83 FR 52857 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Amend the Arbitrator Payment Rule To Pay Each Arbitrator a $200 Honorarium To Decide Without a Hearing Session a Contested Subpoena Request or a Contested Order for Production or Appearance
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 202 (October 18, 2018)
Federal Register Volume 83, Issue 202 (October 18, 2018)
| Page Range | 52857-52860 | |
| FR Document | 2018-22681 |
[Federal Register Volume 83, Number 202 (Thursday, October 18, 2018)] [Notices] [Pages 52857-52860] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-22681] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-84418; File No. SR-FINRA-2018-026] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Amend the Arbitrator Payment Rule To Pay Each Arbitrator a $200 Honorarium To Decide Without a Hearing Session a Contested Subpoena Request or a Contested Order for Production or Appearance October 12, 2018. I. Introduction On July 13, 2018, 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 amend FINRA Rule 12214(c) of the Code of Arbitration Procedure for Customer Disputes (``Customer Code'') and FINRA Rule 13214(c) through (e) of the Code of Arbitration Procedure for Industry Disputes (``Industry Code'' and together, ``Codes''), to provide that FINRA will pay each arbitrator a $200 honorarium to decide without a hearing session a contested subpoena request or a contested order for production or appearance. --------------------------------------------------------------------------- \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 July 30, 2018.\3\ The public comment period closed on August 20, 2018. The Commission received four comment letters in response to the Notice, all supporting the proposed rule change.\4\ On October 5, 2018, FINRA responded to the comment letters received in response to the Notice.\5\ On August 23, 2018, 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 October 26, 2018.\6\ This order approves the proposed rule change. --------------------------------------------------------------------------- \3\ See Exchange Act Release No. 83699 (Jul. 24, 2018), 83 FR 36647 (Jul. 30, 2018) (File No. SR-FINRA-2018-026) (``Notice''). \4\ See Letter from Steven B. Caruso, Maddox Hargett Caruso, P.C., dated July 25, 2018 (``Caruso Letter''); letter from Ryan K. Bakhtiari, Aidikoff, Uhl and Bakhtiari, dated July 31, 2018 (``Bakhtiari Letter''); letter from Glenn S. Gitomer, McCausland, Keen and Buckman, dated August 1, 2018 (``Gitomer Letter''); and letter from Andrew Stoltmann, President, Public Investors Arbitration Bar Association (``PIABA''), dated August 15, 2018 (``PIABA Letter''). Comment letters are available on the Commission's website at https://www.sec.gov. \5\ See Letter from Mignon McLemore, Assistant Chief Counsel, FINRA, to Mr. Brent J. Fields, Secretary, U.S. Securities and Exchange Commission, dated October 5, 2018 (``FINRA Letter''). The FINRA Letter is available on FINRA's website at http://www.finra.org, at the principal office of FINRA, at the Commission's website at http://www.finra.org/sites/default/files/rule_filing_file/SR-FINRA-2018-026-response-to-comments.pdf, and at the Commission's Public Reference Room. \6\ See Letter from Mignon McLemore, Assistant Chief Counsel, FINRA, to Lourdes Gonzalez, Assistant Chief Counsel--Sales Practices, Division of Trading and Markets, Securities and Exchange Commission, dated August 23, 2018. --------------------------------------------------------------------------- II. Description of the Proposed Rule Change \7\ --------------------------------------------------------------------------- \7\ The subsequent description of the proposed rule change is substantially excerpted from FINRA's description in the Notice. See Notice, 83 FR at 36648-36649. --------------------------------------------------------------------------- Background Parties to an arbitration typically exchange documents and information with each other to prepare for the arbitration through the discovery process.\8\ If one party objects to a discovery request, the party seeking the documents or information, or appearance may file a motion requesting that the arbitrator issue a subpoena \9\ or an order compelling discovery.\10\ The opposing party may oppose the filing party's motion, contesting the request for a subpoena \11\ or order compelling discovery. --------------------------------------------------------------------------- \8\ See FINRA Rules 12505 and 13505. \9\ See FINRA Rules 12512 and 13512. \10\ See FINRA Rules 12513 and 13513. \11\ See FINRA Rules 12512(c) and 13512(c). --------------------------------------------------------------------------- Subpoena for Appearance Currently, under FINRA Rule 12214(d),\12\ each arbitrator who decides one or more contested subpoenas without a hearing session receives a one-time honorarium of $250 during the life of the arbitration case.\13\ The rule caps the total amount that the parties could pay the arbitrators to decide contested subpoena requests without a hearing in any one case at $750.\14\ The panel allocates the cost of the honorarium to the parties in the award.\15\ Arbitrators do not receive an honorarium for deciding unopposed requests to issue a subpoena.\16\ --------------------------------------------------------------------------- \12\ See also FINRA Rule 13214(d). \13\ See FINRA Rules 12214(d)(1) and 13214(d)(1). If a hearing session is required to decide the motion, each arbitrator who participates in the hearing session will receive a $300 honorarium instead. See FINRA Rules 12214(a) and 13214(a). \14\ See FINRA Rules 12214(d)(1) and 13214(d)(1). The chairperson of a three-person panel will decide the contested subpoena request without a hearing session, for which the chairperson would be paid $250. The honorarium for contested subpoena requests could increase in $250 increments, if, for example, the chairperson recuses or withdraws from the panel and the replacement chairperson must decide another contested subpoena request without a hearing session. In this instance, the replacement chairperson would receive a $250 honorarium for this work. In no event would the parties be charged more than $750 per case. See Notice at 36648, note 14. \15\ See FINRA Rules 12214(d)(3) and 13214(d)(3). \16\ See Notice at 36648. --------------------------------------------------------------------------- Order for Production or Appearance The Codes do not expressly provide an honorarium for arbitrators who decide requests for orders for production or appearance without a hearing session. FINRA does, however, provide arbitrators a $200 honorarium to decide discovery-related motions without a hearing. \17\ Accordingly, FINRA categorizes requests to issue orders for production as discovery-related motions and pays $200 honorarium for each arbitrator deciding [[Page 52858]] the order, regardless of whether it is contested. FINRA does not pay the honorarium, however, for an order for appearance, regardless of whether it is contested or unopposed.\18\ --------------------------------------------------------------------------- \17\ FINRA Rules 12214(c) and 13214(c) provide that FINRA will pay each arbitrator an honorarium of $200 to decide a discovery- related motion without a hearing session. \18\ See Notice at 36648-36649. --------------------------------------------------------------------------- Proposed Rule Change FINRA is proposing to amend FINRA Rules 12214(c) and 13214(c) to provide that FINRA would pay each arbitrator an honorarium of $200 to decide, without a hearing session: (i) A discovery-related motion; \19\ (ii) a motion that contains one or more contested subpoena requests \20\ or contested orders for production or appearance; or (iii) a motion that contains one or more contested subpoena requests and contested orders for production or appearance.\21\ --------------------------------------------------------------------------- \19\ Under the proposed rule change, FINRA would add a contested subpoena request and a contested order for production or appearance to the discovery-related motions rule; however, FINRA would not change the rule language explaining what constitutes a discovery- related motion. See Notice at 36649, note 27. \20\ The proposal would retain what constitutes a contested subpoena by moving the description from FINRA Rule 12214(d)(2) to FINRA Rule 12214(c)(2)(ii). See Notice at 36649, note 28. \21\ See Notice at 36649. --------------------------------------------------------------------------- Contested Subpoena Specifically, the proposed rule change would reduce the honorarium that an arbitrator receives to decide a contested subpoena request from $250 to $200; however, it would also remove the per-case cap on these payments. Thus, under the proposed rule change, an arbitrator would receive a $200 honorarium for each contested subpoena request that he or she decides.\22\ --------------------------------------------------------------------------- \22\ See id. As is current practice, arbitrators would not receive an honorarium for an unopposed subpoena request. See Notice at 36649, note 29. --------------------------------------------------------------------------- Contested Orders for Production or Appearance In addition, the proposed rule change would now expressly provide a $200 honorarium for arbitrators deciding a contested order for production or appearance without a hearing session. Specifically, FINRA would not need to categorize requests to issue orders for production as discovery-related motions. Similarly, arbitrators would receive an honorarium for deciding without a hearing session, a contested arbitrator order for appearance as well as for production. Under the proposal, however, arbitrators would no longer receive an honorarium for deciding unopposed requests to issue an order for production.\23\ --------------------------------------------------------------------------- \23\ See Notice at 36649. --------------------------------------------------------------------------- The proposed rule change would describe what constitutes a contested order for production or appearance by modeling the description on that of a contested subpoena request. Specifically, proposed FINRA Rule 12214(c)(2)(iii) would provide that a contested order for production or appearance shall include a motion requesting the issuance of an order for production or appearance, a written objection from the party opposing the issuance of the order, and any other documents supporting a party's position.\24\ --------------------------------------------------------------------------- \24\ Id. --------------------------------------------------------------------------- Moreover, like a contested subpoena request, a party would be permitted to request the issuance of one or more orders in one motion,\25\ and if one or all of the arbitrator orders become contested, each arbitrator who decides the motion would receive one honorarium payment of $200.\26\ --------------------------------------------------------------------------- \25\ The proposed rule change would also permit parties to request the issuance of one or more subpoenas in the same motion or a combination of subpoena and order requests. See Notice at 36649, note 30. \26\ See Notice at 36649. --------------------------------------------------------------------------- Additional Proposed Changes The proposed rule change would also amend Rules 12214(a) and 13214(a) to make a few non-substantive changes.\27\ --------------------------------------------------------------------------- \27\ See id. --------------------------------------------------------------------------- III. Comment Summary Supportive Comments As noted above, the Commission received four comment letters on the proposed rule change, supporting the proposal.\28\ All four commenters support the proposal and believe that it represents a fair and reasonable approach to helping ensure that arbitrators are compensated according to the time and effort they devote to deciding a motion.\29\ Specifically, one commenter states that ``removing the per-case cap on [honorarium for contested subpoena requests] would provide consistency and fairness to the arbitrator payment rules by ensuring that the payment arbitrators receive for deciding these requests is commensurate with the time and effort spent on each motion.'' \30\ Two other commenters believe that the proposal would help FINRA retain and recruit qualified arbitrators to its arbitration forum.\31\ In particular, one commenter states that ``paying arbitrators fair honoraria commensurate with the time and effort required for deciding motions tends to encourage qualified arbitrators to serve on cases and as Chair.'' \32\ --------------------------------------------------------------------------- \28\ See supra note 4. \29\ See Caruso Letter, Bakhtiari Letter, Gitomer Letter, and PIABA Letter; see also FINRA Letter. \30\ Caruso Letter; see also Gitomer Letter (stating that the proposal would provide ``reasonable compensation for the time and effort spent in deciding these important requests.''). \31\ See Bakhtiari Letter and PIABA Letter. \32\ PIABA Letter; see also Bakhtiari Letter (stating that ``fairly compensate[ing] arbitration Chairpersons for deciding contested subpoenas and orders of production and appearance'' would help FINRA recruit and retain qualified arbitrators to preside over its forum.). --------------------------------------------------------------------------- Additional Guidance One commenter also suggests that FINRA take additional action regarding the assessment of fees related to discovery-related motions for subpoenas and orders. Specifically, the commenter suggests that FINRA should ``informally advise arbitrators to consider assessing all fees to the non-prevailing party on contested discovery motions, where in the arbitrators' view the non-prevailing party's position lacked merit.'' \33\ Otherwise, the commenter suggests arbitrators may ``naturally'' split fees between the parties which could encourage ``spurious'' motion practice.\34\ --------------------------------------------------------------------------- \33\ PIABA Letter. \34\ See id. --------------------------------------------------------------------------- In response, FINRA states that its arbitration forum already provides a mechanism for parties to argue their positions regarding the assessments of fees associated with an arbitration proceeding.\35\ Specifically, FINRA states that in the absence of an agreement between the parties governing the allocation of these fees, FINRA Rules 12902(c) and 13902(c) give arbitrators discretion to determine how these fees should be allocated in an award.\36\ FINRA also states, however, that ``[p]arties may argue their positions regarding the appropriate assessment of fees and expenses in their motion papers or responses thereto the panel.'' \37\ Accordingly, FINRA rejects the notion that formal guidance on a panel's authority is necessary.\38\ --------------------------------------------------------------------------- \35\ See supra note 5. \36\ See FINRA Letter. \37\ FINRA Letter. \38\ See FINRA Letter. --------------------------------------------------------------------------- IV. Discussion and Commission Findings After careful review of the proposed rule change and the comment letters, the Commission finds that the proposal is consistent with the requirements of the Exchange Act and the rules and regulations thereunder that are applicable to a national securities association.\39\ Specifically, the [[Page 52859]] Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Exchange Act,\40\ 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, and Exchange Act Section 15A(b)(5) of the Exchange Act,\41\ which requires, among other things, that FINRA rules provide for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system that FINRA operates or controls. --------------------------------------------------------------------------- \39\ 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). \40\ 15 U.S.C. 78o-3(b)(6). \41\ 15 U.S.C. 78o-3(b)(5). --------------------------------------------------------------------------- The Commission agrees with FINRA and the commenters that the proposed rule change would protect investors and the public interest by improving the FINRA arbitration forum for the parties that use it and the arbitrators who preside over claims.\42\ Currently, the FINRA rules governing fees and corresponding honoraria for the resolution of discovery-related subpoenas and orders in arbitration vary. As stated above, an arbitrator who decides one or more contested subpoenas without a hearing receives $250. An arbitrator receives no honorarium, however, for: (i) Deciding an unopposed request to issue a subpoena; or (ii) deciding requests for orders for appearance without a hearing. Furthermore, FINRA states that arbitrators only receive honorarium for deciding requests for orders for production without a hearing (for which an arbitrator would receive no honorarium) because FINRA typically characterizes them as discovery-related motions without a hearing so that it can pay $200 honorarium to each arbitrator for deciding the motion.\43\ --------------------------------------------------------------------------- \42\ See supra note 28; see also FINRA Letter. \43\ See supra notes 17 and 18. --------------------------------------------------------------------------- The proposal would make the rules more transparent and consistent for both parties and arbitrators by providing for payments to each arbitrator of an honorarium of $200 to decide, without a hearing session: (i) A discovery-related motion; (ii) a motion that contains one or more contested subpoena requests or contested orders for production or appearance; or (iii) a motion that contains one or more contested subpoena requests and contested orders for production or appearance.\44\ According to FINRA, the existing structure for payments to arbitrators for deciding requests to issue subpoenas or orders without a hearing session has been difficult for parties and arbitrators to understand due to the differences between when, and under what circumstances, arbitrators will receive payments.\45\ For example, parties can incur different fees, and arbitrators can receive different honoraria, for contested and unopposed requests to issue subpoenas and orders.\46\ --------------------------------------------------------------------------- \44\ See Notice at 36649. \45\ See Notice at 36650; see also Notice at 36650, note 34. \46\ See Notice at 36650. --------------------------------------------------------------------------- The Commission believes the proposal would also help FINRA retain and recruit qualified arbitrators to its forum by helping ensure arbitrators are paid honoraria commensurate with the time and effort they devote to deciding each request. As stated in the Notice, arbitrators must review several documents related to contested discovery-related requests: The motions requesting the issuance of the order or subpoena; the draft order or subpoena; and, any written objections to the motion. Arbitrators must then consider the arguments before making decisions on the merits of the request.\47\ Despite the similar type and amount of work necessary to decide certain discovery- related requests for orders and subpoenas without a hearing, the rules expressly provide honoraria to arbitrators for deciding a contested subpoena but not for deciding a contested order. --------------------------------------------------------------------------- \47\ See Notice at 36648. --------------------------------------------------------------------------- The Commission believes that by structuring the arbitrator honorarium rules so that arbitrators receive the same amount of honorarium for each contested subpoena request or contested request for an order for production or appearance they decide without a hearing, the proposed rules would align the payment of honoraria to arbitrators based on the amount of time and effort required to revolve certain discovery-related motions rather than based on the characterization of those requests.\48\ The Commission also believes that simplifying the rules governing the payment of honorarium would help improve arbitrators' understanding of the honorarium structure. --------------------------------------------------------------------------- \48\ See Notice at 36649. --------------------------------------------------------------------------- The Commission acknowledges that the proposed rule change could increase fees for certain parties. For example, under the proposed rule change parties would be subject to fees for contested requests to issue orders of appearance without a hearing session; and, the proposal would remove the per-case cap on fees for contested subpoena requests so that parties would be assessed additional fees if they submit multiple contested requests for subpoenas. The Commission also acknowledges that the proposed rule change could lower fees for certain parties. For example, the proposal would: (i) Eliminate payment of honoraria to arbitrators deciding an unopposed order for production; and (ii) lower the amount of honoraria paid to arbitrators for deciding a contested subpoena request from $250 to $200. In addition, the proposal would permit a party or parties to use one motion to request the issuance of one or more contested subpoenas or orders so that parties could mitigate their fees.\49\ The Commission also acknowledges, however, that the proposal would eliminate the per- case cap honoraria so arbitrators could receive additional payments for multiple contested requests for subpoenas.\50\ --------------------------------------------------------------------------- \49\ See Notice at 36649 and 36651. \50\ See id. --------------------------------------------------------------------------- On balance, the Commission believes that the proposed rule change is designed to protect investors and the public interest. Notwithstanding the potential increase in fees to some parties in arbitration, the Commission believes that the proposal would improve the FINRA arbitration forum for its users.\51\ --------------------------------------------------------------------------- \51\ The Commission also notes that the proposal would help parties mitigate any potential fee increase by allowing parties to request one or more contested subpoenas or orders in one motion. --------------------------------------------------------------------------- In addition, notwithstanding the potential decrease in honoraria in some cases, the Commission believes that the proposal would help FINRA retain and recruit qualified arbitrators to its forum.\52\ In particular the Commission believes that reducing the honoraria for contested subpoena requests while removing the per-case cap on these payments would help ensure that the honoraria arbitrators receive for deciding contested requests for orders and subpoenas without a hearing would be more commensurate with their time and effort to consider the requests.\53\ Furthermore, the Commission believes that retaining and recruiting qualified arbitrators is an essential element to operating an effective arbitration forum.\54\ --------------------------------------------------------------------------- \52\ The Commission also notes that the proposal would mitigate these decreases by removing the per-case cap on these honorarium payments. \53\ See supra note 29. \54\ See Notice at 36650; see also supra note 32. --------------------------------------------------------------------------- The Commission acknowledges one commenter's request that FINRA provide additional guidance to arbitrators regarding their authority to assess all fees to the non-prevailing party on contested discovery motions, where in the arbitrators' view the non-prevailing party's position lacked [[Page 52860]] merit.\55\ However, the Commission notes FINRA's statement that a mechanism for checking arbitrators' assessments of fees associated with an arbitration proceeding already exists.\56\ Accordingly, the Commission acknowledges FINRA's decisions not to provide additional formal guidance to its arbitrators.\57\ --------------------------------------------------------------------------- \55\ See supra notes 33 and 34. \56\ See supra note 37. \57\ See supra note 38. --------------------------------------------------------------------------- V. Conclusion It is therefore ordered pursuant to Section 19(b)(2) of the Exchange Act \58\ that the proposal (SR-FINRA-2018-026), be and hereby is approved. --------------------------------------------------------------------------- \58\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\59\ --------------------------------------------------------------------------- \59\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-22681 Filed 10-17-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 202 / Thursday, October 18, 2018 / Notices 52857
submission, all subsequent Act’’) 1 and Rule 19b–4 thereunder,2 a with each other to prepare for the
amendments, all written statements proposed rule change to amend FINRA arbitration through the discovery
with respect to the proposed rule Rule 12214(c) of the Code of Arbitration process.8 If one party objects to a
change that are filed with the Procedure for Customer Disputes discovery request, the party seeking the
Commission, and all written (‘‘Customer Code’’) and FINRA Rule documents or information, or
communications relating to the 13214(c) through (e) of the Code of appearance may file a motion requesting
proposed rule change between the Arbitration Procedure for Industry that the arbitrator issue a subpoena 9 or
Commission and any person, other than Disputes (‘‘Industry Code’’ and together, an order compelling discovery.10 The
those that may be withheld from the ‘‘Codes’’), to provide that FINRA will opposing party may oppose the filing
public in accordance with the pay each arbitrator a $200 honorarium party’s motion, contesting the request
provisions of 5 U.S.C. 552, will be to decide without a hearing session a for a subpoena 11 or order compelling
available for website viewing and contested subpoena request or a discovery.
printing in the Commission’s Public contested order for production or
Subpoena for Appearance
Reference Room, 100 F Street NE, appearance.
Washington, DC 20549 on official The proposed rule change was Currently, under FINRA Rule
business days between the hours of published for comment in the Federal 12214(d),12 each arbitrator who decides
10:00 a.m. and 3:00 p.m. Copies of the Register on July 30, 2018.3 The public one or more contested subpoenas
filing also will be available for comment period closed on August 20, without a hearing session receives a
inspection and copying at the principal 2018. The Commission received four one-time honorarium of $250 during the
office of the Exchange. All comments comment letters in response to the life of the arbitration case.13 The rule
received will be posted without change. Notice, all supporting the proposed rule caps the total amount that the parties
Persons submitting comments are change.4 On October 5, 2018, FINRA could pay the arbitrators to decide
cautioned that we do not redact or edit responded to the comment letters contested subpoena requests without a
personal identifying information from received in response to the Notice.5 On hearing in any one case at $750.14 The
comment submissions. You should August 23, 2018, FINRA extended the panel allocates the cost of the
submit only information that you wish time period in which the Commission honorarium to the parties in the
to make available publicly. All must approve the proposed rule change, award.15 Arbitrators do not receive an
submissions should refer to File disapprove the proposed rule change, or honorarium for deciding unopposed
Number SR–NYSE–2018–46 and should institute proceedings to determine requests to issue a subpoena.16
be submitted on or before November 8, whether to approve or disapprove the Order for Production or Appearance
2018. proposed rule change to October 26,
2018.6 This order approves the The Codes do not expressly provide
For the Commission, by the Division of proposed rule change. an honorarium for arbitrators who
Trading and Markets, pursuant to delegated decide requests for orders for
authority.11 II. Description of the Proposed Rule production or appearance without a
Eduardo A. Aleman, Change 7 hearing session. FINRA does, however,
Assistant Secretary. Background provide arbitrators a $200 honorarium
[FR Doc. 2018–22682 Filed 10–17–18; 8:45 am] to decide discovery-related motions
Parties to an arbitration typically without a hearing. 17 Accordingly,
BILLING CODE 8011–01–P
exchange documents and information FINRA categorizes requests to issue
1 15
orders for production as discovery-
U.S.C. 78s(b)(1).
SECURITIES AND EXCHANGE 2 17 CFR 240.19b–4.
related motions and pays $200
COMMISSION 3 See Exchange Act Release No. 83699 (Jul. 24, honorarium for each arbitrator deciding
2018), 83 FR 36647 (Jul. 30, 2018) (File No. SR–
FINRA–2018–026) (‘‘Notice’’). 8 See FINRA Rules 12505 and 13505.
[Release No. 34–84418; File No. SR–FINRA– 4 See Letter from Steven B. Caruso, Maddox 9 See FINRA Rules 12512 and 13512.
2018–026] Hargett Caruso, P.C., dated July 25, 2018 (‘‘Caruso 10 See FINRA Rules 12513 and 13513.
Letter’’); letter from Ryan K. Bakhtiari, Aidikoff, Uhl 11 See FINRA Rules 12512(c) and 13512(c).
Self-Regulatory Organizations; and Bakhtiari, dated July 31, 2018 (‘‘Bakhtiari 12 See also FINRA Rule 13214(d).
Financial Industry Regulatory Letter’’); letter from Glenn S. Gitomer, McCausland, 13 See FINRA Rules 12214(d)(1) and 13214(d)(1).
Authority, Inc.; Order Approving a Keen and Buckman, dated August 1, 2018
(‘‘Gitomer Letter’’); and letter from Andrew If a hearing session is required to decide the
Proposed Rule Change To Amend the Stoltmann, President, Public Investors Arbitration motion, each arbitrator who participates in the
Arbitrator Payment Rule To Pay Each Bar Association (‘‘PIABA’’), dated August 15, 2018 hearing session will receive a $300 honorarium
(‘‘PIABA Letter’’). Comment letters are available on instead. See FINRA Rules 12214(a) and 13214(a).
Arbitrator a $200 Honorarium To 14 See FINRA Rules 12214(d)(1) and 13214(d)(1).
the Commission’s website at https://www.sec.gov.
Decide Without a Hearing Session a 5 See Letter from Mignon McLemore, Assistant The chairperson of a three-person panel will decide
Contested Subpoena Request or a Chief Counsel, FINRA, to Mr. Brent J. Fields, the contested subpoena request without a hearing
Contested Order for Production or Secretary, U.S. Securities and Exchange session, for which the chairperson would be paid
Appearance Commission, dated October 5, 2018 (‘‘FINRA $250. The honorarium for contested subpoena
Letter’’). The FINRA Letter is available on FINRA’s requests could increase in $250 increments, if, for
website at http://www.finra.org, at the principal example, the chairperson recuses or withdraws
October 12, 2018.
office of FINRA, at the Commission’s website at from the panel and the replacement chairperson
I. Introduction http://www.finra.org/sites/default/files/rule_filing_ must decide another contested subpoena request
file/SR-FINRA-2018-026-response-to-comments.pdf, without a hearing session. In this instance, the
and at the Commission’s Public Reference Room. replacement chairperson would receive a $250
On July 13, 2018, Financial Industry
khammond on DSK30JT082PROD with NOTICES
6 See Letter from Mignon McLemore, Assistant honorarium for this work. In no event would the
Regulatory Authority, Inc. (‘‘FINRA’’) parties be charged more than $750 per case. See
Chief Counsel, FINRA, to Lourdes Gonzalez,
filed with the Securities and Exchange Assistant Chief Counsel—Sales Practices, Division Notice at 36648, note 14.
Commission (‘‘Commission’’), pursuant of Trading and Markets, Securities and Exchange 15 See FINRA Rules 12214(d)(3) and 13214(d)(3).
Commission, dated August 23, 2018. 16 See Notice at 36648.
to Section 19(b)(1) of the Securities
7 The subsequent description of the proposed rule 17 FINRA Rules 12214(c) and 13214(c) provide
Exchange Act of 1934 (‘‘Exchange
change is substantially excerpted from FINRA’s that FINRA will pay each arbitrator an honorarium
description in the Notice. See Notice, 83 FR at of $200 to decide a discovery-related motion
11 17 CFR 200.30–3(a)(12). 36648–36649. without a hearing session.
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![52858 Federal Register / Vol. 83, No. 202 / Thursday, October 18, 2018 / Notices
the order, regardless of whether it is The proposed rule change would states that ‘‘paying arbitrators fair
contested. FINRA does not pay the describe what constitutes a contested honoraria commensurate with the time
honorarium, however, for an order for order for production or appearance by and effort required for deciding motions
appearance, regardless of whether it is modeling the description on that of a tends to encourage qualified arbitrators
contested or unopposed.18 contested subpoena request. to serve on cases and as Chair.’’ 32
Specifically, proposed FINRA Rule
Proposed Rule Change 12214(c)(2)(iii) would provide that a Additional Guidance
FINRA is proposing to amend FINRA contested order for production or One commenter also suggests that
Rules 12214(c) and 13214(c) to provide appearance shall include a motion FINRA take additional action regarding
that FINRA would pay each arbitrator requesting the issuance of an order for the assessment of fees related to
an honorarium of $200 to decide, production or appearance, a written discovery-related motions for subpoenas
without a hearing session: (i) A objection from the party opposing the and orders. Specifically, the commenter
discovery-related motion; 19 (ii) a issuance of the order, and any other suggests that FINRA should ‘‘informally
motion that contains one or more documents supporting a party’s advise arbitrators to consider assessing
contested subpoena requests 20 or position.24 all fees to the non-prevailing party on
contested orders for production or Moreover, like a contested subpoena contested discovery motions, where in
appearance; or (iii) a motion that request, a party would be permitted to the arbitrators’ view the non-prevailing
contains one or more contested request the issuance of one or more party’s position lacked merit.’’ 33
subpoena requests and contested orders orders in one motion,25 and if one or all Otherwise, the commenter suggests
for production or appearance.21 of the arbitrator orders become arbitrators may ‘‘naturally’’ split fees
contested, each arbitrator who decides between the parties which could
Contested Subpoena the motion would receive one encourage ‘‘spurious’’ motion
Specifically, the proposed rule change honorarium payment of $200.26 practice.34
would reduce the honorarium that an In response, FINRA states that its
Additional Proposed Changes
arbitrator receives to decide a contested arbitration forum already provides a
subpoena request from $250 to $200; The proposed rule change would also mechanism for parties to argue their
however, it would also remove the per- amend Rules 12214(a) and 13214(a) to positions regarding the assessments of
case cap on these payments. Thus, make a few non-substantive changes.27 fees associated with an arbitration
under the proposed rule change, an III. Comment Summary proceeding.35 Specifically, FINRA states
arbitrator would receive a $200 that in the absence of an agreement
honorarium for each contested Supportive Comments between the parties governing the
subpoena request that he or she As noted above, the Commission allocation of these fees, FINRA Rules
decides.22 received four comment letters on the 12902(c) and 13902(c) give arbitrators
proposed rule change, supporting the discretion to determine how these fees
Contested Orders for Production or proposal.28 All four commenters should be allocated in an award.36
Appearance support the proposal and believe that it FINRA also states, however, that
In addition, the proposed rule change represents a fair and reasonable ‘‘[p]arties may argue their positions
would now expressly provide a $200 approach to helping ensure that regarding the appropriate assessment of
honorarium for arbitrators deciding a arbitrators are compensated according to fees and expenses in their motion
contested order for production or the time and effort they devote to papers or responses thereto the
appearance without a hearing session. deciding a motion.29 Specifically, one panel.’’ 37 Accordingly, FINRA rejects
Specifically, FINRA would not need to commenter states that ‘‘removing the the notion that formal guidance on a
categorize requests to issue orders for per-case cap on [honorarium for panel’s authority is necessary.38
production as discovery-related contested subpoena requests] would
provide consistency and fairness to the IV. Discussion and Commission
motions. Similarly, arbitrators would Findings
receive an honorarium for deciding arbitrator payment rules by ensuring
without a hearing session, a contested that the payment arbitrators receive for After careful review of the proposed
arbitrator order for appearance as well deciding these requests is rule change and the comment letters,
as for production. Under the proposal, commensurate with the time and effort the Commission finds that the proposal
however, arbitrators would no longer spent on each motion.’’ 30 Two other is consistent with the requirements of
receive an honorarium for deciding commenters believe that the proposal the Exchange Act and the rules and
unopposed requests to issue an order for would help FINRA retain and recruit regulations thereunder that are
production.23 qualified arbitrators to its arbitration applicable to a national securities
forum.31 In particular, one commenter association.39 Specifically, the
18 See Notice at 36648–36649.
24 Id. 32 PIABA Letter; see also Bakhtiari Letter (stating
19 Under the proposed rule change, FINRA would
add a contested subpoena request and a contested
25 The proposed rule change would also permit that ‘‘fairly compensate[ing] arbitration
order for production or appearance to the parties to request the issuance of one or more Chairpersons for deciding contested subpoenas and
discovery-related motions rule; however, FINRA subpoenas in the same motion or a combination of orders of production and appearance’’ would help
would not change the rule language explaining subpoena and order requests. See Notice at 36649, FINRA recruit and retain qualified arbitrators to
what constitutes a discovery-related motion. See note 30. preside over its forum.).
26 See Notice at 36649. 33 PIABA Letter.
Notice at 36649, note 27.
khammond on DSK30JT082PROD with NOTICES
20 The proposal would retain what constitutes a 27 See id. 34 See id.
35 See supra note 5.
contested subpoena by moving the description from 28 See supra note 4.
FINRA Rule 12214(d)(2) to FINRA Rule 29 See Caruso Letter, Bakhtiari Letter, Gitomer 36 See FINRA Letter.
12214(c)(2)(ii). See Notice at 36649, note 28. Letter, and PIABA Letter; see also FINRA Letter. 37 FINRA Letter.
21 See Notice at 36649. 30 Caruso Letter; see also Gitomer Letter (stating 38 See FINRA Letter.
22 See id. As is current practice, arbitrators would that the proposal would provide ‘‘reasonable 39 In approving this rule change, the Commission
not receive an honorarium for an unopposed compensation for the time and effort spent in has considered the rule’s impact on efficiency,
subpoena request. See Notice at 36649, note 29. deciding these important requests.’’). competition, and capital formation. See 15 U.S.C.
23 See Notice at 36649. 31 See Bakhtiari Letter and PIABA Letter. 78c(f).
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![52860 Federal Register / Vol. 83, No. 202 / Thursday, October 18, 2018 / Notices
merit.55 However, the Commission Senior Loan Fund III, L.P. (‘‘SLF III’’), Applicants’ Representations
notes FINRA’s statement that a Audax Senior Loan Fund III (Offshore), 1. The Company was organized as a
mechanism for checking arbitrators’ L.P. (‘‘SLF III(O)’’), Audax Senior Loan corporation under the General
assessments of fees associated with an Fund (ST), LP (‘‘SLF(ST)’’), Audax Corporation Law of the State of
arbitration proceeding already exists.56 Direct Lending Solutions Fund-A, L.P. Delaware on January 29, 2015 and
Accordingly, the Commission (‘‘Direct Lending-A’’), Audax Direct elected to be treated as a BDC 1 through
acknowledges FINRA’s decisions not to Lending Solutions Fund-B, L.P. (‘‘Direct a notification of election to be subject to
provide additional formal guidance to Lending-B’’), Audax Direct Lending sections 55 through 65 of the Act on
its arbitrators.57 Solutions Fund-C, L.P. (‘‘Direct Form N–54A. The Company’s
V. Conclusion Lending-C’’), Audax Direct Lending ‘‘Objectives and Strategies’’ 2 are to
Solutions Fund-D, L.P. (‘‘Direct generate current income and, to a lesser
It is therefore ordered pursuant to Lending-D’’ and, collectively with SCS,
Section 19(b)(2) of the Exchange Act 58 extent, long-term capital appreciation by
SBA, MP, WCTPT, AZ, SLF I, SLF I(O), investing primarily in senior secured
that the proposal (SR–FINRA–2018– SLF, SLF III, SLF III(O), SLF(ST), Direct
026), be and hereby is approved. debt of privately owned U.S. middle-
Lending-A, Direct Lending-B, and Direct market companies. The Company has a
For the Commission, by the Division of Lending-C, the ‘‘Private Funds’’), and five-member board of directors (the
Trading and Markets, pursuant to delegated Audax Management Company (NY),
authority.59
‘‘Board’’), of which three members are
LLC (the ‘‘Company Adviser,’’ and not ‘‘interested persons’’ of the
Eduardo A. Aleman, collectively with the Company and the Company within the meaning of section
Assistant Secretary. Private Funds, the ‘‘Applicants’’). 2(a)(19) of the Act (the ‘‘Non-Interested
[FR Doc. 2018–22681 Filed 10–17–18; 8:45 am] Directors’’). No Non-Interested Director
BILLING CODE 8011–01–P
FILING DATES:The application was filed
on December 29, 2017 and amended on will have any direct or indirect financial
June 14, 2018. interest in any Co-Investment
Transaction (defined below) or any
SECURITIES AND EXCHANGE HEARING OR NOTIFICATION OF HEARING: An interest in any portfolio company, other
COMMISSION order granting the requested relief will than indirectly through share ownership
[Investment Company Act Release No. be issued unless the Commission orders (if any) in the Company or a Future
33270; File No. 812–14862] a hearing. Interested persons may Regulated Fund (defined below).
request a hearing by writing to the 2. SCS was formed as a Delaware
Audax Credit BDC Inc., et al.; Notice of Commission’s Secretary and serving limited partnership on March 10, 2014
Application applicants with a copy of the request, and would be an investment company
October 12, 2018. personally or by mail. Hearing requests but for the exclusion from the definition
AGENCY: Securities and Exchange should be received by the Commission of investment company provided by
Commission (‘‘Commission’’). by 5:30 p.m. on November 6, 2018 and section 3(c)(7) of the Act. SCS’s
ACTION: Notice.
should be accompanied by proof of investment objective is to invest
service on applicants, in the form of an primarily in a portfolio of secured and
Notice of an application for an order affidavit or, for lawyers, a certificate of unsecured loans and other debt
under sections 17(d) and 57(i) of the service. Pursuant to rule 0–5 under the instruments, seeking low volatility,
Investment Company Act of 1940 (the Act, hearing requests should state the principal protection and current
‘‘Act’’) and rule 17d–1 under the Act nature of the writer’s interest, any facts income. SCS has an investment strategy
permitting certain joint transactions bearing upon the desirability of a that is similar to the Company’s
otherwise prohibited by sections 17(d) hearing on the matter, the reason for the investment strategy.
and 57(a)(4) of the Act and rule 17d–1 request, and the issues contested. 3. SBA was formed as a Delaware
under the Act. Persons who wish to be notified of a limited liability company on March 10,
SUMMARY OF APPLICATION: Applicants hearing may request notification by 2010 and would be an investment
request an order to permit a business writing to the Commission’s Secretary. company but for the exclusion from the
development company (‘‘BDC’’) and definition of investment company
ADDRESSES: Secretary, U.S. Securities provided by section 3(c)(7) of the Act.
certain closed-end investment
and Exchange Commission, 100 F St. SBA’s investment objective is to invest
companies to co-invest in portfolio
NE, Washington, DC 20549–1090. primarily in a portfolio of secured and
companies with each other and with
Applicants: 101 Huntington Avenue, unsecured loans and other debt
affiliated investment funds.
Boston, Massachusetts 02199. instruments, seeking low volatility,
APPLICANTS: Audax Credit BDC Inc. (the
‘‘Company’’), Audax Credit Strategies FOR FURTHER INFORMATION CONTACT: Jill principal protection and current
(SCS), L.P. (‘‘SCS’’), Audax Credit Ehrlich, Senior Counsel, at (202) 551–
1 Section 2(a)(48) of the Act defines a BDC to be
Opportunities (SBA), LLC (‘‘SBA’’), 6819, or Andrea Ottomanelli Magovern,
any closed-end investment company that operates
Audax Senior Debt (MP), LLC (‘‘MP’’), Branch Chief, at (202) 551–6821 (Chief for the purpose of making investments in securities
Audax Senior Debt (WCTPT), LLC Counsel’s Office, Division of Investment described in section 55(a)(1) through 55(a)(3) of the
(‘‘WCTPT’’), Audax Senior Debt (AZ), Management). Act and makes available significant managerial
assistance with respect to the issuers of such
LLC (‘‘AZ’’), Audax Senior Loan Fund I,
SUPPLEMENTARY INFORMATION: The securities.
L.P. (‘‘SLF I’’), Audax Senior Loan Fund
following is a summary of the 2 ‘‘Objectives and Strategies’’ means, with respect
khammond on DSK30JT082PROD with NOTICES
I (Offshore), L.P. (‘‘SLF I(O)’’), Audax to a Regulated Fund (defined below), the
application. The complete application
Senior Loan Fund, L.P. (‘‘SLF’’), Audax investment objectives and strategies of such
may be obtained via the Commission’s Regulated Fund, as described in such Regulated
55 See supra notes 33 and 34.
website by searching for the file Fund’s registration statement, other filings the
56 See number, or for an applicant using the Regulated Fund has made with the Commission
supra note 37. under the Act, Securities Act of 1933 (the ‘‘1933
57 See supra note 38. Company name box, at http:// Act’’), or under the Securities Exchange Act of
58 15 U.S.C. 78s(b)(2). www.sec.gov/search/search.htm or by 1934, or in the Regulated Fund’s reports to
59 17 CFR 200.30–3(a)(12). calling (202) 551–8090. stockholders.
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Document Created: 2018-10-18 03:05:20
Document Modified: 2018-10-18 03:05:20
| 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 | 83 FR 52857 |
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