Notice2022-24959
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change, As modified by Amendment No. 1, To Amend the Codes of Arbitration Procedure To Modify the Current Process Relating to the Expungement of Customer Dispute Information
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
November 16, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 220 (Wednesday, November 16, 2022)</title>
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[Federal Register Volume 87, Number 220 (Wednesday, November 16, 2022)]
[Notices]
[Pages 68779-68781]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24959]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96298; File No. SR-FINRA-2022-024]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order
Instituting Proceedings To Determine Whether To Approve or Disapprove
the Proposed Rule Change, As modified by Amendment No. 1, To Amend the
Codes of Arbitration Procedure To Modify the Current Process Relating
to the Expungement of Customer Dispute Information
November 10, 2022.
I. Introduction
On July 29, 2022, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change SR-FINRA-2022-024 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') \1\ and Rule 19b-4 \2\ thereunder to modify the current process
relating to the expungement of customer dispute information.\3\ The
proposed rule change was published for public comment in the Federal
Register on August 15, 2022.\4\ On September 27, 2022, FINRA consented
to an extension of the time period in which the Commission must approve
the proposed rule change, disapprove the proposed rule change, or
institute proceedings to determine whether to approve or disapprove the
proposed rule change to November 11, 2022.\5\ On November 10, 2022,
FINRA responded to the comment letters received in response to the
Notice and filed an amendment to modify the proposed rule change
(``Amendment No. 1'').\6\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See infra note 4. ``Customer dispute information'' includes
complaints, arbitration claims, and court filings made by customers
against broker-dealers and their associated persons. Id. at 50172.
\4\ Exchange Act Release No. 34-95455 (August 9, 2022), 87 FR
50170 (August 15, 2022) (File No. SR-FINRA-2022-024) (``Notice''),
available at <a href="https://www.govinfo.gov/content/pkg/FR-2022-08-15/pdf/2022-17430.pdf">https://www.govinfo.gov/content/pkg/FR-2022-08-15/pdf/2022-17430.pdf</a>.
\5\ See letter from Mignon McLemore, Associate General Counsel,
Office of General Counsel, FINRA, to Lourdes Gonzalez, Assistant
Chief Counsel, Division of Trading and Markets, Commission, dated
September 27, 2022, available at <a href="https://www.finra.org/sites/default/files/2022-09/sr-finra-2022-024-extension1.pdf">https://www.finra.org/sites/default/files/2022-09/sr-finra-2022-024-extension1.pdf</a>.
\6\ See letter from Mignon McLemore, Associate General Counsel,
FINRA, to Vanessa Countryman, Secretary, Commission, dated November
10, 2022 (``FINRA Response''), available at <a href="https://www.sec.gov/comments/sr-finra-2022-024/srfinra2022024.htm">https://www.sec.gov/comments/sr-finra-2022-024/srfinra2022024.htm</a>.
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The Commission is publishing this order pursuant to Section
19(b)(2)(B) of the Exchange Act \7\ to solicit comments on the proposed
rule change, as modified by Amendment No. 1, and to institute
proceedings to determine whether to approve or disapprove the proposed
rule change, as modified by Amendment No. 1.
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\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
A. Background
The Central Registration Depository (``CRD'') is a licensing and
registration system used by the Commission, state securities
regulators, and self-regulatory organizations (``SROs'') as a source of
regulatory information on, among other things, broker-dealers and their
associated persons. Certain information on CRD is also released to the
public through FINRA's BrokerCheck system.\8\ FINRA stated that it
publishes on BrokerCheck extensive disclosure information, including
customer dispute information for associated persons who are currently
or were formerly registered with FINRA, to help investors make informed
choices about the associated persons and broker-dealer firms with whom
they may conduct business.\9\
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\8\ A detailed description of the information made available
through BrokerCheck is available at <a href="http://www.finra.org/investors/about-brokercheck">http://www.finra.org/investors/about-brokercheck</a>. See Notice at note 22. The BrokerCheck website is
available at <a href="http://brokercheck.finra.org">brokercheck.finra.org</a>.
\9\ See Notice at 50172.
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FINRA rules allow broker-dealers and their associated persons to
seek expungement of customer dispute information from the CRD and
BrokerCheck systems in certain circumstances.\10\ An associated person
may seek expungement of customer dispute information through the FINRA
arbitration process or by going directly to court without first going
to arbitration.\11\
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\10\ See, e.g., FINRA Rules 12805 (Expungement of Customer
Dispute Information under Rule 2080), 13805 (Expungement of Customer
Dispute Information under Rule 2080), and 2080 (Obtaining an Order
of Expungement of Customer Dispute Information from the Central
Registration Depository (CRD) System).
\11\ See id.; see also Notice at 50191.
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[[Page 68780]]
B. 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'') (together,
``Codes'') to modify the current process relating to the expungement of
customer dispute information. The proposed rule change would impose
requirements on expungement requests: (a) filed by an associated person
during an investment-related, customer initiated arbitration
(``customer arbitration''), or filed by a party to the customer
arbitration on behalf of an associated person (``on-behalf-of
request''), or (b) filed by an associated person separate from a
customer arbitration (``straight-in request'').\12\
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\12\ See Notice at 50170.
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Specifically, the proposed rule change would: (1) require that a
straight-in request be decided by a three-person panel that is randomly
selected from a roster of experienced public arbitrators with enhanced
expungement training; \13\ (2) prohibit parties to a straight-in
request from agreeing to fewer than three arbitrators to consider their
expungement requests, from striking any of the selected arbitrators,
from stipulating to an arbitrator's removal, or from stipulating to the
use of pre-selected arbitrators; (3) provide notification to state
securities regulators of all expungement requests and a mechanism for
state securities regulators to attend and participate in expungement
hearings in straight-in requests; (4) impose time limits on the filing
of straight-in requests; (5) codify and update the best practices in
the Notice to Arbitrators and Parties on Expanded Expungement Guidance
applicable to all expungement hearings, including amendments to
establish additional requirements for expungement hearings, to
facilitate customer attendance and participation in expungement
hearings, and to codify the panel's \14\ ability to request any
evidence relevant to the expungement request; \15\ (6) require the
unanimous agreement of the panel to issue an award containing
expungement relief; and (7) establish procedural requirements for
filing expungement requests, including for on-behalf-of requests. The
proposed rule change would also amend the Customer Code to specify
procedures for requesting expungement of customer dispute information
during simplified arbitrations.\16\
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\13\ Among other requirements, public arbitrators are not
employed in the securities industry and do not devote 20 percent or
more of their professional work to the securities industry or to
parties in disputes concerning investment accounts or transactions
or employment relationships within the financial industry. See FINRA
Rules 12100(aa) and 13100(x). Notice at note 3.
\14\ Under the Codes, the term ``panel'' means the arbitration
panel, whether it consists of one or more arbitrators. See FINRA
Rules 12100(u) and 13100(s). Notice at note 4.
\15\ See FINRA Dispute Resolution Services, Notice to
Arbitrators and Parties on Expanded Expungement Guidance, <a href="https://www.finra.org/arbitration-mediation/notice-arbitrators-and-parties-expanded-expungement-guidance">https://www.finra.org/arbitration-mediation/notice-arbitrators-and-parties-expanded-expungement-guidance</a> (last updated Sept. 2017).
\16\ See Notice at 50170.
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Amendment No. 1 would modify the proposed rule change in three
ways. First, it would amend proposed Rules 12805(c)(3)(A) and
13805(c)(3)(A) to state that all customers whose customer arbitrations,
civil litigations or customer complaints are a subject of the
expungement request are entitled to attend and participate in all
aspects of the prehearing conferences and the expungement hearing.
Second, it would modify proposed Rules 12805(c)(8)(C) and
13805(c)(9)(C) to state that a panel shall not give any evidentiary
weight to a decision by a customer or an authorized representative not
to attend or participate in an expungement hearing when making a
determination of whether expungement is appropriate. Finally, Amendment
No. 1 would modify the proposed rule change to provide that an
associated person shall not file a claim requesting expungement of
customer dispute information from the CRD system if the customer
dispute information is associated with a customer arbitration or civil
litigation in which a panel or court of competent jurisdiction
previously found the associated person liable.\17\
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\17\ See Amendment No. 1; see also FINRA Response.
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III. Proceedings To Determine Whether To Approve or Disapprove File No.
SR-FINRA-2022-024 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved.\18\ Institution of proceedings is appropriate at this time
in view of the legal and policy issues raised by the proposed rule
change, as modified by Amendment No. 1. Institution of proceedings does
not indicate that the Commission has reached any conclusions with
respect to the proposed rule change, as modified by Amendment No. 1.
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\18\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act,\19\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis and input concerning whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Exchange
Act and the rules thereunder.
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\19\ Id.
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IV. Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposed rule change, as modified by Amendment No. 1. In
particular, the Commission invites the written views of interested
persons concerning whether the proposed rule change, as modified by
Amendment No. 1, is consistent with the Exchange Act and the rules
thereunder.
Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
views, data, and arguments, the Commission will consider, pursuant to
Rule 19b-4, any request for an opportunity to make an oral
presentation.\20\
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\20\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Acts Amendments of 1975, Public Law 94-29, 89 Stat. 97
(1975), grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Report of the Senate Committee on Banking, Housing and Urban
Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess.
30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by December 7, 2022.
Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by December 21, 2022.
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#5321263f367e303c3e3e363d2720132036307d343c25"><span class="__cf_email__" data-cfemail="5e2c2b323b733d3133333b302a2d1e2d3b3d70393128">[email protected]</span></a>. Please include
File No. SR-FINRA-2022-024 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange
[[Page 68781]]
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File No. SR-FINRA-2022-024. 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, as modified by
Amendment No. 1, that are filed with the Commission, and all written
communications relating to the proposed rule change, as modified by
Amendment No. 1, 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. If comments
are received, any rebuttal comments should be submitted on or before
December 21, 2022.
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\21\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24959 Filed 11-15-22; 8:45 am]
BILLING CODE 8011-01-P
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