Document ID: SEC-2009-0110-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-01-27T05:00Z

[Federal Register: January 27, 2009 (Volume 74, Number 16)]
[Notices]               
[Page 4793-4796]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27ja09-72]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59267; File No. SR-FINRA-2009-003]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Implement Technical Changes to the Code of 
Arbitration Procedure for Customer Disputes and Industry Disputes

January 16, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
Financial Industry Regulatory Authority, Inc. (``FINRA'') (f/k/a 
National Association of Securities Dealers, Inc. (``NASD''))

[[Page 4794]]

filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') on January 8, 2009, the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
FINRA Dispute Resolution. FINRA has designated the proposed rule change 
as constituting a ``non-controversial'' rule change under paragraph 
(f)(6) of Rule 19b-4 under the Act,\3\ which renders the proposal 
effective upon receipt of this filing by the Commission. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend the Code of Arbitration Procedure for 
Customer Disputes (``Customer Code'') and the Code of Arbitration 
Procedure for Industry Disputes (``Industry Code'') to insert rule 
language from the Code of Arbitration Procedure (``old Code'') that was 
inadvertently omitted when the Customer Code and Industry Code were 
adopted, to correct inaccurate cross-references, and typographical 
errors. The text of the proposed rule change is available on FINRA's 
Web site at http://www.finra.org, at the principal office of FINRA, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On January 24, 2007, the SEC approved a proposal to amend the old 
Code by simplifying the language, codifying current dispute resolution 
practices, and implementing several substantive changes to dispute 
resolution rules.\4\ The proposal reorganized the old Code into three 
separate procedural codes: the Customer Code, the Industry Code, and 
the NASD Code of Mediation Procedure (``Mediation Code'').\5\ The 
Customer, Industry and Mediation Codes (the ``new Codes'') replace the 
old Code in its entirety.\6\
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    \4\ See Securities Exchange Act Release No. 55158 (January 24, 
2007); 72 FR 4574 (January 31, 2007) (File Nos. SR-NASD-2003-158 and 
SR-NASD-2004-011).
    \5\ The SEC approved the Mediation Code on October 31, 2005. See 
Securities Exchange Act Release No. 52705 (Oct. 31, 2005); 70 FR 
67525 (November 7, 2005) (File No. SR-NASD-2004-013). It became 
effective on January 30, 2006. See Notice to Members 05-85 (December 
2005).
    \6\ The Customer and Industry Codes became effective on April 
16, 2007. See Notice to Members 07-07 (February 2007).
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    Since the new Codes became effective, FINRA has found some 
inaccurate cross-references, typographical errors, inadvertent 
omissions, and rule language that could be improved to better convey 
FINRA's intent or to clarify current practice regarding those rules. 
FINRA is, therefore, proposing several technical, non-substantive 
amendments to the Customer and Industry Codes that would correct 
inaccurate cross-references and typographical errors, insert rule 
language that was inadvertently omitted, codify current practice 
concerning the administration of existing rules, and make certain 
clarifying changes. FINRA will discuss the proposed changes in the 
order that they appear in the new Codes, beginning with the proposed 
amendments to the Customer Code.

Proposed Non-Substantive Amendments to the Customer Code

Table of Contents
    FINRA proposes to amend the title that introduces Part IV of the 
Table of Contents, by adding a comma after the word 
``Disqualification,'' so that the title in the Table of Contents to the 
Customer Code is the same as the title in the Customer Code.
Rule 12102--National Arbitration and Mediation Committee
    Rule 10102(a) of the old Code authorized the then--NASD Dispute 
Resolution Board of Directors to appoint a National Arbitration and 
Mediation Committee (the ``Committee''); and, under this rule, the 
Committee was authorized to establish and maintain rosters of neutrals.
    When the old Code was reorganized into the Customer Code, the 
Committee's authorization to establish and maintain neutral rosters was 
inadvertently omitted from Rule 12102. Thus, FINRA proposes to amend 
Rule 12102(b) to insert language similar to that in old Rule 10102(a), 
which will authorize the Committee to establish and maintain rosters of 
neutrals composed of persons from within and outside of the securities 
industry. As the Committee currently works to establish and maintain 
FINRA's arbitrator rosters, the amendment would not be a change to 
current practice.
Rule 12206--Time Limits
    FINRA proposes to amend Rule 12206(d) to correct a proofreading 
oversight by removing the word ``matter'' from the end of the sentence. 
Under the new Codes, the term ``claim,'' not ``matter,'' is used when 
referring to an allegation or request for relief.
Rule 12307--Deficient Claims
    In the Customer Code, FINRA codified its practice regarding 
deficient claims, which had not been codified in the old Code. Under 
Rule 12307, the deficient claims rule, FINRA lists the reasons that a 
claim may be deficient, explains the process if a deficiency is not 
corrected, and sets forth procedures for handling other pleadings that 
may be deficient. Specifically, Rule 12307(b) provides that the 
Director will not refund any filing fees paid by claimants when staff 
closes a deficient case. FINRA proposes to amend Rule 12307(b) because 
it does not reflect accurately its practice concerning refunding 
certain fees paid by claimants when FINRA closes a deficient claim.
    When claimants filed a claim under the old Code, they submitted 
their Statement of Claim along with two separate fees: A non-refundable 
filing fee and a hearing session deposit.\7\ When FINRA staff closed a 
deficient case, FINRA would retain the non-refundable filing fee and 
refund the hearing session deposit to the claimants. Under the Customer 
Code, FINRA combined the old Code filing fee and hearing session 
deposit into one ``filing fee.'' \8\ However, FINRA did not change its 
practice regarding refunds of a portion of the filing fee when it 
closes a deficient case--FINRA continues to refund the refundable part 
of the filing fee to claimants, while retaining the remaining portion. 
Thus, FINRA believes the language in Rule 12307(b) does not reflect 
accurately its practice and could be confusing to users of the forum. 
Therefore, FINRA proposes to amend Rule 12307(b) to state that the 
Director will close the case without

[[Page 4795]]

serving the claim, and will refund part of the filing fee in the amount 
indicated in the schedule of fees. FINRA believes the amendment will 
reflect accurately its practice concerning refunds when it closes a 
deficient case and will minimize confusion concerning its fees.
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    \7\ See Rule 10332(c) of the Code of Arbitration Procedure.
    \8\ See Rule 12900. A portion of the filing fee is refundable 
under certain circumstances, Rule 12900(c).
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Rule 12410--Removal of Arbitrator by Director
    Rule 12410 addresses removal of an arbitrator by the Director of 
Arbitration. Specifically, Rule 12410(a)(1) states, in relevant part, 
that ``the Director will grant a party's request to remove an 
arbitrator if it is reasonable to infer, based on information known at 
the time of the request, that the arbitrator is biased, lacks 
impartiality, or has a direct or indirect interest in the outcome of 
the arbitration. The interest or bias must be direct, definite, and 
capable of reasonable demonstration, rather than remote or 
speculative.'' \9\ FINRA believes the word ``direct'' in the second 
sentence of the rule conflicts with the meaning of the first sentence, 
in which an arbitrator may be challenged for having ``a direct or 
indirect interest in the outcome of the arbitration.'' Thus, FINRA 
proposes to remove ``direct'' from the second sentence of Rule 
12410(a)(1) to eliminate the conflict in the rule language.
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    \9\ See Rule 12410(a)(1).
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Proposed Non-Substantive Amendments to the Industry Code \10\
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    \10\ Most rules of the Customer and Industry Codes are 
identical, except for panel composition, references to document 
production lists that apply only in customer cases, and rules 
relating to employment discrimination and injunctive relief that 
apply only to industry claims. Wherever possible, the last three 
digits of the rule numbers in the Customer and Industry Codes are 
the same. Thus, the explanation for the proposed amendments in the 
Customer Code also apply to the proposed amendments in the Industry 
Code, except where indicated.
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Table of Contents
    For an explanation of the proposed amendment, see the relevant 
section under ``Proposed Non-Substantive Amendments to the Customer 
Code'' above.
Rule 13102--National Arbitration and Mediation Committee
    For an explanation of the proposed amendment, see the relevant 
section under ``Proposed Non-Substantive Amendments to the Customer 
Code'' above.
Rule 13206--Time Limits
    For an explanation of the proposed amendment, see the relevant 
section under ``Proposed Non-Substantive Amendments to the Customer 
Code'' above.
Rule 13307--Deficient Claims
    For an explanation of the proposed amendment, see the relevant 
section under ``Proposed Non-Substantive Amendments to the Customer 
Code'' above.
Rule 13314--Combining Claims
    FINRA proposes to amend the erroneous cross-reference to Rule 
13404(c) in Rule 13314. Rule 13314 states, in relevant part, that 
before ranked arbitrator lists are due to the Director under Rule 
13404(c), the Director may combine separate but related claims into one 
arbitration. Rule 13404(c) instructs parties on the ranking procedures 
in the forum. Rule 13404(d) governs when ranked lists must be returned 
to the Director. Thus, the reference to Rule 13404(c) in Rule 13314 is 
inaccurate and should be changed to Rule 13404(d).
Rule 13403--Generating and Sending Lists to the Parties
    FINRA proposes to amend the erroneous cross-reference to Rule 
13404(c) in Rule 13403(c)(2). The relevant provision of Rule 
13403(c)(2) states that when a party requests additional information, 
the Director may, but is not required to, toll the time for parties to 
return the ranked lists under Rule 13404(c). For the reason discussed 
pertaining to the proposed amendment to Rule 13314, the reference to 
Rule 13404(c) is inaccurate and should be changed to Rule 13404(d).
Rule 13410--Removal of Arbitrator by Director
    For an explanation of the proposed amendment, see the relevant 
section under ``Proposed Non-Substantive Amendments to the Customer 
Code'' above.
Rule 13804--Temporary Injunctive Orders; Requests for Permanent 
Injunctive Relief
    FINRA proposes to correct a typographical error in Rule 
13804(b)(3)(A)(ii). The relevant sentence of the rule states that ``the 
Direct shall consolidate the parties'' rankings, and shall appoint 
arbitrators based on the order of rankings on the consolidated list, 
subject to the arbitrators' availability and disqualification.'' FINRA 
proposes to change the word ``Direct'' to ``Director.''
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act, which requires, among other 
things, that FINRA rules must be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest.
    FINRA believes that the proposed rule change will assist in the 
efficient administration of arbitrations by clarifying current 
practices and by correcting inaccurate cross-references and 
typographical errors. FINRA believes these technical, non-substantive 
amendments will enhance the new Codes by making them easier to 
understand and apply.

 B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received by FINRA.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    FINRA has represented that the proposed rule change qualifies for 
immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act \11\ 
and Rule 19b-4(f)(6) thereunder \12\ because it: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) by its terms, does not become operative for 30 days from the 
date on which it was filed, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to the date of filing of the proposed rule change, or such 
shorter time as designated by the Commission. FINRA has satisfied 
this requirement.
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    FINRA has requested that the Commission waive the 30-day operative 
delay, so that the proposed rule change may become operative upon 
filing. The Commission hereby grants FINRA's request.\14\ The 
Commission believes that

[[Page 4796]]

waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest because it makes only technical 
changes to FINRA's rules which should help to avoid confusion among 
FINRA members and other market participants.
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    \14\ For the purposes only of waiving the 30-day operative 
delay, 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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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2009-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

    All submissions should refer to File Number SR-FINRA-2009-003. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of FINRA.
    All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to the File Number SR-FINRA-
2009-003 and should be submitted on or before February 17, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-1675 Filed 1-26-09; 8:45 am]

BILLING CODE 8011-01-P