Document ID: SEC-2017-1063-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2017-06-23T04:00Z

[Federal Register Volume 82, Number 120 (Friday, June 23, 2017)]
[Notices]
[Pages 28724-28726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-13104]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80973; File No. SR-FINRA-2017-009]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change Relating to 
Expediting List Selection in Arbitration

June 19, 2017.

I. Introduction

    On April 26, 2017, 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 provide that the Director of 
FINRA's Office of Dispute Resolution (``ODR Director'') will send the 
list or lists or arbitrators generated by the Neutral List Selection 
System (``NLSS'') to all parties at the same time, within approximately 
30 days after the last answer is due, regardless of the parties' 
agreement to extend any answer due date.
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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 May 15, 2017.\3\ The public comment period closed on June 
5, 2017. The Commission received five comment letters in response to 
the Notice, all of which supported the proposed rule change.\4\ This 
order approves the proposed rule change.
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    \3\ See Exchange Act Release No. 80634 (May 9, 2017), 82 FR 
22363 (May 15, 2017) (File No. SR-FINRA-2017-009) (``Notice'').
    \4\ See Letters from Steven B. Caruso, Maddox Hargett Caruso, 
P.C., dated May 11, 2017 (``Caruso Letter''); Ryan K. Bakhtiari, 
Aidikoff, Uhl & Bakhtiari, dated May 15, 2017 (``Bakhtiari 
Letter''); Glenn S. Gitomer, McCausland Keen + Buckman, dated May 
26, 2017 (``Gitomer Letter''); Marnie C. Lambert, President, Public 
Investors Arbitration Bar Association (``PIABA''), dated June 1, 
2017 (``PIABA Letter''); Andres Gomez III, Esquire, Executive 
Principal, AG Consultants, dated June 4, 2017 (``Gomez Letter''). 
Comment letters are available at www.sec.gov.

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[[Page 28725]]

II. Description of the Proposed Rule Change \5\
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    \5\ The subsequent description of the proposed rule change is 
substantially excerpted from FINRA's description in the Notice. See 
Notice, 82 FR at 22363-22364.
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    Under FINRA Rules 12402 (Cases with One Arbitrator) and 12403 
(Cases with Three Arbitrators) of the Code of Arbitration Procedure for 
Customer Disputes (``Customer Code'') and FINRA Rule 13403 (Generating 
and Sending Lists to the Parties) of the Code of Arbitration Procedure 
for Industry Disputes (``Industry Code,'' and together with the 
Customer Code, the ``Codes''), a party must serve an answer on each 
other party to an arbitration within the timeframes specified under the 
applicable provisions of the Codes. For example, FINRA Rule 12303 
requires a respondent to serve an answer specifying the relevant facts 
and available defenses to the statement of claim on each other party to 
the arbitration within 45 days of receipt of the statement of claim 
(the ``answer due date'').\6\ If there are multiple respondents to an 
arbitration, and the respondents are added at different times, each 
respondent would have a different answer due date.\7\ The Codes 
currently require the ODR Director \8\ to wait until after the last 
answer is due \9\ to send the list or lists of arbitrators generated by 
NLSS to the parties. Specifically, the Codes provide that the ODR 
Director must send the list or lists of arbitrators to all parties at 
the same time within approximately 30 days after the last answer is 
due.\10\
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    \6\ See also FINRA Rule 13303.
    \7\ If an amended claim adds a new party to the arbitration, the 
new party would be required to serve an answer on all other parties 
within 45 days of receipt of the claim. See FINRA Rules 12306, 
12310, 13306, and 13310.
    \8\ Unless the Codes provide that the ODR Director may not 
delegate a specific function, the term includes FINRA staff to whom 
the ODR Director has delegated authority. See FINRA Rules 12100(k) 
and 13100(k). See also FINRA Rules 12103 and 13103.
    \9\ The answer due date for the last respondent added to the 
arbitration would be when the last answer is due for purposes of the 
Codes.
    \10\ The Codes also state that the parties will receive 
employment history for the past 10 years and other background 
information for each arbitrator listed. See FINRA Rules 12402, 
12403, and 13403.
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    Currently, when parties to an arbitration agree to extend the 
deadline for when an answer is due, the ODR Director uses that new, 
agreed-upon extended answer due date as the last answer due date for 
sending the arbitrator list or lists to the parties.\11\ FINRA believes 
that by sending the arbitrator list or lists after the original due 
date for the last answer, regardless of any extension, it can shorten 
the time it takes for an arbitration to conclude in those 
instances.\12\ Party agreements to extend answer due dates would no 
longer affect the timing of providing the arbitrator list or lists to 
the parties.
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    \11\ FINRA stated that in 2015, parties requested an extension 
to answer in approximately 65 percent of arbitration cases served; 
in 2016, the figure was approximately 62 percent. See Notice at 
22363 n.9.
    \12\ See Notice at 22363.
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    FINRA is therefore proposing to amend FINRA Rules 12402(c)(1), 
12403(b)(1), and 13403(c)(1) to provide that the ODR Director will send 
the list or lists generated by NLSS to all parties at the same time, 
within approximately 30 days after the last answer is due, regardless 
of the parties' agreement to extend any answer due date.\13\
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    \13\ See id.
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    As parties must return the ranked arbitrator list or lists to the 
ODR Director no more than 20 days after the date upon which the ODR 
Director sent the list or lists to the parties,\14\ sending the list or 
lists after the original due date for the last answer would give all 
parties the same amount of time to create their ranked arbitrator list 
or lists. Further, FINRA believes that sending the list or lists at 
this time would result in earlier arbitrator appointment and, 
therefore, an earlier initial prehearing conference at which the 
hearings are scheduled.\15\ FINRA believes that in the many instances 
in which the parties agree to extend an answer due date, the proposed 
rule change would help arbitrations conclude in less time than they do 
under current rules.\16\ FINRA further notes that, currently, parties 
often jointly request that the ODR Director send the list or lists to 
the parties before the last answer is due.\17\
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    \14\ See FINRA Rules 12402(d)(3), 12403(c)(3), and 13404(d).
    \15\ See FINRA Rules 12500(c) and 13500(c); see Notice at 22363.
    \16\ See Notice at 22363.
    \17\ See id. at 22364.
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III. Comment Summary

    As noted above, the Commission received five comment letters on the 
proposed rule change, all of which supported the proposal.\18\ One 
commenter described the proposal as ``a fair, equitable and reasonable 
approach that would facilitate the fairness and efficiency of the 
participant experience in the FINRA arbitration forum and should, 
accordingly, be approved by the SEC on an expedited basis.'' \19\ 
Another commenter called the proposal an ``outstanding initiative.'' 
\20\ Two commenters expressed the view that the proposal would simply 
codify existing accepted practice.\21\ A majority of commenters 
expressed the view that the proposal would enhance and expedite the 
arbitration process,\22\ which, as one commenter noted, currently lasts 
for 14.4 months.\23\
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    \18\ See Caruso Letter, Bakhtiari Letter; Gitomer Letter; PIABA 
Letter; Gomez Letter.
    \19\ Caruso Letter.
    \20\ Gomez Letter.
    \21\ See Gitomer Letter; PIABA Letter.
    \22\ See Caruso Letter; Bakhtiari Letter; Gitomer Letter; PIABA 
Letter.
    \23\ PIABA Letter at 2.
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IV. Discussion and Commission Findings

    After careful review of the proposed rule change and the comment 
letters, 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 securities 
association.\24\ Specifically, the Commission finds that the rule 
change is consistent with Section 15A(b)(6) of the Exchange Act,\25\ 
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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    \24\ In approving this rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78o-3(b)(6).
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    As stated in the Notice, the proposal would ``enable the parties, 
or their counsel, to evaluate and rank the arbitrator list or lists at 
the same time that they prepare their responses in those circumstances 
where the parties request an extension to answer.'' \26\ The Commission 
notes that FINRA believes that ``the proposal would shorten the time it 
takes for such arbitrations to conclude and, thereby, make the forum 
more efficient and the case administration process more expeditious for 
investors.'' \27\ The Commission also notes that currently, ``parties 
often jointly request that the ODR Director send the list or lists 
before the last answer due date deadline.'' \28\ The Commission further 
notes that all five commenters were supportive of the proposal.\29\ 
Taking into consideration FINRA's views and the commenters' unanimous 
support, the Commission believes that the proposal is consistent with 
the Exchange Act. Specifically, the Commission believes that the 
proposal will help protect investors and the public interest by 
streamlining the arbitration process by concluding the

[[Page 28726]]

arbitrator selection process at an earlier date. Accordingly, 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.
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    \26\ Notice at 22364.
    \27\ Id.
    \28\ Id.
    \29\ See Caruso Letter, Bakhtiari Letter; Gitomer Letter; PIABA 
Letter; Gomez Letter.
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V. Conclusion

    It is therefore ordered pursuant to Section 19(b)(2) of the 
Exchange Act \30\ that the proposal (SR-FINRA-2017-009), be and hereby 
is approved.
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    \30\ 15 U.S.C. 78s(b)(2).
    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-13104 Filed 6-22-17; 8:45 am]
 BILLING CODE 8011-01-P