Notice2024-19147
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Partial Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Amend FINRA Rule 12800 (Simplified Arbitration) To Clarify and Amend the Applicability of the Document Production Lists
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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
August 27, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 166 (Tuesday, August 27, 2024)</title>
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[Federal Register Volume 89, Number 166 (Tuesday, August 27, 2024)]
[Notices]
[Pages 68686-68688]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-19147]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100787; File No. SR-FINRA-2024-008]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Partial Amendment No. 1 and Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change, as Modified by Partial Amendment No. 1, To Amend
FINRA Rule 12800 (Simplified Arbitration) To Clarify and Amend the
Applicability of the Document Production Lists
August 21, 2024.
I. Introduction
On May 13, 2024, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change (SR-FINRA-2024-008) to amend
FINRA Rule 12800 (Simplified Arbitration) of the FINRA Code of
Arbitration Procedure for Customer Disputes (``Customer Code''). The
proposed rule change, as subsequently modified by Partial Amendment No.
1, would address the applicability of the Document Production Lists \3\
to simplified customer arbitrations administered under FINRA Rule
12800.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ FINRA Rule 12506 (Document Production Lists) describes the
documents that are presumed to be discoverable in all arbitrations
between a customer and a member firm or associated person.
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The proposed rule change was published for public comment in the
Federal Register on May 28, 2024.\4\ The public comment period closed
on June 18, 2024. The Commission received comment letters related to
this filing.\5\ On July 8, 2024, 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 August 26, 2024.\6\ On August 7, 2024, FINRA responded to the
comment letters received in response to the Notice and filed a partial
amendment to modify the proposed rule change (``Partial Amendment No.
1'').\7\
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\4\ See Exchange Act Release No. 100204 (May 21, 2024), 89 FR
46210 (May 28, 2024) (File No. SR-FINRA2024-008) (``Notice'').
\5\ The comment letters are available at <a href="https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008.htm">https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008.htm</a>.
\6\ See letter from Carissa Laughlin, Principal Counsel, Office
of General Counsel, FINRA, to Lourdes Gonzalez, Assistant Chief
Counsel, Division of Trading and Markets, Commission, dated July 8,
2024, <a href="https://www.finra.org/sites/default/files/2024-07/SR-FINRA-2024-008-extension1.pdf">https://www.finra.org/sites/default/files/2024-07/SR-FINRA-2024-008-extension1.pdf</a>.
\7\ See letter from Carissa Laughlin, Principal Counsel, Office
of General Counsel, FINRA, to Vanessa Countryman, Secretary,
Commission, dated August 7, 2024, <a href="https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-503775-1470022.pdf">https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-503775-1470022.pdf</a> (``FINRA Response
Letter''); see also Partial Amendment No. 1, <a href="https://www.finra.org/sites/default/files/2024-08/SR-FINRA-2024-008-Partial-A-1.pdf">https://www.finra.org/sites/default/files/2024-08/SR-FINRA-2024-008-Partial-A-1.pdf</a>.
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The Commission is publishing this order pursuant to Section
19(b)(2)(B) of the Exchange Act \8\ to solicit comments on the proposed
rule change, as modified by Partial Amendment No. 1, and to institute
proceedings to determine whether to approve or disapprove the proposed
rule change, as modified by Partial Amendment No. 1 (hereinafter
referred to as the ``proposed rule change'' unless otherwise
specified).
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\8\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change
A. Background
FINRA Dispute Resolution Services (``DRS'') provides a Discovery
Guide to help guide the parties and arbitrators through the discovery
process in customer arbitrations.\9\ 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.\10\
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\9\ See Notice at 46210; 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>. The FINRA Discovery Guide and
Document Production Lists do not apply to arbitrations administered
under the Code of Arbitration Procedure for Industry Disputes. See
Notice at 46210 n.3.
\10\ See Notice at 46210.
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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.\11\ List 1 outlines the documents that
member firms and associated persons shall produce; List 2 outlines the
documents that customers shall produce.\12\ The proposed rule change
would affect the applicability of the Document
[[Page 68687]]
Production Lists in simplified customer arbitrations.
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\11\ Id.; see also FINRA Rule 12506(a).
\12\ See Notice at 46210; 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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Simplified 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.\13\ 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'').\14\ If the customer requests a hearing, the customer must
select between one of two hearing options.\15\ 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'').\16\ The
customer may also request an Option Two special proceeding, an
abbreviated hearing, under FINRA Rule 12800(c)(3)(B) (``special
proceeding'').\17\
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\13\ See FINRA Rule 12800(a).
\14\ See Notice at 46210; see also FINRA Rule 12800(c)(2).
\15\ See Notice at 46210; see also FINRA Rule 12800(c)(3).
\16\ See Notice at 46210; see also FINRA Rule 12800(c)(3)(A).
\17\ See Notice at 46210; see also FINRA Rule 12800(c)(3)(B).
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Currently, the Document Production Lists do not apply in paper
cases and special proceedings.\18\ 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.'' \19\ 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).\20\ Therefore,
under the current Customer Code, no documents or information are
presumptively discoverable in paper cases and special proceedings.\21\
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\18\ See Notice at 46210. 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). Notice
at 46210.
\19\ See Notice at 46210.
\20\ Id. 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.
\21\ See Notice at 46210.
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The Document Production Lists do, however, apply in simplified
customer arbitrations in which the customer requests a regular
hearing.\22\ 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.\23\ FINRA 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.\24\
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\22\ Id.
\23\ Id.
\24\ See Notice at 46210; see also 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>. See Notice at 46210 n.11 and accompanying
text.
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B. The Proposed Rule Change
1. Applying 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
whether they want the Document Production Lists to apply to all
parties.\25\ Specifically, proposed Rule 12800(g)(1)(B) states that the
Document Production Lists described in FINRA Rule 12506 would not apply
in paper cases or special proceedings unless: (1) the customer requests
that they apply at the time he or she initiates an arbitration pursuant
to Rule 12302 (Filing and Serving an Initial Statement of Claim) or,
(2) if the customer is a respondent, he or she requests that they apply
no later than the answer due date pursuant to Rule 12303 (Answering the
Statement of Claim), regardless of the parties' agreement to extend any
answer due date.\26\
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\25\ See Notice at 46211.
\26\ Id. 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.
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If the customer does not timely elect to apply the Document
Production Lists to all parties as provided, 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.\27\
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\27\ 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 Notice at 46211
n.19; 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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2. Clarifying the Applicability of the Document Production Lists in
Simplified Customer Arbitrations
Currently, FINRA Rule 12800(c)(3)(A) states that, when a customer
requests a regular hearing (i.e., an ``Option One'' hearing), the
``regular provisions'' of the Customer Code relating to prehearings and
hearings apply. As stated 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.\28\ The proposed rule change would codify that the
Document Production Lists apply to simplified customer arbitrations in
which the customer requests a regular hearing.\29\ Specifically,
proposed Rule 12800(g)(1)(A) would provide that ``[t]he Document
Production Lists, described in Rule 12506, apply to arbitrations in
which the customer requests an Option One hearing.''
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\28\ See Notice at 46212; see also supra note 24.
\29\ See Notice at 46212.
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Further, to clarify the proposed rule text, Partial Amendment No. 1
would modify proposed Rule 12800(g)(1)(B) to mirror the language in
proposed Rule 12800(g)(1)(A) so that both provisions begin with ``The
Document Production Lists, described in Rule 12506 . . .''.\30\
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\30\ See Partial Amendment No. 1 and FINRA Response Letter at 2-
3.
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III. Proceedings To Determine Whether To Approve or Disapprove File No.
SR-FINRA-2024-008 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 Partial Amendment No. 1, should be approved or
disapproved.\31\ 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 Partial Amendment No. 1.
[[Page 68688]]
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to the proposed rule change, as
modified by Partial Amendment No. 1.
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\31\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Exchange Act, the Commission
is providing notice of the grounds for disapproval under
consideration.\32\ The Commission is instituting proceedings to allow
for additional analysis and input concerning whether the proposed rule
change, as modified by Partial Amendment No. 1, is consistent with the
Exchange Act and the rules thereunder.
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\32\ 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 Partial Amendment No. 1.
In particular, the Commission invites the written views of interested
persons concerning whether the proposed rule change, as modified by
Partial 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.\33\
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\33\ 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
Partial Amendment No. 1, should be approved or disapproved by September
17, 2024. Any person who wishes to file a rebuttal to any other
person's submission must file that rebuttal by October 1, 2024.
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
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0f7d7a636a226c6062626a617b7c4f7c6a6c21686079"><span class="__cf_email__" data-cfemail="d5a7a0b9b0f8b6bab8b8b0bba1a695a6b0b6fbb2baa3">[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="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, as
modified by Partial Amendment No. 1, that are filed with the
Commission, and all written communications relating to the proposed
rule change, as modified by Partial 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 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 September 17,
2024. If comments are received, any rebuttal comments should be
submitted on or before October 1, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19147 Filed 8-26-24; 8:45 am]
BILLING CODE 8011-01-P
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