Notice2022-21031
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Change References in the Codes of Arbitration Procedure From the Neutral List Selection System to the List Selection Algorithm
Primary source
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Published
September 28, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 187 (Wednesday, September 28, 2022)</title>
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[Federal Register Volume 87, Number 187 (Wednesday, September 28, 2022)]
[Notices]
[Pages 58854-58856]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-21031]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95871; File No. SR-FINRA-2022-026]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Change References in the Codes of Arbitration
Procedure From the Neutral List Selection System to the List Selection
Algorithm
September 22, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on September 15, 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 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 change references in the Codes of Arbitration
Procedure (``Codes'') from the Neutral List Selection System to the
list selection algorithm.
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,
[[Page 58855]]
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
From November 1998 until October 2006, the Neutral List Selection
System (``NLSS'') was the computer system that generated lists of
arbitrators from FINRA Dispute Resolution Services' (``DRS'') rosters
of arbitrators for the selected hearing location for each arbitration
proceeding. In October 2006, DRS replaced the NLSS with the Mediation
and Arbitration Tracking and Retrieval Interactive Case System
(``MATRICS'').\4\ As a result, all of the information contained in the
NLSS was transferred to MATRICS such that MATRICS now contains the list
selection algorithm DRS uses to generate lists of arbitrators from its
rosters of arbitrators.\5\ However, the Codes refer to the NLSS as a
computer system that governs arbitrator list selection in the DRS
arbitration forum.\6\
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\4\ MATRICS is an internal, web-based computer system used to
manage all arbitration and mediation cases in the DRS arbitration
forum and to maintain DRS's rosters of arbitrators and mediators.
\5\ See Securities Exchange Act Release No. 51339 (March 9,
2005), 70 FR 12763 (March 15, 2005) (Order Approving File No. SR-
NASD-2004-164); see also Notice to Members 07-07 (February 2007)
(announcing the effective date of April 16, 2007 for the amendments
discussed in File No. SR-NASD-2004-164).
\6\ In February 2022, the Audit Committee of FINRA's Board of
Governors engaged Lowenstein Sandler LLP to provide an independent
review and analysis in connection with a Fulton County (Georgia)
Superior Court decision vacating an arbitration award in favor of
Wells Fargo Clearing Services, LLC. See Order Granting Mot. to
Vacate Arb. Award and Den. Cross Mot. to Confirm Arb. Award at 37,
Leggett v. Wells Fargo Clearing Servs., LLC, No. 2019-CV-328949 (Ga.
Super. Ct., January 25, 2022). In its report, Lowenstein Sandler
made several recommendations to provide greater transparency and
consistency in the arbitrator selection process, one of which was to
make technical amendments to the Codes to clarify the automated
system used by DRS for arbitrator selection. See <a href="https://www.finra.org/sites/default/files/2022-06/report-independent-review-drs-arbitrator-selection-process.pdf">https://www.finra.org/sites/default/files/2022-06/report-independent-review-drs-arbitrator-selection-process.pdf</a>. Since publication of the
report, the Fulton County (Georgia) Superior Court's decision was
reversed by the Court of Appeals of Georgia. See Wells Fargo
Clearing Servs. v. Leggett, No. A22A1149, 2022 Ga. App. (Ct. App.
August 2, 2022).
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FINRA is proposing to update the Codes by making technical, non-
substantive changes to remove references to the NLSS from those rules
describing arbitrator list selection and instead refer to the ``list
selection algorithm.'' \7\ The proposed rule change would provide
greater transparency and consistency regarding arbitrator list
selection, as the Codes would reflect and align with DRS's existing
practices, processes and systems relating to arbitrator list selection.
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\7\ See proposed Rules 12400 (List Selection Algorithm and
Arbitrator Rosters), 12402 (Cases with One Arbitrator), 12403 (Cases
with Three Arbitrators), 12404 (Additional Parties), 12800
(Simplified Arbitration), 12801 (Default Proceedings), 13400 (List
Selection Algorithm and Arbitrator Rosters), 13403 (Generating and
Sending Lists to the Parties), 13406 (Appointment of Arbitrators;
Discretion to Appoint Arbitrators Not on List), 13407 (Additional
Parties), 13411 (Replacement of Arbitrators), 13800 (Simplified
Arbitration), 13801 (Default Proceedings) and 13803 (Coordination of
Sexual Assault Claims, Sexual Harassment Claims or Statutory
Employment Discrimination Claims Filed in Court and in Arbitration).
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In the proposed rule change, FINRA is not proposing any changes to
the list selection algorithm, or any of DRS's existing practices,
processes and systems related to arbitrator list selection.\8\
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\8\ 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.
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FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing, so FINRA can implement the proposed rule change
immediately.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Exchange Act,\9\ 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 provide greater transparency to members and the public regarding
arbitrator list selection by updating FINRA rules to reflect and align
with DRS's existing practices, processes and systems related to
arbitrator list selection.
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\9\ 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 Exchange Act. The proposed rule
change brings transparency and consistency to FINRA rules without
adding any burden on member firms.
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
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 Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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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 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 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#f88a8d949dd59b9795959d968c8bb88b9d9bd69f978e"><span class="__cf_email__" data-cfemail="245651484109474b4949414a5057645741470a434b52">[email protected]</span></a>. Please include
File Number SR-FINRA-2022-026 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-2022-026. 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
[[Page 58856]]
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-2022-026 and
should be submitted on or before October 19, 2022.
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\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-21031 Filed 9-27-22; 8:45 am]
BILLING CODE 8011-01-P
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