Notice2024-30680
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Codes of Arbitration Procedure To Adopt FINRA Rules 12808 and 13808 (Accelerated Processing) To Accelerate the Processing of Arbitration Proceedings for Parties Who Qualify Based on Their Age or Health Condition
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
December 26, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 247 (Thursday, December 26, 2024)</title>
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[Federal Register Volume 89, Number 247 (Thursday, December 26, 2024)]
[Notices]
[Pages 105128-105138]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-30680]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101957; File No. SR-FINRA-2024-021]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
the Codes of Arbitration Procedure To Adopt FINRA Rules 12808 and 13808
(Accelerated Processing) To Accelerate the Processing of Arbitration
Proceedings for Parties Who Qualify Based on Their Age or Health
Condition
December 18, 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 December 11, 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 Code of Arbitration Procedure for
Customer Disputes (``Customer Code'') and the Code of Arbitration
Procedure for Industry Disputes (``Industry Code'') (together,
``Codes'') to add new FINRA Rules 12808 and 13808 (Accelerated
Processing) to accelerate the processing of arbitration proceedings for
parties who qualify based on their age or health condition.
The text of the proposed rule change is available on FINRA's
website at <a href="https://www.finra.org">https://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. Background
FINRA currently offers a program to expedite arbitration
proceedings in the forum administered by FINRA Dispute Resolution
Services (``DRS'') for parties who have a serious health condition or
are at least 65 years old (``current program'').\3\ When an eligible
party makes a request to expedite the proceedings under the current
program, DRS staff will expedite the case-related tasks that they can
control, such as completing the arbitrator selection process,
scheduling the initial prehearing conference, and serving the final
award.\4\ In addition, the current program ``encourage[s]'' arbitrators
to be sensitive to the needs of parties who are seniors or seriously
ill when making scheduling decisions and setting deadlines.\5\
Critically, however, the current program does not provide for
shortened, rule-based deadlines for parties or provide arbitrators with
direction on how quickly the arbitration should be completed.
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\3\ See FINRA, Expedited Proceedings for Senior or Seriously Ill
Parties, <a href="https://www.finra.org/arbitration-mediation/rules-case-resources/special-procedures/expedited-proceedings-seniors-seriously-ill">https://www.finra.org/arbitration-mediation/rules-case-resources/special-procedures/expedited-proceedings-seniors-seriously-ill</a>.
\4\ See supra note 3.
\5\ See supra note 3.
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Although the intent of the current program is to shorten case
processing times for parties that qualify based on their age or health
condition, cases that qualify for the current program close only
marginally more quickly than cases that are not in the current program.
While the median time for customer arbitrations that are not in the
current program to close is approximately 15.7 months, the median time
for customer arbitrations that are in the current program to close is
approximately 13.7 months, a difference of just two months.\6\
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\6\ See infra Item II.B.2 (discussing Economic Baseline).
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FINRA believes that it would protect investors and the public
interest to materially shorten case processing times for those parties
who may be unable to meaningfully participate in a lengthy arbitration
because of their age or health condition. As is discussed more fully
below, when a party is unable to meaningfully participate in an
arbitration--for example, if they become ill and are unable to
testify--the outcome of the proceeding may be affected. This
potentially harms not only the immediate parties to the arbitration but
also the broader investing public because the resolution of the
arbitration may not accurately reflect the underlying merits of the
case.
Accordingly, FINRA is proposing to add a new rule to the Codes that
would help to accelerate the arbitration process for those parties who
qualify based on their age or health condition. Unlike the current
program, the proposed rule change would establish shortened case-
processing deadlines for the parties, including the time to respond to
discovery deadlines, and provide direction to arbitrators regarding how
quickly the proceeding should be completed. By codifying these
shortened deadlines and providing additional direction to arbitrators,
FINRA believes that the length of the proceedings subject to the
proposed rule change would shorten by approximately six months, which
would make a meaningful difference for older parties or those suffering
from a serious health condition.\7\ The proposed rule change would be
more likely than the current program, which does not provide for
shortened, rule-based deadlines for parties or provide arbitrators with
direction on how quickly the arbitration should be completed, to
accelerate the proceedings for those parties who may not be able to
meaningfully participate throughout the course of a lengthy
arbitration. If the Commission approves the proposed rule change, the
requirements of the new rule would apply to those who qualify and
request accelerated processing, thereby replacing the current program.
In addition, for those parties who may benefit from shortened
proceedings but do not meet the eligibility requirements of the
proposed rule change, the proposed rule change would allow the parties
to request that the panel consider other factors, including their
[[Page 105129]]
age and health, when scheduling hearings and discovery, briefing, and
motion deadlines. Thus, although these proceedings would not be subject
to the shortened, rule-based deadlines of the proposed rule change, the
panel may determine at a party's request, to expedite the proceedings
based on the party's particular circumstances, including developing a
serious health condition during the arbitration proceeding.
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\7\ See infra Item II.B.3 (discussing Economic Impacts).
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II. Proposed Rule Change
A. Requesting Accelerated Case Processing
Under the proposed rule change, parties would be able to request
accelerated processing if they meet one of two eligibility
requirements, based on their age or their health condition.\8\ FINRA
addresses each of these eligibility requirements in turn below.
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\8\ See proposed Rules 12808(a)(1) and 13808(a)(1).
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1. Eligibility Based on Age
The first way for a party to qualify for accelerated processing
under the proposed rule change would be based on their age. Under
proposed Rules 12808(a)(1)(A) and 13808(a)(1)(A), a party may request
accelerated processing of a case when initiating an arbitration or
filing an answer provided that the party making the request is at least
70 years of age at the time of the request.\9\
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\9\ See proposed Rules 12808(a)(1)(A) and 13808(a)(1)(A).
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FINRA believes it is appropriate for parties who are 70 years of
age and older to qualify for accelerated processing because these
parties are more likely than younger individuals to become seriously
ill or experience an adverse health condition during the course of an
arbitration.\10\ Because of their age, it is also more likely that
parties who are at least 70 years of age may not live to see the
outcome of the arbitration proceedings.\11\ For these reasons, these
parties may not be able to meaningfully participate throughout the
course of a lengthy arbitration proceeding. For example, as forum users
have noted, elderly parties may be unable to consult with their counsel
or otherwise assist in the preparation of the case.\12\ These parties
also may be unable to testify.\13\ This, in turn, could affect the
outcome of the proceedings. For example, if a party is unavailable to
testify because they are deceased or suffering from an adverse health
condition, the arbitrators would have no opportunity to observe the
party's demeanor and, thus, may be unable to assess their credibility.
By shortening the length of the arbitration for individuals who are at
least 70 years of age, the proposed rule change would make it more
likely that these parties are able to meaningfully participate for the
duration of the arbitration proceedings. This, in turn, would help
ensure that the outcomes of the cases accurately reflect the underlying
merits.
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\10\ See infra Item II.B.3 (discussing Economic Impacts).
\11\ See infra Item II.B.3 (discussing Economic Impacts).
\12\ In Regulatory Notice 22-09 (March 2022) (``Notice''), FINRA
sought comment on a proposed rule change to accelerate arbitration
proceedings for those parties who may not be able to meaningfully
participate in lengthy proceedings. See infra Item II.C. (discussing
the Notice and summarizing the comments).
\13\ See infra Item II.C.1 (discussing comments to the Notice
addressing the need for the proposed rule change).
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Further, as is discussed in more detail below, a party younger than
70, but who has an eligible health condition, still would be able to
request accelerated processing under proposed Rules 12808(a)(1)(B) and
13808(a)(1)(B) provided that the party making the request certifies, in
the manner and form required by the Director, that (i) the party has
received a medical diagnosis and prognosis and (ii) based on that
medical diagnosis and prognosis, the party has a reasonable belief that
accelerated processing of the case is necessary to prevent prejudicing
the party's interest in the arbitration.
FINRA understands that, under the proposed rule change, some
younger parties would not be eligible to request accelerated processing
based on either their age or their health condition. Although some of
these parties might benefit if their arbitrations were completed more
quickly, as discussed in more detail below,\14\ FINRA does not believe
that a lower age cutoff, such as an age cut off of 65 (consistent with
the current program), would be appropriate.
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\14\ See infra Item II.B.4 (discussing Alternatives Considered).
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First, under proposed Rules 12808(a)(3) and 13808(a)(3), parties
who would not qualify for accelerated processing based on either their
age or health condition still would be able to request, once the panel
is appointed, that the panel consider other factors, including their
age or a change in their health condition during the arbitration
proceeding, when scheduling hearings and discovery, briefing, and
motion deadlines. Thus, although these proceedings would not be subject
to the shortened, rule-based deadlines of the proposed rule change, the
panel may determine at a party's request, to expedite the proceedings
based on the party's particular circumstances.
Second, due to the increase in the number of customer claimants who
would qualify for accelerated processing,\15\ a lower age cutoff might
make it difficult for arbitrators--many of whom might have to serve
concurrently on more than one arbitration \16\--to comply with their
obligations under proposed Rules 12808(b)(2)(B), 12808(b)(2)(C),
13808(b)(2)(B), and 13808(b)(2)(C) to endeavor to hold hearings and
render an award within 10 months or less in accelerated
proceedings.\17\
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\15\ Lowering the proposed age cutoff from 70 to 65--the same
age cutoff for the current program--would increase the total number
of customer claimants who would qualify for accelerated processing
from 20 percent to 26 percent. In 2023, with a proposed age cutoff
of 65, customer claimants in 492 arbitrations (26 percent of 1,891
arbitrations where customers appeared as claimant) would qualify for
accelerated processing. See infra Item II.B.4 (discussing
Alternatives Considered). Although the proposed rule change would
permit any party who is a natural person to request accelerated
processing, FINRA anticipates, based on its experience with the
current program, that most requests would come from customer
claimants. See infra note 45 and accompanying text.
\16\ See infra Item II.B.3 (discussing Economic Impacts).
\17\ Although shortening the length of the proceedings for
parties who qualify for accelerated processing is an important goal,
FINRA understands that speed cannot come at the cost of procedural
fairness. However, FINRA believes that 10 months should provide a
reasonable and fair opportunity for discovery, motions, briefing,
and hearings to be completed.
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Third, a lower age cut off may have a negative impact on non-
accelerated customer arbitrations. Arbitrators and industry parties and
their counsel are often involved in more than one arbitration at the
same time and may seek to extend the case processing times of their
concurrent, non-accelerated arbitrations in order to meet the shortened
deadlines that would apply to their accelerated arbitrations.\18\
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\18\ See infra Item II.B.3 (discussing Economic Impacts).
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Based on these considerations, FINRA believes that an age cutoff of
70 would help ensure that the proposed rule change is effective at
helping those parties who would benefit most from accelerated
processing. That said, if the Commission approves the proposed rule
change, FINRA would monitor the program to determine if adjustments to
the age cutoff for qualifying for accelerated processing are warranted.
2. Eligibility Based on Health
In addition to allowing parties to qualify for accelerated
processing based on their age, the proposed rule change separately
would allow parties to qualify based on their health condition.
[[Page 105130]]
Specifically, under proposed Rules 12808(a)(1)(B) and 13808(a)(1)(B), a
party may request accelerated processing of a case when initiating an
arbitration or filing an answer provided that the party making the
request certifies, in the manner and form required by the Director,
that (i) the party has received a medical diagnosis and prognosis, and
(ii) based on that medical diagnosis and prognosis, the party has a
reasonable belief that accelerated processing of the case is necessary
to prevent prejudicing the party's interest in the arbitration
(``eligible health condition'').
FINRA believes it is appropriate to allow parties, regardless of
age, to qualify for accelerated processing based on an eligible health
condition. Parties who are suffering from an eligible health condition
may be unable to meaningfully participate in a lengthy arbitration
proceeding, which, in turn, could affect the outcome of the proceeding.
Unlike the proposed rule change, the current program does not
require a certification to qualify for expedited proceedings based on a
party's health condition. Under the current program, the Director
determines whether the party qualifies for the program on the face of
the information contained in the party's request at the outset of the
case through the online claim filing form, statement of claim, or
optional cover letter.\19\ If it is not clear from the request whether
the party qualifies for the current program, the Director may request
additional information from the party.
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\19\ Under the Codes, the term ``Director'' means the Director
of DRS. Unless the Codes provide that the Director may not delegate
a specific function, the term includes FINRA staff to whom the
Director has delegated authority. See FINRA Rules 12100(m), 12103,
13100(m), and 13103.
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FINRA believes that the proposed certification requirement is the
most appropriate way to minimize unnecessary intrusions into a party's
private health information while, at the same time, allowing FINRA to
identify those individuals who could benefit most from accelerated
processing because they are suffering from an eligible health
condition.
FINRA understands the concerns of some forum users that, unless
proof of their medical condition is required, parties may submit a
false certification in order to qualify for accelerated processing.\20\
However, FINRA has no evidence that parties have falsely claimed to be
suffering from a serious health condition under the current program nor
any reason to believe that this kind of misconduct is more likely under
the proposed rule change. Moreover, FINRA believes that the threat of
potential sanctions under existing FINRA Rules 12212 and 13212 should
be sufficient to deter parties from falsely certifying that they have
been diagnosed with an eligible health condition in order to qualify
for accelerated processing.\21\
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\20\ See infra note 80 and accompanying text.
\21\ Under existing FINRA Rules 12212 and 13212, potential
sanctions include, but are not limited to, monetary penalties, an
adverse inference, or a preclusion order.
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Finally, some forum users have expressed the concern that parties
who request accelerated processing on the basis of an eligible health
condition could be subject to discovery requests for the production of
medical records or other private information about their health
condition.\22\ FINRA agrees with these forum users that in addition to
raising privacy concerns, such discovery requests--or a requirement for
additional proof of a party's health condition--could deter parties
from making valid requests for accelerated processing and also
unnecessarily delay the proceedings.\23\ To address these concerns, the
proposed rule change would make clear that a party does not open the
door to discovery into their health condition merely by requesting
accelerated processing.\24\ Specifically, under proposed Rules
12808(a)(2) and 13808(a)(2), a party's certification of an eligible
health condition shall not alone be sufficient grounds to compel the
production of information concerning, or to allow questioning at any
hearing about, the party's medical condition. The proposed rule change
would not address a party's ability to request medical information for
other appropriate reasons that are unrelated to the certification. For
example, state law may allow a claimant's medical records to be
discovered when a claimant places their medical condition at issue in
their claim.\25\
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\22\ See infra note 81 and accompanying text.
\23\ See infra note 82 and accompanying text.
\24\ See proposed Rules 12808(a)(2) and 13808(a)(2).
\25\ See, e.g., Hansen v. Combined Transp., Inc., Case No. 1:13-
cv-01993, 2014 U.S. Dist. LEXIS 63490, at *6-9 (D. Or. May 8, 2014)
(because plaintiff alleged emotional distress damages, court found
that, under Oregon and Washington law, he had placed his
psychological condition at issue and granted the defendants' motion
to compel the production of any records of the plaintiff's treatment
by a medical professional for emotional or psychological matters);
Kirk v. Schaeffler Group USA, Inc., No. 3:13-cv-05032, 2014 U.S.
Dist. LEXIS 83963, at *2-9 (W.D. Mo. June 20, 2014) (plaintiff was
required, under Missouri law, to produce medical records related to
her autoimmune disorder because those records were relevant to her
claim that her autoimmune disorder was caused by exposure to
chemicals released from the defendants' manufacturing plant);
Desrosiers v. Hartford, No. C 12-80104, 2012 U.S. Dist. LEXIS 64554,
at *1-4 (N.D. Cal. May 8, 2012) (applying California law, the court
compelled compliance with subpoenas that sought the production of
the plaintiff's medical records where she alleged that her
employer's actions caused her to suffer emotional and psychological
injuries).
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Based on these considerations, FINRA believes that the proposed
certification requirement and the threat of potential sanctions would
be sufficient to protect against abuse of the process while, at the
same time, minimizing unnecessary intrusions into a party's private
medical information.
3. Requests by Other Parties for Accelerated Processing
Finally, as noted above, for those parties who may benefit from
shortened proceedings but do not meet the eligibility requirements of
the proposed rule change, proposed Rules 12808(a)(3) and 13808(a)(3)
would allow those parties to request that the panel consider other
factors, including their age or a change in their health condition
during the arbitration proceeding, when scheduling hearings and
discovery, briefing, and motions deadlines. Thus, although these
proceedings would not be subject to the shortened, rule-based deadlines
of the proposed rule change, the panel may determine at a party's
request, to expedite the proceedings based on the party's particular
circumstances.
B. Determination of Eligibility
Under proposed Rules 12808(b)(1) and 13808(b)(1), the Director
would be responsible for determining whether a requesting party
qualifies for accelerated processing.\26\ When assessing eligibility
for accelerated processing, the Director would make an objective
determination as to whether the requesting party is at least 70 years
of age or has submitted the required certification regarding an
eligible health condition. This determination would not require any
assessment by the Director regarding the reasonableness of the
requesting party's belief that accelerated processing is necessary.
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\26\ See supra note 19.
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C. Accelerating the Proceedings
Once the Director determines that an arbitration qualifies for
accelerated processing, the proposed rule change would accelerate the
proceedings in three ways. First, the proposed rule change would
accelerate the arbitrator selection process by shortening the deadlines
for the Director to send the list of potential arbitrators to the
[[Page 105131]]
parties.\27\ Second, the proposed rule change would provide arbitrators
with direction on how quickly the arbitration should be completed.\28\
Third, the proposed rule change would shorten certain deadlines that
apply to the parties.\29\
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\27\ See proposed Rules 12808(b)(2)(A) and 13808(b)(2)(A).
\28\ See proposed Rules 12808(b)(2)(B), 12808(b)(2)(C),
13808(b)(2)(B), and 13808(b)(2)(C).
\29\ See proposed Rules 12808(b)(2)(D) and 13808(b)(2)(D).
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1. Accelerating the Arbitrator Selection Process
The first way that the proposed rule change would shorten the
proceedings is by requiring that the Director send out the lists of
potential arbitrators to the parties more quickly.\30\ Currently, DRS
is required to send a list of potential arbitrators to all parties at
the same time, ``within approximately 30 days after the last answer is
due,'' regardless of the parties' agreement to extend any answer due
date.\31\ By contrast, proposed Rules 12808(b)(2)(A) and 13808(b)(2)(A)
would require the Director to send the arbitrator lists generated by
the list selection algorithm to all parties ``as soon as practicable
after the last answer is due.'' In practice, the Director generally
sends the arbitrator lists to parties in fewer than 30 days after the
last answer due date. By requiring that the Director send the
arbitrator lists ``as soon as practicable'' after the last answer is
due, it would signal that the lists shall be sent shortly after the
last answer due date, but would retain some flexibility for the
Director in sending the lists.
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\30\ FINRA uses a list selection algorithm that generates, on a
random basis, lists of arbitrators from FINRA's rosters of
arbitrators for the selected hearing location for each proceeding.
The parties select their panel through a process of striking and
ranking the arbitrators on the lists generated by the list selection
algorithm. See FINRA Rules 12400(a) and 13400(a).
\31\ See FINRA Rules 12402(c)(1), 12403(b)(1) and 13403(c)(1).
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2. Guidance to Arbitrators Regarding Completion of the Arbitration
The second way that the proposed rule change would shorten the
length of the proceedings is to provide arbitrators with direction as
to how quickly the case should be completed. Specifically, under
proposed Rules 12808(b)(2)(B) and 13808(b)(2)(B), the panel shall
endeavor to render an award within 10 months of the date the Director
determines that a case is subject to accelerated processing. In
addition, under proposed Rules 12808(b)(2)(C) and 13808(b)(2)(C), the
panel shall hold a prehearing conference at which it shall set
discovery, briefing, and motions deadlines, and schedule hearing
sessions, that are consistent with rendering an award within 10 months
or less.
By providing arbitrators with specific guidance regarding how
quickly they should endeavor to complete an arbitration, FINRA believes
that the proposed rule change would be more likely than the current
program--which does not provide arbitrators with any similar guidance--
to significantly reduce the overall length of the proceedings in cases
that qualify for accelerated processing.
FINRA also believes that 10 months is the appropriate timeframe
within which arbitrators should endeavor to render awards in
accelerated arbitrations. Currently, the median time for customer
arbitrations to close by award after a hearing when they are not part
of the current program is almost 16 months, as is discussed more fully
below.\32\ Shortening the length of the proceedings by approximately
six months would make a meaningful difference for a party who is at
least 70 years old or suffering from an eligible health condition.\33\
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\32\ See infra Item II.B.2 (discussing Economic Baseline).
\33\ See infra Item II.B.3 (discussing Economic Impacts).
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As noted above, although shortening the length of the proceedings
for parties who qualify for accelerated processing is an important
goal, FINRA understands that speed cannot come at the cost of fairness.
However, FINRA believes that 10 months should provide a reasonable and
fair opportunity for discovery, motions, briefing, and hearings to be
completed.\34\
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\34\ See supra note 17.
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At the same time, FINRA recognizes that there are some cases that
may qualify for accelerated processing but that cannot reasonably be
completed within 10 months because, for example, they are too complex.
As to these matters, FINRA believes that the proposed rule change--
which would establish a benchmark but would not mandate that all cases
be completed within 10 months--would provide the arbitrators with
sufficient flexibility to accommodate the particular circumstances of
each case.\35\
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\35\ Further, as is discussed more fully, infra note 42 and
accompanying text, even after the proposed rule change is adopted,
arbitrators would continue to have flexibility under existing FINRA
rules to modify the deadlines that apply to the parties when
appropriate. See FINRA Rules 12508(b) and 13508(b) (allowing
arbitrators to excuse untimely objections to discovery requests
where ``the party had substantial justification for failing to make
the objection within the required time''); FINRA Rules 12207(b) and
13207(b) (authorizing arbitrators to extend or modify any deadline
``either on its own initiative or upon motion of a party'').
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3. Shortening Party Deadlines
Finally, the third way that the proposed rule change would shorten
the length of the proceedings is to shorten several of the default
deadlines that apply to parties under the Codes, as follows:
<bullet> Serving an Answer. Under the Codes, a respondent must
serve an answer within 45 days of receipt of the statement of
claim.\36\ Under proposed Rules 12808(b)(2)(D)(i) and
13808(b)(2)(D)(i), a respondent would be required to serve an answer
within 30 days of receipt of the statement of claim.
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\36\ See FINRA Rules 12303 and 13303.
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<bullet> Responding to a Third Party Claim. Under the Codes, a
party responding to a third party claim must serve a response within 45
days of receipt of the third party claim.\37\ Under proposed Rules
12808(b)(2)(D)(ii) and 13808(b)(2)(D)(ii), a party responding to a
third party claim would be required to serve a response within 30 days
of receipt of the third party claim.
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\37\ See FINRA Rules 12306 and 13306.
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<bullet> Completing Arbitrator Lists. Under the Codes, parties must
return the ranked arbitrator lists to the Director no more than 20 days
after the lists were sent to the parties.\38\ Under proposed Rules
12808(b)(2)(D)(iii) and 13808(b)(2)(D) (iii), parties would be required
to return the ranked arbitrator lists to the Director no more than 10
days after the lists are sent to the parties.
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\38\ See FINRA Rules 12403 and 13404.
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<bullet> Discovery in Customer Cases. Under the Customer Code,
parties in customer cases are required to produce to all other parties
documents that are described in the Document Production Lists on
FINRA's website; explain why specific documents cannot be produced; or
object and file an objection with the Director within 60 days of the
date that the answer to the statement of claim or third party claim is
due, unless the parties agree otherwise.\39\ Under proposed Rule
12808(b)(2)(D)(iv), parties in customer cases would be required to
respond to the Document Production Lists within 35 days of the date the
answer to the statement of claim or third party claim is due, unless
the parties agree otherwise.
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\39\ See FINRA Rule 12506.
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<bullet> Other Discovery Requests. Under the Codes, parties must
respond within 60 days of receipt to requests for other documents or
information, unless the parties agree otherwise.\40\ Under proposed
Rules 12808(b)(2)(D)(v) and 13808(b)(2)(D)(iv), parties would be
required to respond to requests for other
[[Page 105132]]
documents and information within 30 days of receipt, unless the parties
agree otherwise.
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\40\ See FINRA Rules 12507 and 13507.
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Based on FINRA's experience, FINRA believes these proposed
shortened deadlines are reasonable and would not compromise the
fairness of the arbitration proceedings because they would be
manageable in most cases. In addition, arbitrators and parties could
extend the proposed deadlines if warranted. Specifically, there may be
some cases in which the complexity of the case, the volume of
discovery, or other factors may justify extending these proposed
deadlines.\41\ Under such circumstances, the existing provisions of the
Codes would provide the parties and arbitrators with the flexibility to
address the unique facts and circumstances of each case. Specifically,
under existing FINRA Rules 12207(a) and 13207(a), the parties may agree
to extend or modify any deadline for serving an answer, returning the
ranked arbitrator or chairperson lists, responding to motions, or
exchanging documents or witness lists.\42\ Under existing FINRA Rules
12207(b) and 13207(b), the panel may extend or modify any deadline for
serving an answer, responding to motions, exchanging documents or
witness lists, or any other deadline set by the panel, either on its
own initiative or upon motion of a party. Further, under existing FINRA
Rules 12508(b) and 13508(b), the panel may extend the time for a party
to object to discovery requests if the party has ``substantial
justification for failing to make the objection within the required
time.''
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\41\ See infra Item II.C.4 (discussing comments to the Notice
addressing the proposed shortened deadlines for parties and guidance
to arbitrators).
\42\ Proposed Rules 12808(b)(2)(D)(iv), 12808(b)(2)(D)(v), and
13808(b)(2)(D)(iv) similarly would permit the parties to mutually
agree to extend discovery deadlines.
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While these provisions in the Codes provide the panel and the
parties with flexibility to modify the shortened deadlines in the
proposed rule change, FINRA expects the extensions to be the exception
and not the rule. Accordingly, if the Commission approves the proposed
rule change, FINRA would provide training and guidance to arbitrators
on accelerated processing, which would include training on evaluating
requests to extend the proposed shortened deadlines.
If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.\43\
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\43\ 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,\44\ 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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\44\ 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 by shortening case processing times for those
parties--most of whom are likely to be customers--who may not be able
to meaningfully participate for the duration of a lengthy arbitration
because of their age or health condition. When parties are unable to
meaningfully participate in an arbitration, it can affect the outcome
of the proceedings. By shortening the length of the arbitration for
these parties, the proposed rule change will make it more likely that
they are able to meaningfully participate for the duration of the
proceedings. This, in turn, will protect investors and the public
interest by helping to ensure that arbitration cases are resolved based
on the underlying merits.
In addition, those parties who do not meet the eligibility
requirements of the proposed rule change still will be able to request,
once the panel has been appointed, that the panel consider other
factors, including their age or a change in their health condition
during the arbitration proceeding, when scheduling hearings and
discovery, briefing, and motion deadlines. Thus, although these
proceedings would not be subject to the shortened, rule-based deadlines
of the proposed rule change, the panel may determine at a party's
request, to expedite the proceedings based on the party's particular
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.
FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the regulatory need for the proposed rulemaking, its
potential economic impacts, including anticipated benefits and costs,
and the alternatives FINRA considered in assessing how to best meet its
regulatory objectives.
Economic Impact Assessment
1. Regulatory Need
The proposed rule change would address concerns that FINRA has
received that certain parties who are seriously ill or 70 years or
older may be unable to meaningfully participate in a lengthy
arbitration. An inability to meaningfully participate harms these
parties if, as a result, the resolution of the arbitration does not
accurately reflect the underlying merits of the case. For the parties
who qualify, the proposed rule change would shorten case deadlines and
provide arbitrators with instruction on how quickly the arbitration
should be completed.
2. Economic Baseline
The economic baseline is the current provisions under the Codes
that address the administration of arbitration proceedings and the
current program to shorten case processing times. The proposed rule
change is expected to affect the parties to cases in the DRS forum,
their counsel, and FINRA arbitrators.
Under the current program, parties who have a serious health
condition or are at least 65 years of age may request that the
processing of their arbitration be expedited. Since the current program
is voluntary, requesting parties presumably anticipate that the
benefits from the shortened case processing times more than offset any
additional costs, such as paying for expedited legal services.
Expedited processing may also impose additional costs on the other
parties and arbitrators associated with arbitrations.
From 2019 through 2023, customers requested expedited processing in
approximately 29 percent of customer arbitrations. During this time
period, 10,961 customer arbitrations (where customers appeared as
claimants) closed where DRS had served the statement of claim on
respondents. Parties requested expedited processing in 3,174 of these
arbitrations. Ninety-nine percent, or 3,132 of the 3,174 requests, were
granted. Parties did not request expedited processing in the remaining
7,787 arbitrations.\45\
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\45\ Parties requested expedited processing in few arbitrations
where customers appeared only as respondent or that were intra-
industry arbitrations. For this reason, FINRA focuses the empirical
discussion on customer arbitrations where customers appeared as
claimant.
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Arbitrations in the current program closed only slightly faster
than arbitrations not in the current program. The median time for the
3,132 customer
[[Page 105133]]
arbitrations in the current program to close was approximately 13.7
months. This is two months shorter than the median time for the 7,829
customer arbitrations not in the current program to close, which was
15.7 months.\46\
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\46\ FINRA finds similar evidence comparing the length of
customer arbitrations that went through the full arbitration process
and closed by award after a hearing from 2019 to 2023.
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3. Economic Impacts
The proposed rule change would impact the number of parties who are
eligible for accelerated processing.\47\ For example, from a sample of
499 requests for expedited processing that were granted in 2023, 77
percent of the requests (385 requests) were granted on the basis of
serious illness or age 70 or over. These parties represent 20 percent
of customer claimants (385 of 1,891 arbitrations where customers
appeared as claimant). The remaining 23 percent of requests (114
requests), or six percent of customer claimants, were granted solely on
the basis of age to parties between the ages of 65 and 69. Under the
proposed rule change, these parties would no longer qualify for
accelerated processing.\48\
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\47\ As noted above, the proposed rule change would be more
likely than the current program, which does not provide for
shortened, rule-based deadlines for parties or provide arbitrators
with direction on how quickly the arbitration should be completed,
to accelerate the proceedings for those parties who may not be able
to meaningfully participate throughout the course of a lengthy
arbitration. In addition, for those parties who may benefit from
shortened proceedings but do not meet the eligibility requirements
of the proposed rule change, the proposed rule change would allow
the parties to request that the panel consider other factors,
including their age and health, when scheduling hearings and
discovery, briefing, and motion deadlines. Thus, although these
proceedings would not be subject to the shortened, rule-based
deadlines of the proposed rule change, the panel may determine at a
party's request, to expedite the proceedings based on the party's
particular circumstances, including developing a serious health
condition during the arbitration proceeding.
\48\ FINRA also identified 31 requests for expedited processing
made by customer claimants where the request was based on age but
information describing the age was not available. Depending on the
age of the customer, these requests may or may not be eligible under
the proposed rule change. The sample reflects all arbitrations filed
in 2023 where customer claimants requested expedited processing. The
sample, therefore, should be representative of the customer
claimants who make these requests.
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FINRA anticipates that the proposed rule change would shorten the
length of arbitrations for parties who request and are granted
accelerated processing. In these arbitrations, arbitrators would be
required to endeavor to render an award within 10 months. From a sample
of arbitrations in the current program in 2020 that have since closed,
384 were granted on the basis of serious illness or age 70 or over.
Seventy percent (269 of 384 arbitrations in the current program) took
longer than 10 months to close. Among the arbitrations in the current
program that took longer than 10 months to close, approximately 50
percent took longer than 15.3 months to close.\49\ As discussed below,
the magnitude of the benefits and costs resulting from the proposed
rule change would increase as the arbitrations that proceed under
accelerated processing shorten.
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\49\ As a comparison, from a sample of 109 arbitrations in the
current program in 2020 involving customer claimants who were under
the age of 70 and not seriously ill, 72 percent (78 of 109
arbitrations in the current program) took longer than 10 months to
close. Among the arbitrations in the current program that took
longer than 10 months to close, approximately 50 percent took longer
than 14.6 months to close. As of the date of this filing, two
arbitrations in the current program in 2020 remained open.
---------------------------------------------------------------------------
Relative to the baseline, the proposed rule change would benefit
parties who are seriously ill or at least 70 years old by shortening
case deadlines for their arbitrations and providing arbitrators with
instruction on how quickly the arbitration should be completed. This
would help reduce the length of the arbitration and increase the chance
that qualifying parties can fully participate. The ability of these
parties to meaningfully participate would help facilitate outcomes that
are more consistent with the merits of the case.\50\ Those parties who,
as a result of the shorter processing times settle or are awarded
damages earlier than under the current program, may also have a greater
ability to meet their short-term financial needs.
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\50\ Such outcomes can include awards and settlements insofar as
settlements reflect the merits of the case. Among the 10,961
customer arbitrations that closed from 2019 through 2023, 8,423
arbitrations (77 percent) resulted in settlements reached by the
parties.
---------------------------------------------------------------------------
The proposed rule change, however, may also impose additional costs
on parties and arbitrators to meet the shorter, rule-based deadlines.
The parties who are eligible and request accelerated processing would
incur these costs at their own discretion. The types of costs the other
parties to the proceeding may incur would depend on how they manage
their resources to meet the shortened deadlines. For example, these
parties may reallocate resources from other activities, possibly
increasing the time required to meet other business objectives; or they
may incur additional costs from adding staff or using outside counsel;
or do a combination of the two. How these parties would adjust to meet
the shortened deadlines may differ depending on their business models
and available resources. The additional costs parties incur, however,
may be partly offset by the gains to efficiency from the shorter
deadlines and a more focused effort on the associated tasks.
Participants to non-accelerated arbitrations may also incur costs
associated with longer processing times. It could be difficult for
arbitrators, industry parties and their counsel--many of whom
participate concurrently in more than one arbitration--to maintain
their current timelines for non-accelerated arbitrations. As a result,
case processing times of non-accelerated arbitrations may lengthen.
Reducing the length of the arbitration may help more parties with
serious health issues than are helped under the current program, though
the reduction may not be sufficient to help all parties with more
serious health issues and shorter life expectancies. Also, under the
proposed rule change, parties between the ages of 65 and 69 who are
seriously ill would no longer be able to rely on their age to qualify
for accelerated processing. These parties may incur additional costs to
certify that they have received a medical diagnosis and prognosis in
order to take advantage of accelerated processing.
Finally, it is not expected that the proposed rule change would
impose costs on those parties who would no longer qualify for
accelerated processing on the basis of either their age or health
condition. These parties would still be able to ask that the panel
consider their age and health in making scheduling decisions and
setting deadlines.
4. Alternatives Considered
FINRA considered different age eligibility cutoffs when developing
the proposed rule change.\51\ FINRA is concerned that age cutoffs
greater than 70 would deny accelerated processing to many parties who
are at higher risk of becoming seriously ill, experiencing an adverse
health condition, or not living to see the outcome of an arbitration.
In 2023, relative to the proposed age cutoff of 70, an age cutoff of 75
would decrease the total number of customer claimants who would qualify
for accelerated processing from 20 percent to 16 percent.\52\
Alternatively, as noted above, lowering the proposed age cutoff from 70
to 65--the same age cutoff for the current program--would increase the
total number of customer claimants who would qualify for accelerated
processing from 20 percent to 26 percent.\53\ FINRA
[[Page 105134]]
notes that these are estimates of eligibility, and that we do not know
the fraction of those eligible who would request accelerated processing
if the proposed rule change were adopted.
---------------------------------------------------------------------------
\51\ See infra Item II.C.2.
\52\ In 2023, with a proposed age cutoff of 75, customer
claimants in 295 arbitrations (16 percent of 1,891 arbitrations
where customers appeared as claimant) would qualify for accelerated
processing.
\53\ See supra note 15.
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Even though the data suggests that lowering the proposed age cutoff
from 70 to 65 would only affect approximately six percent of customer
claimants, FINRA is concerned that this change may reduce the
likelihood that the proposed rule change would materially shorten the
length of the proceedings for those parties who may be less likely to
be able to participate for the duration of a lengthy arbitration. FINRA
is also concerned that participation by arbitrators, industry parties
and their counsel in more than one arbitration, including an
arbitration that is accelerated under the proposed rule change may
affect parties in other arbitrations in the DRS forum in the form of
longer processing times.
FINRA understands that the average likelihood of becoming unable to
meaningfully participate in an arbitration may differ among populations
and that these differences can persist after the age of 65.\54\ This
suggests that lowering the proposed age cutoff cannot fully equalize
the ability of individuals in all populations to participate in the
forum. However, populations with higher likelihoods of serious illness
or adverse health conditions may experience additional benefits from
the eligibility requirements based on health. As noted above, a party
younger than 70 would still be able to request accelerated processing
if they are suffering from a serious health condition.
---------------------------------------------------------------------------
\54\ See Elizabeth Arias, Jiaquan Xu & Kenneth Kochanek, United
States Life Tables, 2021, National Vital Statistics Reports, Vol.
72, No. 12, <a href="https://www.cdc.gov/nchs/data/nvsr/nvsr72/nvsr72-12.pdf">https://www.cdc.gov/nchs/data/nvsr/nvsr72/nvsr72-12.pdf</a>.
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Finally, FINRA also considered establishing different deadlines for
parties (e.g., requiring the parties to complete the ranked arbitrator
lists in 20 days and not the proposed 10 days; and requiring parties to
respond to Document Production Lists in 20 days and not the proposed 35
days). When establishing the proposed deadlines, FINRA considered the
potential burden on arbitrators and parties relative to their
importance on the length of arbitration proceedings to close. FINRA
believes that the deadlines as proposed would be manageable and only
impose a burden on arbitrators and parties to the extent that the
deadlines would help result in meaningfully shortened processing times.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
FINRA published the proposed rule change for comment in Regulatory
Notice 22-09.\55\ FINRA received 15 comment letters from 14 commenters
in response to the Notice.\56\ A copy of the Notice is available on
FINRA's website at <a href="http://www.finra.org">http://www.finra.org</a>. A list of comment letters
received in response to the Notice is available on FINRA's website.
Copies of the comment letters received in response to the Notice are
available on FINRA's website.
---------------------------------------------------------------------------
\55\ See supra note 12.
\56\ One of the 14 commenters, Slater, submitted two comment
letters. See SR-FINRA-2024-021 (Form 19b-4, Exhibit 2b) for a list
of abbreviations assigned to commenters (available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>).
---------------------------------------------------------------------------
Eleven commenters supported FINRA's efforts to accelerate
arbitration proceedings for those parties who may not be able to
meaningfully participate in lengthy proceedings but suggested
modifications.\57\ A summary of the comments and FINRA's responses are
discussed below.
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\57\ See Cambridge, Cardozo, Caruso, Cornell, FSI, Iannarone,
Miami, NASAA, Pace, PIABA, and St. John's. SIFMA stated that the
proposed rule change is unnecessary because FINRA's current program
for expediting arbitrations sufficiently addresses the issue. The
two remaining commenters, Kolber and Slater, did not address the
proposed rule change specifically but, rather, expressed concerns
about misconduct by attorneys in FINRA arbitrations.
---------------------------------------------------------------------------
1. Comments Addressing the Need for the Proposed Rule Change
In its response to the Notice, SIFMA supported the intent behind
the proposed rule change--``to ensure that parties to a FINRA
arbitration are able to participate meaningfully in their proceedings
and obtain a fair outcome''--but questioned whether the proposed rule
change is necessary given the existence of the current program. FINRA
disagrees that the proposed rule change is unnecessary. The current
program has reduced the median time that it takes for customer
arbitrations to close by just two months.\58\
---------------------------------------------------------------------------
\58\ See supra Item II.B.2 (discussing Economic Baseline).
---------------------------------------------------------------------------
FINRA understands that any shortening in the length of an
arbitration can be helpful to a party who is elderly or suffering from
a serious health condition. However, FINRA believes that the proposed
rule change has the potential to shorten the time that it takes for
arbitrations to close to approximately 10 months, thereby shortening
the median closing time by approximately an additional three months. As
a number of commenters noted, the additional time savings contemplated
by the proposed rule change could be critical for parties who are
elderly or suffering from a serious health condition and who,
therefore, may be unable to meaningfully participate in a lengthy
arbitration.\59\ As Miami stated, ``[t]he critical months saved under
the proposal could mean the difference in'' whether an elderly or sick
party is able to meaningfully participate in the proceedings, ``whether
by testifying, consulting with their attorneys, or making decisions
about settlement offers.'' Cardozo noted the ``grave'' consequences
that some elderly or seriously ill parties face without accelerated
processing. Some of these parties die before the arbitration is
completed, and others, who are diagnosed with a memory-impairing
disease like Alzheimer's, may initially be able to assist in the
preparation of their case but then ``enter into a steep decline to a
point where they can no longer testify on their own behalf.'' \60\
According to Cardozo, ``[m]moving quickly in such a case is critical.''
FINRA believes that, by establishing rule-based deadlines for the
parties and codifying the expectation that arbitrators endeavor to
render an award within 10 months, the proposed rule change would be
more likely than the current program to ensure that cases occur on an
accelerated schedule.\61\
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\59\ See Miami, Cardozo.
\60\ See Cardozo.
\61\ See PIABA (stating that ``[c]odifying the mandates of an
accelerated process'' may make it more likely that parties and
arbitrators comply with an accelerated schedule).
---------------------------------------------------------------------------
SIFMA suggests that, even without the proposed rule change, FINRA
could encourage arbitrators to endeavor to render awards in accelerated
proceedings within a period of 10 months. FINRA agrees that arbitrator
training is important, and, as noted above, if the Commission approves
the proposed rule change, FINRA would provide training and guidance to
arbitrators on accelerated processing, which would include training on
evaluating requests to extend the proposed shortened deadlines.
2. Comments Addressing Which Parties Should Be Eligible for Accelerated
Processing
As discussed below, those commenters who addressed the issue of
which parties should be eligible for accelerated processing almost
uniformly supported allowing parties to qualify based on either their
age or their health condition.\62\ The principal area of disagreement
among the commenters
[[Page 105135]]
was the appropriate age at which a party should become eligible for
accelerated processing.\63\ Further, some commenters suggested that
FINRA should take into consideration other factors in addition to age
and health condition when deciding whether a party should qualify for
accelerated processing.\64\
---------------------------------------------------------------------------
\62\ See infra Item II.C.2(A) and (B).
\63\ See infra Item II.C.2(A).
\64\ See infra Item II.C.2(C).
---------------------------------------------------------------------------
(A) Comments Addressing Eligibility Based on Age
All but one of the commenters who addressed the issue supported
allowing parties to qualify for accelerated processing based solely on
age.\65\ The only exception is Cambridge. Specifically, Cambridge
questioned the need for parties who are otherwise healthy to qualify
for accelerated processing based solely on age. Cambridge stated that
accelerated processing should be available only when a party is
suffering from an eligible health condition.
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\65\ Compare Cardozo, Caruso, Cornell, FSI, Iannarone, Miami,
NASAA, Pace, PIABA, SIFMA, and St. John's (all supporting allowing
parties to qualify for accelerated processing based solely on age)
with Cambridge (recommending that FINRA eliminate eligibility based
solely on age). SIFMA generally supported allowing parties to
request accelerated processing based on age but suggested that FINRA
should require parties to produce proof of their age. FINRA
discusses all of the comments addressing the question of what kind
of proof should be required to qualify for accelerated processing
below. See infra Item II.C.3(A).
---------------------------------------------------------------------------
FINRA disagrees with Cambridge. Even if they are otherwise healthy
at the outset of the arbitration, elderly parties may be more likely
because of their age to become seriously ill or die during the
arbitration, in which case they would be unable to meaningfully
participate for the duration of the proceedings. For this reason, FINRA
believes it is appropriate that the proposed rule change would allow
parties to qualify for accelerated processing based solely on age.
The remaining commenters, other than Cambridge, focused principally
on the question of what the appropriate age cutoff should be for a
party to qualify for accelerated processing. In the Notice, FINRA
proposed an age cutoff of 75 years and requested comment on whether 75
was the appropriate age at which parties should be able to request that
the proceedings be accelerated.\66\ In response, three commenters
supported the proposed age cutoff of 75.\67\ St. John's recommended
lowering the age cutoff to 70. Six commenters urged FINRA to lower the
age cutoff to 65.\68\ As noted above, those commenters who suggested
lowering the age cutoff from 75 to either 70 or 65 relied on some or
all of the following three justifications for their recommendation: (1)
65 is the age that is commonly used in other statutes and rules
relating to the protection of seniors; \69\ (2) lowering the age cutoff
to below 75 would account for different life expectancies across
different groups; \70\ and (3) customer claimants who are 65 years of
age and older are more likely to be facing economic hardship because
they may not have ongoing income from employment.\71\
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\66\ See supra note 12.
\67\ See FSI, Miami, SIFMA.
\68\ See Cardozo, Caruso, Cornell, Iannarone, Pace, PIABA.
\69\ See Caruso, Iannarone, Pace, PIABA.
\70\ See Cardozo, Cornell, Iannarone, Pace, PIABA.
\71\ See Cardozo.
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After considering the comments, FINRA has determined to propose an
age cutoff to qualify for accelerated processing of 70. As discussed in
detail above, an age cutoff of 70 would make accelerated processing
available to more parties who are at a higher risk of becoming
seriously ill or experiencing an eligible health condition during the
course of an arbitration, or potentially not living to see the outcome
of the arbitration proceeding.\72\ However, as noted above, if the
Commission approves the proposed rule change, FINRA would monitor the
new program to determine if adjustments to the age cutoff for
qualification for accelerated processing are warranted.\73\
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\72\ See supra Item II.A.1(II)(A)(1) (discussing Eligibility
Based on Age) and Item II.B.4 (discussing Alternatives Considered).
\73\ See supra Item II.A.1(II)(A)(1).
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(B) Comments Addressing Eligibility Based on Health Condition
Those commenters who addressed the issue of which parties should be
eligible for accelerated processing unanimously supported allowing
parties to qualify based on their health condition.\74\ However, FSI
requested further guidance regarding the kinds of health conditions
that would support a request for accelerated processing. Cornell
requested that FINRA reconsider the requirement in proposed Rules
12808(a)(1)(B) and 13808(a)(1)(B) that, in order to qualify for
accelerated processing based on their health condition, a party must
certify that they have a ``reasonable belief'' that accelerated
processing is necessary. In explaining its objection to that standard,
Cornell expressed the concern that parties could be subject to
sanctions if they and the Director--who, according to Cornell, will
have ``the authority of determining whether the applicants' beliefs are
reasonable''--disagree as to ``what conditions warrant an accelerated
hearing.''
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\74\ See Cambridge, Cardozo, Caruso, Cornell, FSI, Iannarone,
Miami, NASAA, Pace, PIABA, SIFMA, and St. John's. Although they
generally supported allowing parties to qualify for accelerated
processing based on their health condition, some of these commenters
suggested that the proposed rule change should require parties to
produce additional proof of their health condition. See Cambridge,
SIFMA. FINRA discusses these comments on the issue of what proof
should be required to establish eligibility based on health
condition below. See infra Item II.C.
---------------------------------------------------------------------------
Given the breadth of potential diagnoses and prognoses that could
result in parties reasonably believing that they would be prejudiced
without accelerated processing, FINRA does not believe it would be
helpful to provide examples of eligible health conditions. In addition,
FINRA is concerned that doing so could discourage parties with medical
diagnoses and prognoses that fall outside of the examples from making a
legitimate request for accelerated processing.
FINRA also believes that the ``reasonable belief'' standard is
appropriate. As discussed above, when assessing eligibility for
accelerated processing under proposed Rules 12808(b)(1) and
13808(b)(1), the Director would make an objective determination as to
whether the requesting party has submitted the required certification
regarding an eligible health condition. This determination would not
require any assessment by the Director regarding the reasonableness of
the requesting party's belief that accelerated processing is necessary.
FINRA believes that these concerns are unfounded.
(C) Comments Proposing Additional Categories of Eligible Parties
Although they supported making accelerated processing available to
parties based on their age or health condition, two commenters
suggested that FINRA should allow parties to request accelerated
treatment based on other factors.\75\ Specifically, St. John's
recommended that parties should be able to qualify for accelerated
processing based on ``need.'' Under the approach proposed by St.
John's, a party's eligibility for accelerated processing would be
determined based on a consideration of their ``full circumstances,''
including their medical status, socioeconomic status, and other needs,
such as caregiver responsibilities. In addition, both St. John's and
Iannarone suggested that parties should qualify for accelerated
processing if they are healthy but have a spouse or immediate family
member who is
[[Page 105136]]
suffering from a qualifying health condition.
---------------------------------------------------------------------------
\75\ See Iannarone, St. John's.
---------------------------------------------------------------------------
FINRA understands that there are some parties who would benefit if
their arbitration were accelerated but who would not qualify for
accelerated processing under the proposed rule change. However, FINRA
is concerned that the needs-based approach suggested by St. John's is
too vague and subjective to be workable. Although FINRA understands
that parties with ill spouses or immediate family members might benefit
if--according to St. John's, they were able to ``spend less time and
money on the arbitration process,''--there is no evidence that these
parties would be unable to meaningfully participate in arbitration
proceedings absent accelerated processing. Finally, FINRA believes it
is unnecessary to expand the categories of eligible parties as
suggested by the commenters because the proposed rule change provides
those parties who do not meet the eligibility requirements of the
proposed rule change with an alternative route to seek to accelerate
the proceedings. Specifically, as discussed above, proposed Rules
12808(a)(3) and 13808(a)(3) would allow parties who do not meet the
eligibility requirements of the proposed rule change to request, once
the panel has been appointed, that the panel consider other factors,
including their age or a change in their health condition during the
arbitration proceeding, when scheduling hearings and discovery,
briefing, and motion deadlines. Thus, although the shortened deadlines
in proposed Rules 12808(b) and 13808(b) would not apply to these
parties, they would be able to ask the arbitration panel to accelerate
their proceedings based on a consideration of their particular
circumstances, including developing a serious health condition after
the panel is appointed.
3. Comments Addressing the Proof Required To Qualify for Accelerated
Processing
As noted above, although almost all of the commenters supported
allowing parties to qualify for accelerated processing based on their
age or their health conditions, two of those commenters suggested that,
in order to minimize the potential for abuse of the process, FINRA
should require parties to produce proof of their age or health
condition.\76\ To further deter parties from falsely claiming they are
eligible for accelerated processing, two commenters suggested that
existing sanctions provisions in the Codes should be expanded.\77\
FINRA disagrees with these commenters, as discussed below.
---------------------------------------------------------------------------
\76\ See Cambridge, SIFMA.
\77\ See FSI, SIFMA.
---------------------------------------------------------------------------
(A) Comments Addressing Proof of Age
SIFMA suggested that parties requesting accelerated processing on
the basis of age should be required to prove they are at least 70 years
old by producing ``a driver's license, passport, birth certificate, or
other similar official record.'' However, FINRA believes that requiring
proof of age is unnecessary. Just as there is no evidence that parties
have falsely claimed to be suffering from a serious health condition,
FINRA has no evidence that parties have falsified their age to qualify
for the current program. Nor is there any reason to believe that
parties are more likely to falsify their age under the proposed rule
change, particularly when such conduct could result in potential
sanctions under existing FINRA Rules 12212 and 13212. FINRA is also
concerned that requiring proof of age under the proposed rule change
could discourage some parties from making legitimate requests for
accelerated processing as they may view this as an unnecessary
intrusion into their personal information.\78\ Further, in the unlikely
event that a genuine dispute arises as to whether a party qualifies for
accelerated processing on the basis of age, the arbitration panel could
require that the party provide proof of age to determine the
applicability of the proposed rule change.\79\
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\78\ In addition, FINRA notes there are increasing concerns with
customers' identities being used for fraudulent purposes in the
securities industry. See, e.g., Regulatory Notice 20-13 (May 2020)
(reminding firms to be aware of fraud during the pandemic);
Regulatory Notice 20-32 (September 2020) (reminding firms to be
aware of fraudulent options trading in connection with potential
account takeovers and new account fraud); Regulatory Notice 21-14
(March 2021) (alerting firms to recent increase in automated
clearing house ``Instant Funds'' abuse); Regulatory Notice 21-18
(May 2021) (sharing practices firms use to protect customers from
online account takeover attempts); and Regulatory Notice 22-21
(October 2022) (alerting firms to recent trend in fraudulent
transfers of accounts through the Automated Customer Account
Transfer Service).
\79\ See FINRA Rules 12409 and 13413. The panel has the
authority to interpret and determine the applicability of all
provisions under the Codes.
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(B) Comments Addressing Proof of a Party's Health Condition
To minimize the risk that parties will falsely certify that they
are suffering from an eligible health condition, two commenters
suggested that parties should be required to provide additional proof
of their health condition, for example, by providing a certification
from a physician.\80\ As discussed above, FINRA believes that the
proposed certification requirement and the threat of potential
sanctions would be sufficient to protect against abuse of the process
while, at the same time, minimizing unnecessary intrusions into private
medical information.
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\80\ See Cambridge, SIFMA.
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Some commenters also expressed the concern that parties who request
accelerated processing on the basis of an eligible health condition
could be subject to discovery requests for the production of medical
records or other private information about their health condition.\81\
These commenters stated that in addition to raising privacy concerns,
such discovery requests could deter parties from making valid requests
for accelerated processing and also unnecessarily delay the
proceedings.\82\ FINRA agrees with these concerns. As a result, the
proposed rule change would make clear that a party does not open the
door to discovery into their health condition merely by requesting
accelerated processing.\83\
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\81\ See Miami, PIABA.
\82\ See Miami, PIABA.
\83\ See proposed Rules 12808(a)(2) and 13808(a)(2).
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To further protect a party's privacy, Cardozo requested that the
proposed rule change require that the certification be submitted only
to FINRA staff and not shared with other parties or the arbitrators.
However, FINRA believes that such a requirement is unnecessary because
the certification required under the proposed rule change would not
contain any details regarding the party's medical condition or other
private health information.
(C) Comments Addressing Sanctions
To provide further protection against abuse of the process, two
commenters suggested that the existing sanctions provisions in the
Codes should be expanded.\84\ More specifically, FSI proposed that
arbitrators should be able to remove a matter from the accelerated
processing track, and SIFMA proposed that matters should be subject to
dismissal as a sanction if a party falsely claims to be eligible for
accelerated treatment. However, existing FINRA Rules 12212(a) and
13212(a) already authorize arbitrators to impose a wide range of
sanctions, including, assessing monetary penalties payable to one or
more parties; precluding a party from presenting evidence; making an
adverse inference against a party; assessing postponement or forum
fees; and assessing attorneys' fees, costs and
[[Page 105137]]
expenses. FINRA believes these rules are broad enough and provide
arbitrators with sufficient flexibility to address any abuse of
accelerated processing.
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\84\ See FSI, SIFMA.
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4. Comments Addressing the Proposed Shortened Deadlines for Parties and
Guidance to Arbitrators
(A) Comments Addressing the Proposed 10-Month Timeframe for Arbitrators
To Endeavor To Render an Award
Two commenters addressed the proposed 10-month timeframe within
which arbitrators should endeavor to render awards in accelerated
arbitrations.\85\ Miami supported the proposed rule change and, based
on its experience representing parties in FINRA arbitrations, stated
that ``arbitrators appear equipped to meet FINRA's proposed guidance to
render an award within 10 months or less.'' \86\ SIFMA did not object
to the proposed 10-month timeframe per se but, rather, noted that it
may not be possible or appropriate to close all accelerated cases
within 10 months. For example, SIFMA noted that large, complex cases
may involve voluminous discovery.
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\85\ See Miami, SIFMA.
\86\ In addition, Miami stated that ``existing provisions of the
Code provide sufficient flexibility if the shortened deadlines could
not be met in a particular case.''
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For the reasons discussed above, FINRA believes that 10 months is
the appropriate timeframe within which arbitrators should endeavor to
render awards in accelerated arbitrations.\87\ In addition, however,
FINRA agrees that there are some cases that may qualify for accelerated
processing but which cannot reasonably be completed within 10 months
because these cases are complex or involve voluminous discovery. As to
these matters, FINRA believes that the proposed rule change would
provide the arbitrators with sufficient flexibility to accommodate the
particular circumstances of each case. As discussed above, the proposed
rule change would establish a benchmark but does not mandate that all
cases be completed within 10 months.\88\
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\87\ See supra Item II.B.3 (discussing Economic Impacts).
\88\ See supra Item II.A.1(II)(C)(2).
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(B) Comments Addressing the Shortened Deadlines for Parties
As discussed above, in addition to establishing a 10-month
timeframe within which arbitrators should endeavor to render an award
in accelerated cases, proposed Rules 12808(b)(2)(D) and 13808(b)(2)(D)
would accelerate the proceedings by establishing shortened deadlines
for the parties. Three commenters expressed concerns regarding some or
all of these proposed shortened deadlines.\89\ Cambridge recommended
against including any deadlines in the proposed rule change ``to allow
for flexibility in each situation.'' It also objected to all of the
proposed shortened deadlines for filing answers, returning the ranked
arbitrator lists, and producing discovery as allegedly too short and
unfair to respondents.\90\ SIFMA generally supported the proposed
deadline for filing answers ``provided that the parties are free to
grant extensions upon request,'' but it stated that the proposed
deadlines for returning the ranked arbitrator lists and discovery might
be difficult or impossible to meet in some cases. FSI took issue only
with the proposed shortened discovery deadlines, which FSI claimed were
unrealistic and would result in requests for extensions of time ``as a
matter of course.''
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\89\ See Cambridge, FSI, SIFMA.
\90\ Cambridge also suggested that, instead of shortening the
deadlines that apply to the parties, FINRA should consider
establishing concurrent deadlines. For example, Cambridge proposed
that the parties could be working on ranking potential arbitrators
at the same time that the respondent is preparing the answer to the
statement of claim. However, FINRA does not believe it would be
appropriate to require the claimant to rank arbitrators before they
are provided with an opportunity to review the respondent's answer
and any counterclaims and crossclaims.
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FINRA disagrees with Cambridge's suggestion to eliminate all
shortened deadlines from the proposed rule change. To meaningfully
reduce case processing times for those parties who may be unable to
fully participate in lengthy arbitration proceedings--a goal that the
current program has been unable to achieve--FINRA believes it is
necessary and appropriate to establish rule-based shortened deadlines.
As to the other concerns raised by commenters regarding specific
deadlines, FINRA understands that the proposed shortened deadlines may
not be reasonable in some cases, for example, if the case is complex or
involves voluminous discovery. However, as discussed above, FINRA
believes that the existing provisions of the Codes provide the parties
and arbitrators with sufficient flexibility to modify the proposed
shortened deadlines when necessary.\91\ Further, as noted above, if the
Commission approves the proposed rule change, FINRA would provide
training and guidance to arbitrators on accelerated processing, which
would include training on evaluating requests to extend the proposed
shortened deadlines.
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\91\ See supra Item II.A.1(II)(C)(3). For this same reason,
FINRA also does not believe it is necessary, as suggested by
Cardozo, that the proposed rule change provide parties with the
option to ``change their minds'' and have their cases returned to a
regular schedule. If, as Cardozo suggests, the shortened deadlines
become too ``challenging'' for a party, existing FINRA rules would
permit them to request that the deadlines be modified.
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5. Other Comments
In response to the Notice, NASAA criticized FINRA member firms for
often requiring customers to enter into agreements to arbitrate
disputes regarding services provided to such customers. Kolber
suggested that the Codes should be amended to provide for sanctioning
attorneys for engaging in delay tactics in arbitration. St. John's
recommended raising the threshold for simplified arbitration from
$50,000 to $100,000. Iannarone suggested that FINRA help ensure that
all customer claimants have access to counsel.
All of these comments are beyond the scope of the proposed rule
change. However, with respect to NASAA's comment, FINRA notes that its
rules do not require customers to enter into agreements to arbitrate
disputes with member firms, nor do FINRA rules preclude customers from
pursuing relief in state or federal courts. The Supreme Court has held
that predispute arbitration agreements are enforceable as to claims
brought under the Act.\92\
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\92\ Until the Supreme Court's decision in Shearson/American
Express, Inc. v. McMahon, 482 U.S. 220 (1987), the courts would not
enforce predispute arbitration agreements relating to federal
securities law claims. In addition, until its rescission in 1987,
Rule 15c2-2(a) under the Act provided that: ``It shall be a
fraudulent, manipulative or deceptive act or practice for a broker
or dealer to enter into an agreement with any public customer which
purports to bind the customer to the arbitration of future disputes
between them arising under the federal securities laws, or to have
in effect such an agreement, pursuant to which it effects
transactions with or for a customer.'' As a result of McMahon and
the rescission of Rule 15c2-2(a), firms can compel arbitration of
customer claims through inclusion of predispute arbitration
provisions in their agreements with customers. When member firms use
mandatory arbitration clauses, FINRA rules establish minimum
disclosure requirements regarding their use to help ensure customers
understand these clauses, and to protect customers' rights under
FINRA rules. See FINRA Rule 2268. See also Regulatory Notice 21-16
(April 2021) (reminding firms about requirements when using
predispute arbitration agreements for customer accounts).
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With respect to Kolber's comment, FINRA notes that it does not have
direct authority to investigate or discipline representative misconduct
in the DRS forum.\93\ Currently, if an attorney is allegedly engaging
in misconduct in the DRS forum, FINRA may make a referral to the
attorney's disciplinary agency,
[[Page 105138]]
which has processes to respond to misconduct of attorneys subject to
its jurisdiction.
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\93\ Cf. FINRA Rule 8310 (allowing FINRA to impose sanctions on
member firms and persons associated with member firms).
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With respect to St. John's comment, FINRA notes that any increase
to the $50,000 threshold for simplified arbitrations would require a
separate proposed rule change as the focus of this proposed rule change
is on accelerating the processing of arbitration proceedings for
parties who qualify based on their age or health condition rather than
claim size.
Finally, with respect to Iannarone's comment, FINRA notes that its
website offers several resources to help parties find an attorney.\94\
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\94\ See Find An Attorney, <a href="https://www.finra.org/arbitration-mediation/about/find-attorney">https://www.finra.org/arbitration-mediation/about/find-attorney</a>.
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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
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#e694938a83cb85898b8b83889295a6958385c8818990"><span class="__cf_email__" data-cfemail="eb999e878ec6888486868e859f98ab988e88c58c849d">[email protected]</span></a>. Please include
file number SR-FINRA-2024-021 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-2024-021. 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
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-2024-021 and should be submitted
on or before January 16, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\95\
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\95\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-30680 Filed 12-23-24; 8:45 am]
BILLING CODE 8011-01-P
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