Notice2022-11062
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 13000 Series (Code of Arbitration Procedure for Industry Disputes) To Align the Code With the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 24, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 100 (Tuesday, May 24, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 100 (Tuesday, May 24, 2022)]
[Notices]
[Pages 31592-31594]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11062]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94942; File No. SR-FINRA-2022-012]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rule 13000 Series (Code of
Arbitration Procedure for Industry Disputes) To Align the Code With the
Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act
of 2021
May 18, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on May 13, 2022, the Financial Industry Regulatory
Authority, Inc. (``FINRA'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by FINRA. FINRA has designated the proposed rule change as constituting
a ``non-controversial'' rule change under paragraph (f)(6) of Rule 19b-
4 under the Exchange Act,\3\ which renders the proposed rule change
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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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
Industry Disputes (``Code'') to align the Code with the Ending Forced
Arbitration of Sexual Assault and Sexual Harassment Act of 2021
(``Act''). The proposed rule change would also make a conforming
amendment to FINRA Rule 2263.
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>, 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
Background
The Act was signed into law on March 3, 2022, and took effect
immediately.\4\ The Act amends Title 9 of the Federal Arbitration Act
\5\ by providing in relevant part:
---------------------------------------------------------------------------
\4\ Ending Forced Arbitration of Sexual Assault and Sexual
Harassment Act of 2021, Public Law 117-90, 136 Stat. 26 (2022). The
Act applies with respect to any dispute or claim that arises or
accrues on or after the date of enactment of the Act.
\5\ 9 U.S.C. 2.
Notwithstanding any other provision of this title, at the
election of the person alleging conduct constituting a sexual
harassment dispute or sexual assault dispute, or the named
representative of a class or in a collective action alleging such
conduct, no predispute arbitration agreement or predispute joint-
action waiver shall be valid or enforceable with respect to a case
which is filed under Federal, Tribal, or State law and relates to
---------------------------------------------------------------------------
the sexual assault dispute or the sexual harassment dispute.
The Act prohibits mandatory arbitration of sexual assault and
sexual harassment claims by permitting persons alleging conduct
constituting a sexual assault dispute or sexual harassment dispute to
elect not to enforce predispute arbitration agreements in cases that
relate to those disputes.\6\ However, the Act does not prohibit parties
from agreeing to arbitrate such claims after a dispute has arisen.\7\
---------------------------------------------------------------------------
\6\ The Act also permits persons alleging conduct constituting a
sexual assault dispute or sexual harassment dispute to elect not to
enforce predispute joint-action waivers in cases that relate to
those disputes. The Act defines ``predispute joint-action waiver''
as an agreement that ``would prohibit, or waive the right of, one of
the parties to the agreement to participate in a joint, class, or
collective action in a judicial, arbitral, administrative, or other
forum, concerning a dispute that has not yet arisen at the time of
the making of the agreement.'' See supra note 4. FINRA rules are
consistent with this provision of the Act because FINRA rules
provide that class action and statutory collective action claims may
not be arbitrated under the Code. See FINRA Rule 13204.
\7\ See H.R. Rep. No. 117-234, at 18 (2022) (``The Committee
states that pursuant to clause 3(c)(4) of House Rule XIII, H.R. 4445
improves access to justice for survivors of sexual assault and
harassment by allowing these parties to elect arbitration after a
dispute has arisen''). The applicability of the Act to an agreement
to arbitrate and the validity and enforceability of an agreement to
which the Act applies shall be determined by a court, rather than an
arbitrator, irrespective of whether the party resisting arbitration
challenges the arbitration agreement specifically or in conjunction
with other terms of the contract containing such agreement, and
irrespective of whether the agreement purports to delegate such
determinations to an arbitrator. See supra note 4.
---------------------------------------------------------------------------
FINRA Rule 13201 relates to the arbitration at FINRA Dispute
Resolution Services' (``DRS'') forum of statutory employment
discrimination claims (``SD claims'').\8\ Specifically, FINRA Rule
13201(a) provides that ``[an SD claim] is not required to be arbitrated
under the Code. Such a claim may be arbitrated only if the parties have
agreed to arbitrate it either before or after the dispute arose.''
Although FINRA rules do not require arbitration of SD claims under the
Code, in practice, employment agreements may require
[[Page 31593]]
associated persons to arbitrate such claims.
---------------------------------------------------------------------------
\8\ FINRA Rule 13100(bb) provides that ``[t]he term `statutory
employment discrimination claim' means a claim alleging employment
discrimination, including a sexual harassment claim, in violation of
a statute.'' FINRA rules do not explicitly address the treatment of
sexual assault claims.
---------------------------------------------------------------------------
In light of the changes set forth in the Act, FINRA is proposing
amendments to its rules to align the rules to the Act and make other
conforming changes.\9\
---------------------------------------------------------------------------
\9\ The proposed rule change would apply to all members,
including members that are funding portals or have elected to be
treated as capital acquisition brokers (``CABs''), given that the
funding portal and CAB rule sets incorporate the impacted FINRA
rules by reference.
---------------------------------------------------------------------------
Proposed Amendments to FINRA Rule 13100
FINRA is proposing to amend FINRA Rule 13100 to add definitions of
``sexual assault claim'' and ``sexual harassment claim'' that are
consistent with the definitions of ``sexual assault dispute'' and
``sexual harassment dispute'' in the Act.\10\ Specifically, proposed
FINRA Rule 13100(aa) would provide that ``[t]he term `sexual assault
claim' means a claim involving a nonconsensual sexual act or sexual
contact, as such terms are defined in section 2246 of title 18 of the
United States Code or similar applicable Tribal or State law, including
when the victim lacks capacity to consent.'' In addition, proposed
FINRA Rule 13100(bb) would provide that ``[t]he term `sexual harassment
claim' means a claim relating to conduct that is alleged to constitute
sexual harassment under applicable Federal, Tribal, or State law.''
\11\
---------------------------------------------------------------------------
\10\ Under FINRA Rule 13100(e), ``[t]he term `claim' means an
allegation or request for relief.'' Under FINRA Rule 13100(n),
``[t]he term `dispute' means a dispute, claim or controversy. A
dispute may consist of one or more claims.''
\11\ The proposed rule change would also remove the reference to
``sexual harassment'' from the definition of SD claim in FINRA Rule
13100(bb). See supra note 8.
---------------------------------------------------------------------------
Proposed Amendments to FINRA Rule 13201
FINRA is proposing to amend FINRA Rule 13201 to align it with the
Act by adding new paragraph (c) to provide that a party alleging a
sexual assault or sexual harassment claim that has agreed to arbitrate
before the dispute arose may elect post dispute not to arbitrate the
claim under the Code.\12\ Proposed paragraph (c) would also provide
that the claim may be arbitrated if the parties agreed to arbitrate it
after the dispute arose. Further, paragraph (c) would provide that
sexual assault and sexual harassment claims would be administered in
the forum under FINRA Rule 13802, which establishes the procedural
requirements for administering SD claims in DRS's arbitration forum
today.\13\
---------------------------------------------------------------------------
\12\ The proposed rule change would also amend the title of
FINRA Rule 13201 to clarify that the rule applies to sexual assault
claims and sexual harassment claims.
\13\ FINRA Rule 13802 sets forth requirements as to the number
of arbitrators on the panel, the composition of the panel, the
filing fee, the relief available, and the availability of attorneys'
fees. FINRA is proposing to amend FINRA Rule 13802 to add the terms
``sexual assault claim'' and ``sexual harassment claim'' to the
title and throughout the rule to clarify that it also applies to
these types of claims.
---------------------------------------------------------------------------
Proposed Amendments to FINRA Rule 13803
FINRA is proposing amendments to FINRA Rule 13803 to ensure that
sexual assault and sexual harassment claims are administered
consistently with how SD claims are currently administered in DRS's
arbitration forum.\14\ Under the current framework, sexual harassment
and sexual assault claims would be administered under FINRA Rule 13803
to the extent such claims constitute SD claims. The proposed rule
change would add the terms ``sexual assault claim'' and ``sexual
harassment claim'' to the title of FINRA Rule 13803 and throughout the
rule to make explicit that it applies to the coordination of sexual
assault and sexual harassment claims filed in court and other related
claims that may be filed at DRS's arbitration forum.\15\
---------------------------------------------------------------------------
\14\ Under FINRA Rule 13803, if an associated person files an SD
claim in court and asserts related claims in DRS's arbitration
forum, a respondent who is named in both proceedings may bring a
motion to compel the related arbitration claims to the same court
proceeding. If the respondent does so, the respondent must assert
all related claims it has against the associated person in the same
court proceeding. FINRA Rule 13803 also permits the respondent to
compel arbitration of related claims that are subject to mandatory
arbitration. This provision applies where the respondent has not
exercised its option to combine all claims in court.
\15\ Similarly, FINRA proposes to add the terms ``sexual assault
claim'' and ``sexual harassment claim'' to other rules in the Code
that reference SD claims to ensure that sexual assault and sexual
harassment claims are administered consistently with how SD claims
are currently administered in DRS's arbitration forum. See FINRA
Rules 13402 (Composition of Arbitration Panels in Cases Not
Involving a Statutory Discrimination Claim), 13510 (Depositions);
Part VIII (Simplified Arbitration; Default Proceedings; Statutory
Employment Discrimination Claims; and Injunctive Relief).
---------------------------------------------------------------------------
Proposed Amendments to FINRA Rule 2263
FINRA is proposing a conforming amendment to FINRA Rule 2263 to
incorporate the language in proposed FINRA Rule 13201(c) into the
written statement a member firm must provide to an associated person
regarding the predispute arbitration clause in Form U4. Thus, firms
would be required to disclose to the associated person that a party
alleging a sexual assault or sexual harassment claim that has agreed to
arbitrate before the dispute arose may elect post dispute not to
arbitrate such a claim under the Code, and that such a claim may be
arbitrated if the parties have agreed to arbitrate it after the dispute
arose.
FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the Commission waive the
requirement that the proposed rule change not become operative for 30
days after the date of the filing. The operative date will be the date
of the filing of the proposed rule change.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Exchange Act,\16\ 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 serves to align FINRA rules with the Act, which prohibits
mandatory arbitration of sexual assault and sexual harassment claims.
The proposed rule change would create parity between FINRA rules and
the Act as to the circumstances under which sexual assault and sexual
harassment claims may be arbitrated at DRS's forum. The proposed
conforming amendments would also make clear that when such claims are
arbitrated at DRS's forum, they will be processed like SD claims. Thus,
the proposed rule change will enable DRS to continue to administer a
fair dispute resolution forum and meet its investor protection goals in
a manner consistent with the Act.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
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 Exchange Act. The proposed rule
change aligns FINRA rules with other requirements to which firms are
subject and would not have additional economic impacts on firms or
associated persons.
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.
[[Page 31594]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Exchange Act \17\ and
Rule 19b-4(f)(6) thereunder.\18\
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend 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 Exchange Act. If the
Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or 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 Exchange Act. Comments may be submitted
by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#87f5f2ebe2aae4e8eaeae2e9f3f4c7f4e2e4a9e0e8f1"><span class="__cf_email__" data-cfemail="ee9c9b828bc38d8183838b809a9dae9d8b8dc0898198">[email protected]</span></a>. Please include
File Number SR-FINRA-2022-012 on the subject line.
Paper Comments
<bullet> 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-2022-012. This
file number should be included on the subject line if email 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 website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2022-012 and should be submitted
on or before June 14, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11062 Filed 5-23-22; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on May 24, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.