80 FR 79632 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Merge FINRA Dispute Resolution, Inc. Into and With FINRA Regulation, Inc.
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 245 (December 22, 2015)
Federal Register Volume 80, Issue 245 (December 22, 2015)
| Page Range | 79632-79636 | |
| FR Document | 2015-32051 |
[Federal Register Volume 80, Number 245 (Tuesday, December 22, 2015)] [Notices] [Pages 79632-79636] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-32051] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76670; File No. SR-FINRA-2015-034] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Merge FINRA Dispute Resolution, Inc. Into and With FINRA Regulation, Inc. December 16, 2015. I. Introduction On September 29, 2015, the Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to merge its dispute resolution subsidiary, FINRA Dispute Resolution, Inc. (``FINRA Dispute Resolution'') into and with its regulatory subsidiary, FINRA Regulation, Inc. (``FINRA Regulation''), and to amend the Plan of Allocation and Delegation of Functions by NASD to Subsidiaries (``Delegation Plan'') and the By-Laws of FINRA Regulation (``FINRA Regulation By-Laws''); delete the By-Laws of FINRA Dispute Resolution (``FINRA Dispute Resolution By-Laws''); and make conforming amendments to FINRA rules in order to implement the merger. In addition, the proposed rule change would amend the FINRA Regulation By-Laws to increase the total number of directors who could serve on the FINRA Regulation board. The proposed rule change was published for comment in the Federal Register on October 13, 2015.\3\ The Commission received five comment letters on the proposed rule change.\4\ On December 1, 2015, \5\ the Commission received a response to the comments from FINRA.\6\ This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 76082 (October 6, 2015), 80 FR 61545 (``Notice''). \4\ See letters from Hugh D. Berkson, President, Public Investors Arbitration Bar Association, dated November 3, 2015 (``PIABA Letter''); Ron A. Rhoades, dated November 3, 2015 (``Rhoades Letter''); Jill Gross, Director, Pace Investor Rights Clinic, Pace Law School, dated November 3, 2015 (``PIRC Letter''); Larry A. Tawwater, President, American Association for Justice, dated November 3, 2015 (``AAJ Letter''); and William A. Jacobson, Director, Cornell Securities Law Clinic, Cornell Law School, dated November 4, 2015 (``CSLC Letter''). \5\ See Securities Exchange Act Release No. 76444 (November 16, 2015), 80 FR 72775 (November 20, 2015) extending the time for the Commission to act on the proposed rule change. \6\ See letter from Meredith Cordisco, Assistant General Counsel, FINRA, dated December 1, 2015 (``FINRA Letter''). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change FINRA has proposed to merge FINRA Dispute Resolution into FINRA Regulation. To implement the merger, FINRA proposes to make conforming amendments to the Delegation Plan, amend the FINRA Regulation By-Laws to incorporate substantive and unique provisions from the FINRA Dispute Resolution By-Laws and to make other conforming amendments, delete the FINRA Dispute Resolution By-Laws in their entirety, and make conforming amendments to FINRA rules.\7\ FINRA [[Page 79633]] represents that its dispute resolution program would continue to operate as a separate department within FINRA Regulation, and it would be referred to as the Office of Dispute Resolution. FINRA has also proposed to amend the FINRA Regulation By-Laws to increase the total number of directors who could serve on the FINRA Regulation board. --------------------------------------------------------------------------- \7\ The current FINRA rulebook consists of: (1) FINRA Rules; (2) NASD Rules; and (3) rules incorporated from New York Stock Exchange LLC (``NYSE'') (``Incorporated NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules are referred to as the ``Transitional Rulebook''). While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA members, unless such rules have a more limited application by their terms. For more information about the rulebook consolidation process, see Information Notice, March 12, 2008 (Rulebook Consolidation Process). --------------------------------------------------------------------------- A. Delegation Plan FINRA proposed to delete Section III of the Delegation Plan, which delegates responsibilities and functions to FINRA Dispute Resolution, and to amend Section II of the Delegation Plan, which delegates responsibilities and functions to FINRA Regulation, to incorporate several of the provisions from Section III that apply to dispute resolution. Specifically, FINRA proposed to amend Section II of the Delegation Plan to provide FINRA Regulation with the authority to establish and interpret rules and regulations regarding dispute resolution programs; develop and adopt appropriate and necessary rule changes relating to the dispute resolution forum; conduct arbitrations, mediations, and other dispute resolution programs; establish and assess fees and other charges on FINRA members, persons associated with members, and others using the dispute resolution forum; and manage external relations on dispute resolution. In addition, FINRA proposed to incorporate in its entirety current Section III(C)(1) of the Delegation Plan, which governs the National Arbitration and Mediation Committee (``NAMC''), into Section II(C) of the Delegation Plan.\8\ FINRA states that the NAMC's authority, role and responsibilities would not change under the proposed rule change.\9\ --------------------------------------------------------------------------- \8\ Under the proposed rule change, the FINRA Regulation board would appoint the NAMC and the NAMC would have the authority to advise the FINRA Regulation board on issues relating to dispute resolution. \9\ See Notice, supra note 3, at 61548. --------------------------------------------------------------------------- In addition, FINRA proposed to make other technical and conforming changes throughout the Delegation Plan.\10\ --------------------------------------------------------------------------- \10\ See Notice, supra note 3, at 61547-48 for the list of these changes. --------------------------------------------------------------------------- B. Amendments to the FINRA Regulation By-Laws; Deletion of FINRA Dispute Resolution By-Laws FINRA proposed to amend the FINRA Regulation By-Laws to incorporate substantive and unique provisions from the FINRA Dispute Resolution By- Laws and, consequently, to delete the FINRA Dispute Resolution By-Laws in their entirety. FINRA has represented that where differences exist in the FINRA Dispute Resolution By-Laws that would not be incorporated into the FINRA Regulation By-Laws under the proposed rule change, the differences are non-substantive or would not otherwise affect the governance or operation of the dispute resolution program.\11\ Specifically, FINRA proposed to amend the FINRA Regulation By-Laws to: (i) Expand the definition of ``FINRA member'' for purposes of the Codes of Arbitration Procedure to include ``any broker or dealer admitted to membership in FINRA, whether or not the membership has been terminated or cancelled; and any broker or dealer admitted to membership in a self-regulatory organization that, with FINRA consent, has required its members to arbitrate pursuant to the Code of Arbitration Procedure for Customer Disputes or the Code of Arbitration Procedure for Industry Disputes and/or to be treated as members of FINRA for purposes of the Codes of Arbitration Procedure, whether or not the membership has been terminated or cancelled;'' and (ii) amend the definitions of ``Industry Member'' and ``Public Member'' to clarify that, for purposes of determining membership on the NAMC, acting in the capacity as a mediator of disputes involving a person and not representing any party in such mediations would not be considered professional services provided to, in the case of the term ``Industry Member,'' or a material business relationship with, in the case of the term ``Public Member,'' such persons. --------------------------------------------------------------------------- \11\ See Notice, supra note 3, at 61548. --------------------------------------------------------------------------- In addition, FINRA is proposing to amend Section 4.2 of the FINRA Regulation By-Laws to increase the total number of directors who could serve on the FINRA Regulation board from 15 to 17. FINRA states that members of the FINRA Board's Regulatory Policy Committee currently serve as the directors of the board of FINRA Regulation.\12\ Accordingly, in appointing governors of the FINRA Board to the Regulatory Policy Committee, FINRA must adhere to the compositional requirements for the Board of Directors of FINRA Regulation.\13\ FINRA states that increasing the maximum number of FINRA Regulation board seats would provide it with additional flexibility to manage its board committee assignments and meet the compositional requirements under the FINRA Regulation By-Laws.\14\ --------------------------------------------------------------------------- \12\ See Notice, supra note 3, at 61549. \13\ See Article IV, Section 4.3(a) of the FINRA Regulation By- Laws, which provides, among other things, that the FINRA Regulation board must consist of at least two and not less than 20 percent of directors who are Small Firm, Mid-Size Firm or Large Firm Governors, and that a majority of the FINRA Regulation board must be public directors. \14\ See Notice, supra note 3, at 61549. --------------------------------------------------------------------------- FINRA proposed to make other conforming and technical amendments to the FINRA Regulation By-Laws.\15\ --------------------------------------------------------------------------- \15\ See Notice, supra note 3, at 61548-50. --------------------------------------------------------------------------- C. Amendments to the FINRA Rules FINRA proposed to amend several FINRA rules in connection with the proposed merger of FINRA Dispute Resolution into FINRA Regulation to, among other things, delete references to FINRA Dispute Resolution; add a definition of ``FINRA Regulation;'' change references to ``subsidiaries'' or ``subsidiary'' to ``FINRA Regulation;'' remove references to Section III of the Delegation Plan, which pertains to FINRA Dispute Resolution, and change the language to reference FINRA Regulation; and replace references to ``Dispute Resolution'' with ``Regulation.'' In addition, in connection with the merger, FINRA proposed to rename FINRA Dispute Resolution as the Office of Dispute Resolution. As discussed above, the Office of Dispute Resolution would become a separate department within FINRA Regulation that would continue to administer FINRA's existing dispute resolution programs. Accordingly, the proposed rule change would add a definition of ``Office of Dispute Resolution'' to FINRA's rules and amend various FINRA rules to replace certain references to ``Dispute Resolution'' with ``Office of Dispute Resolution.'' Upon completion of the merger, the position of President of FINRA Dispute Resolution would no longer exist, therefore FINRA proposed to delete references to the President of FINRA Dispute Resolution from its Rules.\16\ --------------------------------------------------------------------------- \16\ See Rules 10103 (Director of Arbitration), 10312 (Disclosures Required of Arbitrators and Director's Authority to Disqualify), 12103 (Director of Dispute Resolution), 12104 (Effect of Arbitration on FINRA Regulatory Activities; Arbitrator Referral During or at Conclusion of Case), 12203 (Denial of FINRA Forum), 12407 (Removal of Arbitrator by Director), 13103 (Director of Dispute Resolution), 13104 (Effect of Arbitration on FINRA Regulatory Activities; Arbitrator Referral During or at Conclusion of Case), 13203 (Denial of FINRA Forum) and 13410 (Removal of Arbitrator by Director). Any authority formerly granted by those rules to the President of FINRA Dispute Resolution would be deleted in its entirety or granted solely to the Director of the Office of Dispute Resolution, except that in amended Rules 10103 (Director of Arbitration), 12103 (Director of Dispute Resolution) and 13103 (Director of Dispute Resolution), the authority to appoint an interim Director if the Director is unable to perform his duties would be granted to the President of FINRA Regulation. FINRA also proposed to delete references to an Executive Vice President of FINRA Dispute Resolution from Rule 10103. --------------------------------------------------------------------------- [[Page 79634]] III. Comment Letters and FINRA's Response The Commission received four comment letters opposing the proposed rule change \17\ and one comment letter expressing concerns regarding the proposed rule change.\18\ In general, commenters believe that FINRA Dispute Resolution should remain separate from FINRA Regulation in order to maintain the independence and autonomy of the dispute resolution forum.\19\ One commenter states that the proposed merger is contrary to the stated purpose of maintaining a neutral and independent dispute resolution program, would damage the credibility of the FINRA arbitration program, and would ``create even more public perception that the forum serves the purposes of the securities industry.'' \20\ Another commenter states that the proposed merger would negatively affect investors' perceptions of the neutrality and fairness of FINRA's dispute resolution forum.\21\ Further, one commenter argues that it is important FINRA Dispute Resolution ``be able to adopt its own policies, determine the appropriate allocation of its resources, and manage its external relations'' and ``that the NAMC remain separate and apart from [FINRA] Regulation.'' \22\ --------------------------------------------------------------------------- \17\ See PIABA Letter, Rhoades Letter, PIRC Letter, and CSLC Letter. One commenter that opposes the proposed merger argues that arbitration should be independent of FINRA altogether and should be conducted by an independent arbitration forum such as the American Arbitration Association. See Rhoades Letter. FINRA stated that it believes, and the Commission agrees, that this comment is beyond the scope of the proposed rule change. See FINRA Letter at 1, n.4. \18\ See AAJ Letter. \19\ See, e.g., PIABA Letter at 3-4; PIRC Letter. Two commenters believe that the proposed rule change contradicts previous statements made by FINRA (formerly NASD) and the Commission when NASD first proposed, and the Commission approved, a separate dispute resolution subsidiary. See PIABA Letter at 2-3 (citing Securities Exchange Act Release Nos. 41510 (June 10, 1999), 64 FR 32575 (June 17, 1999) (SR-NASD-99-21) (notice of proposed rule change to create a dispute resolution subsidiary); and 41971 (September 30, 1999), 64 FR 55793 (October 14, 1999) (SR-NASD-99-21) (order approving proposed rule change to create a dispute resolution subsidiary). See also PIRC Letter. \20\ See CSLC Letter. \21\ See PIRC Letter. \22\ See PIABA Letter at 4. --------------------------------------------------------------------------- In addition, two commenters believe FINRA's justifications for the proposed merger are conclusory \23\ and one commenter believes the proposal lacks detail to support the changes being made.\24\ PIABA states that it finds troubling FINRA's statements that the proposed merger would better align FINRA's legal structure with the public's perception as well as its operational realities.\25\ PIABA argues that any public confusion regarding the distinct nature of FINRA Regulation and FINRA Dispute Resolution results from FINRA's failure to adequately explain to the public the different roles of each entity, and that FINRA should take steps to improve the public's understanding that FINRA Dispute Resolution is separate and independent from FINRA Regulation, which the commenter believes would improve the confidence level of forum users.\26\ In addition, PIABA argues that if FINRA has not been operating FINRA Dispute Resolution and FINRA Regulation as two separate and distinct entities, it should take steps to do so rather than merging the entities.\27\ --------------------------------------------------------------------------- \23\ See PIABA Letter and PIRC Letter. \24\ See AAJ Letter. \25\ See PIABA Letter at 3. \26\ See PIABA Letter at 3-4. \27\ Id. --------------------------------------------------------------------------- In response, FINRA notes that it ``does not need to maintain separate corporate entities in order to provide a fair, neutral and efficient dispute resolution forum.'' \28\ FINRA states that FINRA, FINRA Regulation, and FINRA Dispute Resolution largely function as a single organization today in that the entities currently share many administrative and support functions; FINRA Dispute Resolution remains financially dependent on the FINRA enterprise; and the rules, administrative processes, and leadership of the entities are largely integrated.\29\ FINRA argues that ``the significant commonalities and shared resources between the corporate entities serve to benefit the dispute resolution forum and its users.'' \30\ --------------------------------------------------------------------------- \28\ See FINRA Letter at 3. \29\ See FINRA Letter at 2-3. For example, FINRA notes that FINRA Dispute Resolution staff ``works closely with the Department of Enforcement and FINRA's operating departments to identify misconduct by individuals or firms involved in arbitration cases that might merit further investigation or action to ensure protection of the investing public'' and that FINRA's procedural rules ``specifically provide that if a FINRA arbitration panel issues an award in favor of the claimant, and the member firm or associated person fails to comply with the award or related settlement, FINRA has the authority to suspend or cancel the membership of the firm or suspend the associated person for such non-compliance.'' Id. at 3 (citing FINRA By-Laws, Article VI, Section 3, and FINRA Rule 9554). \30\ See FINRA Letter at 2. --------------------------------------------------------------------------- In addition, FINRA states that it retained and incorporated into FINRA Regulation's operations, the unique elements of the dispute resolution program that ``strengthen its operations and enhance the fairness and neutrality of the forum.'' \31\ Following the merger, the NAMC, an advisory committee on arbitration matters currently maintained by FINRA Dispute Resolution, would continue under FINRA Regulation in ``both its current form (including the requirement that non-industry members compose at least 50 percent of the NAMC) and function (providing input that would shape the forum's rules, policies and procedures).'' \32\ FINRA states that the NAMC ``is a key component to maintaining a fair and efficient forum.'' \33\ --------------------------------------------------------------------------- \31\ Id. at 3. \32\ Id. at 3-4. \33\ Id. at 4. --------------------------------------------------------------------------- Moreover, FINRA states that the merger would not have a practical effect on corporate governance of the dispute resolution forum as members of the FINRA Board's Regulatory Policy Committee, who currently serve as the directors of the boards of both FINRA Regulation and FINRA Dispute Resolution,\34\ would continue to serve as directors of the board of the merged entity, ``thereby ensuring fair representation of FINRA's constituents in the administration of the dispute resolution program.'' \35\ In addition, FINRA notes that the governance structure would continue to consist of a majority of public board members, ``which helps to ensure that FINRA receives input on the forum's proposed rules, policies and procedures from those whose backgrounds and affiliations are not connected to the industry.'' \36\ --------------------------------------------------------------------------- \34\ FINRA states that ``overlapping board membership was contemplated at the time it sought to create the dispute resolution subsidiary as a way to provide stability and uniformity among the corporate entities.'' See FINRA Letter at 4 (citing Securities Exchange Act Release No. 41510, 64 FR 32575, 32586 (June 17, 1999) (Notice of Filing of File No. SR-NASD-99-21)). \35\ See FINRA Letter at 4. FINRA notes that the proposed rule change would amend the FINRA Regulation corporate governance structure to add two board seats, ``which would provide FINRA with additional flexibility to manage its board committee assignments and meet the compositional requirements under the FINRA Regulation By- Laws.'' Id. at n. 13. \36\ Id. at 4. --------------------------------------------------------------------------- FINRA states that following the merger, FINRA's dispute resolution program will continue to function as a separate department within FINRA Regulation, and will be overseen by the Director of the Office of Dispute Resolution, who will be responsible for managing the day-to-day operations of the dispute resolution program.\37\ FINRA also points out that the merger will have no effect on its current regulatory oversight, noting that it will still be subject to the rule filing requirements of the Act and to [[Page 79635]] inspections by the Commission.\38\ FINRA argues that this ``robust regulatory framework serves to ensure that FINRA manages and administers the forum in a manner that is fair and protects investors and the public interest.'' \39\ --------------------------------------------------------------------------- \37\ Id. at 5. \38\ Id. \39\ Id. --------------------------------------------------------------------------- FINRA also states that it ``does not believe that the merger would impact public perception of fairness of the forum'' because FINRA, FINRA Regulation and FINRA Dispute Resolution appear to the public to be a single organization and, furthermore, the merger will not affect the services and benefits provided by, or the costs to use, the dispute resolution forum, or its corporate governance or oversight.\40\ In addition, FINRA ``does not believe it would be relevant or helpful, as PIABA suggests, for FINRA to engage in educational efforts regarding the existing corporate distinction'' between the entities, as ``maintaining a separate corporate entity does not contribute to the fairness or efficiency of operating the forum.'' \41\ FINRA notes, however, that it ``continuously engages in efforts to educate the investing public about the services and benefits of its dispute resolution forum, including the fairness and neutrality of the forum.'' \42\ FINRA also states that it ``has made many enhancements to the dispute resolution program since the establishment of FINRA Dispute Resolution that are wholly unrelated to its corporate structure[,]'' such as allowing investors to have an all public arbitration panel, and it ``is continuously looking at ways to strengthen the dispute resolution process and would continue to work closely with investors, members, and other interested parties in such efforts, irrespective of FINRA's corporate structure.'' \43\ --------------------------------------------------------------------------- \40\ Id. \41\ Id. \42\ Id. \43\ Id. at 6. For example, last year, FINRA formed the Dispute Resolution Task Force to consider possible enhancements to the forum to improve the effectiveness, transparency, impartiality and efficiency of FINRA's securities arbitration forum for all participants. --------------------------------------------------------------------------- PIABA states that there may be unintended consequences of merging FINRA Dispute Resolution into FINRA Regulation, specifically questioning whether a decision by FINRA Enforcement to decline to take action against a member for conduct that is the subject of a pending arbitration could be used as defensive evidence in an arbitration proceeding.\44\ FINRA noted that this issue exists irrespective of the proposed merger and that it has previously stated that its determination not to take enforcement action against a member has no evidentiary weight in a subsequent proceeding.\45\ FINRA also states that it considers it unethical and potentially misleading to suggest to an adjudicator or mediator that FINRA's determination is probative evidence in a dispute on the merits of a related claim.\46\ --------------------------------------------------------------------------- \44\ See PIABA Letter at 4. \45\ See FINRA Letter at 6-7 (citing Notice to Members 02-53 at 509 (August 2002) (NASD Files Proposal to Amend Rule 3070 to Require Filing of Criminal and Civil Complaints and Arbitration Claims with NASD; Revises Letters Sent When Determination Made to Close an Investigation Without Further Action)). \46\ Id. --------------------------------------------------------------------------- One commenter states that FINRA did not provide a cost-benefit analysis or quantify the administrative savings that will result from the merger or state what it will do with these savings.\47\ In response, FINRA states that proposed rule change would allow for more efficient use of FINRA's administrative resources resulting from the elimination of numerous tax and other regulatory filings each year.\48\ While FINRA does not expect the cost savings to have a material effect on its budget or the costs of forum-related services, FINRA believes it is nevertheless prudent for FINRA to ``streamline its operational procedures and re-allocate staff involved in such processes to other matters,'' which will enhance the efficient operation of FINRA, in turn benefitting those who are governed by, and those who use, FINRA's services.\49\ --------------------------------------------------------------------------- \47\ See PIABA Letter at 4. \48\ See FINRA Letter at 7. For example, FINRA states that the merger would eliminate the need to file numerous tax filings each year, including multiple state tax and information returns, sales tax returns, property tax returns, as well as many state registrations and annual reports, and also would eliminate a separate payroll entity, eliminating the need for separate compensation and accounting protocols. See id. at 2. \49\ See FINRA Letter at 7. --------------------------------------------------------------------------- Two commenters believe that the comment period for the proposed rule change was too short to allow interested parties to fully evaluate the proposal and provide comments.\50\ FINRA argues that interested parties were provided with sufficient time to comment on the proposal.\51\ In this regard, FINRA notes that it adhered to the procedures set forth in Section 19 of the Act for self-regulatory organizations to file proposed rule changes with the Commission and that the Commission adhered to standard practices with respect to the proposed rule change by providing a 21 day comment period following publication of notice of the proposed rule change in the Federal Register.\52\ --------------------------------------------------------------------------- \50\ See PIABA Letter at 1 and AAJ Letter at 1. \51\ See FINRA Letter at 7-8. \52\ Id. --------------------------------------------------------------------------- IV. Discussion and Commission Findings After careful review of the proposed rule change, the comment letters, and FINRA's response to the comments, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities association.\53\ Specifically, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,\54\ which requires, among other things, that FINRA's rules 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. --------------------------------------------------------------------------- \53\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \54\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- The Commission recognizes that commenters raised concerns that in approving the current proposal, the Commission would be contradicting its prior findings when it approved the creation of Dispute Resolution as a separate subsidiary.\55\ The Commission notes, however, that FINRA is not required to maintain separate corporate entities, nor will the maintenance of separate corporate entities ensure a fair, neutral and efficient dispute resolution forum. FINRA represents that while the proposed rule change would alter FINRA Dispute Resolution's corporate status, it would not affect the services and benefits provided by, or costs to use, the dispute resolution forum, its corporate governance, or oversight.\56\ Moreover, the FINRA Regulation board, like the FINRA Dispute Resolution board, will continue to consist of members of the FINRA Board's Regulatory Policy Committee and a majority of the members will continue to be public board members. Further, following the merger, the NAMC, which [[Page 79636]] was maintained by FINRA Dispute Resolution before the merger, will be maintained by FINRA Regulation, and the composition of the NAMC will not change. At least 50 percent of the members must be non-industry members. The Commission believes that the foregoing should help to ensure the maintenance of a fair and neutral forum. --------------------------------------------------------------------------- \55\ See supra note 19. \56\ See Notice, supra note 3, at 61546 n.8. According to FINRA, FINRA Dispute Resolution remains financially dependent on the FINRA enterprise, as fees received from parties who use the arbitration and mediation programs are not sufficient to fund the forum's arbitration and mediation activities at current cost levels. FINRA represents that following the merger, FINRA will continue to supplement the fees collected from users, as necessary, to maintain a cost effective forum. See FINRA Letter at 3. The Commission expects FINRA to ensure that the Office of Dispute Resolution is adequately funded and able to fulfill its responsibilities. --------------------------------------------------------------------------- With respect to concerns raised by commenters regarding the public perception of fairness if the merger is approved, the Commission notes that the dispute resolution forum will continue to be subject to the same Commission oversight as other departments of FINRA, which includes the requirement to file all rule changes, which include changes to the By-Laws, with the Commission,\57\ and the forum will continue to be subject to inspections by the Commission and by the Government Accountability Office, which performs audits at the request of the United States Congress.\58\ In addition, the Commission expects FINRA to continue to work closely with investors, members, and other interested parties in looking at ways to strengthen the dispute resolution process and serve the needs of the investing public, and to consider any recommendations raised by its Dispute Resolution Task Force \59\ for improving the effectiveness, transparency, impartiality and efficiency of its arbitration forums. --------------------------------------------------------------------------- \57\ The arbitration program and services will continue to be governed by the FINRA Codes of Arbitration Procedure and the mediation program and services by the FINRA Code of Mediation Procedure. See FINRA Rule 12000, 13000 and 14000 Series. \58\ See Notice, supra note 3, at 61547. Moreover, FINRA has represented that a decision not to take enforcement action against a member has no evidentiary weight and further, that FINRA would consider it unethical and potentially misleading to suggest that such a determination is probative evidence in a dispute on the merits of a related claim. \59\ See supra note 43. --------------------------------------------------------------------------- PIABA also questioned the actual cost savings generated by the proposed merger. FINRA indicated that the merger will reduce unnecessary administrative burdens that result from the need to maintain separate legal entities, such as costs and resources associated with complying with multiple-entity regulatory and tax filings and maintaining separate accounting protocols. The merger will allow FINRA to streamline its operational procedures and re-allocate staff involved in such processes, which should make FINRA's operations more efficient. FINRA states that the increase to the maximum number of FINRA Regulation board seats from 15 to 17 will provide it with additional flexibility to manage its board committee assignments and meet the compositional requirements under the FINRA Regulation By-Laws. The Commission notes that following the increase, the FINRA Regulation board compositional requirements will continue to provide for the fair representation of FINRA's members and the numerical dominance of public directors, consistent with the requirements of the Act. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\60\ that the proposed rule change (SR-FINRA-2015-034), be, and hereby is, approved. --------------------------------------------------------------------------- \60\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\61\ --------------------------------------------------------------------------- \61\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2015-32051 Filed 12-21-15; 8:45 am] BILLING CODE 8011-01-P
![79632 Federal Register / Vol. 80, No. 245 / Tuesday, December 22, 2015 / Notices
interruption. The Commission believes the submission, all subsequent Regulation, Inc. (‘‘FINRA Regulation’’),
that waiver of the 30-day operative amendments, all written statements and to amend the Plan of Allocation and
delay is consistent with the protection with respect to the proposed rule Delegation of Functions by NASD to
of investors and the public interest change that are filed with the Subsidiaries (‘‘Delegation Plan’’) and the
because it will allow the pilot to Commission, and all written By-Laws of FINRA Regulation (‘‘FINRA
continue uninterrupted, thereby communications relating to the Regulation By-Laws’’); delete the By-
avoiding any potential investor proposed rule change between the Laws of FINRA Dispute Resolution
confusion that could result from a Commission and any person, other than (‘‘FINRA Dispute Resolution By-Laws’’);
temporary interruption in the pilot and those that may be withheld from the and make conforming amendments to
allowing members to continue to benefit public in accordance with the FINRA rules in order to implement the
from the program. Based on the provisions of 5 U.S.C. 552, will be merger. In addition, the proposed rule
foregoing, the Commission hereby available for Web site viewing and change would amend the FINRA
waives the 30-day operative delay and printing in the Commission’s Public Regulation By-Laws to increase the total
designates the proposal operative upon Reference Room, 100 F Street NE., number of directors who could serve on
filing.12 Washington, DC 20549 on official the FINRA Regulation board. The
At any time within 60 days of the business days between the hours of proposed rule change was published for
filing of such proposed rule change, the 10:00 a.m. and 3:00 p.m. Copies of such comment in the Federal Register on
Commission summarily may filing also will be available for October 13, 2015.3 The Commission
temporarily suspend such rule change if inspection and copying at the principal received five comment letters on the
it appears to the Commission that such office of the Exchange. All comments proposed rule change.4 On December 1,
action is necessary or appropriate in the received will be posted without change; 2015, 5 the Commission received a
public interest, for the protection of the Commission does not edit personal response to the comments from FINRA.6
investors, or otherwise in furtherance of identifying information from This order approves the proposed rule
the purposes of the Act. If the submissions. You should submit only change.
Commission takes such action, the information that you wish to make
Commission shall institute proceedings available publicly. All submissions II. Description of the Proposed Rule
under section 19(b)(2)(B) 13 of the Act to should refer to File Number SR– Change
determine whether the proposed rule NYSEARCA–2015–122, and should be
change should be approved or FINRA has proposed to merge FINRA
submitted on or before January 12, 2016.
disapproved. Dispute Resolution into FINRA
For the Commission, by the Division of Regulation. To implement the merger,
IV. Solicitation of Comments Trading and Markets, pursuant to delegated FINRA proposes to make conforming
authority.14
Interested persons are invited to amendments to the Delegation Plan,
Robert W. Errett, amend the FINRA Regulation By-Laws
submit written data, views, and
Deputy Secretary. to incorporate substantive and unique
arguments concerning the foregoing,
including whether the proposed rule [FR Doc. 2015–32048 Filed 12–21–15; 8:45 am] provisions from the FINRA Dispute
change is consistent with the Act. BILLING CODE 8011–01–P Resolution By-Laws and to make other
Comments may be submitted by any of conforming amendments, delete the
the following methods: FINRA Dispute Resolution By-Laws in
SECURITIES AND EXCHANGE their entirety, and make conforming
Electronic Comments COMMISSION amendments to FINRA rules.7 FINRA
• Use the Commission’s Internet [Release No. 34–76670; File No. SR–FINRA–
comment form (http://www.sec.gov/ 2015–034] 3 See Securities Exchange Act Release No. 76082
rules/sro.shtml); or (October 6, 2015), 80 FR 61545 (‘‘Notice’’).
• Send an email to rule-comments@ Self-Regulatory Organizations; 4 See letters from Hugh D. Berkson, President,
Public Investors Arbitration Bar Association, dated
sec.gov. Please include File Number SR– Financial Industry Regulatory November 3, 2015 (‘‘PIABA Letter’’); Ron A.
NYSEARCA–2015–122 on the subject Authority, Inc.; Order Approving a Rhoades, dated November 3, 2015 (‘‘Rhoades
line. Proposed Rule Change To Merge Letter’’); Jill Gross, Director, Pace Investor Rights
FINRA Dispute Resolution, Inc. Into Clinic, Pace Law School, dated November 3, 2015
Paper Comments (‘‘PIRC Letter’’); Larry A. Tawwater, President,
and With FINRA Regulation, Inc.
• Send paper comments in triplicate American Association for Justice, dated November
3, 2015 (‘‘AAJ Letter’’); and William A. Jacobson,
to Secretary, Securities and Exchange December 16, 2015.
Director, Cornell Securities Law Clinic, Cornell Law
Commission, 100 F Street NE., I. Introduction School, dated November 4, 2015 (‘‘CSLC Letter’’).
Washington, DC 20549–1090. 5 See Securities Exchange Act Release No. 76444
On September 29, 2015, the Financial (November 16, 2015), 80 FR 72775 (November 20,
All submissions should refer to File
Industry Regulatory Authority, Inc. 2015) extending the time for the Commission to act
Number SR–NYSEARCA–2015–122. on the proposed rule change.
(‘‘FINRA’’) filed with the Securities and
This file number should be included on 6 See letter from Meredith Cordisco, Assistant
Exchange Commission (‘‘SEC’’ or
the subject line if email is used. To help General Counsel, FINRA, dated December 1, 2015
‘‘Commission’’), pursuant to Section (‘‘FINRA Letter’’).
the Commission process and review
19(b)(1) of the Securities Exchange Act 7 The current FINRA rulebook consists of: (1)
your comments more efficiently, please
of 1934 (‘‘Act’’) 1 and Rule 19b–4 FINRA Rules; (2) NASD Rules; and (3) rules
use only one method. The Commission incorporated from New York Stock Exchange LLC
thereunder,2 a proposed rule change to
will post all comments on the (‘‘NYSE’’) (‘‘Incorporated NYSE Rules’’) (together,
mstockstill on DSK4VPTVN1PROD with NOTICES
merge its dispute resolution subsidiary, the NASD Rules and Incorporated NYSE Rules are
Commission’s Internet Web site (http://
FINRA Dispute Resolution, Inc. referred to as the ‘‘Transitional Rulebook’’). While
www.sec.gov/rules/sro.shtml). Copies of
(‘‘FINRA Dispute Resolution’’) into and the NASD Rules generally apply to all FINRA
with its regulatory subsidiary, FINRA members, the Incorporated NYSE Rules apply only
12 For purposes only of waiving the operative
to those members of FINRA that are also members
delay, the Commission has considered the proposed of the NYSE (‘‘Dual Members’’). The FINRA Rules
14 17 CFR 200.30–3(a)(12).
rule’s impact on efficiency, competition, and capital apply to all FINRA members, unless such rules
formation. See 15 U.S.C. 78c(f). 1 15 U.S.C. 78s(b)(1). have a more limited application by their terms. For
13 15 U.S.C. 78s(b)(2)(B). 2 17 CFR 240.19b–4. more information about the rulebook consolidation
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![79634 Federal Register / Vol. 80, No. 245 / Tuesday, December 22, 2015 / Notices
III. Comment Letters and FINRA’s troubling FINRA’s statements that the the NAMC, an advisory committee on
Response proposed merger would better align arbitration matters currently maintained
The Commission received four FINRA’s legal structure with the by FINRA Dispute Resolution, would
comment letters opposing the proposed public’s perception as well as its continue under FINRA Regulation in
rule change 17 and one comment letter operational realities.25 PIABA argues ‘‘both its current form (including the
expressing concerns regarding the that any public confusion regarding the requirement that non-industry members
proposed rule change.18 In general, distinct nature of FINRA Regulation and compose at least 50 percent of the
commenters believe that FINRA Dispute FINRA Dispute Resolution results from NAMC) and function (providing input
Resolution should remain separate from FINRA’s failure to adequately explain to that would shape the forum’s rules,
FINRA Regulation in order to maintain the public the different roles of each policies and procedures).’’ 32 FINRA
the independence and autonomy of the entity, and that FINRA should take steps states that the NAMC ‘‘is a key
dispute resolution forum.19 One to improve the public’s understanding component to maintaining a fair and
commenter states that the proposed that FINRA Dispute Resolution is efficient forum.’’ 33
merger is contrary to the stated purpose separate and independent from FINRA Moreover, FINRA states that the
of maintaining a neutral and Regulation, which the commenter merger would not have a practical effect
independent dispute resolution believes would improve the confidence on corporate governance of the dispute
program, would damage the credibility level of forum users.26 In addition, resolution forum as members of the
of the FINRA arbitration program, and PIABA argues that if FINRA has not FINRA Board’s Regulatory Policy
would ‘‘create even more public been operating FINRA Dispute Committee, who currently serve as the
perception that the forum serves the Resolution and FINRA Regulation as directors of the boards of both FINRA
purposes of the securities industry.’’ 20 two separate and distinct entities, it Regulation and FINRA Dispute
Another commenter states that the should take steps to do so rather than Resolution,34 would continue to serve as
proposed merger would negatively merging the entities.27 directors of the board of the merged
affect investors’ perceptions of the In response, FINRA notes that it ‘‘does
entity, ‘‘thereby ensuring fair
neutrality and fairness of FINRA’s not need to maintain separate corporate
representation of FINRA’s constituents
dispute resolution forum.21 Further, one entities in order to provide a fair,
in the administration of the dispute
neutral and efficient dispute resolution
commenter argues that it is important resolution program.’’ 35 In addition,
forum.’’ 28 FINRA states that FINRA,
FINRA Dispute Resolution ‘‘be able to FINRA notes that the governance
FINRA Regulation, and FINRA Dispute
adopt its own policies, determine the structure would continue to consist of a
Resolution largely function as a single
appropriate allocation of its resources, majority of public board members,
organization today in that the entities
and manage its external relations’’ and ‘‘which helps to ensure that FINRA
currently share many administrative
‘‘that the NAMC remain separate and receives input on the forum’s proposed
and support functions; FINRA Dispute
apart from [FINRA] Regulation.’’ 22 rules, policies and procedures from
In addition, two commenters believe Resolution remains financially
dependent on the FINRA enterprise; and those whose backgrounds and
FINRA’s justifications for the proposed affiliations are not connected to the
the rules, administrative processes, and
merger are conclusory 23 and one industry.’’ 36
leadership of the entities are largely
commenter believes the proposal lacks FINRA states that following the
integrated.29 FINRA argues that ‘‘the
detail to support the changes being merger, FINRA’s dispute resolution
significant commonalities and shared
made.24 PIABA states that it finds program will continue to function as a
resources between the corporate entities
serve to benefit the dispute resolution separate department within FINRA
granted to the President of FINRA Regulation.
FINRA also proposed to delete references to an forum and its users.’’ 30 Regulation, and will be overseen by the
Executive Vice President of FINRA Dispute In addition, FINRA states that it Director of the Office of Dispute
Resolution from Rule 10103. retained and incorporated into FINRA Resolution, who will be responsible for
17 See PIABA Letter, Rhoades Letter, PIRC Letter,
Regulation’s operations, the unique managing the day-to-day operations of
and CSLC Letter. One commenter that opposes the elements of the dispute resolution the dispute resolution program.37
proposed merger argues that arbitration should be
independent of FINRA altogether and should be program that ‘‘strengthen its operations FINRA also points out that the merger
conducted by an independent arbitration forum and enhance the fairness and neutrality will have no effect on its current
such as the American Arbitration Association. See of the forum.’’ 31 Following the merger, regulatory oversight, noting that it will
Rhoades Letter. FINRA stated that it believes, and still be subject to the rule filing
the Commission agrees, that this comment is
beyond the scope of the proposed rule change. See
25 See PIABA Letter at 3. requirements of the Act and to
26 See PIABA Letter at 3–4.
FINRA Letter at 1, n.4.
27 Id.
18 See AAJ Letter. 32 Id.
28 See
at 3–4.
19 See, e.g., PIABA Letter at 3–4; PIRC Letter. Two FINRA Letter at 3. 33 Id.
29 See
at 4.
commenters believe that the proposed rule change FINRA Letter at 2–3. For example, FINRA 34 FINRA states that ‘‘overlapping board
contradicts previous statements made by FINRA notes that FINRA Dispute Resolution staff ‘‘works
closely with the Department of Enforcement and membership was contemplated at the time it sought
(formerly NASD) and the Commission when NASD to create the dispute resolution subsidiary as a way
first proposed, and the Commission approved, a FINRA’s operating departments to identify
misconduct by individuals or firms involved in to provide stability and uniformity among the
separate dispute resolution subsidiary. See PIABA corporate entities.’’ See FINRA Letter at 4 (citing
arbitration cases that might merit further
Letter at 2–3 (citing Securities Exchange Act Securities Exchange Act Release No. 41510, 64 FR
investigation or action to ensure protection of the
Release Nos. 41510 (June 10, 1999), 64 FR 32575 32575, 32586 (June 17, 1999) (Notice of Filing of
investing public’’ and that FINRA’s procedural
(June 17, 1999) (SR–NASD–99–21) (notice of File No. SR–NASD–99–21)).
rules ‘‘specifically provide that if a FINRA
proposed rule change to create a dispute resolution 35 See FINRA Letter at 4. FINRA notes that the
arbitration panel issues an award in favor of the
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subsidiary); and 41971 (September 30, 1999), 64 FR proposed rule change would amend the FINRA
claimant, and the member firm or associated person
55793 (October 14, 1999) (SR–NASD–99–21) (order Regulation corporate governance structure to add
fails to comply with the award or related
approving proposed rule change to create a dispute two board seats, ‘‘which would provide FINRA with
settlement, FINRA has the authority to suspend or
resolution subsidiary). See also PIRC Letter. cancel the membership of the firm or suspend the additional flexibility to manage its board committee
20 See CSLC Letter.
associated person for such non-compliance.’’ Id. at assignments and meet the compositional
21 See PIRC Letter.
3 (citing FINRA By-Laws, Article VI, Section 3, and requirements under the FINRA Regulation By-
22 See PIABA Letter at 4. FINRA Rule 9554). Laws.’’ Id. at n. 13.
23 See PIABA Letter and PIRC Letter. 30 See FINRA Letter at 2. 36 Id. at 4.
24 See AAJ Letter. 31 Id. at 3. 37 Id. at 5.
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![Federal Register / Vol. 80, No. 245 / Tuesday, December 22, 2015 / Notices 79635
inspections by the Commission.38 proposed merger and that it has publication of notice of the proposed
FINRA argues that this ‘‘robust previously stated that its determination rule change in the Federal Register.52
regulatory framework serves to ensure not to take enforcement action against a
IV. Discussion and Commission
that FINRA manages and administers member has no evidentiary weight in a
Findings
the forum in a manner that is fair and subsequent proceeding.45 FINRA also
protects investors and the public states that it considers it unethical and After careful review of the proposed
interest.’’ 39 potentially misleading to suggest to an rule change, the comment letters, and
FINRA also states that it ‘‘does not adjudicator or mediator that FINRA’s FINRA’s response to the comments, the
believe that the merger would impact determination is probative evidence in a Commission finds that the proposed
public perception of fairness of the dispute on the merits of a related rule change is consistent with the
forum’’ because FINRA, FINRA claim.46 requirements of the Act and the rules
Regulation and FINRA Dispute One commenter states that FINRA did and regulations thereunder that are
Resolution appear to the public to be a not provide a cost-benefit analysis or applicable to a national securities
single organization and, furthermore, quantify the administrative savings that association.53 Specifically, the
the merger will not affect the services will result from the merger or state what Commission finds that the proposed
and benefits provided by, or the costs to it will do with these savings.47 In rule change is consistent with Section
use, the dispute resolution forum, or its response, FINRA states that proposed 15A(b)(6) of the Act,54 which requires,
corporate governance or oversight.40 In rule change would allow for more among other things, that FINRA’s rules
addition, FINRA ‘‘does not believe it efficient use of FINRA’s administrative be designed to prevent fraudulent and
would be relevant or helpful, as PIABA resources resulting from the elimination manipulative acts and practices, to
suggests, for FINRA to engage in of numerous tax and other regulatory promote just and equitable principles of
educational efforts regarding the filings each year.48 While FINRA does trade, and, in general, to protect
existing corporate distinction’’ between not expect the cost savings to have a investors and the public interest.
the entities, as ‘‘maintaining a separate material effect on its budget or the costs The Commission recognizes that
corporate entity does not contribute to of forum-related services, FINRA commenters raised concerns that in
the fairness or efficiency of operating believes it is nevertheless prudent for approving the current proposal, the
the forum.’’ 41 FINRA notes, however, FINRA to ‘‘streamline its operational Commission would be contradicting its
that it ‘‘continuously engages in efforts procedures and re-allocate staff prior findings when it approved the
to educate the investing public about involved in such processes to other creation of Dispute Resolution as a
the services and benefits of its dispute matters,’’ which will enhance the separate subsidiary.55 The Commission
resolution forum, including the fairness efficient operation of FINRA, in turn notes, however, that FINRA is not
and neutrality of the forum.’’ 42 FINRA benefitting those who are governed by, required to maintain separate corporate
also states that it ‘‘has made many and those who use, FINRA’s services.49 entities, nor will the maintenance of
enhancements to the dispute resolution separate corporate entities ensure a fair,
program since the establishment of Two commenters believe that the neutral and efficient dispute resolution
FINRA Dispute Resolution that are comment period for the proposed rule forum. FINRA represents that while the
wholly unrelated to its corporate change was too short to allow interested proposed rule change would alter
structure[,]’’ such as allowing investors parties to fully evaluate the proposal FINRA Dispute Resolution’s corporate
to have an all public arbitration panel, and provide comments.50 FINRA argues status, it would not affect the services
and it ‘‘is continuously looking at ways that interested parties were provided and benefits provided by, or costs to
to strengthen the dispute resolution with sufficient time to comment on the use, the dispute resolution forum, its
process and would continue to work proposal.51 In this regard, FINRA notes corporate governance, or oversight.56
closely with investors, members, and that it adhered to the procedures set Moreover, the FINRA Regulation board,
other interested parties in such efforts, forth in Section 19 of the Act for self- like the FINRA Dispute Resolution
irrespective of FINRA’s corporate regulatory organizations to file proposed board, will continue to consist of
structure.’’ 43 rule changes with the Commission and members of the FINRA Board’s
PIABA states that there may be that the Commission adhered to Regulatory Policy Committee and a
unintended consequences of merging standard practices with respect to the majority of the members will continue
FINRA Dispute Resolution into FINRA proposed rule change by providing a 21 to be public board members. Further,
Regulation, specifically questioning day comment period following following the merger, the NAMC, which
whether a decision by FINRA
45 See FINRA Letter at 6–7 (citing Notice to
Enforcement to decline to take action 52 Id.
Members 02–53 at 509 (August 2002) (NASD Files 53 In approving this proposed rule change, the
against a member for conduct that is the Proposal to Amend Rule 3070 to Require Filing of Commission has considered the proposed rule’s
subject of a pending arbitration could be Criminal and Civil Complaints and Arbitration impact on efficiency, competition, and capital
used as defensive evidence in an Claims with NASD; Revises Letters Sent When formation. See 15 U.S.C. 78c(f).
arbitration proceeding.44 FINRA noted Determination Made to Close an Investigation 54 15 U.S.C. 78o–3(b)(6).
Without Further Action)).
that this issue exists irrespective of the 46 Id.
55 See supra note 19.
56 See Notice, supra note 3, at 61546 n.8.
47 See PIABA Letter at 4.
38 Id.
48 See FINRA Letter at 7. For example, FINRA
According to FINRA, FINRA Dispute Resolution
39 Id. remains financially dependent on the FINRA
states that the merger would eliminate the need to enterprise, as fees received from parties who use the
40 Id.
file numerous tax filings each year, including arbitration and mediation programs are not
mstockstill on DSK4VPTVN1PROD with NOTICES
41 Id. multiple state tax and information returns, sales tax sufficient to fund the forum’s arbitration and
42 Id. returns, property tax returns, as well as many state mediation activities at current cost levels. FINRA
43 Id. at 6. For example, last year, FINRA formed registrations and annual reports, and also would represents that following the merger, FINRA will
the Dispute Resolution Task Force to consider eliminate a separate payroll entity, eliminating the continue to supplement the fees collected from
possible enhancements to the forum to improve the need for separate compensation and accounting users, as necessary, to maintain a cost effective
effectiveness, transparency, impartiality and protocols. See id. at 2. forum. See FINRA Letter at 3. The Commission
49 See FINRA Letter at 7.
efficiency of FINRA’s securities arbitration forum expects FINRA to ensure that the Office of Dispute
for all participants. 50 See PIABA Letter at 1 and AAJ Letter at 1.
Resolution is adequately funded and able to fulfill
44 See PIABA Letter at 4. 51 See FINRA Letter at 7–8. its responsibilities.
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![79636 Federal Register / Vol. 80, No. 245 / Tuesday, December 22, 2015 / Notices
was maintained by FINRA Dispute it with additional flexibility to manage I. Self-Regulatory Organization’s
Resolution before the merger, will be its board committee assignments and Statement of the Terms of Substance of
maintained by FINRA Regulation, and meet the compositional requirements the Proposed Rule Change
the composition of the NAMC will not under the FINRA Regulation By-Laws. The Exchange is proposing to amend
change. At least 50 percent of the The Commission notes that following paragraph (a) of Rule 13.3, Forwarding
members must be non-industry the increase, the FINRA Regulation or Proxy and other Issuer Materials;
members. The Commission believes that board compositional requirements will Proxy Voting, to conform to the rules of
the foregoing should help to ensure the continue to provide for the fair EDGA Exchange, Inc. (‘‘EDGA’’) and
maintenance of a fair and neutral forum. representation of FINRA’s members and EDGX Exchange, Inc. (‘‘EDGX’’).5
With respect to concerns raised by the numerical dominance of public The text of the proposed rule change
commenters regarding the public directors, consistent with the is available at the Exchange’s Web site
perception of fairness if the merger is requirements of the Act. at www.batstrading.com, at the
approved, the Commission notes that principal office of the Exchange, and at
the dispute resolution forum will V. Conclusion
the Commission’s Public Reference
continue to be subject to the same It is therefore ordered, pursuant to Room.
Commission oversight as other Section 19(b)(2) of the Act,60 that the
departments of FINRA, which includes II. Self-Regulatory Organization’s
proposed rule change (SR–FINRA– Statement of the Purpose of, and
the requirement to file all rule changes, 2015–034), be, and hereby is, approved.
which include changes to the By-Laws, Statutory Basis for, the Proposed Rule
with the Commission,57 and the forum For the Commission, by the Division of Change
Trading and Markets, pursuant to delegated
will continue to be subject to In its filing with the Commission, the
authority.61
inspections by the Commission and by Exchange included statements
Robert W. Errett,
the Government Accountability Office, concerning the purpose of and basis for
which performs audits at the request of Deputy Secretary. the proposed rule change and discussed
the United States Congress.58 In [FR Doc. 2015–32051 Filed 12–21–15; 8:45 am] any comments it received on the
addition, the Commission expects BILLING CODE 8011–01–P proposed rule change. The text of these
FINRA to continue to work closely with statements may be examined at the
investors, members, and other interested places specified in Item IV below. The
parties in looking at ways to strengthen SECURITIES AND EXCHANGE Exchange has prepared summaries, set
the dispute resolution process and serve COMMISSION forth in Sections A, B, and C below, of
the needs of the investing public, and to the most significant parts of such
consider any recommendations raised [Release No. 34–76664; File No. SR–BATS– statements.
by its Dispute Resolution Task Force 59 2015–110]
A. Self-Regulatory Organization’s
for improving the effectiveness, Statement of the Purpose of, and
transparency, impartiality and Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and Statutory Basis for, the Proposed Rule
efficiency of its arbitration forums. Change
PIABA also questioned the actual cost Immediate Effectiveness of a Proposed
savings generated by the proposed Rule Change to Rule 13.3, Forwarding 1. Purpose
merger. FINRA indicated that the of Proxy and Other Issuer Materials; In early 2014, the Exchange and its
merger will reduce unnecessary Proxy Voting affiliate, BATS Y-Exchange, Inc.
administrative burdens that result from December 16, 2015. (‘‘BYX’’), received approval to effect a
the need to maintain separate legal merger (the ‘‘Merger’’) of the Exchange’s
entities, such as costs and resources Pursuant to Section 19(b)(1) of the parent company, BATS Global Markets,
associated with complying with Securities Exchange Act of 1934 (the Inc., with Direct Edge Holdings LLC, the
multiple-entity regulatory and tax ‘‘Act’’),1 and Rule 19b–4 thereunder,2 indirect parent of EDGX and EDGA
filings and maintaining separate notice is hereby given that on December (together with BZX, BYX and EDGX, the
accounting protocols. The merger will 2, 2015, BATS Exchange, Inc. (the ‘‘BGM Affiliated Exchanges’’).6 In the
allow FINRA to streamline its ‘‘Exchange’’ or ‘‘BATS’’) filed with the context of the Merger, the BGM
operational procedures and re-allocate Securities and Exchange Commission Affiliated Exchanges are working to
staff involved in such processes, which (‘‘Commission’’) the proposed rule align their rules, retaining only intended
should make FINRA’s operations more change as described in Items I and II differences between the BGM Affiliated
efficient. below, which Items have been prepared Exchanges.
FINRA states that the increase to the by the Exchange. The Exchange has EDGA and EDGX recently filed
maximum number of FINRA Regulation designated this proposal as a ‘‘non- proposed rule changes with the
board seats from 15 to 17 will provide controversial’’ proposed rule change Commission to restructure and amend
pursuant to Section 19(b)(3)(A) of the their Rules 3.22. Proxy Voting, and 13.3,
57 The arbitration program and services will Act 3 and Rule 19b–4(f)(6) thereunder,4 Forwarding of Proxy and Other Issuer
continue to be governed by the FINRA Codes of which renders it effective upon filing Materials, to conform to BYX and BZX
Arbitration Procedure and the mediation program with the Commission. The Commission
and services by the FINRA Code of Mediation
Rule 13.3.7 In order to provide a
Procedure. See FINRA Rule 12000, 13000 and
is publishing this notice to solicit consistent rule set across each of the
14000 Series. comments on the proposed rule change
mstockstill on DSK4VPTVN1PROD with NOTICES
58 See Notice, supra note 3, at 61547. Moreover, from interested persons. 5 See Securities Exchange Act Release Nos. 76329
FINRA has represented that a decision not to take (November 3, 2015), 80 FR 69259 (November 9,
enforcement action against a member has no 60 15
2015); 76330 (November 3, 2015), 80 FR 69264
U.S.C. 78s(b)(2). (November 9, 2015) (SR–EDGX–2015–51; SR–
evidentiary weight and further, that FINRA would 61 17
consider it unethical and potentially misleading to CFR 200.30–3(a)(12). EDGA–2015–41).
1 15 U.S.C. 78s(b)(1).
suggest that such a determination is probative 6 See Securities Exchange Act Release No. 71375
2 17 CFR 240.19b–4.
evidence in a dispute on the merits of a related (January 23, 2014), 79 FR 4771 (January 29, 2014)
claim. 3 15 U.S.C. 78s(b)(3)(A). (SR–BATS–2013–059; SR–BYX–2013–039).
59 See supra note 43. 4 17 CFR 240.19b–4(f)(6). 7 See supra note 3.
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Document Created: 2015-12-22 02:31:49
Document Modified: 2015-12-22 02:31:49
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 80 FR 79632 |
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