the Party Portal. While a pro se customer would not be required 
to take any affirmative steps to opt out of using the Party Portal, if 
a pro se customer files a claim using the Party Portal, then the pro se 
customer must use the Party Portal for the duration of the arbitration 
process. The Party Portal would include a warning to pro se customers 
that if they file their claim using the online filing facility, they 
will be required to use the Party Portal for the remainder of the 
arbitration proceeding.
    Concerning pro se customers who opt out of using the Party Portal, 
Rule 12300(a) would provide that they: (1) May file claims and serve 
documents by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email or facsimile; (2) must comply 
with the provisions relating to filing an initial statement of claim 
outlined in FINRA Rule 12302 (Filing an Initial Statement of Claim); 
and (3) must provide proof of service for any documents served outside 
of the Party Portal (except for the initial statement of claim because 
the Director will serve the Claim Notification Letter or initial 
statement of claim on the respondents).
    FINRA stated that it does not want parties to use the Party Portal 
to submit documents they produce during discovery because FINRA does 
not believe that it would be efficient, particularly in cases where 
discovery production is voluminous. Therefore, FINRA is proposing to 
provide in Rule 12300(a)(3) that parties shall not file with FINRA or 
serve on any other party, through the Party Portal, documents produced 
during discovery pursuant to the Rule 12500 Series. Available service 
methods for such documents are first-class mail, overnight mail 
service, overnight delivery service, hand delivery, email, or 
facsimile. FINRA states that this approach is consistent with its 
current practice.
    Filing--New Rule 12300(b) would provide that with the exception of 
pro se customers who opt out of using the Party Portal, parties must 
file initial statements of claim and all pleadings and other documents 
with the Director through the Party Portal. This includes pleadings and 
documents served on pro se customers and other parties by other means. 
The rule would provide that parties must file with the Director any 
written responses relating to discovery requests under Rules 12506 and 
12507, but must not file any of the documents produced in response to 
discovery

[[Page 81847]]

requests as provided in Rule 12300(a)(3).
    The rule would also provide that parties must file arbitrator 
ranking lists \27\ through the Party Portal, and that filing is 
accomplished on the day of submission through the Party Portal. Filing 
by first-class mail or overnight mail is accomplished on the date of 
mailing, and filing by any other means is accomplished on the date of 
delivery as is provided in the current rules.
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    \27\ See FINRA Rules 12402(d) and 12403(c).
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    Service--New Rule 12300(c) would provide that the Director will 
serve the Claim Notification Letter or initial statement of claim on 
the respondents. In practice, this means that as a first step FINRA 
would serve only the Claim Notification Letter on respondents that are 
not identified as customers. If a respondent does not access the Party 
Portal and view the statement of claim, FINRA would contact the 
respondent and ask if they received the Claim Notification Letter. If 
the respondent indicates that they did not receive the letter, FINRA 
staff would offer to serve the statement of claim in another manner 
such as by email or regular mail to afford the respondent an additional 
opportunity to receive the statement of claim and instructions on how 
to access the Party Portal.
    Concerning customers, upon receipt of an initial statement of 
claim, where a customer is a claimant, FINRA states that it would know 
if the customer is represented by counsel or another person. However, 
where a customer is a respondent, FINRA states that it would not know 
if the customer intends to be represented by counsel or any other 
individual. Therefore, FINRA would serve all customer respondents with 
the initial statement of claim along with the Claim Notification Letter 
explaining that parties other than pro se customers are required to use 
the Party Portal, and that pro se customers are invited to use the 
Party Portal.
    The Claim Notification Letter would specify that except for pro se 
customers who opt out of using the Party Portal, parties must serve all 
pleadings and other documents, except as provided in Rule 12300(a)(3) 
relating to documents produced in discovery, through the Party Portal. 
It would explain that parties serve pro se parties who opt out of using 
the Party Portal by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email or facsimile. Under the proposed 
rule, service would be accomplished on the day of submission through 
the Party Portal, on the date of mailing by first-class mail or 
overnight mail service,\28\ and on the date of delivery by other means. 
Finally, for documents not served through the Party Portal, parties 
would have to provide proof of service to the Director through the 
Party Portal.
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    \28\ FINRA states that ``overnight mail'' service includes, for 
example, overnight delivery by Federal Express. FINRA also 
identifies common methods parties use at the forum for overnight 
mail delivery as Federal Express, United Parcel Service, and United 
States Postal Service. FINRA also states that ``other means'' 
includes, for example, hand delivery.
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    General Rules--FINRA is proposing to incorporate into proposed Rule 
12300(d)(1)(A), the current provision in Rule 12300(g)(1) concerning 
the redaction of personal confidential information. The current 
provision in Rule 12300(g)(2) specifying that the redaction 
requirements do not apply to documents that parties exchange with each 
other and do not file with the Director, or to documents parties submit 
to a panel at a hearing would be renumbered as Rule 12300(d)(1)(B). The 
current provision in Rule 12300(g)(3) providing that the redaction 
requirements do not apply to Simplified Arbitrations would be 
renumbered as Rule 12300(d)(1)(C).
    Proposed Rule 12300(d)(2) would provide that a party must serve any 
change of email or mailing address during an arbitration on all other 
parties and file this information with the Director. The former rule 
referred only to ``address'' changes.
FINRA Rule 12301--Service on Associated Persons
    FINRA is proposing to amend FINRA Rule 12301 relating to service on 
associated persons to delete the reference to the Director serving the 
initial statement of claim on a respondent associated person. As 
explained above, under the proposed rule change, associated persons who 
are parties to an arbitration would be required to use the Party 
Portal. Therefore, FINRA would serve an associated person with a Claim 
Notification Letter instead of a statement of claim.
    FINRA states that in practice its staff will know if an associated 
person did not access the Party Portal to view the statement of claim. 
FINRA states that in such an instance it would contact the associated 
person and ask if he or she received the Claim Notification Letter. If 
the associated person indicates that he or she did not receive the 
letter, FINRA states that its staff would offer to serve the statement 
of claim in another manner such as by email or regular mail to afford 
the respondent an additional opportunity to receive the statement of 
claim and instructions on how to access the Party Portal.
    If a member and an associated person who is currently associated 
with the member are named as respondents in the same arbitration, and 
the Director cannot complete service directly on the associated person 
as described above, then the proposed rule would provide that the 
Director may serve the member with the Claim Notification Letter on 
behalf of the associated person.
12302--Filing and Serving an Initial Statement of Claim
    FINRA is proposing to amend FINRA Rule 12302 to reflect how: (1) 
Parties would file an initial statement of claim; (2) parties would 
submit required fees; and (3) FINRA would serve the initial statement 
of claim through the Party Portal.
    Filing--Because most parties would be required to file an initial 
statement of claim through the Party Portal as provided in Rule 
12300(a), FINRA is proposing to amend Rule 12302(a) to delete the 
reference to filing documents in hard copy or electronically through 
the Online Arbitration Claim Filing system. FINRA is also proposing to 
amend Rule 12302(b) to delete the instruction to parties to file enough 
copies for the Director, each arbitrator and each other party. Once a 
party files the initial statement of claim through the Party Portal, 
FINRA states that its staff would handle service through the Party 
Portal or Arbitrator and Mediator Portal as applicable. FINRA states 
that if it needs to provide copies of the documents in another manner, 
e.g., because a pro se customer has opted out of using the Party 
Portal, or an arbitrator is not using the Arbitrator and Mediator 
Portal, then FINRA staff would handle reproduction and distribution of 
the documents.
    Fees--FINRA is proposing to amend Rule 12302(c) to require the 
claimant to pay all required filing fees by credit card or automated 
clearing house (``ACH'') through the Party Portal unless the party is a 
pro se customer who opts out of using the Party Portal. FINRA states 
that these payment options are currently available to forum users and 
requiring payment through the Party Portal would make case 
administration more efficient. FINRA states that its staff would know 
immediately if a filing was deficient for lack of payment and would not 
have to ensure that checks that parties submit separately, by U.S. mail 
or other method, are correctly matched up to statements of claim 
submitted through the Party Portal.

[[Page 81848]]

    Service--Currently, Rule 12301(d) provides that unless the 
statement of claim is deficient, FINRA will send a copy of the 
Submission Agreement, the statement of claim, and any additional 
materials the claimant submits, to the other parties and the 
arbitrators. FINRA is proposing to amend the rule to specify how staff 
would serve each subset of participants in the arbitration case. 
Specifically, FINRA would:
     Send the Claim Notification Letter to all non-customer 
respondent(s) pursuant to Rule 12302; and
     Send the Claim Notification Letter along with a copy of 
the Submission Agreement, the statement of claim, and any additional 
materials filed by the claimant, to each customer respondent. The 
Director would inform the customer that if the customer is pro se, the 
customer is not required to use the Party Portal; and
     Send a copy of the Submission Agreement, the statement of 
claim, and any additional materials filed by the claimant to each 
arbitrator by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email, facsimile or through the 
Arbitrator and Mediator Portal, once the panel has been appointed.
    Additional conforming changes--FINRA would amend the title of Rule 
12302 to add a reference to ``Service'' because the rule addresses both 
filing and service of the initial statement of claim. FINRA is 
proposing to reletter the rule and to replace the bullets in Rule 
12302(a) with numbers.
12303--Answering the Statement of Claim
    FINRA is proposing to amend FINRA Rule 12303 to reflect how 
respondents would answer a statement of claim using the Party Portal.
    Because most parties would be required to serve each other through 
the Party Portal, FINRA would eliminate the instruction in Rule 
12303(a) for parties to ``directly'' serve each other with the executed 
Submission Agreement and answer. FINRA would amend Rule 12303(b) to 
provide that if an answer contains a third party claim,\29\ a 
respondent must serve the third party with the answer containing the 
third party claim and all documents previously served by any party, or 
sent to the parties by the Director, by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email or 
facsimile, and must file proof of service with the Director through the 
Party Portal. The respondent must file the third party claim with the 
Director through the Party Portal except as provided in Rule 
12300(a)(2). In addition, because parties would file their Submission 
Agreement and answer through the Party Portal, FINRA would amend Rule 
12303(c) to delete the instruction for a party to file sufficient 
copies for the Director and arbitrators. Finally, FINRA is proposing to 
replace the bullets in Rule 12303(a) with numbers.
---------------------------------------------------------------------------

    \29\ See current FINRA Rule 12100(y), which defines ``Third 
Party Claim'' to mean a claim asserted against a party not already 
named in the statement of claim or any other previous pleading.
---------------------------------------------------------------------------

12304--Answering Counterclaims
    FINRA is proposing to amend FINRA Rule 12304(a) relating to 
answering counterclaims to eliminate the instruction for parties to 
``directly'' serve each other with the answer to a counterclaim, as 
well as the requirement to file sufficient copies for the Director and 
arbitrators.
12305--Answering Cross Claims
    As with answering counterclaims, FINRA is proposing to amend FINRA 
Rule 12305(a) relating to answering cross claims to eliminate the 
instruction for parties to ``directly'' serve each other with the 
answer to a cross claim, as well as the requirement to file sufficient 
copies for the Director and arbitrators because filing instructions 
would be covered by proposed Rule 12300.
12306--Answering Third Party Claims
    FINRA is proposing to amend FINRA Rule 12306 to reflect how FINRA 
would handle a third party claim in the Party Portal.
    As explained in the above discussion on Rule 12303, if a 
respondent's answer contains a third party claim, the respondent serves 
the third party with the claim and all documents previously served by 
the parties or filed with FINRA outside of the Party Portal. FINRA 
states that once it is notified of the third party claim, it can invite 
the third party to use the Party Portal.
    Because most parties would be using the Party Portal, FINRA would 
eliminate the instruction in Rule 12306(a) for parties to ``directly'' 
serve each other with the executed Submission Agreement and answer. 
Similarly, FINRA would amend Rule 12306(b) to provide that if an answer 
to a third party claim also contains a third party claim, a respondent 
would be required serve the third party with the answer containing the 
third party claim and all documents previously served by any party, or 
sent to the parties by the Director, by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email or 
facsimile, and must file proof of service with the Director through the 
Party Portal. In addition, because parties would file their Submission 
Agreement and answer through the Party Portal, FINRA would amend Rule 
12306(c) to delete the instruction for a party to file sufficient 
copies for the Director and arbitrators. Finally, FINRA is proposing to 
replace the bullets in Rule 12306(a) with numbers.
12307--Deficient Claims
    The Customer Code provides that the Director will not serve any 
claim that is deficient. Current FINRA Rule 12307(a) sets forth various 
reasons that a claim might be deficient. FINRA is proposing to amend 
Rule 12307(a) to delete a deficiency that would not be applicable in 
the Party Portal--that the claimant did not file the correct number of 
copies of the Submission Agreement, statement of claim or supporting 
documents for service on respondents and for the arbitrators. FINRA is 
also proposing to amend the rule relating to the deficiency concerning 
a failure to specify the customer's home address at the time of the 
events giving rise to the dispute. FINRA would replace home address 
with ``city and state,'' to conform to its stated current practice.\30\
---------------------------------------------------------------------------

    \30\ Industry Code Rule 13307 differs from the Customer Code 
rule because there is no reference to a customer's home address.
---------------------------------------------------------------------------

    FINRA is also proposing to replace the bullets in Rule 12307(a) 
with numbers and to correct cross-references in the Rule.
12309--Amending Pleadings
    Current FINRA Rule 12309 specifies procedures for parties to amend 
pleadings. Rule 12309(a) applies to amendments made to a statement of 
claim or any other pleading before FINRA appoints a panel of 
arbitrators. Rule 12309(c) applies to amendments made to add a party to 
the case once the ranked arbitrator lists are due to the Director. In 
both sections, FINRA is proposing to amend the rule to reflect how 
amendments operate in the Party Portal.
    As stated above, Rule 12309(a) describes how parties amend 
pleadings before FINRA appoints a panel. FINRA is proposing to amend 
Rule 12309(a) to clarify that panel appointment occurs when the 
Director sends notice to the parties of the names of the arbitrators on 
the panel.
    FINRA would amend Rule 12309(a)(1) to eliminate the requirement for 
parties to file sufficient copies of an amended pleading for the 
arbitrators and other parties, and to provide that the Director

[[Page 81849]]

will serve either the Claim Notification Letter, or the amended 
statement of claim, as applicable, under Rules 12300 and 12301. The 
rule would also provide that if an amended pleading adds a party to the 
arbitration, the party amending the pleading must serve the new party 
with the amended pleading and all documents previously served by any 
party, or sent to the parties by the Director, by first-class mail, 
overnight mail service, overnight delivery service, hand delivery, 
email or facsimile, and must file proof of service with the Director 
through the Party Portal. The party amending the pleading must file the 
amended pleading with the Director through the Party Portal except as 
provided in Rule 12300(a)(2).
    Current Rule 12309(c) explains that after ranked arbitrator lists 
are due to the Director, parties may not amend the pleadings to add new 
parties until FINRA appoints a panel and the panel grants a motion to 
add a new party. Motions to add a party after panel appointment must be 
served on all parties, including the party that is the subject of the 
motion. The process for serving the new party under Rule 12309(c) is 
the same as it is in Rule 12309(a). FINRA is proposing to amend Rule 
12309(c) to provide that the party seeking to amend the pleading to add 
a party may serve the party to be added by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email or 
facsimile. Service by first-class mail or overnight mail service would 
be accomplished on the date of mailing. Service by any other means 
would be accomplished on the date of delivery. FINRA would permit the 
party to be added to file a response with the Director and serve the 
response on all other parties by first-class mail, overnight mail 
service, overnight delivery service, hand delivery, email or facsimile. 
Because the arbitrators may ultimately decline the motion to add a new 
party, FINRA believes it makes sense to allow service by methods other 
than the Party Portal while the arbitrators consider the motion.\31\
---------------------------------------------------------------------------

    \31\ FINRA Rule 13309(c) in the Industry Code contains an 
erroneous cross-reference to Rule 13404(c). FINRA is proposing to 
amend Rule 13309(c) to refer to Rule 13404(d) which relates to the 
time frame when ranked lists are due.
---------------------------------------------------------------------------

12310--Answering Amended Claims
    Current FINRA Rule 12310 describes how parties answer amended 
claims. Rule 12310(b) provides that if a claim is amended after it has 
been answered, but before a panel has been appointed, the respondent 
has 20 days from ``the time the amended claim is served'' to serve an 
amended answer. Because parties would be serving each other through the 
Party Portal, FINRA is proposing to amend Rule 12310(b) to delete the 
phrase ``the time the amended claim is served'' to provide instead that 
the respondent has 20 days from ``receipt of the amended claim'' to 
serve an amended answer. FINRA uses time of receipt in the rules 
relating to parties' time to respond to answers, among other matters, 
and believes consistent language would add clarity to the rule.\32\
---------------------------------------------------------------------------

    \32\ See FINRA Rules 12303 (Answering the Statement of Claim), 
12304 (Answering Counterclaims), 12305 (Answering Cross Claims), and 
12306 (Answering Third Party Claims).
---------------------------------------------------------------------------

    FINRA is also proposing to amend Rule 12310(d) relating to serving 
an amended answer to delete the reference to ``directly'' serving each 
other party, and providing copies of the pleading for the arbitrators.
    Finally, FINRA is proposing to add clarity to Rule 12310(e) 
concerning when a new party's answer is due, by stating that the new 
party's ``time to'' answer is governed by Rules 12303 or Rule 12306 
(which include a 45 day period for answers).
12400--Neutral List Selection System and Arbitrator Rosters
    FINRA is proposing to amend FINRA Rule 12400(b) relating to its 
arbitrator rosters and Rule 12400(c) concerning eligibility for 
chairperson roster to update cross-references and replace bullets with 
numbers.
12402--Cases With One Arbitrator and 12403--Cases With Three 
Arbitrators
    FINRA is proposing to amend FINRA Rules 12402(d)(3) and 12403(c)(3) 
concerning striking and ranking arbitrators to provide that parties 
must complete arbitrator ranking through the Party Portal unless a 
party is a pro se customer who opted out of using the Party Portal. The 
rule would list the approved methods for pro se customers to return 
ranked lists. FINRA is also proposing to amend to Rule 12402(e) to 
replace bullets with numbers.\33\
---------------------------------------------------------------------------

    \33\ The Industry Code rules relating to arbitrator appointment, 
while substantially similar to the Customer Code rules, are not 
identical to the Customer Code and are numbered differently. FINRA 
is proposing to amend FINRA Rule 13404(d) concerning striking and 
ranking arbitrators, to provide that parties must complete 
arbitrator ranking through the Party Portal. FINRA is proposing to 
amend FINRA Rule 13406 relating to appointment of arbitrators to 
update a cross-reference and to replace bullets with letters. FINRA 
is also proposing to amend FINRA Rule 13411 concerning replacing 
arbitrators to update a cross-reference.
---------------------------------------------------------------------------

12404--Additional Parties
    Current FINRA Rule 12404 describes procedures for newly added 
parties to rank and strike arbitrators. FINRA is proposing to amend 
Rule 12404(a) to reflect that because parties would complete the 
ranking and striking process in the Party Portal, they would no longer 
``return'' lists to the Director. FINRA would also amend this provision 
to correct a typographical error by adding ``(s)'' to the term ``list'' 
in the paragraph's last sentence because in cases with three 
arbitrators, parties return three lists of arbitrators, not just one.
    Current Rule 12404(b) explains that after ranked arbitrator lists 
are due to the Director, parties may not amend pleadings to add new 
parties until FINRA appoints a panel and the panel grants a motion to 
add a new party. Motions to add a party must be served on all parties. 
FINRA is proposing to amend Rule 12404(b) to provide that the party 
seeking to amend the pleading must serve the party to be added by 
first-class mail, overnight mail service, overnight delivery service, 
hand delivery, email or facsimile. Service by first-class mail or 
overnight mail service would be accomplished on the date of mailing. 
Service by any other means would be accomplished on the date of 
delivery. FINRA would permit the party to be added to file a response 
with the Director and serve the response on all other parties by first-
class mail, overnight mail service, overnight delivery service, hand 
delivery, email or facsimile. Because the arbitrators may ultimately 
decline the motion to add a new party, FINRA believes it makes sense to 
allow service by methods other than the Party Portal while the 
arbitrators consider the motion.
12500--Initial Prehearing Conference
    Current FINRA Rule 12500(c) describes the subject matter of the 
initial prehearing conference and provides that parties may forgo the 
conference if they provide certain information (as described in 
accompanying bullets) in writing to the Director. FINRA is proposing to 
amend the rule to delete the requirement that parties provide copies of 
the written submission for the arbitrators. FINRA is also proposing to 
replace the bullets with numbers.
12502--Recording Prehearing Conferences and 12606--Record of 
Proceedings
    Current FINRA Rule 12502 provides that FINRA does not record 
prehearing conferences unless the panel orders a recording, and FINRA 
Rule 12606(a) specifies that FINRA records hearings. Both rules provide 
that the Director will provide copies of a tape, digital, or other 
recording to parties for a nominal fee.

[[Page 81850]]

FINRA is proposing to amend the rules to delete the reference to a fee 
because FINRA currently provides parties with copies of recordings free 
of charge. Current Rule 12606(a) also provides that the panel may order 
parties to provide a transcription of the recording. FINRA is proposing 
to amend Rule 12606(a) to clarify that if the arbitrators order the 
parties to provide a transcript, the parties must provide copies for 
the arbitrators and must file the transcript with the Director and 
serve it on the other parties. Current Rule 12606(b) provides that 
parties may make stenographic records of a hearing. FINRA is proposing 
to amend Rule 12606(b) to clarify that if the stenographic record is 
the official record of the proceeding, the parties must provide copies 
for the arbitrators and must file the transcript with the Director and 
serve it on the other parties.
    FINRA states that some arbitrators have indicated a preference to 
review long documents in hard copy. Therefore, FINRA would continue to 
require parties to provide copies of transcripts for the arbitrators.
12503--Motions
    Current FINRA Rule 12503 specifies how parties make motions at the 
forum. Under the proposed rule change, parties would be required to 
file motions with the Director and serve other parties through the 
Party Portal. Therefore, FINRA is proposing to amend Rule 12503(a)(2) 
to delete the requirement that parties serve motions on each other 
directly, at the same time and in the same manner, and provide FINRA 
with copies for each arbitrator. FINRA would make the same deletions to 
Rule 12503(b) relating to responding to motions and Rule 12503(c) 
concerning replying to responses to motions.
    FINRA is also proposing to amend Rule 12503(a)(4) to delete the 
text specifying how parties make motions to amend a pleading to add a 
party to a case, because these motions would be addressed in Rule 
12309(c) (discussed above). FINRA would add a cross-reference to Rule 
12309(c).
12506--Document Production Lists
    Current FINRA Rule 12506(a) provides that when the Director serves 
respondents with the statement of claim, the Director notifies parties 
of the location of the FINRA Discovery Guide and Document Production 
Lists on FINRA's Web site. In view of the Party Portal, FINRA is 
proposing to amend the rule to delete the reference to ``when the 
Director serves the statement of claim.'' The rule would continue to 
state that the Director will notify parties of the location of the 
FINRA Discovery Guide and Document Production Lists on FINRA's Web 
site.
    Current FINRA Rule 12506(b) specifies, among other matters, the 
time for parties to respond to the Document Production Lists. FINRA 
wants parties to file through the Party Portal their explanations about 
why they are not timely producing documents and why they are objecting 
to production. FINRA believes that having this correspondence in the 
Party Portal would be efficient for FINRA staff and the parties. 
However, as stated above, FINRA does not want the parties to file with 
the Director the documents and information that they produce during 
discovery. Therefore, FINRA is proposing to amend Rule 12506(b) to 
specify that parties must serve each other with documents produced 
pursuant to the rule by first-class mail, overnight mail service, 
overnight delivery service, hand delivery, email or facsimile as 
provided in Rule 12300(a)(3). The proposed rule would also provide that 
parties are required to file any written responses relating to 
discovery, such as objections to producing items in the Document 
Production Lists, with the Director through the Party Portal.
    FINRA is also proposing to amend to Rule 12506(b) to replace 
bullets with letters.\34\
---------------------------------------------------------------------------

    \34\ The FINRA Discovery Guide and related Document Production 
Lists apply only to customer arbitrations. Therefore, the Industry 
Code does not contain Document Production Lists. The discovery rules 
in the Industry Code that are substantially similar to Rule 12507 in 
the Customer Code are Rule 13506 (Discovery Requests) and Rule 13507 
(Responding to Discovery Requests). The proposed amendments to Rules 
13506 and 13507 are substantively identical to those in Rule 12507.
---------------------------------------------------------------------------

12507--Other Discovery Requests
    Current FINRA Rule 12507(a) provides that parties may request 
additional documents from a party by serving the party directly with a 
written request. The rule requires the requesting party to serve copies 
of the request on all other parties at the same time. Because parties 
would be serving each other through the Party Portal, FINRA is 
proposing to amend the rule to delete the requirement for direct 
service in Rule 12507(a)(1) and the requirement to serve all other 
parties at the same time in Rule 12507(a)(2).
    Current FINRA Rule 12507(b) specifies how parties may respond to an 
additional discovery request. The parties can: (1) Produce the 
documents or information (Rule 12507(b)(1)(A)); (2) identify specific 
documents that will not be produced within the required time and state 
when the documents will be produced (Rule 12507(b)(1)(B)); or (3) 
object to the request (Rule 12507(b)(1)(C)). As explained earlier, 
FINRA does not want parties to file with the Director the documents and 
information that they produce during discovery. Therefore, FINRA is 
proposing to amend Rule 12507(b)(1)(A) to specify that if a party 
produces documents or information pursuant to a request, the party must 
serve all other parties with copies of the requested documents or 
information by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email or facsimile.
    However, FINRA wants to receive party explanations about why they 
are not timely producing documents and why they are objecting to 
production. Therefore, FINRA would amend Rule 12507(b)(1)(B) concerning 
non-production to provide that a party must file a response with the 
Director and serve it on all other parties (through the Party Portal). 
FINRA would also amend Rule 12507(b)(1)(C) concerning objections to 
provide that a party must file the objection with the Director and 
serve it on all other parties (through the Party Portal).
    Finally, FINRA is proposing to replace the bullets in Rule 12507 
with numbers.
12508--Objecting to Discovery; Waiver of Objection
    Current FINRA Rule 12508 addresses party objections to producing 
documents and information during discovery. To reflect how parties will 
be serving each other through the Party Portal, FINRA is proposing to 
amend the rule to delete the requirement that parties serve their 
objections on each other at the same time and in the same manner. 
Because FINRA wants to receive party explanations through the Party 
Portal about why parties object to production, FINRA is proposing to 
amend the rule to delete the statement that objections should not be 
filed with the Director.
12512--Subpoenas
    Current FINRA Rule 12512 specifies that a party may make a written 
motion requesting that an arbitrator issue subpoenas to parties and 
non-parties for the production of documents and evidence, and outlines 
how FINRA handles motions for subpoenas at the forum. To reflect how 
motion practice would operate through the Party Portal, FINRA is 
proposing to amend Rule 12512(b) to delete the requirements that 
parties provide copies of the subpoena to the arbitrator, and serve the 
motion on each other at the same time and in

[[Page 81851]]

the same manner. FINRA would make the same amendment to Rule 12512(c) 
concerning party objections to subpoenas.
    Current FINRA Rule 12512(d) addresses service of an executed 
subpoena. FINRA is proposing to amend the rule to delete the 
requirement that parties serve the subpoena on each other at the same 
time and in the same manner. In addition, because non-parties do not 
have access to the Party Portal, FINRA would amend the rule to specify 
that when an arbitrator issues a subpoena to a non-party, the party 
must serve the subpoena on the non-party by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email or 
facsimile.
    Current FINRA Rule 12512(e) provides for a non-party's objection to 
a subpoena. If a non-party receiving a subpoena objects to the scope or 
propriety of the subpoena, FINRA permits the non-party to file written 
objections with the Director. Under the rule, the party that requested 
the subpoena may respond to the objection. FINRA is proposing to amend 
the rule to provide that the non-party may file the objection by first-
class mail, overnight mail service, overnight delivery service, hand 
delivery, email or facsimile, and that the party must serve the 
response on the non-party and file proof of service with the Director.
    Current FINRA Rule 12512(f) outlines procedures for parties to 
follow when they receive subpoenaed documents from non-parties. 
Specifically, the rule provides that any party that receives documents 
in response to a subpoena served on a non-party has five days to 
provide notice of the receipt to the other parties. Other parties to 
the case may request copies of the documents, and the party in receipt 
of the documents must provide them within ten (10) calendar days of 
receipt of the request. FINRA is proposing to amend the rule to specify 
that a party that receives documents from a non-party in response to a 
subpoena must serve the other parties with notice that the party 
received the documents. Other parties to the case may request copies of 
the subpoenaed documents. Because FINRA does not want the parties to 
submit the documents to the Director, FINRA would amend the rule to 
provide that the party must serve the documents on the other parties by 
first-class mail, overnight mail service, overnight delivery service, 
hand delivery, email or facsimile. The proposed rule would also 
expressly prohibit parties from filing the documents with the Director.
12513--Authority To Direct Appearances of Associated Person Witnesses 
and Production of Documents Without Subpoenas
    Current FINRA Rule 12513 authorizes arbitrators to order the 
appearance of firm employees and associated persons, and the production 
of documents from firms and their employees and associated persons 
without issuing a subpoena. FINRA is proposing to amend several 
provisions in the rule to reflect how FINRA would handle a party's 
motion for an arbitrator order using the Party Portal.
    FINRA is proposing to amend Rule 12513(b) concerning filing the 
motion to delete the requirement that a party provide a copy for the 
arbitrator and that the party serve the motion on all other parties at 
the same time and in same manner as on the Director. FINRA is proposing 
to make the same changes to Rule 12513(c) relating to an opposing 
party's objection to the motion, and to Rule 12513(d) relating to party 
service of an order.
    In addition, because FINRA will not invite a non-party to use the 
Party Portal, FINRA is proposing to amend Rule 12513(d) to provide that 
if a party obtains an arbitrator's order for a non-party's production, 
then the party must serve the order on the non-party. FINRA would also 
amend Rule 12513(e) to provide that if the non-party files an objection 
to the arbitrator's order, and the party requesting the order wants to 
file a response to the objection, then the party must serve the 
response on the non-party and provide the Director with proof of 
service. Finally, FINRA is proposing to amend Rule 12513(f) to provide 
that any party receiving documents from a non-party must serve notice 
on all other parties. If any other party requests copies of the 
documents, the requesting party must serve them by first-class mail, 
overnight mail service, overnight delivery service, hand delivery, 
email or facsimile. The amendments would also specify that parties must 
not file with the Director the documents produced pursuant to the 
order.
12514--Prehearing Exchange of Documents and Witness Lists, and 
Explained Decision Requests
    Current FINRA Rule 12514 sets forth procedures for exchanging 
documents and witness lists prior to the first scheduled hearing date 
and for making joint party requests for an explained decision. FINRA is 
proposing to amend Rule 12514(b) to delete the requirement that parties 
file their witness lists with the Director at the same time as they 
notify other parties and provide the Director with enough copies for 
the arbitrators. Instead, proposed Rule 12514(b) would require that all 
parties file their witness lists only with the Director. FINRA would 
also amend Rule 12514(d) to provide that parties must file with the 
Director requests for an explained decision as opposed to submitting 
them to the arbitrators.
12701--Settlement
    Current FINRA Rule 12701 requires parties to notify the Director of 
settlements. FINRA is proposing to amend Rule 12701(a) to reflect use 
of the Party Portal by replacing ``notify'' with ``file notice with'' 
the Director.
12800--Simplified Arbitration
    Current FINRA Rule 12800 provides special procedures for the 
administration of disputes involving $50,000 or less, including 
procedures for parties to request documents and other information from 
each other. FINRA is proposing to amend Rule 12800(d) to provide that 
parties receiving the request must produce the requested documents or 
information to all other parties by serving the requested documents or 
information by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email or facsimile. The proposed rule 
would specify that parties must not file the documents with the 
Director.
12801--Default Proceedings
    Current FINRA Rule 12801 specifies procedures for initiating 
default proceedings against certain respondents (e.g., terminated 
members). Because parties would be using the Party Portal to file 
notice with the Director and serve other parties with their request to 
initiate a default proceeding, FINRA is proposing to amend Rule 
12801(b) to delete the requirements for parties to notify the Director 
in writing, and send a copy of the notification to other parties at the 
same time and in the same manner. FINRA is also proposing to amend Rule 
12801(a) to replace bullets with numbers.
12901--Member Surcharge
    Current FINRA Rule 12901 provides that FINRA will assess surcharges 
against members under specified circumstances. Rule 12901(a)(3) states 
that if the claim is filed by a member, the surcharge is due when the 
claim is filed. If the claim is filed against a member, or against an 
associated person employed by a member at the time of the events giving 
rise to the dispute, the surcharge is due when the claim is served. 
FINRA is proposing to amend

[[Page 81852]]

the rule to provide that if a claim is filed against a member or 
associated person, the surcharge is due when the Director serves the 
Claim Notification Letter or the initial statement of claim. FINRA is 
also proposing to amend Rule 12901(a) and 12901(b) to replace bullets 
with letters.
12094--Awards
    Current FINRA Rule 12904 concerns arbitrator awards and includes, 
among other matters, procedures for the Director to serve awards on 
parties. The rule provides that the Director serves an award using any 
method available and convenient to the parties and the Director, and 
that is reasonably expected to cause the award to be delivered to all 
parties, or their representative, on the same day. Under the rule, the 
Director may serve an award by first class, registered or certified 
mail, hand delivery, and facsimile or other electronic transmission. 
Because the Director will serve the award through the Party Portal in 
most instances, FINRA is proposing to amend Rule 12904(c) to provide 
that only the Director will serve the award on each party, or their 
representative through the Party Portal.

Industry Code Specific Amendments

    As explained earlier, while the discussion details the proposed 
amendments to the FINRA rules in the Customer Code, FINRA is also 
proposing to make substantively similar amendments to the Industry 
Code. In addition to the amendments discussed, FINRA is proposing to 
amend rules in the Industry Code that are unique to intra-industry 
disputes.
13802--Statutory Employment Discrimination Claims
    FINRA is proposing to amend FINRA Rule 13802(a) relating to 
statutory employment discrimination claims to update a cross-reference 
concerning the definition of statutory employment discrimination. FINRA 
would also amend Rule 13802(c) to replace bullets with numbers.
13804--Temporary Injunctive Orders; Requests for Permanent Injunctive 
Relief
    The Industry Code has special procedures for handling temporary 
injunctions with respect to an industry or clearing dispute. FINRA is 
proposing to amend FINRA Rule 13804(a) to provide that parties seeking 
temporary injunctive relief from a court must file with the Director a 
statement of claim requesting permanent injunctive and all other relief 
with respect to the same dispute through the Party Portal, and must 
serve the statement of claim requesting permanent injunctive and all 
other relief on all other parties by overnight delivery service, hand 
delivery, email or facsimile. The proposed rule would require parties 
to serve all parties at the same time and in the same manner, unless 
the parties agree otherwise.
    FINRA states that cases involving injunctive relief operate on an 
accelerated time schedule. FINRA also states, however, that it takes 
FINRA staff some time to review an initial submission and invite 
respondent parties to use the Party Portal. In view of the need to 
expedite these matters, FINRA believes that parties should serve each 
other outside of the Party Portal until FINRA establishes the 
identities of all relevant parties and their representatives, and 
invites them to access the Party Portal.

Mediation Code

    Under the proposed rule change, FINRA would permit parties to a 
mediation proceeding to use the Party Portal on a voluntary basis. 
FINRA is proposing to amend the Mediation Code to reflect use of the 
Party Portal.
14100--Definitions
    FINRA is proposing to amend FINRA Rule 14100 to define ``Arbitrator 
and Mediator Portal'' and ``Party Portal.'' The definitions would be 
identical to the definitions in the Codes. FINRA would re-letter the 
definitions because of the new additions.
14109--Mediation Ground Rules
    FINRA also is proposing to amend FINRA Rule 14109 to provide that 
the parties may agree to use the Party Portal to submit all documents 
and other communications to each other, to retrieve all documents and 
other communications, and view mediation case information.

III. Comment Summary and FINRA's Response

    As noted above, the Commission received five comment letters on the 
proposed rule change \35\ and a response letter from FINRA.\36\ As 
discussed in more detail below, two strongly support the proposal; \37\ 
two generally support the proposal but recommend modifications; \38\ 
and one appears to be unrelated to substance of the proposal.\39\
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    \35\ See supra note 5.
    \36\ See supra note 6.
    \37\ See Caruso Letter and FSI Letter.
    \38\ See IAC Letter and PIABA Letter.
    \39\ See Conflicteam Letter.
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    Two commenters strongly supported the proposal, stating that the 
proposal ``would facilitate interactions among parties, arbitrators, 
mediators, and FINRA staff on arbitration case-related matters,'' \40\ 
``further promote the efficiency of the participant experience in the 
FINRA arbitration forum,'' \41\ and would result in ``more efficient 
and equitable arbitration proceedings.'' \42\ One of those commenters 
noted that some of its members had been invited by FINRA to participate 
in a beta test of the Party Portal, and stated that those members 
``reported that the system was efficient, simplified responses to 
communications, and allowed for easier tracking of progress in the 
dispute.'' \43\
---------------------------------------------------------------------------

    \40\ See Caruso Letter; see also FSI Letter.
    \41\ See Caruso Letter.
    \42\ See FSI Letter at 2.
    \43\ See id.
---------------------------------------------------------------------------

    Two additional commenters generally supported the proposal, with 
both commenters stating their belief that use of the Party Portal would 
improve efficiency.\44\ One of those commenters noted that, in addition 
to enhancing efficiency, use of the Party Portal would ``allow the 
[arbitration] panel to be more actively engaged in the discovery 
process[,]'' and ``provide[] FINRA with additional enforcement 
capability concerning potential firm rule violations relating to 
discovery.'' \45\ However, both commenters expressed concerns about the 
effect of the proposed rule change on claimants with smaller claims, 
specifically with respect to protection of personal confidential 
information and payment of forum fees.\46\
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    \44\ See IAC Letter at 1; see also PIABA Letter at 1.
    \45\ See IAC Letter at 1.
    \46\ See IAC Letter; see also PIABA Letter.
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    Personal confidential information. As stated in the Notice, current 
FINRA Rule 12800 provides special procedures for ``simplified 
arbitration,'' disputes where the amount at issue is $50,000 or 
less.\47\ One commenter noted that under Rule 12800, ``simplified 
proceedings are exempt from the redaction of Social Security, tax id, 
and financial accounts numbers.'' \48\ One commenter additionally noted 
that much of the personal confidential information ``involved in a 
simplified proceeding is of the type that, according to the FBI, can be 
used by criminals to engage in identity theft, including financial 
account numbers, birth dates, addresses, and Social Security numbers.'' 
\49\ Consequently, these two commenters expressed concern that 
exempting

[[Page 81853]]

simplified proceedings from FINRA's redaction requirements, while 
requiring claimants to file documents electronically through the Party 
Portal, puts claimants in simplified proceedings at greater risk of 
identity theft and/or other information security breaches.\50\ For 
these reasons, both commenters urged FINRA to extend the redaction 
requirements for personal confidential information to all documents 
submitted through the Party Portal.\51\
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    \47\ See Notice, 81 FR at 54865.
    \48\ See PIABA Letter at 1.
    \49\ See IAC Letter at 1 (citing FBI, Cyber Crime, available at 
https://www.fbi.gov/investigate/cyber).
    \50\ See id. at 1-2; see IAC Letter at 2-3.
    \51\ See IAC Letter at 3; see also PIABA Letter at 2. One 
commenter urged FINRA to go one step further and extend the 
redaction requirements to pro se customers not using the Party 
Portal, though the commenter acknowledged ``that the risk of misuse 
may not be as significant (though not non-existent) if the 
information is not sent, received, or stored electronically via the 
Party Portal.'' See IAC Letter at 3.
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    In response to these comments, FINRA, although it declined to amend 
the proposed rule change as suggested by the two commenters, stated 
that it ``is concerned about identity theft'' and that it ``believes 
that the Party Portal provides parties with enhanced security over 
other methods of document transmittal.'' \52\ FINRA further noted that 
the Party Portal is a ``secure, encrypted environment'' and that 
parties in simplified arbitration are not prevented from redacting 
their documents, but that they are simply not required to do so.\53\ 
Finally, FINRA noted that it ``has a dedicated Web page encouraging 
parties to take steps to protect their [personal confidential 
information] regardless of any exemptions in the Codes.'' \54\
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    \52\ See FINRA Letter at 3.
    \53\ See FINRA Letter at 3. Similarly, FINRA also notes that an 
``exemption from the redaction requirements does not mean that pro 
se parties . . . cannot redact [personal confidential information] 
from their documents.''
    \54\ See FINRA Letter at 3.
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    Payment of forum fees. As stated in the Notice, FINRA is proposing 
to amend Rule 12302(c) to require the claimant to pay all required 
filing fees by credit card or automated clearing house (``ACH'') 
through the Party Portal, unless the party is a pro se customer who 
opts out of using the Party Portal.\55\ Two commenters expressed 
concern about this portion of the proposal.\56\ One commenter urged 
FINRA to allow payment of fees by personal check for all parties, 
explaining that ``it is not uncommon for individual claimants, even 
when represented, to pay their filing and other forum fees by personal 
check,'' and noting that ``some law school securities arbitration 
centers do not have the ability to pay by credit card or ACH.'' \57\ 
Another commenter urged FINRA to revise the proposal to allow parties 
with damages under $100,000 to pay by personal check, expressing 
concern that the proposal as drafted may adversely affect smaller 
claimants and/or claimants that are only able to proceed if they obtain 
fee waivers.\58\ In particular, this commenter expressed concern that 
``[w]ithout an exception allowing payment of fees by check for these 
small claims,'' the proposal will encourage parties to evade the Party 
Portal requirement by initiating a pro se claim or discourage firms 
from representing clients with smaller claims.\59\
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    \55\ See Notice, 81 FR at 54861.
    \56\ See IAC Letter at 2; see also PIABA Letter at 2.
    \57\ PIABA Letter at 2; see also IAC Letter (stating that as a 
law school clinic it lacks the infrastructure to pay client filing 
fees via credit card or ACH transfers, and that it further 
understands that law firms representing claimants with smaller 
claims ``require that their clients directly remit payment to FINRA 
as these firms are unable to take on such a representation unless 
the client pays the fees directly to FINRA via a personal check.'').
    \58\ See IAC Letter at 2.
    \59\ Id.
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    In its response, FINRA stated its belief that ``requiring payment 
through the Party Portal would make case administration more 
efficient.'' \60\ In particular, FINRA stated that the electronic 
payment system would, among other benefits, immediately alert FINRA 
staff if a filing was deficient for lack of payment.\61\ In addition, 
FINRA stated that it ``designed the ACH feature in the Party Portal to 
be self-contained and easy to use,'' and that a ``clinic or law firm 
representing a party does not need any special facility to remit 
payment via ACH.'' \62\ FINRA further explained that the ``Party Portal 
User Guide contains detailed instructions, including screen shots from 
the system, on how to pay by ACH'' and further noted that a ``party can 
provide the [ABA routing number and bank account number that appear on 
a personal check] to a representative over the phone, or a voided check 
with the numbers, for entry into the Party Portal.'' \63\ Because of 
``the efficiencies afforded by electronic payment, and that any Party 
Portal user can remit fees, FINRA declines to amend the proposed rule 
change as suggested by the commenters.'' \64\
---------------------------------------------------------------------------

    \60\ See FINRA Letter at 2.
    \61\ Id.
    \62\ Id.
    \63\ Id.
    \64\ Id.
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    Discovery correspondence. As stated in the Notice, FINRA is 
proposing to require parties to file discovery correspondence through 
the Party Portal.\65\ One commenter, although generally supportive of 
this requirement, expressed concern that the ``proposal is unclear as 
to how matters involving pro se parties who chose not to utilize the 
Portal should be handled'' and suggested that those parties be required 
to file discovery correspondence with FINRA outside the Party 
Portal.\66\ The commenter ``believes that brokerage firms could be less 
likely to engage in discovery abuse against pro se parties if they know 
FINRA can still keep an eye on the discovery process.'' \67\
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    \65\ See Notice, 81 FR at 54864.
    \66\ See PIABA Letter at 2.
    \67\ Id.
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    In its response, FINRA clarified that under the proposal, pro se 
parties who opt out of the Party Portal would still be required to file 
discovery correspondence using one of the methods enumerated in Rule 
12300(a)(2)(C).\68\ FINRA stated that acceptable methods of service 
include first-class mail, overnight mail service, overnight service, 
hand delivery, email, or facsimile.\69\
---------------------------------------------------------------------------

    \68\ See FINRA Letter at 3.
    \69\ See FINRA Letter at 3 n.8; see also Notice at 81 FR 54864.
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    Service. Although not a specific concern or suggestion about the 
proposal itself, one commenter noted that ``the service requirements 
are spread through a number of different rules,'' and suggested that 
FINRA consider issuing a Notice to Members ``setting forth a list of 
the specific filings which must be made outside of the Party Portal 
once the rule is implemented'' in order to ``allow practitioners an 
opportunity to review all the exceptions to filing via the Portal in 
one place.'' \70\
---------------------------------------------------------------------------

    \70\ PIABA Letter at 2.
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    In its response, FINRA agreed that such a list would be helpful and 
stated in its response that ``[i]f the Commission approves the proposed 
rule change, FINRA will provide a list of such filings in a Regulatory 
Notice announcing approval of the proposed rule change as well as in 
guidance on the FINRA Web site.'' \71\
---------------------------------------------------------------------------

    \71\ See FINRA Letter at 3-4.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposal, the comments 
received, and FINRA's response to the comments. Based on its review of 
the record, the Commission finds that the proposal is consistent with 
the requirements of the Exchange Act and the rules and regulations 
thereunder that are applicable to a national

[[Page 81854]]

securities association.\72\ In particular, the Commission finds that 
the proposed rule change is consistent with Section 15A(b)(6) of the 
Exchange Act,\73\ which requires, among other things, that FINRA rules 
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.
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    \72\ In approving the proposed rule change, the Commission has 
also considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \73\ 15 U.S.C. 78o-3(b)(6).
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    The Commission notes that two commenters strongly supported the 
proposal, two commenters generally supported the proposal but had some 
recommended modifications, and one commenter did not appear to address 
the substance of the proposed rule change. With respect to payment of 
fees, the Commission recognizes the recommendations by two commenters 
that FINRA allow payment by personal check, either for parties for 
damages under $100,000 or for all parties.\74\ The Commission also 
recognizes, however, FINRA's efforts to clarify and streamline the 
electronic payment process for its users, including, among other 
things, permitting Party Portal users to remit payment by phone if 
needed by providing the ABA routing number and bank account number 
found on the user's personal check.\75\ The Commission further 
recognizes the ``efficiencies afforded by electronic payment,'' \76\ 
including the ability for FINRA staff to immediately discern whether a 
filing is deficient for lack of payment.
---------------------------------------------------------------------------

    \74\ See IAC Letter at 2; PIABA Letter at 2.
    \75\ See FINRA Letter at 2.
    \76\ Id.
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    With respect to the protection of personal confidential 
information, the Commission recognizes the concerns expressed by two 
commenters that, under the proposal, FINRA's exemption of the redaction 
requirements in current Rule 12300 for parties in Simplified 
Arbitrations--disputes where the amount at issue is $50,000 or less--
will remain unchanged.\77\ The Commission recognizes the commenters' 
concerns that exempting Simplified Arbitrations from FINRA's redaction 
requirements, while requiring claimants to file documents 
electronically through the Party Portal, puts claimants in Simplified 
Arbitrations at greater risk of identity theft and/or other information 
security breaches.\78\ The Commission also recognizes, however, FINRA's 
own concerns about identity theft, and its belief that ``the Party 
Portal provides parties with enhanced security over other methods of 
document transmittal.'' \79\ The Commission further recognizes, as 
FINRA explained in its response to comments, that parties in Simplified 
Arbitrations (as well as pro se parties not using the Party Portal) are 
not restricted from redacting their documents should they choose to do 
so.\80\ Finally, the Commission recognizes that ``FINRA has a dedicated 
Web page encouraging parties to take steps to protect their [personal 
confidential information] regardless of any exemptions in the Codes.'' 
\81\
---------------------------------------------------------------------------

    \77\ See PIABA Letter at 1; see also IAC Letter at 2-3.
    \78\ See PIABA Letter at 1-2; see also IAC Letter at 2-3.
    \79\ See FINRA Letter at 3.
    \80\ Id.
    \81\ Id.
---------------------------------------------------------------------------

    With respect to the proposal's requirement that parties file 
discovery correspondence through the Party Portal, the Commission 
recognizes one commenter's concern that the ``proposal is unclear as to 
how matters involving pro se parties who chose not to utilize the 
Portal should be handled.'' \82\ The Commission further recognizes 
FINRA's clarification that, under the proposal, pro se parties would be 
required to file discovery correspondence by an alternate method as 
enumerated in Rule 12300(a)(2)(C).\83\
---------------------------------------------------------------------------

    \82\ PIABA Letter at 2.
    \83\ See FINRA Letter at 3.
---------------------------------------------------------------------------

    With respect to rules regarding service, the Commission recognizes 
that one commenter's suggestion that FINRA issue a Notice to Members 
``setting forth a list of the specific filings which must be made 
outside of the Party Portal once the rule is implemented'' in order to 
``allow practitioners an opportunity to review all the exceptions to 
filing via the Portal in one place.'' \84\ The Commission further 
recognizes FINRA's agreement with this suggestion and its intent to 
``provide a list of such filings in a Regulatory Notice announcing 
approval of the proposed rule change as well as in guidance on the 
FINRA Web site.'' \85\
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    \84\ PIABA Letter at 2.
    \85\ FINRA Letter at 3-4.
---------------------------------------------------------------------------

    Finally, the Commission recognizes FINRA's statement that of the 
13,562 parties invited to use the portal as of May 11, 2016 (including 
customers, firms, and associated persons), ``76 percent of customers, 
including pro se customers, have been using the Party Portal 
voluntarily and 82 percent of firms and associated persons, which 
includes firm representatives, have been using the Party Portal 
voluntarily (78 percent in total).'' \86\
---------------------------------------------------------------------------

    \86\ Notice, 81 FR at 54867.
---------------------------------------------------------------------------

    Taking into consideration the comments and FINRA's response, the 
Commission believes that the proposal is consistent with the Exchange 
Act. The Commission believes that the proposal will help protect 
investors and the public interest by enhancing efficiencies for FINRA 
arbitration forum users and expediting case administration by FINRA 
staff by, among other things, improving the case intake process and 
helping ensure better data accuracy.\87\ The Commission further 
believes that FINRA's response, as discussed in more detail above, 
appropriately addressed commenters' concerns and adequately explained 
its reasons for declining to modify its proposal to allow for payment 
by personal check or to extend FINRA's current redaction requirements 
to simplified proceedings. The Commission believes that the approach 
proposed by FINRA is appropriate and designed to protect investors and 
the public interest, consistent with Section 15A(b)(6) of the Exchange 
Act. For these reasons, the Commission finds that the proposed rule 
change is consistent with the Exchange Act and the rules and 
regulations thereunder.
---------------------------------------------------------------------------

    \87\ Notice, 81 FR at 54866.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\88\ that the proposed rule change (SR-FINRA-2016-029) be, 
and hereby is, approved.
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    \88\ 15 U.S.C. 78s(b)(2).
    \89\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\89\
Brent J. Fields,
Secretary.
[FR Doc. 2016-27739 Filed 11-17-16; 8:45 am]
 BILLING CODE 8011-01-P