81_FR_64746 81 FR 64564 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend Rule 12403 (Cases With Three Arbitrators) of the Code of Arbitration Procedure for Customer Disputes Relating to the Panel Selection Process in Arbitration

81 FR 64564 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend Rule 12403 (Cases With Three Arbitrators) of the Code of Arbitration Procedure for Customer Disputes Relating to the Panel Selection Process in Arbitration

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 182 (September 20, 2016)

Page Range64564-64566
FR Document2016-22535

Federal Register, Volume 81 Issue 182 (Tuesday, September 20, 2016) 
[Federal Register Volume 81, Number 182 (Tuesday, September 20, 2016)]
[Notices]
[Pages 64564-64566]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-22535]



[[Page 64564]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78836; File No. SR-FINRA-2016-022]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Amend Rule 
12403 (Cases With Three Arbitrators) of the Code of Arbitration 
Procedure for Customer Disputes Relating to the Panel Selection Process 
in Arbitration

September 14, 2016.

I. Introduction

    On July 1, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend FINRA Rule 12403 (Cases with Three 
Arbitrators) of the Code of Arbitration Procedure for Customer Disputes 
(``Customer Code'') relating to the panel selection process in 
arbitration. The proposal was published for comment in the Federal 
Register on July 15, 2016.\3\ The comment period closed on August 5, 
2016. The Commission received eight (8) comment letters on the 
proposal.\4\ On August 12, 2016, FINRA extended the time, until October 
13, 2016, for Commission action on the proposal.\5\ FINRA responded to 
the comment letters on August 18, 2016.\6\ This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78279 (July 11, 
2016), 81 FR 46139 (July 15, 2016) (File No. SR-FINRA-2016-022) 
(``Notice'').
    \4\ See Letter from Steven B. Caruso, Maddox Hargett & Caruso, 
P.C., dated July 14, 2016 (``Caruso Letter''); Letter from Julius Z. 
Frager, J.D., M.B.A., dated July 24, 2016 (``Frager Letter''); 
Letter from Ryan K. Bakhtiari, Aidikoff, Uhl & Bakhtiari, dated July 
26, 2016 (``Bakhtiari Letter''); Letter from Philip M. Aidikoff, 
Aidikoff, Uhl & Bakhtiari, dated July 27, 2016 (``Aidikoff 
Letter''); Letter from Hugh D. Berkson, President, Public Investors 
Arbitration Bar Association (``PIABA''), dated August 4, 2016 
(``PIABA Letter''); Letter from David T. Bellaire, Esq., Executive 
Vice President and General Counsel, Financial Services Institute 
(``FSI''), dated August 4, 2016 (``FSI Letter''); Letter from Tyler 
M. Fiorillo, Student Intern, and Elissa Germaine, Supervising 
Attorney, Pace Investor Rights Clinic (``PIRC''), dated August 5, 
2016 (``PIRC Letter''), and Letter from Glenn S. Gitomer, Chair of 
Litigation Practice Group, McCausland Keen Buckman, dated August 5, 
2016 (``Gitomer Letter'').
    \5\ See Letter from Margo A. Hassan, Associate Chief Counsel, 
Office of Dispute Resolution, FINRA, to Lourdes Gonzalez, Assistant 
Chief Counsel--Sales Practices, Division of Trading and Markets, 
Securities and Exchange Commission, dated August 12, 2016.
    \6\ See Letter from Margo A. Hassan, Associate Chief Counsel, 
Office of Dispute Resolution, FINRA, to Brent J. Fields, Secretary, 
Securities and Exchange Commission, dated August 18, 2016 (``FINRA 
Response Letter'').
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II. Description of the Proposed Rule Change

    FINRA allows parties to participate in selecting the arbitrators 
who serve on their cases. Parties select their arbitration panel from 
computer generated lists of arbitrators that FINRA sends them. Under 
current FINRA Rule 12403(a), in customer cases with three 
arbitrators,\7\ FINRA sends the parties three lists: a list of ten (10) 
chair-qualified public arbitrators, a list of ten (10) public 
arbitrators, and a list of ten (10) non-public arbitrators.\8\ The 
parties select their panel through a process of striking and ranking 
the arbitrators on the lists.\9\ Under current Rule 12403(c)(2), each 
party is allowed to strike up to four (4) arbitrators on the chair-
qualified public list and four (4) arbitrators on the public list. At 
least six (6) names must remain on each list. However, Rule 12403(c)(1) 
provides for unlimited strikes on the non-public list so that any party 
may select a panel of all public arbitrators in a customer case.\10\
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    \7\ See FINRA Rule 12401, which provides that if the amount of a 
claim is more than $100,000, exclusive of interest and expenses, or 
is unspecified, or if the claim does not request money damages, the 
panel will consist of three arbitrators, unless the parties agree in 
writing to one arbitrator.
    \8\ Public arbitrators do not have an affiliation with the 
financial industry. The non-public arbitrator roster includes 
individuals who: (1) Are employed in the financial industry; (2) 
provide services to industry entities and their employees; or (3) 
devote a significant part of their business to representing or 
providing services to parties in disputes concerning investments or 
employment relationships. See Notice, 81 FR at 46139; see also 
Securities Exchange Act Release No 74383 (Feb. 26, 2014), 80 FR 
11695 (Mar. 4, 2014) (File No. SR-FINRA-2014-028) (Self-Regulatory 
Organizations; Financial Industry Regulatory Authority, Inc.; Order 
Approving a Proposed Rule Change Relating to Revisions to the 
Definitions of Non-Public Arbitrator and Public Arbitrator).
    \9\ See FINRA Rule 12403(c).
    \10\ See Notice, 81 FR at 46139.
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    Under the Customer Code, when parties collectively strike all of 
the non-public arbitrators from the list, FINRA fills all three panel 
seats from the two 10-person lists of public arbitrators.\11\ When 
parties collectively strike all of the arbitrators appearing on the 
non-public list, FINRA returns to the public list to select the next 
highest ranked available arbitrator to fill the seat.\12\ If no public 
arbitrators remain available to fill the vacancy, FINRA returns to the 
chair-qualified public list to select the next highest ranked public 
chair.\13\ In doing so, there is a likelihood that FINRA will appoint 
an arbitrator who the parties accepted, but ranked lower on the public 
or chair-qualified public lists.\14\ FINRA believes that where parties 
collectively strike all the non-public arbitrators (i.e., where they 
desire an all-public panel), the parties should have greater choice of 
public arbitrators.\15\
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    \11\ See FINRA Rule 12403(d), (e).
    \12\ See FINRA Rule 12403(e).
    \13\ Id.
    \14\ See Notice, 81 FR at 46139.
    \15\ Id.
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    Consequently, FINRA is proposing to amend Rule 12403(a)(1) to 
increase the number of arbitrators on the public arbitrator list FINRA 
sends the parties from ten (10) to fifteen (15). FINRA believes this 
amendment would provide the parties with greater choice of public 
arbitrators during the panel selection process.\16\
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    \16\ Id. at 46139-40.
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    FINRA is also proposing to amend Rule 12403(c)(2) to increase the 
number of strikes to the public arbitrator list from four (4) to six 
(6), so that the proportion of strikes is the same under the amended 
rule as it is under the current rule. FINRA believes that increasing 
the number of strikes the parties can make to the newly increased 
public list will improve the likelihood that the parties' preferred 
arbitrators will be appointed to the panel.\17\
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    \17\ Id. at 46140
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III. Summary of Comments and FINRA's Response

    The Commission received eight (8) comment letters on the proposed 
rule change,\18\ and a response letter from FINRA.\19\ As discussed in 
more detail below, six (6) commenters expressed support for the 
proposal as filed,\20\ one (1) commenter generally supported the 
proposal while expressing additional concerns,\21\ and one (1) 
commenter proposed an alternative approach for panel selection in 
customer cases.\22\ The sections below outline the support, concerns 
raised and alternatives proposed by commenters, as well as FINRA's 
response.
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    \18\ See supra note 4.
    \19\ See supra note 6.
    \20\ See Caruso Letter; Bakhtiari Letter; Aidikoff Letter; FSI 
Letter; PIRC Letter; Gitomer Letter.
    \21\ See PIABA Letter.
    \22\ See Frager Letter.
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Support for the Proposal

    Six (6) commenters supported the proposed increase in the number of 
arbitrators on the public arbitrator list from ten (10) to fifteen 
(15), as well as the proportional increase from four (4) to six (6) 
strikes that parties may make to the public arbitrator list. These 
commenters stated, among other things, that the proposal would provide 
parties

[[Page 64565]]

with a greater choice in the arbitrator selection process, increasing 
the likelihood that an arbitrator preferred by both parties would be 
appointed to the panel.\23\ Consequently, these commenters generally 
believe that the proposed rule change ``is a fair, equitable and 
reasonable approach[,]'' \24\ ``is an important step towards protecting 
the investing public[,]'' \25\ ``will greatly enhance the fairness of 
the forum to both the investing public and FINRA members[,]'' \26\ 
``results in more equitable arbitration proceedings,'' \27\ and 
``benefits all parties, with a particularly positive impact on modest-
means investors.'' \28\
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    \23\ See Caruso Letter, Aidikoff Letter, FSI Letter, and PIRC 
Letter; see also Bakhtiari Letter, Gitmore Letter and PIABA Letter 
(stating that ``having the ability to consider more candidates helps 
both claimants and respondents.''
    \24\ See Caruso Letter; see also Aidikoff Letter and FSI Letter.
    \25\ See Bakhtiari Letter.
    \26\ See Gitomer Letter.
    \27\ See FSI Letter.
    \28\ See PIRC Letter.
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Additional Concerns

    One (1) commenter generally supported the proposal, but also 
expressed concerns about other aspects of the arbitrator selection 
process.\29\ Specifically, this commenter believes that FINRA should 
address the shortage of local arbitrators by intensifying its efforts 
to recruit suitable local individuals to serve as public and 
chair[hyphen]qualified arbitrators, particularly in locations with 
shallow arbitrator pools.\30\ In addition, this commenter recommends 
that FINRA increase the transparency of its list-selection process.\31\
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    \29\ See PIABA Letter.
    \30\ Id.
    \31\ Id.
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    In response, FINRA stated that it believes this commenter's 
suggestions are outside the scope of the proposal.\32\ Therefore, FINRA 
did not address them in its response.\33\
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    \32\ See FINRA Response Letter.
    \33\ Id.
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Alternative Proposal

    One (1) commenter did not directly oppose the proposal but did 
recommend that FINRA adopt an alternative approach for panel selection 
in customer cases. Among other things, this commenter suggested that 
FINRA maintain the three current ten-person lists of non-public, chair-
public and public arbitrators. Each party could strike all of the names 
on the non-public list, and four names on each public list. Each party 
would then submit to FINRA one combined list of ranked chair-public and 
public arbitrators. FINRA would appoint the highest ranked chair-
qualified arbitrator as chair. If the parties collectively struck all 
of the non-public arbitrators, FINRA would then appoint two public 
arbitrators from those remaining on the parties' combined list 
(regardless of whether they are chair-qualified).\34\ The commenter 
believes that this proposal would benefit parties to an arbitration 
because, among other things, they would not need to vet the proposed 
additional five public arbitrators.\35\
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    \34\ See Frager Letter; see also FINRA Response Letter 
(describing the commenter's proposal).
    \35\ See Frager Letter.
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    In its response, FINRA stated that forum users generally prefer 
greater choice during the arbitrator selection process.\36\ FINRA also 
stated that unlike the commenter's suggestion, the proposed rule change 
would provide parties greater choice by adding five (5) public 
arbitrators to the panel selection process.\37\ In addition, FINRA 
believes that the commenter's approach to panel selection would be 
complex and difficult for parties to navigate, especially parties or 
party representatives that do not use the forum on a regular basis.\38\ 
Accordingly, FINRA did not amend the proposal to reflect the 
commenter's recommended amendments.
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    \36\ See FINRA Response Letter (stating that forum users have 
indicated that ``the benefits of additional choice outweigh the cost 
of vetting additional arbitrators'').
    \37\ See FINRA Response Letter.
    \38\ Id.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposal, the comments 
received, and FINRA's response to the comments. Based on its review of 
the record, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\39\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\40\ 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. FINRA believes, and the Commission agrees, 
that the proposed rule change would protect investors and the public 
interest by providing greater choice for parties in customer cases with 
three arbitrators during the panel selection process.
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    \39\ In approving the proposed rule change, the Commission has 
also considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \40\ 15 U.S.C. 78o-3(b)(6).
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    As discussed above, the proposal would amend Rule 12403(a)(1) to 
increase the number of arbitrators on the public arbitrator list that 
FINRA sends the parties from ten (10) to fifteen (15).\41\ It would 
also amend Rule 12403(c)(2) to increase the number of strikes to the 
public arbitrator list from four (4) to six (6), so that the proportion 
of strikes is the same under the amended rule as it is under the 
current rule.\42\
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    \41\ See Notice, 81 FR at 46139.
    \42\ Id.
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    The Commission has considered the eight (8) comment letters 
received on the proposed rule change,\43\ along with FINRA's response 
to the comments.\44\ The Commission notes that most of the commenters 
support the proposed rule change, expressing the belief that the 
proposal would increase parties' choice among public arbitrators during 
the arbitrator selection process,\45\ and thereby benefit parties in 
arbitration and enhance the fairness of the forum.\46\ However, the 
Commission also recognizes commenters' concerns and suggestions.\47\
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    \43\ See supra note 4.
    \44\ See supra note 6.
    \45\ See supra note 23.
    \46\ See supra notes 24-28.
    \47\ See PIABA Letter and Frager Letter.
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    While the Commission acknowledges that FINRA's proposed amendments 
to Rule 12403 might result in an increased burden in vetting additional 
arbitrators, the Commission agrees with FINRA that parties would 
benefit from having greater choice in selecting public arbitrators, and 
that the benefits of this greater choice would outweigh the cost of 
additional vetting.\48\ The Commission additionally agrees with FINRA's 
assessment that the proposed alternative arbitrator selection process 
suggested by one commenter \49\ would not provide the benefit of 
greater choice and would unnecessarily complicate the arbitrator 
selection process.\50\
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    \48\ See FINRA Response Letter.
    \49\ See Frager Letter.
    \50\ See FINRA Response Letter.
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    In addition, the Commission agrees with FINRA's assessment that the 
``shortage of local arbitrators'' and the transparency of FINRA's 
arbitrator list-selection process \51\ are outside the scope of the 
proposal.\52\
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    \51\ See PIABA Letter.
    \52\ See FINRA Response Letter.
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    For the reasons stated above, the Commission finds that the 
proposed rule change is consistent with the Act

[[Page 64566]]

and the rules and regulations thereunder.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\53\ that the proposed rule change (SR-FINRA-2016-022) be, and 
hereby is, approved.
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    \53\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
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    \54\ 17 CFR 200.30-3(a)(12).

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-22535 Filed 9-19-16; 8:45 am]
 BILLING CODE 8011-01-P

64564 Federal Register / Vol. 81, No. 182 / Tuesday, September 20, 2016 / Notices SECURITIES AND EXCHANGE II. Description of the Proposed Rule FINRA will appoint an arbitrator who COMMISSION Change the parties accepted, but ranked lower FINRA allows parties to participate in on the public or chair-qualified public [Release No. 34–78836; File No. SR–FINRA– 2016–022] selecting the arbitrators who serve on lists.14 FINRA believes that where their cases. Parties select their parties collectively strike all the non- Self-Regulatory Organizations; public arbitrators (i.e., where they desire arbitration panel from computer Financial Industry Regulatory an all-public panel), the parties should generated lists of arbitrators that FINRA Authority, Inc.; Order Approving have greater choice of public sends them. Under current FINRA Rule Proposed Rule Change To Amend Rule arbitrators.15 12403(a), in customer cases with three Consequently, FINRA is proposing to 12403 (Cases With Three Arbitrators) arbitrators,7 FINRA sends the parties of the Code of Arbitration Procedure amend Rule 12403(a)(1) to increase the three lists: a list of ten (10) chair- number of arbitrators on the public for Customer Disputes Relating to the qualified public arbitrators, a list of ten Panel Selection Process in Arbitration arbitrator list FINRA sends the parties (10) public arbitrators, and a list of ten from ten (10) to fifteen (15). FINRA September 14, 2016. (10) non-public arbitrators.8 The parties believes this amendment would provide select their panel through a process of the parties with greater choice of public I. Introduction striking and ranking the arbitrators on arbitrators during the panel selection On July 1, 2016, Financial Industry the lists.9 Under current Rule process.16 Regulatory Authority, Inc. (‘‘FINRA’’) 12403(c)(2), each party is allowed to FINRA is also proposing to amend filed with the Securities and Exchange strike up to four (4) arbitrators on the Rule 12403(c)(2) to increase the number Commission (‘‘Commission’’), pursuant chair-qualified public list and four (4) of strikes to the public arbitrator list to Section 19(b)(1) of the Securities arbitrators on the public list. At least six from four (4) to six (6), so that the Exchange Act of 1934 (‘‘Act’’) 1 and Rule (6) names must remain on each list. proportion of strikes is the same under 19b–4 thereunder,2 a proposed rule However, Rule 12403(c)(1) provides for the amended rule as it is under the change to amend FINRA Rule 12403 unlimited strikes on the non-public list current rule. FINRA believes that (Cases with Three Arbitrators) of the so that any party may select a panel of increasing the number of strikes the Code of Arbitration Procedure for all public arbitrators in a customer parties can make to the newly increased Customer Disputes (‘‘Customer Code’’) case.10 public list will improve the likelihood relating to the panel selection process in Under the Customer Code, when that the parties’ preferred arbitrators arbitration. The proposal was published parties collectively strike all of the non- will be appointed to the panel.17 for comment in the Federal Register on public arbitrators from the list, FINRA July 15, 2016.3 The comment period fills all three panel seats from the two III. Summary of Comments and closed on August 5, 2016. The 10-person lists of public arbitrators.11 FINRA’s Response Commission received eight (8) comment When parties collectively strike all of The Commission received eight (8) letters on the proposal.4 On August 12, the arbitrators appearing on the non- comment letters on the proposed rule 2016, FINRA extended the time, until public list, FINRA returns to the public change,18 and a response letter from October 13, 2016, for Commission list to select the next highest ranked FINRA.19 As discussed in more detail action on the proposal.5 FINRA available arbitrator to fill the seat.12 If below, six (6) commenters expressed responded to the comment letters on no public arbitrators remain available to support for the proposal as filed,20 one August 18, 2016.6 This order approves fill the vacancy, FINRA returns to the (1) commenter generally supported the the proposed rule change. chair-qualified public list to select the proposal while expressing additional next highest ranked public chair.13 In concerns,21 and one (1) commenter 1 15 U.S.C. 78s(b)(1). doing so, there is a likelihood that proposed an alternative approach for 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 78279 panel selection in customer cases.22 The to Brent J. Fields, Secretary, Securities and sections below outline the support, (July 11, 2016), 81 FR 46139 (July 15, 2016) (File Exchange Commission, dated August 18, 2016 No. SR–FINRA–2016–022) (‘‘Notice’’). (‘‘FINRA Response Letter’’). concerns raised and alternatives 4 See Letter from Steven B. Caruso, Maddox 7 See FINRA Rule 12401, which provides that if proposed by commenters, as well as Hargett & Caruso, P.C., dated July 14, 2016 (‘‘Caruso the amount of a claim is more than $100,000, FINRA’s response. Letter’’); Letter from Julius Z. Frager, J.D., M.B.A., exclusive of interest and expenses, or is dated July 24, 2016 (‘‘Frager Letter’’); Letter from unspecified, or if the claim does not request money Support for the Proposal Ryan K. Bakhtiari, Aidikoff, Uhl & Bakhtiari, dated damages, the panel will consist of three arbitrators, Six (6) commenters supported the July 26, 2016 (‘‘Bakhtiari Letter’’); Letter from Philip unless the parties agree in writing to one arbitrator. M. Aidikoff, Aidikoff, Uhl & Bakhtiari, dated July 8 Public arbitrators do not have an affiliation with proposed increase in the number of 27, 2016 (‘‘Aidikoff Letter’’); Letter from Hugh D. arbitrators on the public arbitrator list Berkson, President, Public Investors Arbitration Bar the financial industry. The non-public arbitrator Association (‘‘PIABA’’), dated August 4, 2016 roster includes individuals who: (1) Are employed from ten (10) to fifteen (15), as well as (‘‘PIABA Letter’’); Letter from David T. Bellaire, in the financial industry; (2) provide services to the proportional increase from four (4) industry entities and their employees; or (3) devote Esq., Executive Vice President and General Counsel, a significant part of their business to representing to six (6) strikes that parties may make Financial Services Institute (‘‘FSI’’), dated August 4, to the public arbitrator list. These 2016 (‘‘FSI Letter’’); Letter from Tyler M. Fiorillo, or providing services to parties in disputes Student Intern, and Elissa Germaine, Supervising concerning investments or employment commenters stated, among other things, Attorney, Pace Investor Rights Clinic (‘‘PIRC’’), relationships. See Notice, 81 FR at 46139; see also that the proposal would provide parties dated August 5, 2016 (‘‘PIRC Letter’’), and Letter Securities Exchange Act Release No 74383 (Feb. 26, from Glenn S. Gitomer, Chair of Litigation Practice 2014), 80 FR 11695 (Mar. 4, 2014) (File No. SR– 14 See FINRA–2014–028) (Self-Regulatory Organizations; Notice, 81 FR at 46139. Group, McCausland Keen Buckman, dated August sradovich on DSK3GMQ082PROD with NOTICES 15 Id. 5, 2016 (‘‘Gitomer Letter’’). Financial Industry Regulatory Authority, Inc.; Order 16 Id. at 46139–40. 5 See Letter from Margo A. Hassan, Associate Approving a Proposed Rule Change Relating to Revisions to the Definitions of Non-Public 17 Id. at 46140 Chief Counsel, Office of Dispute Resolution, FINRA, Arbitrator and Public Arbitrator). 18 See supra note 4. to Lourdes Gonzalez, Assistant Chief Counsel— 9 See FINRA Rule 12403(c). 19 See supra note 6. Sales Practices, Division of Trading and Markets, 10 See Notice, 81 FR at 46139. 20 See Caruso Letter; Bakhtiari Letter; Aidikoff Securities and Exchange Commission, dated August 11 See FINRA Rule 12403(d), (e). Letter; FSI Letter; PIRC Letter; Gitomer Letter. 12, 2016. 6 See Letter from Margo A. Hassan, Associate 12 See FINRA Rule 12403(e). 21 See PIABA Letter. Chief Counsel, Office of Dispute Resolution, FINRA, 13 Id. 22 See Frager Letter. VerDate Sep<11>2014 17:13 Sep 19, 2016 Jkt 238001 PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 E:\FR\FM\20SEN1.SGM 20SEN1

Federal Register / Vol. 81, No. 182 / Tuesday, September 20, 2016 / Notices 64565 with a greater choice in the arbitrator public and public arbitrators. FINRA protect investors and the public interest selection process, increasing the would appoint the highest ranked chair- by providing greater choice for parties likelihood that an arbitrator preferred by qualified arbitrator as chair. If the in customer cases with three arbitrators both parties would be appointed to the parties collectively struck all of the non- during the panel selection process. panel.23 Consequently, these public arbitrators, FINRA would then As discussed above, the proposal commenters generally believe that the appoint two public arbitrators from would amend Rule 12403(a)(1) to proposed rule change ‘‘is a fair, those remaining on the parties’ increase the number of arbitrators on the equitable and reasonable approach[,]’’ 24 combined list (regardless of whether public arbitrator list that FINRA sends ‘‘is an important step towards protecting they are chair-qualified).34 The the parties from ten (10) to fifteen (15).41 the investing public[,]’’ 25 ‘‘will greatly commenter believes that this proposal It would also amend Rule 12403(c)(2) to enhance the fairness of the forum to would benefit parties to an arbitration increase the number of strikes to the both the investing public and FINRA because, among other things, they public arbitrator list from four (4) to six members[,]’’ 26 ‘‘results in more would not need to vet the proposed (6), so that the proportion of strikes is equitable arbitration proceedings,’’ 27 additional five public arbitrators.35 the same under the amended rule as it and ‘‘benefits all parties, with a In its response, FINRA stated that is under the current rule.42 particularly positive impact on modest- forum users generally prefer greater The Commission has considered the means investors.’’ 28 choice during the arbitrator selection eight (8) comment letters received on process.36 FINRA also stated that unlike the proposed rule change,43 along with Additional Concerns the commenter’s suggestion, the FINRA’s response to the comments.44 One (1) commenter generally proposed rule change would provide The Commission notes that most of the supported the proposal, but also parties greater choice by adding five (5) commenters support the proposed rule expressed concerns about other aspects public arbitrators to the panel selection change, expressing the belief that the of the arbitrator selection process.29 process.37 In addition, FINRA believes proposal would increase parties’ choice Specifically, this commenter believes that the commenter’s approach to panel among public arbitrators during the that FINRA should address the shortage selection would be complex and arbitrator selection process,45 and of local arbitrators by intensifying its difficult for parties to navigate, thereby benefit parties in arbitration and efforts to recruit suitable local especially parties or party enhance the fairness of the forum.46 individuals to serve as public and representatives that do not use the However, the Commission also chair-qualified arbitrators, particularly forum on a regular basis.38 Accordingly, recognizes commenters’ concerns and in locations with shallow arbitrator FINRA did not amend the proposal to suggestions.47 pools.30 In addition, this commenter reflect the commenter’s recommended recommends that FINRA increase the While the Commission acknowledges amendments. transparency of its list-selection that FINRA’s proposed amendments to process.31 IV. Discussion and Commission Rule 12403 might result in an increased In response, FINRA stated that it Findings burden in vetting additional arbitrators, believes this commenter’s suggestions The Commission has carefully the Commission agrees with FINRA that are outside the scope of the proposal.32 considered the proposal, the comments parties would benefit from having Therefore, FINRA did not address them received, and FINRA’s response to the greater choice in selecting public in its response.33 comments. Based on its review of the arbitrators, and that the benefits of this record, the Commission finds that the greater choice would outweigh the cost Alternative Proposal proposed rule change is consistent with of additional vetting.48 The Commission One (1) commenter did not directly the requirements of the Act and the additionally agrees with FINRA’s oppose the proposal but did recommend rules and regulations thereunder assessment that the proposed alternative that FINRA adopt an alternative applicable to a national securities arbitrator selection process suggested by approach for panel selection in association.39 In particular, the one commenter 49 would not provide customer cases. Among other things, Commission finds that the proposed the benefit of greater choice and would this commenter suggested that FINRA rule change is consistent with Section unnecessarily complicate the arbitrator maintain the three current ten-person 15A(b)(6) of the Act,40 which requires, selection process.50 lists of non-public, chair-public and among other things, that FINRA’s rules In addition, the Commission agrees public arbitrators. Each party could be designed to prevent fraudulent and with FINRA’s assessment that the strike all of the names on the non-public manipulative acts and practices, to ‘‘shortage of local arbitrators’’ and the list, and four names on each public list. promote just and equitable principles of transparency of FINRA’s arbitrator list- Each party would then submit to FINRA trade, and, in general, to protect selection process 51 are outside the one combined list of ranked chair- investors and the public interest. FINRA scope of the proposal.52 believes, and the Commission agrees, For the reasons stated above, the 23 See Caruso Letter, Aidikoff Letter, FSI Letter, that the proposed rule change would Commission finds that the proposed and PIRC Letter; see also Bakhtiari Letter, Gitmore rule change is consistent with the Act Letter and PIABA Letter (stating that ‘‘having the 34 See Frager Letter; see also FINRA Response ability to consider more candidates helps both Letter (describing the commenter’s proposal). 41 See Notice, 81 FR at 46139. claimants and respondents.’’ 35 See Frager Letter. 24 See Caruso Letter; see also Aidikoff Letter and 42 Id. 36 See FINRA Response Letter (stating that forum FSI Letter. 43 See supra note 4. 25 See Bakhtiari Letter. users have indicated that ‘‘the benefits of additional 44 See supra note 6. sradovich on DSK3GMQ082PROD with NOTICES 26 See Gitomer Letter. choice outweigh the cost of vetting additional 45 See supra note 23. arbitrators’’). 27 See FSI Letter. 46 See supra notes 24–28. 37 See FINRA Response Letter. 28 See PIRC Letter. 47 See PIABA Letter and Frager Letter. 38 Id. 29 See PIABA Letter. 48 See FINRA Response Letter. 39 In approving the proposed rule change, the 30 Id. 49 See Frager Letter. Commission has also considered its impact on 31 Id. 50 See FINRA Response Letter. efficiency, competition, and capital formation. See 32 See FINRA Response Letter. 15 U.S.C. 78c(f). 51 See PIABA Letter. 33 Id. 40 15 U.S.C. 78o–3(b)(6). 52 See FINRA Response Letter. VerDate Sep<11>2014 17:13 Sep 19, 2016 Jkt 238001 PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 E:\FR\FM\20SEN1.SGM 20SEN1

64566 Federal Register / Vol. 81, No. 182 / Tuesday, September 20, 2016 / Notices and the rules and regulations functionality necessary to implement thereunder.6 The Participants filed the thereunder. the Regulation NMS Plan to Implement Plan to comply with an order issued by a Tick Size Pilot Program (‘‘Plan’’).4 The the Commission on June 24, 2014 (the V. Conclusion Exchange is also proposing amendments ‘‘June 2014 Order’’).7 The Plan 8 was It is therefore ordered, pursuant to to Rule 4770(a) and (c) to clarify how published for comment in the Federal Section 19(b)(2) of the Act,53 that the the Trade-at exception may be satisfied. Register on November 7, 2014,9 and proposed rule change (SR–FINRA– The text of the proposed rule change approved by the Commission, as 2016–022) be, and hereby is, approved. is available on the Exchange’s Web site modified, on May 6, 2015.10 For the Commission, by the Division The Plan is designed to allow the at http://nasdaqbx.cchwallstreet.com/, of Trading and Markets, pursuant to Commission, market participants, and at the principal office of the Exchange, delegated authority.54 the public to study and assess the and at the Commission’s Public Robert W. Errett, Reference Room. impact of increment conventions on the Deputy Secretary. liquidity and trading of the common II. Self-Regulatory Organization’s stocks of small capitalization [FR Doc. 2016–22535 Filed 9–19–16; 8:45 am] Statement of the Purpose of, and companies. The Commission plans to BILLING CODE 8011–01–P Statutory Basis for, the Proposed Rule use the Tick Size Pilot Program to assess Change. whether wider tick sizes enhance the SECURITIES AND EXCHANGE In its filing with the Commission, the market quality of Pilot Securities for the COMMISSION Exchange included statements benefit of issuers and investors. Each concerning the purpose of and basis for Participant is required to comply with, [Release No. 34–78838; File No. SR–BX– and to enforce compliance by its 2016–050] the proposed rule change and discussed any comments it received on the members, as applicable, with the Self-Regulatory Organizations; proposed rule change. The text of these provisions of the Plan. statements may be examined at the On October 9, 2015, the Operating NASDAQ BX, Inc.; Notice of Filing of places specified in Item IV below. The Committee approved the Exchange’s Proposed Rule Change To Describe Exchange has prepared summaries, set proposed rules as model Participant Changes to System Functionality forth in sections A, B, and C below, of rules that would require compliance by Necessary To Implement the Tick Size the most significant aspects of such a Participant’s members with the Pilot Program statements. provisions of the Plan, as applicable, September 14, 2016. and would establish written policies Pursuant to Section 19(b)(1) of the A. Self-Regulatory Organization’s and procedures reasonably designed to Securities Exchange Act of 1934 Statement of the Purpose of, and the comply with applicable quoting and (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Statutory Basis for, the Proposed Rule trading requirements specified in the notice is hereby given that on Change Plan.11 As described more fully below, September 7, 2016, NASDAQ BX, Inc. 1. Purpose the proposed rules would require (‘‘BX’’ or ‘‘Exchange’’) filed with the members to comply with the Plan and Securities and Exchange Commission Background provide for the widening of quoting and (‘‘SEC’’ or ‘‘Commission’’) the proposed On August 25, 2014, NYSE Group, trading increments for Pilot Securities, rule change as described in Items I, II, Inc., on behalf of Bats BZX Exchange, consistent with the Plan. and III, below, which Items have been Inc. (f/k/a BATS Exchange, Inc.), Bats The Plan will include stocks of prepared by the Exchange. The BYX Exchange, Inc. (f/k/a BATS Y- companies with $3 billion or less in Commission is publishing this notice to Exchange, Inc.), Chicago Stock market capitalization, an average daily solicit comments on the proposed rule Exchange, Inc., EDGA Exchange, Inc., trading volume of one million shares or change from interested persons. EDGX Exchange, Inc., the Exchange, less, and a volume weighted average Financial Industry Regulatory price of at least $2.00 for every trading I. Self-Regulatory Organization’s day. The Plan will consist of a control Statement of the Terms of Substance of Authority, Inc. (‘‘FINRA’’), The the Proposed Rule Change NASDAQ Stock Market LLC, New York 6 See Letter from Brendon J. Weiss, Vice Stock Exchange LLC, NASDAQ PHLX President, Intercontinental Exchange, Inc., to The Exchange proposes to adopt LLC, NYSE Arca, Inc., and the NYSE Secretary, Commission, dated August 25, 2014. paragraph (d) to Exchange Rule 4770 to MKT LLC, (collectively ‘‘Participants’’), 7 See Securities Exchange Act Release No. 72460 describe changes to System 3 filed the Plan with the Commission (June 24, 2014), 79 FR 36840 (June 30, 2014). 8 Unless otherwise specified, capitalized terms 53 15 pursuant to Section 11A of the Act 5 and U.S.C. 78s(b)(2). used in this rule filing are based on the defined 54 17 CFR 200.30–3(a)(12). Rule 608 of Regulation NMS terms of the Plan. 1 15 U.S.C. 78s(b)(1). 9 See Securities and Exchange Act Release No. 2 17 CFR 240.19b–4. reporting system, if required, for dissemination to 73511 (November 3, 2014), 79 FR 66423 (File No. 3 The term ‘‘System’’ is defined as the automated the public and industry; and provides participants 4–657) (Tick Plan Filing). system for order execution and trade reporting with monitoring and risk management capabilities 10 See Tick Plan Approval Order, supra note 4. owned and operated by the Exchange. The System to facilitate participation in a ‘‘locked-in’’ trading See also Securities Exchange Act Release No. 77277 comprises: (1) A montage for Quotes and Orders, environment; and (4) data feeds that can be used to (March 3, 2016), 81 FR 12162 (March 8, 2016) (File referred to herein as the ‘‘Exchange Book,’’ that display with attribution to Participants’ MPIDs all No. 4–657), which amended the Plan to add collects and ranks all Quotes and Orders submitted Quotes and displayed Orders on both the bid and National Stock Exchange, Inc. as a Participant. by Participants; (2) an Order execution service that offer side of the market for all price levels then 11 The Operating Committee is required under sradovich on DSK3GMQ082PROD with NOTICES enables Participants to automatically execute within the NASDAQ OMX BX Equities Market, and Section III(C)(2) of the Plan to ‘‘monitor the transactions in System Securities; and provides that disseminate such additional information about procedures established pursuant to the Plan and Participants with sufficient monitoring and Quotes, Orders, and transactions within the System advise Participants with respect to any deficiencies, updating capability to participate in an automated as shall be reflected in the Exchange Rules. See problems, or recommendations as the Operating execution environment; (3) a trade reporting service Rule 4701(a). Committee may deem appropriate.’’ The Operating 4 See Securities Exchange Act Release No. 74892 that submits ‘‘locked-in’’ trades for clearing to a Committee is also required to ‘‘establish registered clearing agency for clearance and (May 6, 2015), 80 FR 27513 (May 13, 2015) specifications and procedures for the settlement; transmits last-sale reports of (‘‘Approval Order’’). implementation and operation of the Plan that are transactions automatically to the national trade 5 15 U.S.C. 78k–1. consistent with the provisions of the Plan.’’ VerDate Sep<11>2014 17:13 Sep 19, 2016 Jkt 238001 PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 E:\FR\FM\20SEN1.SGM 20SEN1


Document Created: 2018-02-09 13:20:20
Document Modified: 2018-02-09 13:20:20
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 64564 
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