Document ID: SEC-2008-1350-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-10-02T04:00Z

[Federal Register: October 2, 2008 (Volume 73, Number 192)]
[Notices]               
[Page 57391-57393]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02oc08-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58651; File No. SR-FINRA-2008-047]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Amendments to the Codes of Arbitration Procedure To Raise the Amount in 
Controversy Heard by a Single Chair-Qualified Arbitrator to $100,000

 September 25, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 18, 2008, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') (f/k/a National Association of Securities Dealers, 
Inc. (``NASD'')) filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by FINRA. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend NASD Rule 12401 of the Code of 
Arbitration Procedure for Customer Disputes (``Customer Code'') and 
NASD Rule 13401 of the Code of Arbitration Procedure for Industry 
Disputes (``Industry Code'') to raise the amount in controversy that 
will be heard by a single chair-qualified arbitrator to $100,000. Below 
is the text of the proposed rule change. Proposed new language is in 
italics; proposed deletions are in brackets.
* * * * *
12401. Number of Arbitrators
(a) Claims of $25,000 or Less
    If the amount of a claim is $25,000 or less, exclusive of interest 
and expenses, the panel will consist of one arbitrator and the claim is 
subject to the simplified arbitration procedures under Rule 12800.
(b) Claims of More Than $25,000 Up To [$50,000] $100,000
    If the amount of a claim is more than $25,000 but not more than 
[$50,000] $100,000, exclusive of interest and expenses, the panel will 
consist of one arbitrator [unless any party requests a panel of three 
arbitrators in its initial pleading] unless the parties agree in 
writing to three arbitrators.
(c) Claims of More Than [$50,000] $100,000; Unspecified or Non-Monetary 
Claims
    If the amount of a claim is more than [$50,000] $100,000, exclusive 
of interest and expenses, or is unspecified, or if the claim does not 
request money damages, the panel will consist of three arbitrators, 
unless the parties agree in writing to one arbitrator.
13401. Number of Arbitrators
(a) Claims of $25,000 or Less
    If the amount of a claim is $25,000 or less, exclusive of interest 
and expenses, the panel will consist of one arbitrator and the claim is 
subject to the simplified arbitration procedures under Rule 13800.
(b) Claims of More Than $25,000 Up To [$50,000] $100,000
    If the amount of a claim is more than $25,000 but not more than 
[$50,000] $100,000, exclusive of interest and expenses, the panel will 
consist of one arbitrator [unless any party requests a panel of three 
arbitrators in its initial pleading] unless the parties agree in 
writing to three arbitrators.
(c) Claims of More Than [$50,000] $100,000; Unspecified or Non-Monetary 
Claims
    If the amount of a claim is more than [$50,000] $100,000, exclusive 
of interest and expenses, or is unspecified, or if the claim does not 
request money damages, the panel will consist of three arbitrators, 
unless the parties agree in writing to one arbitrator.
* * * * *

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.

[[Page 57392]]

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

1. Purpose
    FINRA is proposing to amend its Customer Code and Industry Code to 
raise the amount in controversy that would be heard by a single 
arbitrator to $100,000, exclusive of interest and expenses.\3\ The 
arbitrator would be selected from the roster of arbitrators who are 
qualified to serve as chairpersons. This means that investors' claims 
for up to $100,000 would be heard by a public, chair-qualified 
arbitrator.
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    \3\ See proposed amendments to Rules 12401(b) and13401(b).
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    Under the proposal, parties would be permitted to request a panel 
of three arbitrators for claims of more than $25,000, but not more than 
$100,000, if all parties agreed in writing to the request.\4\ Claims of 
more than $100,000 would continue to be heard by three arbitrators 
unless the parties agree in writing to one arbitrator.\5\
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    \4\ Id.
    \5\ See proposed amendments to Rules 12401(c) and 13401(c).
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    Currently, if the amount of a claim is $25,000 or less, a single 
arbitrator is appointed to resolve the matter. If the amount of a claim 
is more than $25,000, but not more than $50,000, a single arbitrator is 
appointed, unless a party asks for three arbitrators in its initial 
pleading. Claims for over $50,000 are heard by a panel of three 
arbitrators.\6\
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    \6\ See Rules 12401 and 13401. The current threshold for 
appointing one or three arbitrators has been in effect since 1998. 
See Securities Exchange Act Release No. 38635 (May 14, 1997), 62 FR 
27819 (May 21, 1997) (SR-NASD-97-22) (approval order) and NASD 
Notice to Members 98-90. Customer disputes are resolved by a single, 
chair-qualified public arbitrator or a majority-public panel 
consisting of a public arbitrator, a chair-qualified public 
arbitrator, and a non-public arbitrator. Industry disputes are 
resolved by a public panel or a non-public panel depending upon the 
parties to the controversy and the nature of the claims asserted 
(see Rules 13402 and 13802).
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    FINRA is also proposing to remove the current option for one party 
unilaterally to require three arbitrators in cases with claims for more 
than $25,000.\7\ FINRA believes this is not an efficient use of 
resources, as it requires other parties to incur higher hearing session 
costs and additional delays caused by scheduling three arbitrators 
instead of one. Therefore, the proposed rule would mandate a single 
arbitrator in all such cases unless all parties agree, in writing, to 
request a three person panel.
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    \7\ See proposed amendments to Rules 12401(b) and 13401(b).
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    Raising the threshold for claims heard by a single arbitrator would 
increase efficiencies and decrease costs for parties and FINRA. Parties 
would experience reduced case processing times because of the 
flexibility associated with scheduling conference calls and hearing 
dates with one arbitrator as opposed to three. Parties would save time 
in the arbitrator selection process because they would receive only one 
list of eight names from which to choose their arbitrator, rather than 
three lists of eight names.\8\ This means they would only research the 
disclosures and histories of eight proposed arbitrators instead of 24.
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    \8\ For example, for customer cases, if the panel consists of 
one arbitrator, the Neutral List Selection System (``the System'') 
generates a list of eight public arbitrators from the chairperson 
roster. If the panel consists of three arbitrators, the System 
generates a list of eight public arbitrators from the chairperson 
roster; a list of eight arbitrators from the public roster; and a 
list of eight arbitrators from the non-public roster. FINRA sends 
the lists to the parties along with each arbitrator's employment 
history for the prior 10 years and other background information (see 
Rules 12403 and 13403).
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    Parties would also benefit from reduced hearing session fees. For 
claims between $25,000.01 and $50,000, parties would save $150 per 
hearing session \9\ by reducing fees from $600 (for a hearing with 
three arbitrators) to $450 (for a hearing with one arbitrator).\10\ For 
claims between $50,000.01 and $100,000, the savings would be $300 per 
hearing session by reducing fees from $750 (for a hearing with three 
arbitrators) to $450 (for a hearing with one arbitrator). The parties' 
cost for photocopying pleadings and exhibits would be reduced by two-
thirds. FINRA would benefit from a more efficient use of its arbitrator 
roster since cases for $100,000 or less would use only one arbitrator 
instead of three. FINRA's photocopying costs and mailing expenses would 
also be reduced.
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    \9\ The term ``hearing session'' means any meeting between the 
parties and arbitrator(s) of four hours or less, including a hearing 
or a pre-hearing conference. (see Rules 12100(n) and 13100(n)). For 
full day hearings, the savings would be $300 for claims between 
$25,000.01 and $50,000, and $600 for claims between $50,000.01 and 
$100,000.
    \10\ See Rules 12902 and 13902.
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ 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 would 
further the purposes of the Act because it would make arbitration more 
expeditious and efficient, and would decrease users' forum fees and 
related expenses.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

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.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2008-047 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2008-047. 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

[[Page 57393]]

post all comments on the Commission's Internet Web site (http://
www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent 
amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Room, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. 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 File Number 
SR-FINRA-2008-047 and should be submitted on or before October 23, 
2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-23195 Filed 10-1-08; 8:45 am]

BILLING CODE 8011-01-P