Notice2023-09446
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rules 1015, 9261, 9341, 9524, 9830 and Funding Portal Rule 900 (Code of Procedure) To Permit Hearings Under Those Rules To Be Conducted by Video Conference
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 4, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 86 (Thursday, May 4, 2023)</title>
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[Federal Register Volume 88, Number 86 (Thursday, May 4, 2023)]
[Notices]
[Pages 28645-28650]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-09446]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97403; File No. SR-FINRA-2023-008]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rules 1015, 9261, 9341, 9524, 9830 and Funding Portal Rule 900
(Code of Procedure) To Permit Hearings Under Those Rules To Be
Conducted by Video Conference
April 28, 2023.
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 April 26, 2023, 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. 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 FINRA Rules 1015, 9261, 9341, 9524 and
9830 and Funding Portal Rule 900 to allow for video conference hearings
before the Office of Hearing Officers (``OHO'') and the National
Adjudicatory Council (``NAC'') under specified conditions.
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
Due to the COVID-19 global health crisis, FINRA administratively
postponed in-person hearings for over six months beginning in March of
2020, which resulted in an expanding backlog of cases that could have
compromised FINRA's ability to provide timely adjudicatory processes
and fulfill its statutory obligations to protect investors and maintain
fair and orderly markets. To address that backlog and mitigate the
consequences of a stalled adjudicatory system, FINRA adopted temporary
rules that allow OHO and the NAC to order, without a motion, hearings
to proceed by video conference based on public health risks related to
COVID-19.\3\ These were extended several times due to the continuing
public health risks and logistical challenges related to COVID-19,
including whether hearing participants could safely travel and abide by
state or local quarantine requirements.\4\
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\3\ See Securities Exchange Act Release No. 88917 (May 20,
2020), 85 FR 31832 (May 27, 2020) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2020-015) and Securities Exchange
Act Release No. 89737 (September 2, 2020), 85 FR 55712 (September 9,
2020) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2020-027).
\4\ See Securities Exchange Act Release No. 90619 (December 9,
2020), 85 FR 81250 (December 15, 2020) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2020-042); Securities
Exchange Act Release No. 91495 (April 7, 2021), 86 FR 19306 (April
13, 2021) (Notice of Filing and Immediate Effectiveness of File No.
SR-FINRA-2021-006); Securities Exchange Act Release No. 92685
(August 17, 2021), 86 FR 47169 (August 23, 2021) (Notice of Filing
and Immediate Effectiveness of File No. SR-FINRA-2021-019);
Securities Exchange Act Release No. 93758 (December 13, 2021), 86 FR
71695 (December 17, 2021) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2021-031); Securities Exchange
Act Release No. 94430 (March 16, 2022), 87 FR 16262 (March 22, 2022)
(Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-
2022-004); Securities Exchange Act Release No. 95281 (July 14,
2022), 87 FR 43335 (July 20, 2022) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2022-018); Securities Exchange
Act Release No. 96107 (October 19, 2022), 87 FR 64526 (October 25,
2022) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2022-029); and Securities Exchange Act Release No. 96746
(January 25, 2023), 88 FR 6346 (January 31, 2023) (Notice of Filing
and Immediate Effectiveness of File No. SR-FINRA-2023-001); see also
supra note 3.
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FINRA is proposing to make the temporary amendments regarding video
conference hearings permanent, with some modifications that would allow
for the use of video conference for reasons in addition to COVID-19.\5\
The use of
[[Page 28646]]
video conference technology in OHO and NAC hearings under the temporary
amendments has demonstrated that video is an effective and efficient
alternative to in-person hearings.\6\ FINRA has used high quality,
secure and user-friendly technology to allow for hearings conducted by
video conference to parallel the experience of conducting hearings in
person.\7\ This technology was crucial in enabling OHO and the NAC to
timely resolve pending cases when it was unsafe to conduct hearings in
person.
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\5\ For ease of reference in this filing, FINRA refers to the
pre-pandemic rules as ``original rules'' and to the temporary
changes to the original rules as ``temporary amendments.''
\6\ Since the temporary amendments were implemented, OHO and the
NAC have conducted numerous hearings by video conference. As of
March 31, 2023, OHO has conducted 18 disciplinary hearings by video
conference (decisions have been issued in all but one of these
cases). Also, as of March 31, 2023, the NAC, through the relevant
Subcommittee, has conducted 19 oral arguments by video conference in
connection with appeals of FINRA disciplinary proceedings pursuant
to FINRA Rule 9341(d), as temporarily amended. Furthermore, the NAC
has conducted via video conference a one-day evidentiary hearing in
a membership application proceeding pursuant to FINRA Rule 1015, as
temporarily amended. The NAC also has conducted via video conference
three evidentiary hearings in eligibility matters pursuant to FINRA
Rule 9524, as temporarily amended.
\7\ Under the temporary amendments, FINRA has conducted video
conference hearings using Zoom, which has been vetted by FINRA's
information technology staff. The platform and procedures for
conducting video conference hearings under the temporary amendments
are described in SR-FINRA-2020-027, supra note 3.
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FINRA believes that the use of video conference technology has
improved FINRA's operations during the COVID-19 pandemic, and the
proposed rule change will continue to improve and modernize FINRA's
operations so that parties, panelists, and FINRA staff may proceed
expeditiously by video conference in the event of certain
circumstances, including where unforeseen events make appearing in
person difficult or impracticable. As described below, impracticability
is intended to account for an uncommon situation or extraordinary
circumstance.
Background
OHO conducts hearings in disciplinary proceedings \8\ and hearings
for temporary and permanent cease and desist orders (``TCDOs'' and
``PCDOs'').\9\ When orders in disciplinary proceedings are appealed,
the NAC holds hearings on oral argument.\10\ The NAC also conducts
hearings in membership proceedings,\11\ eligibility proceedings,\12\
and Funding Portal eligibility proceedings.\13\
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\8\ See FINRA Rule 9261. The FINRA Rule 9200 Series sets forth
the procedures for disciplinary proceedings initiated by the
Department of Enforcement against any FINRA member or associated
person for alleged violation of any rule, regulation, or statutory
provision that FINRA has jurisdiction to enforce, including the
federal securities laws and the regulations thereunder.
\9\ See FINRA Rule 9830. The FINRA Rule 9800 Series sets forth
the procedures for TCDO and PCDO proceedings. These provide a
mechanism to take necessary remedial action against a member or
associated person where there is a significant risk that the alleged
misconduct could cause continuing harm to the investing public, if
not addressed expeditiously.
\10\ See FINRA Rule 9341. The FINRA Rule 9300 Series sets forth
the procedures for review of disciplinary proceedings by the NAC.
\11\ See FINRA Rule 1015. The FINRA Rule 1000 Series governs,
among other things, the process for (i) applying for FINRA
membership; (ii) FINRA members to seek approval of a change in
ownership, control or business operations, and (iii) an applicant to
request that the NAC review a FINRA decision rendered under the Rule
1000 Series.
\12\ See FINRA Rule 9524. The FINRA Rule 9520 Series sets forth
the procedures for eligibility proceedings and review of those
proceedings by the NAC and FINRA Board.
\13\ See FINRA Funding Portal Rule 900. Funding portal members
are subject to the FINRA Rule 9000 Series, except for the FINRA Rule
9520 Series, FINRA Rule 9557, FINRA Rule 9561, and the FINRA Rule
9700 Series and specified provisions, as set forth under Funding
Portal Rule 900, written specifically for funding portals. See
Securities Exchange Act Release No. 76970 (January 22, 2016), 81 FR
4931 (January 28, 2016) (Order Approving File No. SR-FINRA-2015-
040). Paragraph (b) of Funding Portal Rule 900 was established as a
streamlined version of the FINRA Rule 9520 Series and sets forth the
procedures for funding portal eligibility proceedings. Although
paragraph (b) was not temporarily amended, FINRA includes it in this
filing so that the procedures for funding portal eligibility
proceedings are aligned with eligibility proceedings under the FINRA
Rule 9520 Series. The proposed rule change would allow for both of
those types of hearings to be conducted by video conference.
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Under the original rules, such hearings were generally conducted in
person.\14\ The temporary amendments give OHO and the NAC authority
\15\ to conduct hearings, in whole or in part, by video conference if
warranted by the current public health risks presented by an in-person
hearing.\16\ Since 2020, such public health risks have related to the
COVID-19 pandemic.
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\14\ Telephonic testimony and hearings are explicitly permitted
in expedited proceedings. See FINRA Rule 9559(d)(5) (expedited
proceedings ``shall be held by telephone conference, unless the
Hearing Officer orders otherwise for good cause shown'').
\15\ For OHO hearings, the Chief or Deputy Chief Hearing Officer
has such authority; for NAC hearings, the NAC or relevant
Subcommittee has such authority.
\16\ See supra note 3.
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Under the proposed rule change, OHO and the NAC's authority to
order hearings by video conference would extend beyond the public
health risks posed by COVID-19 to other similar situations in which
proceeding in person may endanger the health or safety of the
participants or would be impracticable. For example, appearing in
person may be impracticable in the event of a natural disaster or
terrorist attack that caused travel to be cancelled for a period of
time.
In addition, the proposed rule change would differ from the
temporary amendments in two respects. First, under the proposed rule
change, OHO and the NAC would also have authority to order hearings to
occur by video conference based on a motion. Second, the proposed rule
change would provide more flexibility for using video conference for
oral arguments in appeals from disciplinary proceedings than for
evidentiary hearings due to the differences between those types of
hearings.\17\ As explained below, the motion requirements and the
standard that the Adjudicator would follow when exercising authority
under the proposed rule change differ somewhat depending on the type of
hearing involved.
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\17\ For ease of reference, ``evidentiary hearings'' refers to
hearings conducted before OHO under FINRA Rules 9261 and 9830, and
the NAC under FINRA Rules 1015, 9524, and Funding Portal Rule 900.
``Oral argument'' refers to hearings conducted before the NAC in
appeals from disciplinary proceedings under Rule 9341. See supra
notes 8-13 and accompanying text.
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As with the temporary amendments, under the proposed rule change,
in-person hearings will remain the default method for hearings before
OHO and the NAC, and their exercise of authority under the proposed
rule change would be discretionary. In-person hearings may take place
where safe and appropriate.
FINRA's protocols for conducting hearings by video conference will
be the same as under the temporary amendments. FINRA would, among other
things, use a high quality, secure and user-friendly video conferencing
service and provide thorough instructions, training, and technical
support to all hearing participants.
The proposed rule changes with respect to evidentiary hearings and
oral argument are discussed, in turn, below.
Evidentiary Hearings Before OHO and the NAC
For evidentiary hearings, the proposed rule change would give OHO
or the NAC authority to order an evidentiary hearing to occur by video
conference, in whole or in part, if OHO or the NAC determines that
proceeding in person may endanger the health or safety of the
participants or would be impracticable, as described above. OHO and the
NAC would have such authority on their own (i.e., sua sponte).\18\
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\18\ OHO and the NAC would have such authority over the
objection of a party. The same is true under the temporary
amendments. See SR-FINRA-2020-027, supra note 3.
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[[Page 28647]]
In addition, under the proposed rule change, parties could file a
joint motion requesting the hearing to occur, in whole or in part, by
video conference based on a showing of good cause. Due to the nature of
evidentiary hearings, which often occur over multiple days and
generally include numerous documents in evidence and witness testimony,
the proposed rule change would require any motions for a hearing by
video conference to be joined by all parties, and even joint motions
may be denied if the Adjudicator determines that good cause has not
been shown.\19\
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\19\ FINRA notes that its current practice is to allow witnesses
in an otherwise in-person hearing to appear by video conference. In
evidentiary hearings, a party may file a motion to offer witness
testimony by telephone or video conference. Further, even prior to
the COVID-19 pandemic, Adjudicators have allowed telephone
participation by witnesses who are unable or unwilling to appear in
person, such as customers over whom FINRA does not have jurisdiction
and therefore cannot compel testimony under FINRA Rule 8210.
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Whether acting on its own or based on a joint motion of the
parties, OHO and the NAC would have reasonable discretion to exercise
their authority under the proposed rule change. In deciding whether to
schedule a hearing by video conference, OHO and the NAC could consider
and balance a variety of factors including, for example and without
limitation, a hearing participant's individual health concerns and
access to the connectivity and technology necessary to participate in a
video conference hearing.
Oral Argument Before the NAC
The proposed rule change would give the NAC authority to order an
oral argument hearing to occur by video conference, in whole or in
part, if it determines that proceeding in person may endanger the
health or safety of the participants or would be impracticable. The NAC
would have such authority on its own.
In addition, under the proposed rule change, the NAC would have
authority--on its own or on consideration of a motion by any party--to
order oral argument to occur by video conference, in whole or in part,
for other reasons (i.e., reasons not limited to public health, safety
or impracticability). Under such circumstances, an opposing party would
have the opportunity to demonstrate that the hearing should proceed in
person because proceeding by video conference would materially
disadvantage that party. Whether a party has shown material
disadvantage would depend on the facts and circumstances.
Considerations may include, for example and without limitation, case
complexity, the issues on appeal, and whether the respondent is pro se
and desires to appear in person.
Under the proposed rule change, the NAC would have greater
flexibility to allow oral argument to occur by video conference than
evidentiary hearings, with an additional safeguard for parties who
believe that holding oral argument by video conference would materially
disadvantage them. The proposal as to NAC oral argument thus differs
from the proposal for evidentiary hearings in three respects: (1) it
would give the NAC sua sponte authority to order oral argument hearings
to occur by video conference for reasons other than public health,
safety, or impracticability; (2) it would allow for motions by a single
party rather than joint; and (3) under either of those circumstances, a
party could oppose on grounds that proceeding by video conference would
materially disadvantage that party. These proposed differences are due
to the nature of oral argument hearings, which are typically shorter
than evidentiary hearings in duration (generally two hours or less),
contain no presentation of new documentary evidence or witness
testimony, and are often conducted by counsel.
Whether acting on its own or based on a motion of a party, the NAC
would have reasonable discretion to exercise its authority under the
proposed rule change. In deciding whether to order an oral argument
hearing by video conference, the NAC could consider and balance a
variety of factors including, for example and without limitation, a
hearing participant's individual health concerns, access to video
conference technology, whether a party has delayed or refused to appear
in person, and whether proceeding by video conference would materially
disadvantage any party.\20\
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\20\ FINRA notes that the proposed rule change would impact all
members, including members that are funding portals or have elected
to be treated as capital acquisition brokers (``CABs''), given that
the CAB rule set incorporate the impacted FINRA rules by reference
and that, under the Funding Portal Rules, funding portal members are
subject to the FINRA Rule 9000 Series, with specified exceptions as
set forth under Funding Portal Rule 900. See supra note 13.
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If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\21\ 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 is also
consistent with Section 15A(b)(8) of the Act,\22\ which requires, among
other things, that FINRA rules provide a fair procedure for the
disciplining of members and persons associated with members.
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\21\ 15 U.S.C. 78o-3(b)(6).
\22\ 15 U.S.C. 78o-3(b)(8).
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FINRA believes that the proposed rule change protects investors and
the public interest by permitting the use of broadly available
technology to allow hearings to proceed by video conference under
certain circumstances. FINRA's disciplinary and eligibility proceedings
and other review processes serve a critical role in providing investor
protection and maintaining fair and orderly markets by, for example,
sanctioning misconduct and preventing further customer harm by members
and associated persons. The proposed rule change would encourage the
prompt resolution of these cases while preserving fair process.
The proposed rule change promotes efficiency by permitting hearings
to occur by video conference in situations where the hearings would
otherwise be postponed for an uncertain period of time. As discussed,
this occurred in 2020 when in person hearings were postponed for over
six months, resulting in a backlog of cases. COVID-19 necessitated
FINRA to propose the temporary amendments, which were extended due to
the continuing health risks of COVID-19, as well as limitations on
travel, quarantine requirements, and other logistical challenges to
safely conducting hearings in person.\23\ The proposed rule change
further promotes efficiency by giving OHO and the NAC authority to act
quickly if a future unexpected event impaired their ability to conduct
in-person hearings safely.
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\23\ See supra notes 3 & 4 and accompanying text.
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The proposed rule change also serves to provide a fair procedure
for the disciplining of members and persons associated with members by
allowing hearings to proceed by video conference not only due to public
health or safety reasons, but also at a party or the parties' request
for reasons particular to them. The Adjudicator could allow a hearing
to proceed by video conference in the exercise of reasonable discretion
and subject to procedural safeguards that ensure fairness. For
evidentiary hearings, these safeguards include the requirements that
any motions be joined
[[Page 28648]]
by all parties and show good cause. For oral argument, these safeguards
include the ability of any party to oppose an order or motion to
proceed by video conference on grounds that doing so would materially
disadvantage that party.
Thus, the proposed rule change represents a significant step toward
modernizing FINRA's procedures in a manner that preserves in-person
hearings, but allows for the use of video conference technology under
certain circumstances.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change would result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the potential economic impacts of the proposed rule
change, including anticipated costs, benefits, and distributional and
competitive effects, relative to the current baseline, and the
alternatives FINRA considered in assessing how best to meet FINRA's
regulatory objectives.
1. Regulatory Need
FINRA does not have permanent rules that allow for video conference
hearings before OHO and the NAC, even when both parties prefer
proceeding by video conference, or doing so would not materially
disadvantage any party, or when video conference is the only
practicable method. The proposed rule change would create permanent
rules that would allow video conference hearings under some of these
circumstances, with safeguards. The proposed rule change would allow
certain proceedings by video conference where both parties prefer doing
so and show good cause, or where neither party would be materially
disadvantaged. The proposed rule change would also enable FINRA to
respond to serious health, natural disaster, or other unanticipated
events more quickly and adeptly in the future, so that hearings can
proceed on time without the need for long postponements or
cancellations. As discussed above, the use of video conference hearings
for approximately two and a half years has demonstrated that this
technology can efficiently resolve pending cases and effectively
parallel the experience of conducting hearings in person. The proposed
rule change would build on this experience.
2. Economic Baseline
The economic baseline for the proposed rule change consists of the
original FINRA Rules 1015, 9261, 9341, 9524 and 9830 and Funding Portal
Rule 900. As discussed earlier, these rules govern disciplinary
proceedings before OHO, appeals before the NAC, and other types of
hearings. Under these rules, oral arguments before the NAC and
evidentiary hearings before OHO and the NAC are typically conducted in
person at various venues across the country. Due to the COVID-19
pandemic, FINRA temporarily amended its rules to allow OHO and the NAC
to order, without a motion, evidentiary hearings to proceed by video
conference based on public health risks related to COVID-19. The
temporary amendments also allow oral arguments before the NAC to
proceed by video conference.
The number of new cases filed in OHO and NAC disciplinary
proceedings and the number of respondents in these proceedings in the
past five years are presented in Table 1 below. The numbers show that
the majority of respondents in OHO filings and NAC appeals consist of
associated persons.
Table 1--Number of New Cases Filed in OHO and NAC Disciplinary Proceedings and Number of Respondents, 2018-2022
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2018 2019 2020 2021 2022
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OHO Disciplinary Proceedings.... 43 40 34 32 24
OHO Respondents: Firms Only..... 0 2 2 0 2
OHO Respondents: Associated 38 35 30 28 20
Persons Only...................
OHO Respondents: Both Firms and 5 3 2 4 2
Associated Persons.............
NAC Disciplinary Appeals........ 20 16 10 11 6
NAC Respondents: Firms Only..... 1 1 0 1 1
NAC Respondents: Associated 15 11 8 10 4
Persons Only...................
NAC Respondents: Both Firms and 4 4 2 0 1
Associated Persons.............
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FINRA has also collected information on the use of video conference
in evidentiary hearings in OHO and NAC proceedings and oral arguments
before the NAC in the past five years. The information is presented in
Table 2 below. The numbers show that no evidentiary hearings before OHO
and the NAC or oral arguments before the NAC proceeded by video
conference in the two years prior to the pandemic starting in 2020,
whereas almost all of those types of hearings proceeded by video
conference after 2020.
Table 2--Use of Video Conference in OHO and NAC Evidentiary Hearings and NAC Oral Arguments, 2018-2022
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2018 2019 2020 2021 2022
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Number of Evidentiary 21 12 8 10 5
Disciplinary Hearings before
OHO............................
Number of Evidentiary 0 0 3 9 5
Disciplinary Hearings before
OHO by Video Conference........
Number of Oral Arguments before 15 11 10 4 6
NAC............................
Number of Oral Arguments before 0 0 9 4 6
NAC by Video Conference........
Number of Evidentiary Hearings 6 0 0 1 3
before NAC.....................
Number of Evidentiary Hearings 0 0 0 1 3
before NAC by Video Conference.
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[[Page 28649]]
3. Economic Impacts
The proposed rule change will directly impact current and former
member firms (including members that are funding portals) and their
associated persons. These individuals would be applicants or
respondents in proceedings before OHO and the NAC, including appeals
from disciplinary proceedings. The proposed rule change is also
expected to affect their counsel and other participants, and the
proposed rule change may also affect investors associated with the
matter, and in some cases, investors more generally.
As described earlier, there have been only a limited number of new
cases or appeals filed annually in relevant OHO and NAC proceedings in
the past five years. Most of these cases or appeals involved only one
respondent. Based on these historical numbers, only a very small
fraction of members and associated persons will likely be affected by
the proposed rule change.
The primary impact of the proposed rule change would be to reduce
delay in resolving relevant matters in extraordinary circumstances
(e.g., a serious public health situation, natural disaster, or other
unanticipated emergency event), or when the parties jointly move for an
evidentiary hearing to proceed virtually and establish good cause for
doing so, or when neither party would be materially disadvantaged by
holding oral argument by video conference for reasons other than
health, safety or impracticability. Depending on the matter and the
amount of delay that can potentially be avoided, the proposed rule
change may have a significant economic impact on affected parties and
relevant stakeholders.
Under the baseline, a serious public health situation, natural
disaster, or other unanticipated emergency event may either delay
proceedings, prevent travel, or require parties to consider traveling
and appearing in person despite the elevated risk. As discussed, until
the temporary amendments were in effect, FINRA administratively
postponed hearings for over six months due to concerns about the safety
of conducting hearings in person, travel restrictions, quarantine
requirements, and other logistical challenges.\24\ Where delay may
occur, as it did in 2020, the proposed rule change would allow FINRA to
conduct video conference hearings, thereby reducing delay in resolving
matters before OHO and the NAC. As FINRA's adjudicatory functions are
essential to deterring and providing redress in cases of investor harm,
and for protecting market integrity, reducing delay will broadly
benefit investors and the markets. Members and associated persons may
also benefit from reduced delay in resolving their matters.
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\24\ See supra notes 3 & 4 and accompanying text.
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Participants in relevant proceedings who, under the baseline, are
required to travel and attend hearings in person despite elevated risk
will benefit from reduced health and safety risk under the proposed
rule change. By allowing video conference hearings and oral arguments
either by order of the Adjudicator on its own or on motion of the
parties, the proposed rule change would result in reduced travel time
and costs for all participants. The cost reductions may vary depending
on the nature and length of the proceedings, the number of individuals
who must travel, and the distance of the required travel.
Parties may incur additional costs relative to the pre-pandemic
baseline. These additional costs may arise from technological
challenges such as bandwidth or connectivity issues and concerns
related to presenting arguments and evidence in a virtual environment.
FINRA believes that cost increases will likely be limited for most
parties, after considering the overall positive experience of
conducting video conference evidentiary hearings and appellate oral
arguments under the temporary amendments.
Parties who are required to participate by video conference under
the proposed rule change and believe that they cannot present their
arguments and evidence as well as in person, may perceive the potential
costs associated with the proposed rule change as large compared with
the potential benefits. They may thus prefer a delayed in-person
hearing under the above circumstances to a video conference hearing.
These potential costs will depend on how Adjudicators define and apply
the ``impracticable'' and ``health or safety'' standards as well as the
``good cause'' and ``materially disadvantage'' standards, among other
factors.
4. Alternatives Considered
FINRA considered applying the same standards to NAC oral argument
as to evidentiary hearings. Under this alternative, the NAC could order
a scheduled in-person oral argument hearing to occur by video
conference for health, safety or impracticability reasons only, and
when considering a motion, would require the motion to be joined by all
parties and show good cause. Parties who prefer to appear in-person due
to concerns about technical or other difficulties to presenting their
case by video conference may perceive a lower cost from the less
flexible alternative relative to the proposed rule change. This
perceived cost reduction, however, should be limited since the proposed
rule change would allow such parties to oppose an order or motion to
proceed by video conference on grounds that doing so would materially
disadvantage them. Further, any cost reduction relative to the proposed
rule change would likely be bounded because, as discussed, NAC oral
arguments are typically short in duration, contain no presentation of
new evidence, and are often conducted by counsel. The alternative would
also likely lead to more potential delays in resolving appeals of
disciplinary matters. Thus, FINRA believes that the proposed rule
change strikes the appropriate balance between preserving the
efficiencies in OHO and NAC proceedings that were achieved during the
pandemic and ensuring a fair process for parties in evidentiary
hearings and appeals.
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 45 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 or disapprove 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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
[[Page 28650]]
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2654534a430b45494b4b434852556655434508414950"><span class="__cf_email__" data-cfemail="255750494008464a4848404b5156655640460b424a53">[email protected]</span></a>. Please include
File Number SR-FINRA-2023-008 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-2023-008. 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="https://www.sec.gov/rules/sro.shtml">https://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. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to File Number SR-FINRA-2023-008 and should be
submitted on or before May 25, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-09446 Filed 5-3-23; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on May 4, 2023.
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.