Notice2024-26420
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 13606 (Record of Proceedings) To Provide Customers Access to a Copy of the Official Record of an Expungement Hearing
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 14, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 220 (Thursday, November 14, 2024)</title>
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[Federal Register Volume 89, Number 220 (Thursday, November 14, 2024)]
[Notices]
[Pages 90131-90133]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-26420]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101561; File No. SR-FINRA-2024-018]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rule 13606 (Record of Proceedings)
To Provide Customers Access to a Copy of the Official Record of an
Expungement Hearing
November 7, 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 November 1, 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. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend Rule 13606 of the Code of Arbitration
Procedure for Industry Disputes (``Industry Code'') to provide that the
Director (``Director'') of FINRA Dispute Resolution Services (``DRS'')
will provide a copy of the official record of an expungement hearing
held pursuant to Rule 13805, and any transcription if the recording is
transcribed, to any customers, upon request, who attend and participate
in the expungement hearing, or who provide their position on the
expungement request in writing. The proposed rule change would also
amend Rule 12606 of the Code of Arbitration Procedure for Customer
Disputes (``Customer Code'' and together with the Industry Code,
``Codes'') and Rule 13606 to remove references to ``tape'' as a form of
media that is used to record arbitration proceedings in the DRS
arbitration forum.
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
Rule 13606 provides that the Director of DRS will make a tape,
digital, or other recording of every hearing \4\ and the Director will
provide a copy of the recording to any party upon request.\5\ In
addition, Rule 13606 provides that the panel may order the parties to
provide
[[Page 90132]]
a transcription of the recording.\6\ If the panel orders a
transcription of the recording, then copies of the transcription must
be provided to each arbitrator, served on each party, and filed with
the Director of DRS.\7\ The recording made by the Director is the
official record of the hearing, even if it is transcribed.\8\
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\4\ The term ``hearing'' means the hearing on the merits of an
arbitration under Rule 13600. See Rule 13100(o).
\5\ See Rule 13606(a)(1). Recordings made pursuant to Rule
13606(a)(1) are provided to parties free of charge.
\6\ See Rule 13606(a)(2). Under the Codes, the term ``panel''
means the arbitration panel, whether it consists of one or more
arbitrators. See Rules 12100(u) and 13100(s). Unless otherwise
specified, this rule filing uses the term ``panel'' to mean either a
panel or single arbitrator.
\7\ See Rule 13606(a)(2). The panel will determine which party
or parties must pay the cost of making the transcription and copies.
Id.
\8\ See Rule 13606(a)(3).
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Rule 13606 also provides that any party may make a stenographic
record of a hearing.\9\ If a party makes a stenographic record, then
the panel may determine in advance that the stenographic record will be
the official record of the hearing,\10\ and if the panel makes that
determination, then the Director will not make a recording of the
hearing and a copy of the stenographic record must be provided to each
arbitrator, served on each other party, and filed with the
Director.\11\
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\9\ See Rule 13606(b)(1).
\10\ See supra note 9.
\11\ See Rule 13606(b)(1) and (2).
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Effective October 16, 2023, FINRA amended the Codes to modify the
process relating to the expungement of customer dispute
information.\12\ As part of these amendments, FINRA revised Rule 13805
relating to a request to expunge customer dispute information filed by
an associated person separate from a customer arbitration (``straight-
in request''), to make clear that any customer whose customer
arbitration, civil litigation or customer complaint is a subject of the
straight-in request must be provided with access to all documents
relevant to the expungement request that are filed in the straight-in
request.\13\ In addition, Rule 13805 makes clear that customers are
entitled to attend and participate in all aspects of the prehearing
conferences and expungement hearing.\14\
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\12\ See Securities Exchange Act Release No. 97294 (April 12,
2023), 88 FR 24282 (April 19, 2023) (Order Approving File No. SR-
FINRA-2022-024). See also Regulatory Notice 23-12 (August 2023),
<a href="https://www.finra.org/rules-guidance/notices/23-12">https://www.finra.org/rules-guidance/notices/23-12</a>.
\13\ See Rule 13805(b)(1)(B)(ii).
\14\ See Rule 13805(c)(3)(A).
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If a customer chooses to attend and participate in the expungement
hearing, the customer or the customer's representative must be allowed
to: (1) introduce evidence; (2) testify and call witnesses to testify;
(3) state objections to evidence and cross-examine the party requesting
expungement and any other witnesses called by the party requesting
expungement; and (4) present opening and closing arguments if any party
is permitted to do so.\15\ Customers may also provide their position on
the expungement request in writing.\16\ The amendments do not, however,
discuss the ability of customers to obtain a copy of the official
record of the expungement hearing which is required to be made under
Rule 13606. The amendments also do not discuss the ability of customers
to obtain a copy of any transcription of the recording, if the panel
orders the parties to provide a transcription under Rule 13606.
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\15\ See Rule 13805(c)(5)(A) through (D).
\16\ See Rule 13805(c)(3)(A).
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If a customer attends and participates in an expungement hearing,
or provides their position on the expungement request in writing, FINRA
believes that the customer should also be able to obtain a copy of the
official record of the hearing, and any transcription if the recording
is transcribed. Allowing customers to obtain a copy of the official
record or any transcription could provide such customers with greater
assurance that the panel has considered all issues raised and enhance
their understanding of the panel's decision, which may increase
confidence in the expungement process.
Accordingly, FINRA is proposing to add new paragraph (c) to Rule
13606 to provide that the Director will provide a copy of the official
record of an expungement hearing held pursuant to Rule 13805, and any
transcription if the recording is transcribed, to any customers, upon
request, who attend and participate in the expungement hearing, or who
provide their position on the expungement request in writing.\17\
Although a non-party to the straight-in request, a customer may
determine to attend and participate in the expungement hearing in
person, by video conference, by telephone or by submitting their
position on the expungement request in writing.\18\ Like parties to the
proceeding, customers who attend or participate in expungement hearings
have an interest in the hearing, and should be able to obtain a copy of
the official record of the hearing and any transcription if the
recording is transcribed. In addition, FINRA believes the proposed rule
change is contemplated by the recent amendments to Rule 13805 which
make clear that customers, although non-parties, can attend and
participate in all aspects of expungement hearings under Rule
13805.\19\
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\17\ See proposed Rule 13606(c).
\18\ See Rule 13805(c)(3)(A) and (B).
\19\ See Rule 13805(c)(3)(A). FINRA notes that the recent
amendments to Rule 13805 also provide a mechanism for state
securities regulators to attend and participate in expungement
hearings in straight-in requests. See Rule 13805(c)(6). FINRA is not
proposing to amend Rule 13606 to provide state securities regulators
with a copy of the official record of an expungement hearing held
pursuant to Rule 13805, or any transcription if the recording is
transcribed, because state securities regulators can seek access to
such records or transcriptions pursuant to their separate authority.
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FINRA is also proposing amendments to Rules 12606 and 13606 of the
Codes to remove references to ``tape.'' \20\ With the accessibility and
convenience of advanced technology, tape recordings are no longer used
to record hearings in the DRS arbitration forum. Thus, the proposed
rule change would update the Codes to more accurately reflect the
current practice of making digital or other recordings to record
hearings in the DRS arbitration forum.\21\
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\20\ See proposed Rules 12606(a)(1) and (b)(1) and 13606(a)(1)
and (b)(1).
\21\ The proposed rule change would apply to all members,
including members that are funding portals or have elected to be
treated as capital acquisition brokers (``CABs''), given that the
funding portal and CAB rule sets incorporate the impacted FINRA
rules by reference.
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FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date will be 30 days after the date
of filing.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\22\ 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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\22\ 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 because it will allow customers who determine
to attend and participate in expungement hearings, or provide their
position in writing, under Rule 13805, to obtain a copy of the official
record of the hearing, and any transcription if the recording is
transcribed, upon request. Although a non-party to the straight-in
request, a customer may determine to attend and participate in the
expungement hearing or submit their position on the expungement request
in writing pursuant to Rule 13805(c)(3)(A). Thus, customers who attend
and participate in the hearing, like the parties to the proceeding,
have an interest in the proceeding and should be able to obtain a copy
of the official record of the
[[Page 90133]]
hearing, and any transcription if the recording is transcribed.
In addition, the proposed rule change will protect investors and
the public interest by updating the Codes to more accurately reflect
DRS' current practice of making digital or other recordings to record
hearings in the DRS arbitration forum.
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. The proposed rule change would
allow customers who attend and participate in expungement hearings, or
provide their position in writing, under Rule 13805, to obtain a copy
of the official record of the hearing that is required to be made under
Rule 13606. The proposed rule change provides to non-party customers
the potential benefits of having a copy of the official record that are
currently available to parties to the dispute. These benefits may
include greater assurance that arbitrators have considered all issues
raised and enhance their understanding of the decision, which may
increase confidence in the expungement process. FINRA does not
anticipate an impact on its member firms or their associated persons.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \23\ and Rule 19b-
4(f)(6) thereunder.\24\
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#84f6f1e8e1a9e7ebe9e9e1eaf0f7c4f7e1e7aae3ebf2"><span class="__cf_email__" data-cfemail="f082859c95dd939f9d9d959e8483b0839593de979f86">[email protected]</span></a>. Please include
File Number SR-FINRA-2024-018 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-2024-018. 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-2024-018 and
should be submitted on or before December 5, 2024.
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. 2024-26420 Filed 11-13-24; 8:45 am]
BILLING CODE 8011-01-P
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