Notice2024-11584
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 12800 (Simplified Arbitration) To Clarify and Amend the Applicability of the Document Production Lists
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 28, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 103 (Tuesday, May 28, 2024)</title>
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[Federal Register Volume 89, Number 103 (Tuesday, May 28, 2024)]
[Notices]
[Pages 46210-46214]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-11584]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100204; File No. SR-FINRA-2024-008]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 12800 (Simplified Arbitration) To Clarify and Amend the
Applicability of the Document Production Lists
May 21, 2024.
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 May 13, 2024, 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 the FINRA Code of Arbitration Procedure
for Customer Disputes (``Customer Code'') to clarify and, in some
instances, amend the applicability of the Document Production Lists to
simplified customer arbitrations administered under FINRA Rule 12800.
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
I. Overview of the Document Production Lists and Simplified Customer
Arbitrations
FINRA Dispute Resolution Services (``DRS'') provides a Discovery
Guide to supplement the discovery rules contained in the Customer Code
and help guide the parties and arbitrators through the discovery
process in customer arbitrations.\3\ The Document Production Lists,
which are included in the Discovery Guide and described in FINRA Rule
12506, outline presumptively discoverable documents that the parties
should exchange, without arbitrator or DRS staff intervention. Document
Production Lists 1 and 2 describe the documents that are presumed to be
discoverable in all arbitrations between a customer and a member firm
or associated person except in simplified customer arbitrations as
explained below.\4\ List 1 outlines the documents that member firms and
associated persons shall produce; List 2 outlines the documents that
customers shall produce.\5\
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\3\ See <a href="https://www.finra.org/sites/default/files/ArbMed/p394527.pdf">https://www.finra.org/sites/default/files/ArbMed/p394527.pdf</a>. The FINRA Discovery Guide and Document Production Lists
do not apply to arbitrations administered under the Code of
Arbitration Procedure for Industry Disputes.
\4\ See FINRA Rule 12506(a).
\5\ See <a href="https://www.finra.org/sites/default/files/ArbMed/p394527.pdf">https://www.finra.org/sites/default/files/ArbMed/p394527.pdf</a>.
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The proposed rule change would affect the applicability of the
Document Production Lists in simplified customer arbitrations.
Simplified customer arbitrations are arbitrations in which the dispute
between a customer and member firm or associated person involves
$50,000 or less, exclusive of interest and expenses.\6\ There are three
types of simplified customer arbitrations. If the customer does not
request a hearing, the arbitrator will render an award based on the
pleadings and other materials submitted by the parties (``paper
cases'').\7\ If the customer requests a hearing, the customer must
select between one of two hearing options.\8\ If the customer requests
an Option One hearing under FINRA Rule 12800(c)(3)(A), the regular
provisions of the Customer Code relating to prehearings and hearings,
including all fee provisions, apply (``regular hearing''). The customer
may also request an Option Two special proceeding, an abbreviated
hearing, under FINRA Rule 12800(c)(3)(B) (``special proceeding'').
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\6\ See FINRA Rule 12800(a).
\7\ See FINRA Rule 12800(c)(2).
\8\ See FINRA Rule 12800(c)(3).
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Currently, the Document Production Lists do not apply in paper
cases and special proceedings.\9\ However, under FINRA Rule
12800(g)(1), the arbitrator may exercise discretion to choose to use
relevant portions of the Document Production Lists in paper cases and
special proceedings ``in a manner consistent with the expedited nature
of simplified proceedings.'' Absent such an exercise of discretion by
the arbitrator, to obtain discovery in paper cases and special
proceedings, the parties must request documents and other information
from each other, pursuant to FINRA Rule 12800(g)(2).\10\ Therefore,
under the current Customer Code, no documents or information are
presumptively discoverable in paper cases and special proceedings.
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\9\ FINRA Rule 12800(g)(1) provides that the Document Production
Lists ``do not apply to arbitrations subject to this rule'' (i.e.,
paper cases and special proceedings).
\10\ FINRA Rule 12800(g)(2) provides that all production
requests must be served on all other parties and filed with the
Director within 30 days from the date that the last answer is due;
any response or objection to a production request must be served on
all other parties and filed with the Director within 10 days of the
receipt of the request. The term ``Director'' means the Director of
DRS and, unless the Customer Code provides that the Director may not
delegate a specific function, the term includes FINRA staff to whom
the Director has delegated authority. See FINRA Rule 12100(m).
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By contrast, the Document Production Lists do apply in simplified
customer arbitrations in which the customer requests a regular hearing.
As noted above, if the customer requests a regular hearing during the
simplified customer arbitration, FINRA Rule 12800(c)(3)(A) states that
the ``regular provisions'' of the Customer Code ``relating to
prehearings and hearings'' apply. DRS has issued guidance clarifying
this language to mean that the Document Production Lists apply in
simplified customer arbitrations in which the customer requests a
regular hearing.\11\ Consistent with this guidance, the
[[Page 46211]]
current practice is to treat the Document Production Lists as applying
in simplified customer arbitrations in which the customer requests a
regular hearing.\12\
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\11\ See FINRA DRS Party's Reference Guide, p. 31, <a href="https://www.finra.org/sites/default/files/Partys-Reference-Guide.pdf">https://www.finra.org/sites/default/files/Partys-Reference-Guide.pdf</a>
(explaining that ``[t]he Document Production Lists in the Discovery
Guide as described in FINRA Rule 12506 do not apply to simplified
[customer] arbitrations decided on the papers or decided by special
proceeding. However, the Discovery Guide does apply to simplified
cases in which a customer requests a regular hearing.''). See also
<a href="https://www.finra.org/arbitration-mediation/simplified-arbitrations">https://www.finra.org/arbitration-mediation/simplified-arbitrations</a>.
\12\ For cases in which the Document Production Lists apply,
FINRA Rule 12506(b)(1) provides that unless the parties agree
otherwise, within 60 days of the date that the answer to the
statement of claim is due, or, for parties added by amendment or
third party claim, within 60 days of the date that their answer is
due, parties must either: (1) produce to all other parties all
documents in their possession or control that are described in
Document Production Lists 1 and 2; (2) identify and explain the
reason that specific documents described in Document Production
Lists 1 and 2 cannot be produced within the required time, and state
when the documents will be produced, and serve this response on all
parties and file this response with the Director; or (3) object as
provided in FINRA Rule 12508 and serve this response on all parties
and file this response with the Director.
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II. The Proposed Rule Change
A. Proposed Amendments to the Applicability of the Document Production
Lists in Paper Cases and Special Proceedings
The proposed rule change would amend FINRA Rule 12800(g)(1) to give
customers in paper cases and special proceedings the option to elect at
the time that they initiate an arbitration or, if they are a
respondent, no later than the answer due date, whether they want the
Document Production Lists to apply to all parties. Specifically, under
proposed Rule 12800(g)(1)(B), FINRA Rule 12506--which describes the
Document Production Lists and sets forth the timeframes for responding
to the Document Production Lists--would not apply in paper cases or
special proceedings ``unless the customer requests that the Document
Production Lists apply to all parties when initiating an arbitration
pursuant to Rule 12302 or, if the customer is a respondent, no later
than the answer due date pursuant to Rule 12303, regardless of the
parties' agreement to extend any answer due date.'' \13\ If the
customer elects to apply the Document Production Lists in their case,
FINRA Rule 12506 would apply. As a result, all parties would be
required to produce the documents on the Document Production Lists,
explain why the documents cannot be produced, or object to the
production of the documents within the timeframes set forth in FINRA
Rule 12506.\14\
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\13\ FINRA Rule 12303 provides that respondent(s) must serve
each other party with an answer to the statement of claim within 45
days of receipt of the statement of claim. FINRA Rule 12207(a)
provides that the parties may agree in writing to extend or modify
the deadline for serving an answer.
\14\ A party must act in good faith when complying with FINRA
Rule 12506(b)(1). ``Good faith'' means that a party must use its
best efforts to produce all documents required or agreed to be
produced. If a document cannot be produced in the required time, a
party must establish a reasonable timeframe to produce the document.
See FINRA Rule 12506(b)(2). If a party objects to producing any
document described in Document Production Lists 1 or 2, FINRA Rule
12508 provides that the party must specifically identify which
document or requested information it is objecting to and why (e.g.,
a document is irrelevant to the particular dispute).
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If the customer does not timely elect to apply the Document
Production Lists to all parties when initiating an arbitration or, as
applicable, no later than the answer due date, proposed Rule
12800(g)(1)(B) would retain the current provision in the rule that the
arbitrator has the discretion to use relevant portions of the Document
Production Lists in a manner consistent with the expedited nature of
simplified customer arbitrations. Additionally, proposed Rule
12800(g)(2) would retain the current provision in the rule that would
permit the parties to request documents and information from each
other.
Based on feedback from customer representatives, FINRA is concerned
that pro se \15\ customers, who are the majority of customers in paper
cases and special proceedings,\16\ may not know what documents to
request from the opposing party. This lack of understanding creates the
risk that parties may not obtain and, therefore, are unable to provide
arbitrators with the relevant documents and information to decide paper
cases and special proceedings. Providing customers in paper cases and
special proceedings with the option to use the Document Production
Lists could increase customer awareness and understanding of the
discovery process and the likelihood that these parties are able to
discover the documents and information that are relevant to their
arbitration. If the customer elects to use the Document Production
Lists in a paper case or special proceeding, parties should
automatically (i.e., without the need to make production requests or
engage in motion practice) receive those documents and information that
are relevant, or likely to lead to relevant evidence, in such customer
disputes, which could help expedite the discovery process.\17\ In
addition, this increased access to relevant documents and other
information could improve the efficiency of the DRS arbitration forum
to bring about outcomes (i.e., awards and settlements) in paper cases
or special proceedings that are more consistent with the merits of the
case.\18\
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\15\ For purposes of the Customer Code, the term ``pro se''
refers to a party that is not represented by an attorney or others
during an arbitration or mediation. See FINRA Rule 12100(z).
\16\ From 2018 to 2023, customers were a party in 1,038 paper
cases and special proceedings that closed and appeared pro se in 623
of the arbitrations (60 percent).
\17\ See Securities Exchange Act Release No. 41833 (September 2,
1999), 64 FR 49256, 49260-61 (September 10, 1999) (Order Approving
File No. SR-NASD-1999-07) (stating that the Document Production
Lists were created ``to provide parties with information that is
reasonably calculated to lead to the discovery of admissible
evidence in arbitrations'' and that ``[t]he Discovery Guide will
streamline the discovery process. By creating lists of documents
that should be produced in all customer arbitrations . . . the
Discovery Guide will help expedite the discovery process and reduce
the number of discovery disputes between parties, which in turn
should help lower the cost of the arbitration discovery process.'').
See also Securities Exchange Act Release No. 70419 (September 16,
2013), 78 FR 57916, 57920 (September 20, 2013) (Order Approving File
No. SR-FINRA-2013-024) (stating that FINRA amended the Discovery
Guide to ``help reduce the number and limit the scope of disputes
involving document production.'').
\18\ See infra Item II.B. (discussing Economic Impact
Assessment).
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If the SEC approves the proposed rule change, FINRA will develop
and publish guidance about discovery that will be available to all
parties in simplified customer arbitrations. The guidance would, among
other things, direct parties to the Discovery Guide. In addition to
describing the Document Production Lists, the Discovery Guide includes
information that could improve the parties' awareness and understanding
of the discovery process such as information about the circumstances
under which the parties may object to the production of documents on
the Document Production Lists, the parties' ability to request
additional documents other than those included on the Document
Production Lists, the process for obtaining the production of documents
from non-parties, the forms that the production of documents should
take, and the parties' right to object to the production of documents
based on confidentiality and privilege concerns.\19\
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\19\ Nothing in the Discovery Guide precludes the parties from
voluntarily agreeing to an exchange of documents in a manner
different from that set forth in the Discovery Guide. FINRA
encourages the parties to agree to the voluntary exchange of
documents and to stipulate to various matters. See <a href="https://www.finra.org/sites/default/files/ArbMed/p394527.pdf">https://www.finra.org/sites/default/files/ArbMed/p394527.pdf</a>.
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As discussed above, proposed Rule 12800(g)(1)(B) would require that
the customer decide whether to apply the Document Production Lists in a
paper case or special proceeding ``when initiating an arbitration
pursuant to Rule 12302'' or ``no later than the answer due date
pursuant to Rule 12303, regardless of the parties' agreement to extend
any answer due date.'' \20\ Thus, parties would know whether they will
have to gather and eventually produce the documents on the Document
Production
[[Page 46212]]
Lists in the early stages of an arbitration case, either after the
arbitration has been initiated or no later than the answer due
date.\21\ As noted above, if the SEC approves the proposed rule change,
FINRA will develop and publish guidance about discovery that will be
available for all parties in simplified customer arbitrations. This
guidance would include information to assist customers in making an
informed decision regarding whether to elect to use the Document
Production Lists in their case.
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\20\ See supra note 13 and accompanying text.
\21\ As noted above, if the customer elects to have the Document
Production Lists apply, all parties would be required to produce the
documents on the Document Production Lists, explain why the
documents cannot be produced, or object to the production of the
documents within the timeframes set forth in FINRA Rule 12506.
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Finally, the proposed rule change would give only customers the
right to elect to have the Document Production Lists apply in paper
cases and special proceedings because, as discussed above, a majority
of the customers who appear in these types of cases are pro se and may
not be familiar with the discovery process.\22\ On the other hand, few
associated persons appear pro se in paper cases and special
proceedings.\23\ FINRA understands, however, that some pro se
associated persons may not be familiar with the discovery process; the
guidance that FINRA plans to issue would be available to all parties,
including parties who appear pro se.
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\22\ See supra note 16 and accompanying text.
\23\ From 2018 to 2023, where they were a party, associated
persons appeared pro se in 88 of the 292 customer paper cases and
special proceedings that closed.
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Further, although only customers would have the option to choose
whether the Document Production Lists would apply in their case, FINRA
does not believe the proposed rule change would impose an unfair burden
on industry parties or deprive them in any way of their right to obtain
discoverable documents and information. If a customer elects to have
the Document Production Lists apply in a paper case or special
proceeding, that election would trigger production obligations for both
customers and industry parties; as noted above, the documents on List 1
would be presumptively discoverable by customers, and the documents on
List 2 would be presumptively discoverable by member firms and
associated persons.\24\ Moreover, even if a customer chooses not to
apply the Document Production Lists in a particular case, industry
parties still would have the same right that they currently have under
FINRA Rule 12800(g)(2) to request the production of documents and
information from the customer.
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\24\ See FINRA Rule 12506. See also <a href="https://www.finra.org/sites/default/files/ArbMed/p394527.pdf">https://www.finra.org/sites/default/files/ArbMed/p394527.pdf</a>.
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B. Proposed Amendments To Clarify the Applicability of the Document
Production Lists in Simplified Customer Arbitrations When the Customer
Requests a Regular Hearing
Currently, FINRA Rule 12800(c)(3)(A) states that, when a customer
requests a regular hearing, the ``regular provisions'' of the Customer
Code relating to prehearings and hearings apply. As noted above, DRS
has issued guidance clarifying this language to mean that the Document
Production Lists apply in simplified customer arbitrations in which the
customer requests a regular hearing.\25\ For additional clarity, the
proposed rule change would codify that the Document Production Lists
apply to simplified customer arbitrations in which the customer
requests a regular hearing. Specifically, proposed Rule 12800(g)(1)(A)
would provide that the ``Document Production Lists, described in Rule
12506, apply to arbitrations in which the customer requests an Option
One hearing.'' The proposed rule change would increase transparency and
help ensure parties are aware and understand that the Document
Production Lists apply in simplified customer arbitrations in which the
customer requests a regular hearing.
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\25\ See supra note 11 and accompanying text.
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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.\26\
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\26\ 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 funding portal and CAB rule sets incorporate the impacted FINRA
rules by reference.
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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,\27\ 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.
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\27\ 15 U.S.C. 78o-3(b)(6).
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FINRA believes that the proposed rule change will protect investors
and the public interest as it will provide customers in paper cases and
special proceedings with the option to use the Document Production
Lists, thereby increasing customer awareness and understanding of the
discovery process and the likelihood that these parties are able to
discover the documents and information that are relevant to their
arbitration. If the customer elects to use the Document Production
Lists in a paper case or special proceeding, parties should
automatically (i.e., without the need to make production requests or
engage in motion practice) receive those documents and information that
are relevant, or likely to lead to relevant evidence, in such customer
disputes, which could help expedite the discovery process. In addition,
this increased access to relevant documents and other information could
improve the efficiency of the DRS arbitration forum to bring about
outcomes (i.e., awards and settlements) in paper cases or special
proceedings that are more consistent with the merits of the case.\28\
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\28\ See infra Item II.B. (discussing Economic Impact
Assessment).
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FINRA also believes that the proposed rule change will protect
investors and the public interest by aligning the Customer Code with
existing DRS practice and guidance that the Document Production Lists
apply in simplified customer arbitrations in which the customer
requests a regular hearing. Codifying this existing practice and
guidance will improve transparency and enhance parties' awareness and
understanding of the discovery process in simplified customer
arbitrations.
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.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment to analyze the
regulatory need for the proposed rule change, its potential economic
impacts, 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.
(a) Regulatory Need
The proposed rule change addresses a concern that certain customers
in simplified customer arbitrations may be at a disadvantage in
obtaining relevant documents and other information useful to their
cases, due to a lack of awareness and understanding of how to use the
discovery process. The proposed rule change and additional guidance are
anticipated to increase customer
[[Page 46213]]
awareness, understanding and utilization of the discovery process,
reducing the risk that the resulting outcomes do not reflect the actual
merits of the underlying dispute.
(b) Economic Baseline
The economic baseline for the proposed rule change consists of the
current provisions under the Customer Code and published guidance that
address the discovery process in simplified customer arbitrations.
FINRA anticipates the proposed rule change to affect the customers,
industry parties, and arbitrators to simplified customer arbitrations.
To better understand the potential impacts of the proposed rule
change, FINRA examines the 1,717 simplified customer arbitrations that
closed from 2018 to 2023.\29\ Simplified customer arbitrations
represent 12 percent of all customer arbitrations which closed during
the sample period.
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\29\ Customers appeared as claimant in 1,650 simplified customer
arbitrations, as respondent in 63 simplified customer arbitrations,
and as both claimant and respondent in four cases.
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As discussed above, customer representatives have provided feedback
that the Customer Code provides inadequate guidance, particularly to
pro se customers, regarding discovery in simplified customer
arbitrations. They have reported to FINRA that customers may not know
what documents to request from the opposing party. This raises concerns
that parties are not obtaining and, therefore, not providing
arbitrators the relevant documents and information to decide simplified
customer arbitrations and that these arbitrations are not decided on a
full record.
To put these concerns in context, for the 1,717 simplified customer
arbitrations that closed from 2018 to 2023, FINRA identifies the number
where a customer appears pro se. A higher percentage of customers
appear pro se in paper cases (517 of 792 cases, 65 percent) and special
proceedings (106 of 246 cases, 43 percent) than in simplified customer
arbitrations where they request a regular hearing (183 of 679 cases, 27
percent).
Data are not available to comprehensively describe the discovery
process in the DRS arbitration forum. FINRA is therefore not able to
determine the number of discovery requests in simplified customer
arbitrations, the frequency of objections, and how discovery may differ
by proceeding or representation type.\30\
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\30\ Data are also not available describing, under Rule
12800(g)(1), arbitrator discretion to choose relevant portions of
the Document Production Lists in paper cases and special proceedings
to obtain discovery. Arbitrator use of this discretion under the
baseline may indicate the need for information by customers, and an
impact of the proposed rule change may be to reduce reliance on this
discretion.
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(c) Economic Impacts
In paper cases and special proceedings, the proposed rule change
would provide customers the option to apply the Document Production
Lists. Along with the planned additional guidance, this proposed rule
change may increase customer awareness and understanding of the
discovery process and their access to relevant documents and other
information through an established framework of presumptively
discoverable documents. This increased access may improve the
efficiency of the DRS arbitration forum to bring about outcomes (i.e.,
awards and settlements) in paper cases or special proceedings that are
more consistent with the merits of the case which could decrease the
potential benefits to member firms and associated persons from engaging
in misconduct and increase customer protection.
Paper cases and special proceedings may be decided on the merits of
the case where customers appear pro se and avail themselves of
discovery. The proposed rule change, together with the guidance that
would accompany it, would increase customers' awareness and
understanding of their option to apply the Document Production Lists,
and more generally inform them of the documents or information that may
be available through discovery. The value of the additional awareness
and understanding is likely greater for those customers who appear pro
se and have limited knowledge of discovery than for those customers who
retain an attorney or representation by a law clinic. Customers who
appear pro se, however, may still have difficulty understanding the
discovery process, the types of documents or information that may
support their claims, and whether to apply the Document Production
Lists. For some customers who appear pro se, therefore, the proposed
rule change may not have the full intended effect.
When customers elect to apply the Document Production Lists in
paper cases or special proceedings, parties may incur additional or
fewer discovery-related costs. The additional costs customers may incur
would be at their own expense. The overall impact on discovery-related
costs would depend on how the number of production requests and
discovery-related motions change relative to the baseline. Parties may
need to produce additional documents or information described in the
Document Production Lists, increasing costs relative to the baseline.
On the other hand, parties may cease objecting to the production of
documents that were requested in the baseline and that become
presumptively discoverable. They may, however, incur additional costs
objecting to the production of additional documents or information that
were not requested under the baseline and which the proposed rule
change makes presumptively discoverable.
The costs parties incur may also relate to the time to resolution.
The proposed 60 days for parties to respond to the Document Production
Lists may lengthen the time to resolution.\31\ The time to resolution
may further lengthen if parties object to the production of documents
or information that were not requested under the baseline and which the
proposed rule change makes presumptively discoverable. Longer times to
resolution may create additional business uncertainty for industry
parties and delay the availability of funds to customers who win
awards. To the extent that the application of the Document Production
Lists reduces the amount of disagreement between parties and precludes
the need for production requests and discovery-related motions,
however, then the time to resolution may decrease and parties may
benefit from a shorter time to resolution.
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\31\ As described above, under current FINRA Rule 12800(g)(2),
when customers elect not to apply the Document Production Lists, all
production requests must be served within 30 days from the date that
the last answer is due. Any response or objection to a production
request must be served within 10 days of its receipt.
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The greater exchange of relevant documents or information when
customers elect to apply the Document Production Lists may also
increase the ability of parties to settle prior to an award. Relative
to arbitrating the dispute, parties who settle may incur fewer costs
(e.g., attorney fees, forum fees, time to resolution) to resolve the
dispute.\32\
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\32\ Half of the 1,717 simplified customer arbitrations that
closed from 2018 to 2023 settled. A higher percentage of simplified
customer arbitrations settled where customers requested a regular
hearing (73 percent) than in paper cases (34 percent) or special
proceedings (56 percent).
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The codification of existing DRS guidance (as detailed above) that
the Document Production Lists apply in simplified customer arbitrations
in which the customer requests a regular hearing should not result in
material economic effects. In the experience of FINRA staff, since DRS
issued additional guidance, few questions have arisen regarding the
application of
[[Page 46214]]
Document Production Lists in simplified customer arbitrations in which
the customer requests a regular hearing. However, to the extent that
parties are currently unaware of the DRS guidance and misunderstand the
application of the Document Production Lists in simplified customer
arbitrations, the codification of the DRS guidance could affect the
discovery process.
(d) Alternatives Considered
An alternative to the proposed rule change is to automatically
apply the Document Production Lists in paper cases and special
proceedings without the need for the customer to make an election.
Relative to the proposed rule change, all parties in paper cases and
special proceedings would obtain the relevant documents and other
information and further decrease the risk that arbitration outcomes do
not reflect the actual merits of the underlying dispute. As discussed
above, most customers appear pro se in paper cases and special
proceedings and may have difficulty understanding the discovery
process. Parties, however, would incur the costs associated with the
application of the Document Production Lists in all cases, even when
the documents and other information described on the Document
Production Lists are not relevant to the case and their production may
not impact arbitration outcomes.
Another alternative is to pare the Document Production Lists for
paper cases and special proceedings, to the extent possible, to those
documents and other information that are thought to be more relevant
for these arbitrations. Relative to the proposed rule change, this
alternative may decrease production costs. However, given that the
Document Production Lists were designed to capture those documents that
are most likely to lead to the discovery of relevant information in
customer arbitrations, paring down the Document Production Lists may
reduce the ability of customers to access relevant documents and other
information. It is not known how these countervailing effects may
impact the decision of customers to apply the Document Production Lists
and case outcomes.
Finally, an alternative to the proposed rule change is to decrease
the number of days for a party to respond when customers elect to apply
the Document Production Lists in paper cases and special proceedings
(e.g., from 60 days to 30 days). This may reduce the extent to which
the time to resolution may lengthen. Some parties, however, including
customers who appear pro se, may incur additional costs to respond to
the Document Production Lists within the shortened timeframe, such as
by needing to obtain relevant documents on an expedited basis. Parties
may also seek an extension, thereby lengthening the discovery process,
nonetheless.
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="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#4735322b226a24282a2a222933340734222469202831"><span class="__cf_email__" data-cfemail="0c7e796069216f6361616962787f4c7f696f226b637a">[email protected]</span></a>. Please include
file number SR-FINRA-2024-008 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-2024-008. 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="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 a.m. and 3
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-2024-008 and should be submitted on or
before June 18, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11584 Filed 5-24-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on May 28, 2024.
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