81 FR 54901 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change Amending Rule 12904 (Awards) of the Code of Arbitration Procedure for Customer Disputes and Rule 13904 (Awards) of the Code of Arbitration Procedure for Industry Disputes To Permit Award Offsets in Arbitration, as Modified by Amendment No. 1
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 159 (August 17, 2016)
Federal Register Volume 81, Issue 159 (August 17, 2016)
| Page Range | 54901-54904 | |
| FR Document | 2016-19587 |
[Federal Register Volume 81, Number 159 (Wednesday, August 17, 2016)] [Notices] [Pages 54901-54904] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-19587] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78557; File No. SR-FINRA-2016-015] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change Amending Rule 12904 (Awards) of the Code of Arbitration Procedure for Customer Disputes and Rule 13904 (Awards) of the Code of Arbitration Procedure for Industry Disputes To Permit Award Offsets in Arbitration, as Modified by Amendment No. 1 August 11, 2016. I. Introduction On May 3, 2016, Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``Commission''), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to provide that absent specification to the contrary in an arbitration award, when arbitrators order opposing parties to pay each other damages, the monetary awards shall offset, and the party that owes the larger amount shall pay the net difference. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- The proposed rule change was published for comment in the Federal Register on May 23, 2016.\3\ The public comment period closed on June 13, 2016. On July 1, 2016, FINRA extended the time period in which the Commission must approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change to August 19, 2016. The Commission received nine comment letters in response to the Notice.\4\ On July 15, 2016, FINRA responded to the comment letters received in response to the Notice and filed an amendment to the proposed rule change (``Amendment No. 1'').\5\ --------------------------------------------------------------------------- \3\ See Exchange Act Release No. 77844 (May 17, 2016), 81 FR 32359 (May 23, 2016) (File No. SR-FINRA-2016-015) (``Notice''). \4\ See Letters from Leonard Steiner, Steiner & Libo, dated May 9, 2016 (``Steiner Letter''); Steven B. Caruso, Maddox Hargett Caruso, P.C., dated May 18, 2016 (``Caruso Letter''); George H. Friedman, Adjunct Professor of Law, Fordham Law School, and immediate past FINRA Director of Arbitration, dated May 23, 2016 (``Friedman Letter''); James L. Komie, Schuyler, Roche and Crisham, P.C., dated June 7, 2016 (``Komie Letter''); Thomas E. Wall, Attorney at Law and Public Arbitrator for FINRA, dated June 11, 2016 (``Wall Letter''); Kevin Carroll, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, dated June 13, 2016 (``SIFMA Letter''); David T. Bellaire, Executive Vice President and General Counsel, Financial Services Institute, dated June 13, 2016 (``FSI Letter''); Hugh Berkson, President, Public Investors Arbitration Bar Association, dated June 13, 2016 (``PIABA Letter''); Bev Kennedy, Oakville, Ontario, Canada, dated June 26, 2016 (``Kennedy Letter''). Comment letters are available at www.sec.gov. \5\ See Letter from Margo A. Hassan, Associate Chief Counsel, FINRA, to the Commission, dated July 15, 2016 (``FINRA Letter''). The FINRA Letter and the text of Amendment No. 1 are available on FINRA's Web site at http://www.finra.org, at the principal office of FINRA, at the Commission's Web site at http://www.sec.gov/rules/sro/finra/2015/34-75655.pdf, and at the Commission's Public Reference Room. --------------------------------------------------------------------------- This order provides notice of filing of Amendment No. 1 and approves the proposal, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposed Rule Change Original Proposal FINRA Rule 12904 (Awards) of the Code of Arbitration Procedure for Customer Disputes (``Customer Code'') and Rule 13904 (Awards) of the Code of Arbitration Procedure for Industry Disputes (``Industry Code'') (together, ``Codes'') address awards issued by arbitrators at the FINRA Office of Dispute Resolution forum. Currently, these rules provide, among other matters, that awards must be in writing and signed by a majority of the arbitrators or as required by applicable law. The rules itemize required elements of awards, including a statement of the damages awarded, and provide that all monetary awards shall be paid within 30 days of receipt unless a motion to vacate has been filed in a court of competent jurisdiction.\6\ Rules 12904 and 13904 do not, however, require arbitrators to specify whether opposing parties in a case should offset amounts awarded to each other. --------------------------------------------------------------------------- \6\ See Notice at 32359. --------------------------------------------------------------------------- Accordingly, FINRA has stated that when arbitrators order opposing parties in a case to pay each other monetary damages, but do not specify whether the party that owes the higher amount must pay the net difference, the lack of clarity has resulted in parties asking arbitrators to revise an award after a case has closed or in post-award litigation.\7\ For example, arbitrators may award damages to a firm because an associated person failed to pay money owed on a promissory note and award a lesser amount to the associated person on a counterclaim. If the arbitrators do not specify that awards should be offset, the firm may be required to pay the [[Page 54902]] counterclaim even if the associated person refuses or is unable to pay the larger amount.\8\ FINRA states that the offset issue could also arise in customer cases, such as those involving margin account disputes.\9\ --------------------------------------------------------------------------- \7\ See id. \8\ See id. See also, e.g., UBS Financial Services, Inc. (UBS) v. Thomas A. Mann (Mann), No. 2:2014cv10621, 2014 WL 1746249 (E.D. Mich. Apr. 30, 2014). \9\ See Notice at 32359. --------------------------------------------------------------------------- FINRA is proposing to amend Rules 12904(j) and 13904(j) to provide that, absent specification to the contrary in an award, when arbitrators order opposing parties to pay each other damages, the monetary awards shall offset, and the party that owes the larger amount shall pay the net difference.\10\ --------------------------------------------------------------------------- \10\ See id. --------------------------------------------------------------------------- FINRA is also proposing to replace the bullets in Rules 12904 and 13904 with numbers in order to make it easier to identify and cite subparts of the rule.\11\ --------------------------------------------------------------------------- \11\ See id. --------------------------------------------------------------------------- Proposal as Modified by Amendment No. 1 In response to comments \12\ (discussed below), FINRA is proposing to amend proposed Rules 12904(j) and 13904(j), to provide that, absent specification to the contrary in an award, when arbitrators order opposing parties to make payments to one another, the monetary awards shall offset, and the party assessed the larger amount shall pay the net difference. The proposed amendment would effectively replace the word ``damages'' with ``payments'' in order to capture those portions of awards attributable to amounts other than damages (e.g., costs and fees). --------------------------------------------------------------------------- \12\ See SIFMA Letter at 2. --------------------------------------------------------------------------- III. Comment Summary and FINRA's Response As noted above, the Commission received nine comment letters on the proposed rule change \13\ and a response letter from FINRA.\14\ As discussed in more detail below, six of the nine commenters expressed support for the proposal; \15\ two of the nine commenters expressed opposition to the proposed rule change; \16\ and, one commenter did not address the subject matter of the proposal.\17\ --------------------------------------------------------------------------- \13\ See supra note 4. \14\ See supra note 5. \15\ See Caruso Letter, Friedman Letter, Komie Letter, SIFMA Letter, FSI Letter, and PIABA Letter. \16\ See Steiner Letter and Wall Letter. \17\ See Kennedy Letter. --------------------------------------------------------------------------- Default Favoring Award Offsets Six commenters supported a default in favor of award offsets,\18\ stating, among other things, that the proposal ``is a fair, equitable and reasonable approach,'' \19\ ``would . . . provide useful guidance to parties in . . . drafting their pleading,'' \20\ ``would promote the finality of arbitration awards by reducing the need for post-award court litigation seeking to modify awards to provide for offset,'' \21\ ``is a positive step forward in enhancing and improving the FINRA Dispute Resolution Process,'' \22\ ``is fair and appropriate and offers an important clarification,'' \23\ and ``makes common sense.'' \24\ --------------------------------------------------------------------------- \18\ See supra note 15. \19\ Caruso Letter. \20\ Friedman Letter. \21\ Komie Letter. \22\ FSI Letter. \23\ SIFMA Letter. \24\ PIABA Letter. --------------------------------------------------------------------------- Two commenters opposed providing a default in favor of award offsets on the basis that parties already have the ability to request, and do request, that panels ``offset the competing claims in rendering their final awards.'' \25\ In addition, one of these commenters stated that ``[i]f the panel decides not to do an offset, it is not for FINRA to mandate one.'' \26\ --------------------------------------------------------------------------- \25\ See Steiner Letter; see also Wall Letter. \26\ Steiner Letter. --------------------------------------------------------------------------- In its response, FINRA stated its belief ``that the proposed rule change will eliminate ambiguity and reduce the risk of post-award disputes.'' \27\ FINRA further responded that the proposed change ``would likely reduce legal expenses to the party owed greater damages by eliminating the need to apply for the reopening of the case or going to court to seek award offsets, or seek other redress.'' \28\ Finally, FINRA noted that the ``proposed rule does not override arbitrator discretion'' and stated that if the proposal is approved, ``FINRA will alert arbitrators to the amendment and will revise the Award Information Sheet to inform arbitrators of the offset default when arbitrators are silent on the issue.'' \29\ --------------------------------------------------------------------------- \27\ See FINRA Letter at 2. \28\ See id. \29\ See id. --------------------------------------------------------------------------- Amendment Requests Two of the six commenters supporting FINRA's proposal suggested that FINRA also address additional related concerns.\30\ One commenter generally in support of the proposal urged FINRA to also address the issue of unpaid arbitration awards for investors by implementing a national recovery pool.\31\ In response to this suggestion, FINRA stated that the ``issue of unpaid awards is beyond the scope of the proposed rule change.'' \32\ Another commenter ``strongly supported'' the proposal, but noted that the proposal as drafted would have the effect of limiting the default in favor of offset to only those awards specifically characterized by arbitrators as ``damages.'' \33\ The commenter noted that arbitration awards, in addition to damages, may ``consist of, and be characterized as, damages, costs, fees, etc.'' \34\ The commenter expressed its belief that the ``[p]roposal was never intended to be strictly limited to `damages' offsets,'' and therefore requested that FINRA revise the proposal ``so that it is not susceptible to such a narrow reading'' by: (i) Replacing the phrase ``pay each other damages'' in the proposal with ``make payments to one another,'' and (ii) replacing the phrase ``that owes'' with ``assessed.'' \35\ In its response, FINRA agreed ``that the proposal was not intended to be strictly limited to `damages' offsets'' and proposed to amend the proposed rule change ``for purposes of clarity'' as set forth in the previous sentence.\36\ --------------------------------------------------------------------------- \30\ See PIABA Letter and SIFMA Letter. \31\ See PIABA Letter at 3. \32\ See FINRA Letter at 2. \33\ See SIFMA Letter at 2. \34\ See id. \35\ See id. \36\ See FINRA Letter at 3-4. --------------------------------------------------------------------------- IV. Discussion and Commission Findings After careful review of the proposed rule change, as modified by Amendment No. 1, the comment letters, and FINRA's response to the comments, the Commission finds that the proposal, as modified by Amendment No. 1, is consistent with the requirements of the Exchange Act and the rules and regulations thereunder that are applicable to a national securities association.\37\ Specifically, the Commission finds that the rule change is consistent with section 15A(b)(6) of the Exchange Act,\38\ which requires, among other things, that FINRA 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. --------------------------------------------------------------------------- \37\ In approving this rule change, the Commission has considered the rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \38\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- As stated in the Notice, FINRA believes that ``providing a default in favor of offset when arbitrators fail to address the issue in an award would benefit forum users by eliminating ambiguity and reducing the risk of post- [[Page 54903]] award disputes.'' \39\ More specifically, FINRA believes that the proposed rule change will ``mitigate the risk of failure to pay by an opposing party that may arise when multiple parties in a dispute are found to owe non-equivalent awards simultaneously.'' \40\ Consequently, FINRA believes that the proposal would ``likely reduce legal expenses to the party owed greater damages by eliminating the need to apply for the reopening of the case or going to court to seek award offsets, or seek other redress.'' \41\ --------------------------------------------------------------------------- \39\ Notice at 32360. \40\ Id. \41\ Id. --------------------------------------------------------------------------- The Commission notes that six commenters were generally supportive of the proposal. One of those commenters recommended FINRA amend the proposal to clarify the intent of the proposal--that it was meant to address all payments ordered made to opposing parties in an arbitration and not just damages \42\--and FINRA agreed.\43\ The Commission further notes that one of the commenters that generally supported the proposal also recommended that FINRA implement a national recovery pool for unpaid arbitration awards,\44\ which the Commission believes is outside the scope of the current proposal. --------------------------------------------------------------------------- \42\ See SIFMA Letter. \43\ See FINRA Letter. \44\ See PIABA Letter. --------------------------------------------------------------------------- The Commission recognizes two commenters' objections to the proposal on the basis that a default in favor of award offsets is not necessary because the parties may already request offsets.\45\ The Commission also recognizes, however, FINRA's belief that the proposal will ``eliminate ambiguity,'' ``reduce the risk of post-award disputes,'' and ``likely reduce legal expenses to the party owed greater damages by eliminating the need to apply for the reopening of the case or going to court to seek award offsets, or seek other redress.'' \46\ The Commission further recognizes, as FINRA pointed out in its response, that the proposal ``does not override arbitrator discretion.'' \47\ Arbitrators are thus still free to decline to offset awards if they deem it inappropriate. --------------------------------------------------------------------------- \45\ See Steiner Letter; see also Wall Letter. \46\ See FINRA Letter at 2. \47\ See id. --------------------------------------------------------------------------- Taking into consideration the comments and FINRA's response and proposed amendment, the Commission believes that the proposal is consistent with the Exchange Act. The Commission believes that the proposal will help protect investors and the public interest by streamlining the payment of arbitration awards in instances where parties are ordered to make payments to one another, without overriding arbitrator discretion. The Commission further believes that FINRA's response, as discussed in more detail above, appropriately addressed commenters' concerns and adequately explained its reasons for modifying its proposal to clarify that the default in favor of award offsets would apply to all awards however characterized by the arbitrator. The Commission believes that the approach proposed by FINRA is appropriate and designed to protect investors and the public interest, consistent with section 15A(b)(6) of the Exchange Act. For these reasons, the Commission finds that the proposed rule change is consistent with the Exchange Act and the rules and regulations thereunder. V. Solicitation of Comments on Amendment No. 1 to the Proposed Rule Change Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal, as modified by Amendment No. 1, is consistent with the Exchange Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-FINRA-2016-015 on the subject line. Paper Comments 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-2016-015. 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549-1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-FINRA-2016-015 and should be submitted on or before September 7, 2016. VI. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of notice of the amended proposal in the Federal Register. The revisions made to the proposal in Amendment No. 1 changed how amounts ordered by arbitrators to be paid to opposing parties would be calculated for purposes of offsetting payments to one another. In particular, the proposed amendment would effectively replace the word ``damages'' with ``payments'' in order to capture those portions of awards attributable to amounts other than damages (e.g., costs and fees).\48\ The Commission believes that this modification responds to one of the primary concerns raised by commenters on the proposal that the proposal was never intended to be strictly limited to offsetting ``damages.'' \49\ Therefore, the Commission believes that the proposed amendment clarifies the intent of the proposal. --------------------------------------------------------------------------- \48\ See FINRA Letter; see also proposed FINRA Rules 12904(j) and 13904(j). \49\ See SIFMA Letter; see all FINRA Letters. --------------------------------------------------------------------------- Accordingly, the Commission finds good cause, pursuant to section 19(b)(2) of the Exchange Act,\50\ to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. --------------------------------------------------------------------------- \50\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- VII. Conclusion IT IS THEREFORE ORDERED pursuant to section 19(b)(2) \51\ of the Exchange Act that the proposal (SR-FINRA-2016-015), as modified by Amendment No. 1, be and hereby is approved on an accelerated basis. --------------------------------------------------------------------------- \51\ Id. [[Page 54904]] --------------------------------------------------------------------------- For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\52\ --------------------------------------------------------------------------- \52\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-19587 Filed 8-16-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 159 / Wednesday, August 17, 2016 / Notices 54901
Electronic Comments SECURITIES AND EXCHANGE 2016, FINRA responded to the comment
COMMISSION letters received in response to the
• Use the Commission’s Internet Notice and filed an amendment to the
comment form (http://www.sec.gov/ [Release No. 34–78557; File No. SR–FINRA–
2016–015]
proposed rule change (‘‘Amendment No.
rules/sro.shtml); or 1’’).5
• Send an email to rule-comments@ Self-Regulatory Organizations; This order provides notice of filing of
sec.gov. Please include File Number SR– Financial Industry Regulatory Amendment No. 1 and approves the
IEX–2016–12 on the subject line. Authority, Inc.; Notice of Filing of proposal, as modified by Amendment
Amendment No. 1 and Order Granting No. 1, on an accelerated basis.
Paper Comments Accelerated Approval of a Proposed II. Description of the Proposed Rule
• Send paper comments in triplicate Rule Change Amending Rule 12904 Change
to Secretary, Securities and Exchange (Awards) of the Code of Arbitration
Procedure for Customer Disputes and Original Proposal
Commission, 100 F Street NE.,
Rule 13904 (Awards) of the Code of FINRA Rule 12904 (Awards) of the
Washington, DC 20549–1090.
Arbitration Procedure for Industry Code of Arbitration Procedure for
All submissions should refer to File Disputes To Permit Award Offsets in Customer Disputes (‘‘Customer Code’’)
Number SR–IEX–2016–12. This file Arbitration, as Modified by Amendment and Rule 13904 (Awards) of the Code of
number should be included in the No. 1 Arbitration Procedure for Industry
subject line if email is used. To help the Disputes (‘‘Industry Code’’) (together,
August 11, 2016.
Commission process and review your ‘‘Codes’’) address awards issued by
comments more efficiently, please use I. Introduction arbitrators at the FINRA Office of
only one method. The Commission will On May 3, 2016, Financial Industry Dispute Resolution forum. Currently,
post all comments on the Commission’s Regulatory Authority, Inc. (‘‘FINRA’’) these rules provide, among other
Internet Web site (http://www.sec.gov/ filed with the Securities and Exchange matters, that awards must be in writing
Commission (‘‘Commission’’), pursuant and signed by a majority of the
rules/sro.shtml). Copies of the
to section 19(b)(1) of the Securities arbitrators or as required by applicable
submission, all subsequent
Exchange Act of 1934 (‘‘Exchange law. The rules itemize required
amendments, all written statements elements of awards, including a
with respect to the proposed rule Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to provide that statement of the damages awarded, and
change that are filed with the provide that all monetary awards shall
Commission, and all written absent specification to the contrary in
an arbitration award, when arbitrators be paid within 30 days of receipt unless
communications relating to the a motion to vacate has been filed in a
proposed rule change between the order opposing parties to pay each other
damages, the monetary awards shall court of competent jurisdiction.6 Rules
Commission and any person, other than 12904 and 13904 do not, however,
offset, and the party that owes the larger
those that may be withheld from the require arbitrators to specify whether
amount shall pay the net difference.
public in accordance with the The proposed rule change was opposing parties in a case should offset
provisions of 5 U.S.C. 552, will be published for comment in the Federal amounts awarded to each other.
available for Web site viewing and Register on May 23, 2016.3 The public Accordingly, FINRA has stated that
printing in the Commission’s Public comment period closed on June 13, when arbitrators order opposing parties
Reference Room, 100 F Street NE., 2016. On July 1, 2016, FINRA extended in a case to pay each other monetary
Washington, DC 20549 on official the time period in which the damages, but do not specify whether the
business days between the hours of Commission must approve the proposed party that owes the higher amount must
10:00 a.m. and 3:00 p.m. Copies of the rule change, disapprove the proposed pay the net difference, the lack of clarity
filing will also be available for rule change, or institute proceedings to has resulted in parties asking arbitrators
inspection and copying at the IEX’s determine whether to approve or to revise an award after a case has
principal office and on its Internet Web disapprove the proposed rule change to closed or in post-award litigation.7 For
site at www.iextrading.com. All August 19, 2016. The Commission example, arbitrators may award
comments received will be posted received nine comment letters in damages to a firm because an associated
response to the Notice.4 On July 15, person failed to pay money owed on a
without change; the Commission does
promissory note and award a lesser
not edit personal identifying 1 15 U.S.C. 78s(b)(1). amount to the associated person on a
information from submissions. You 2 17 counterclaim. If the arbitrators do not
CFR 240.19b–4.
should submit only information that 3 See Exchange Act Release No. 77844 (May 17,
specify that awards should be offset, the
you wish to make available publicly. All 2016), 81 FR 32359 (May 23, 2016) (File No. SR– firm may be required to pay the
submissions should refer to File FINRA–2016–015) (‘‘Notice’’).
4 See Letters from Leonard Steiner, Steiner &
Number SR–IEX–2016–12 and should President, Public Investors Arbitration Bar
Libo, dated May 9, 2016 (‘‘Steiner Letter’’); Steven
be submitted on or before September 7, B. Caruso, Maddox Hargett Caruso, P.C., dated May Association, dated June 13, 2016 (‘‘PIABA Letter’’);
2016. 18, 2016 (‘‘Caruso Letter’’); George H. Friedman, Bev Kennedy, Oakville, Ontario, Canada, dated June
Adjunct Professor of Law, Fordham Law School, 26, 2016 (‘‘Kennedy Letter’’). Comment letters are
For the Commission, by the Division of and immediate past FINRA Director of Arbitration, available at www.sec.gov.
5 See Letter from Margo A. Hassan, Associate
Trading and Markets, pursuant to delegated dated May 23, 2016 (‘‘Friedman Letter’’); James L.
authority.31 Komie, Schuyler, Roche and Crisham, P.C., dated Chief Counsel, FINRA, to the Commission, dated
mstockstill on DSK3G9T082PROD with NOTICES
June 7, 2016 (‘‘Komie Letter’’); Thomas E. Wall, July 15, 2016 (‘‘FINRA Letter’’). The FINRA Letter
Robert W. Errett, Attorney at Law and Public Arbitrator for FINRA, and the text of Amendment No. 1 are available on
Deputy Secretary. dated June 11, 2016 (‘‘Wall Letter’’); Kevin Carroll, FINRA’s Web site at http://www.finra.org, at the
Managing Director and Associate General Counsel, principal office of FINRA, at the Commission’s Web
[FR Doc. 2016–19585 Filed 8–16–16; 8:45 am] site at http://www.sec.gov/rules/sro/finra/2015/34-
Securities Industry and Financial Markets
BILLING CODE 8011–01–P Association, dated June 13, 2016 (‘‘SIFMA Letter’’); 75655.pdf, and at the Commission’s Public
David T. Bellaire, Executive Vice President and Reference Room.
6 See Notice at 32359.
General Counsel, Financial Services Institute, dated
31 17 CFR 200.30–3(a)(12). June 13, 2016 (‘‘FSI Letter’’); Hugh Berkson, 7 See id.
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![54902 Federal Register / Vol. 81, No. 159 / Wednesday, August 17, 2016 / Notices
counterclaim even if the associated among other things, that the proposal of unpaid awards is beyond the scope of
person refuses or is unable to pay the ‘‘is a fair, equitable and reasonable the proposed rule change.’’ 32 Another
larger amount.8 FINRA states that the approach,’’ 19 ‘‘would . . . provide commenter ‘‘strongly supported’’ the
offset issue could also arise in customer useful guidance to parties in . . . proposal, but noted that the proposal as
cases, such as those involving margin drafting their pleading,’’ 20 ‘‘would drafted would have the effect of limiting
account disputes.9 promote the finality of arbitration the default in favor of offset to only
FINRA is proposing to amend Rules awards by reducing the need for post- those awards specifically characterized
12904(j) and 13904(j) to provide that, award court litigation seeking to modify by arbitrators as ‘‘damages.’’ 33 The
absent specification to the contrary in awards to provide for offset,’’ 21 ‘‘is a commenter noted that arbitration
an award, when arbitrators order positive step forward in enhancing and awards, in addition to damages, may
opposing parties to pay each other improving the FINRA Dispute ‘‘consist of, and be characterized as,
damages, the monetary awards shall Resolution Process,’’ 22 ‘‘is fair and damages, costs, fees, etc.’’ 34 The
offset, and the party that owes the larger appropriate and offers an important commenter expressed its belief that the
amount shall pay the net difference.10 clarification,’’ 23 and ‘‘makes common ‘‘[p]roposal was never intended to be
FINRA is also proposing to replace sense.’’ 24 strictly limited to ‘damages’ offsets,’’
the bullets in Rules 12904 and 13904 Two commenters opposed providing a and therefore requested that FINRA
with numbers in order to make it easier default in favor of award offsets on the revise the proposal ‘‘so that it is not
to identify and cite subparts of the basis that parties already have the susceptible to such a narrow reading’’
rule.11 ability to request, and do request, that by: (i) Replacing the phrase ‘‘pay each
Proposal as Modified by Amendment panels ‘‘offset the competing claims in other damages’’ in the proposal with
No. 1 rendering their final awards.’’ 25 In ‘‘make payments to one another,’’ and
addition, one of these commenters (ii) replacing the phrase ‘‘that owes’’
In response to comments 12 (discussed stated that ‘‘[i]f the panel decides not to with ‘‘assessed.’’ 35 In its response,
below), FINRA is proposing to amend do an offset, it is not for FINRA to FINRA agreed ‘‘that the proposal was
proposed Rules 12904(j) and 13904(j), to mandate one.’’ 26 not intended to be strictly limited to
provide that, absent specification to the In its response, FINRA stated its belief ‘damages’ offsets’’ and proposed to
contrary in an award, when arbitrators ‘‘that the proposed rule change will amend the proposed rule change ‘‘for
order opposing parties to make eliminate ambiguity and reduce the risk purposes of clarity’’ as set forth in the
payments to one another, the monetary of post-award disputes.’’ 27 FINRA previous sentence.36
awards shall offset, and the party further responded that the proposed
assessed the larger amount shall pay the change ‘‘would likely reduce legal IV. Discussion and Commission
net difference. The proposed expenses to the party owed greater Findings
amendment would effectively replace damages by eliminating the need to
the word ‘‘damages’’ with ‘‘payments’’ After careful review of the proposed
apply for the reopening of the case or
in order to capture those portions of rule change, as modified by Amendment
going to court to seek award offsets, or
awards attributable to amounts other No. 1, the comment letters, and FINRA’s
seek other redress.’’ 28 Finally, FINRA
than damages (e.g., costs and fees). response to the comments, the
noted that the ‘‘proposed rule does not
Commission finds that the proposal, as
III. Comment Summary and FINRA’s override arbitrator discretion’’ and
modified by Amendment No. 1, is
Response stated that if the proposal is approved,
consistent with the requirements of the
‘‘FINRA will alert arbitrators to the
As noted above, the Commission Exchange Act and the rules and
amendment and will revise the Award
received nine comment letters on the regulations thereunder that are
Information Sheet to inform arbitrators
proposed rule change 13 and a response applicable to a national securities
of the offset default when arbitrators are
letter from FINRA.14 As discussed in association.37 Specifically, the
silent on the issue.’’ 29
more detail below, six of the nine Commission finds that the rule change
commenters expressed support for the Amendment Requests is consistent with section 15A(b)(6) of
proposal; 15 two of the nine commenters Two of the six commenters the Exchange Act,38 which requires,
expressed opposition to the proposed supporting FINRA’s proposal suggested among other things, that FINRA rules be
rule change; 16 and, one commenter did that FINRA also address additional designed to prevent fraudulent and
not address the subject matter of the related concerns.30 One commenter manipulative acts and practices, to
proposal.17 generally in support of the proposal promote just and equitable principles of
urged FINRA to also address the issue trade, and, in general, to protect
Default Favoring Award Offsets investors and the public interest.
of unpaid arbitration awards for
Six commenters supported a default investors by implementing a national As stated in the Notice, FINRA
in favor of award offsets,18 stating, recovery pool.31 In response to this believes that ‘‘providing a default in
suggestion, FINRA stated that the ‘‘issue favor of offset when arbitrators fail to
8 See id. See also, e.g., UBS Financial Services,
address the issue in an award would
Inc. (UBS) v. Thomas A. Mann (Mann), No.
2:2014cv10621, 2014 WL 1746249 (E.D. Mich. Apr.
19 Caruso Letter. benefit forum users by eliminating
30, 2014). 20 Friedman Letter. ambiguity and reducing the risk of post-
9 See Notice at 32359. 21 Komie Letter.
10 See id. 22 FSI Letter.
32 See FINRA Letter at 2.
11 See id. 23 SIFMA Letter.
mstockstill on DSK3G9T082PROD with NOTICES
33 See SIFMA Letter at 2.
12 See SIFMA Letter at 2. 24 PIABA Letter.
34 See id.
13 See supra note 4. 25 See Steiner Letter; see also Wall Letter.
35 See id.
14 See supra note 5. 26 Steiner Letter.
36 See FINRA Letter at 3–4.
15 See Caruso Letter, Friedman Letter, Komie 27 See FINRA Letter at 2.
37 In approving this rule change, the Commission
Letter, SIFMA Letter, FSI Letter, and PIABA Letter. 28 See id.
has considered the rule’s impact on efficiency,
16 See Steiner Letter and Wall Letter. 29 See id.
competition, and capital formation. See 15 U.S.C.
17 See Kennedy Letter. 30 See PIABA Letter and SIFMA Letter. 78c(f).
18 See supra note 15. 31 See PIABA Letter at 3. 38 15 U.S.C. 78o–3(b)(6).
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![54904 Federal Register / Vol. 81, No. 159 / Wednesday, August 17, 2016 / Notices
For the Commission, by the Division of II. Self-Regulatory Organization’s Implementation Date
Trading and Markets, pursuant to delegated Statement of the Purpose of, and
authority.52 The Exchange proposes to implement
Statutory Basis for, the Proposed Rule these amendments to its fee schedule on
Robert W. Errett, Change August 1, 2016.
Deputy Secretary.
[FR Doc. 2016–19587 Filed 8–16–16; 8:45 am] In its filing with the Commission, the 2. Statutory Basis
BILLING CODE 8011–01–P Exchange included statements The Exchange believes that the
concerning the purpose of and basis for proposed rule change is consistent with
the proposed rule change and discussed the requirements of the Act and the
SECURITIES AND EXCHANGE any comments it received on the rules and regulations thereunder that
COMMISSION proposed rule change. The text of these are applicable to a national securities
statements may be examined at the exchange, and, in particular, with the
[Release No. 34–78543; File No. SR– places specified in Item IV below. The requirements of Section 6 of the Act.6
BatsBZX–2016–45] Exchange has prepared summaries, set Specifically, the Exchange believes that
forth in Sections A, B, and C below, of the proposed rule change is consistent
Self-Regulatory Organizations; Bats the most significant parts of such with Section 6(b)(4) of the Act,7 in that
BZX Exchange, Inc.; Notice of Filing statements. it provides for the equitable allocation
and Immediate Effectiveness of a of reasonable dues, fees and other
Proposed Rule Change Related to A. Self-Regulatory Organization’s charges among members and other
Logical Port Fees Statement of the Purpose of, and the persons using any facility or system
Statutory Basis for, the Proposed Rule which the Exchange operates or
August 11, 2016.
Change controls. The proposed rule change
Pursuant to Section 19(b)(1) of the seeks to provide clarity to subscribers
Securities Exchange Act of 1934 (the 1. Purpose regarding the Exchange’s pro-rata billing
‘‘Act’’),1 and Rule 19b–4 thereunder,2 policy for logical ports by describing
The Exchange proposes to amend its
notice is hereby given that on July 29, how logical port fees may be pro-rated
fee schedule to modify the billing policy
2016, Bats BZX Exchange, Inc. (the for a new request and upon
for the logical port fees. The Exchange
‘‘Exchange’’ or ‘‘BZX’’) filed with the cancellation. The Exchange believes that
Securities and Exchange Commission currently charges for logical ports
the proposed pro-rata billing of fees for
(‘‘Commission’’) the proposed rule (including Multicast PITCH Spin Server logical ports is reasonable in that it is
change as described in Items I, II and III and GRP ports) $500 per port per similar to how port fees are pro-rated by
below, which Items have been prepared month. A logical port represents a port the Nasdaq Stock Market LLC
by the Exchange. The Exchange has established by the Exchange within the (‘‘Nasdaq’’).8
designated the proposed rule change as Exchange’s system for trading and The Exchange operates in a highly
one establishing or changing a member billing purposes. Each logical port competitive market in which exchanges
due, fee, or other charge imposed by the established is specific to a Member or offer connectivity services as a means to
Exchange under Section 19(b)(3)(A)(ii) non-Member and grants that Member or facilitate the trading activities of
of the Act 3 and Rule 19b–4(f)(2) non-Member the ability to operate a Members and other participants.
thereunder,4 which renders the specific application, such as FIX order Accordingly, fees charged for
proposed rule change effective upon entry or PITCH data receipt. The connectivity are constrained by the
filing with the Commission. The Exchange’s Multicast PITCH data feed is active competition for the order flow of
Commission is publishing this notice to available from two primary feeds, such participants as well as demand for
solicit comments on the proposed rule identified as the ‘‘A feed’’ and the ‘‘C market data from the Exchange. If a
change from interested persons. feed’’, which contain the same particular exchange charges excessive
information but differ only in the way fees for connectivity, affected Members
I. Self-Regulatory Organization’s will opt to terminate their connectivity
Statement of the Terms of Substance of such feeds are received. The Exchange
arrangements with that exchange, and
the Proposed Rule Change also offers two redundant feeds,
adopt a possible range of alternative
identified as the ‘‘B feed’’ and the ‘‘D
The Exchange filed a proposal to strategies, including routing to the
feed’’. Logical port fees are limited to applicable exchange through another
amend the fee schedule applicable to logical ports in the Exchange’s primary
Members 5 and non-Members of the participant or market center or taking
data center and no logical port fees are that exchange’s data indirectly.
Exchange pursuant to BZX Rules 15.1(a) assessed for redundant secondary data
and (c). Accordingly, an exchange charging
center ports. The Exchange assesses the excessive fees would stand to lose not
The text of the proposed rule change monthly per logical port fees to all only connectivity revenues, but also
is available at the Exchange’s Web site Member’s and non-Member’s logical revenues associated with the execution
at www.batstrading.com, at the ports. of orders routed to it by affected
principal office of the Exchange, and at members, and, to the extent applicable,
the Commission’s Public Reference The Exchange proposes to clarify
within its fee schedule how monthly market data revenues. The Exchange
Room. believes that this competitive dynamic
fees for logical ports may be pro-rated.
As proposed, new requests will be pro-
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52 17 CFR 200.30–3(a)(12). 6 15 U.S.C. 78f.
1 15 U.S.C. 78s(b)(1). rated for the first month of service. 7 15 U.S.C. 78f(b)(4).
2 17 CFR 240.19b–4. Cancellation requests are billed in full 8 See Nasdaq Price List—Trade Connectivity
3 15 U.S.C. 78s(b)(3)(A)(ii).
month increments as firms are required available at http://www.nasdaqtrader.com/
4 17 CFR 240.19b–4(f)(2).
to pay for the service for the remainder Trader.aspx?id=PriceListTrading2#connectivity.
5 The term ‘‘Member’’ is defined as ‘‘any The Exchange notes that, unlike as proposed by the
of the month, unless the session is
registered broker or dealer that has been admitted Exchange, Nasdaq does not pro-rate where the
to membership in the Exchange.’’ See Exchange terminated within the first month of session is terminated within the first month of
Rule 1.5(n). service. service.
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Document Created: 2018-02-09 11:35:08
Document Modified: 2018-02-09 11:35:08
| 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 | 81 FR 54901 |
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