83 FR 7086 - Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to Simplified Arbitration
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 33 (February 16, 2018)
Federal Register Volume 83, Issue 33 (February 16, 2018)
| Page Range | 7086-7090 | |
| FR Document | 2018-03202 |
[Federal Register Volume 83, Number 33 (Friday, February 16, 2018)] [Notices] [Pages 7086-7090] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-03202] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82693; File No. SR-FINRA-2018-003] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to Simplified Arbitration February 12, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on January 29, 2018, Financial Industry Regulatory Authority, Inc. (``FINRA'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rules 12600 and 12800 of the Code of Arbitration Procedure for Customer Disputes (``Customer Code'') and 13600 and 13800 of the Code of Arbitration Procedure for Industry Disputes (``Industry Code,'' and together with the Customer Code, the ``Codes''), to amend the hearing provisions to provide an additional hearing option for parties in arbitration with claims of $50,000 or less, excluding interest and expenses. The text of the proposed rule change is available on FINRA's website at http://www.finra.org, at the principal office of FINRA and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Codes provide two methods for administering arbitration cases with claims involving $50,000 or less, excluding interest and expenses. The default method is a decision by a single arbitrator based on the parties' pleadings and other materials submitted by the parties. The alternative method involves a full hearing with a single arbitrator. Under the Customer Code, a customer may request a hearing (regardless of whether the customer is a claimant or respondent),\3\ and under the Industry Code, the claimant may request [[Page 7087]] a hearing.\4\ If a hearing is requested, it is generally held in- person, and there are no limits on the number of hearing sessions that can take place. --------------------------------------------------------------------------- \3\ See FINRA Rule 12800(c). \4\ See FINRA Rule 13800(c). --------------------------------------------------------------------------- FINRA believes that forum users with claims involving $50,000 or less would benefit by having an additional, intermediate form of adjudication that would provide them with an opportunity to argue their cases before an arbitrator in a shorter, limited telephonic hearing format. Therefore, FINRA is proposing to amend the Codes to include a Special Proceeding for Simplified Arbitration (``Special Proceeding''). The Special Proceeding would be limited to two hearing sessions, exclusive of prehearing conferences,\5\ with parties being given time limits for their presentations. As discussed above, parties with claims involving $50,000 or less are currently limited to a decision based on the pleadings and other materials submitted by the parties, or a full hearing that typically takes place in-person and is not limited in duration. While a party might wish for an opportunity to present his or her case to an arbitrator, the travel and expenses associated with a full hearing might prevent that party from requesting one. In addition, the prospect of cross-examination by an opposing party might act as a deterrent for parties seeking to avoid a direct confrontation with their opponents. These concerns particularly impact pro se, senior, and seriously ill parties. --------------------------------------------------------------------------- \5\ See FINRA Rules 12100 and 13100 (Definitions). Under these rules, ``hearing'' means the hearing on the merits of an arbitration and a ``hearing session'' is defined as any meeting between the parties and arbitrator(s) of four hours or less, including a hearing or a prehearing conference. --------------------------------------------------------------------------- The suggestion to propose an intermediate form of adjudication originated from the FINRA Dispute Resolution Task Force (``Task Force'').\6\ The Task Force observed that customers whose cases were decided on the papers were the least satisfied of any group of forum users. They also noted that, from the arbitrator's perspective, it is more difficult to assess crucial issues of credibility when deciding cases on the papers. The Task Force recommended that the goal of the intermediate process should be to give the claimant personal contact with the arbitrator deciding the case and to give each party the opportunity to argue its case, to ask questions, and to respond to contentions from the other side. The Task Force also recommended that the intermediate process should allow the arbitrator to probe contentions in the papers in an interactive format.\7\ --------------------------------------------------------------------------- \6\ The Task Force was formed in 2014 to suggest strategies to enhance the transparency, impartiality, and efficiency of FINRA's securities dispute resolution forum. On December 16, 2015, the Task Force issued its Final Report and Recommendations, available at http://www.finra.org/sites/default/files/Final-DR-task-force-report.pdf. \7\ Id. at 29. --------------------------------------------------------------------------- FINRA considered the Task Force's recommendations and questions in developing the format for an intermediate form of adjudication.\8\ Accordingly, FINRA is proposing to amend Rules 12800(c) and 13800(c) to provide that parties that opt for a hearing must select between two hearing options. Option One would be the current hearing option that provides for the regular provisions of the Codes relating to prehearings and hearings, including all fee provisions. If the parties choose Option One, they would continue to have in-person hearings without time limits, and they would continue to be permitted to question opposing parties' witnesses. --------------------------------------------------------------------------- \8\ The Task Force provided the following questions for FINRA to consider in developing an intermediate form of adjudication: (1) Whether parties appearing should be able to amplify positions taken in their papers and to answer questions posed by the arbitrator; (2) whether fact witnesses should be permitted to tell their stories to the arbitrator; (3) whether there should be a clear boundary between the informal, expedited adjudication and a full-blown hearing; (4) whether witnesses should be subject to cross-examination by adverse counsel; (5) whether parties should be able to compel the attendance of particular witnesses, and if so, should there be a limit; (6) what arrangements should be made for parties who are not appearing in person; and (7) whether arbitrators should use the session as an opportunity to press the parties to settle. --------------------------------------------------------------------------- Option Two would be the new Special Proceeding subject to the regular provisions of the Code relating to prehearings and hearings, including all fee provisions, with several limiting conditions. The conditions are intended to ensure that the parties have an opportunity to present their case to an arbitrator in a convenient and cost effective manner without being subject to cross-examination by an opposing party. Specifically:A Special Proceeding would be held by telephone unless the parties agree to another method of appearance; \9\ --------------------------------------------------------------------------- \9\ The Task Force recommended allowing parties with claims involving $50,000 or less to be able to appear in whatever manner they prefer: in person, by phone or by videoconference. FINRA determined that it is in the best interest of the parties to hold hearings by telephone because this method is the most expeditious and inexpensive format for hearings. As stated above, FINRA is proposing that parties can agree to other methods of appearance, including appearing in person or by videoconference. --------------------------------------------------------------------------- the claimants, collectively, would be limited to two hours to present their case and \1/2\ hour for any rebuttal and closing statement, exclusive of questions from the arbitrator and responses to such questions; the respondents, collectively, would be limited to two hours to present their case and \1/2\ hour for any rebuttal and closing statement, exclusive of questions from the arbitrator and responses to such questions; notwithstanding the abovementioned conditions, the arbitrator would have the discretion to cede his or her allotted time to the parties; in no event could a Special Proceeding exceed two hearing sessions, exclusive of prehearing conferences, to be completed in one day; the parties would not be permitted to question the opposing parties' witnesses; the Customer Code would provide that a customer could not call an opposing party, a current or former associated person of a member party, or a current or former employee of a member party as a witness, and members and associated persons could not call a customer of a member party as a witness; and the Industry Code would provide that members and associated persons could not call an opposing party as a witness. Except for the two hearing session time limit for a Special Proceeding, FINRA would not impose any restrictions on the arbitrator's ability to ask the parties questions and has incorporated a substantial amount of time for arbitrator questions. Specifically, since FINRA would limit the parties' combined presentations to five hours, the arbitrator would have up to three hours to ask questions. In addition, under the proposed rule change FINRA would not prohibit the arbitrator from allowing parties additional time for their presentations or witness testimonies, so long as the hearing on the merits is completed within the two hearing session limit.\10\ --------------------------------------------------------------------------- \10\ The Task Force recommended a shorter time limit on each case to enable an arbitrator to hear several cases in a hearing day and to limit the time commitment of the parties. FINRA was concerned that a period shorter than the proposed two hearing session time limit would restrict the parties' presentations and their ability to answer questions posed by the arbitrator. --------------------------------------------------------------------------- FINRA is further proposing to amend Rule 12800(a) to add clarity to the rule by explaining the customer's options earlier in the rule text. FINRA is proposing to amend the sentence in Rule 12800(c) that states that ``[I]f no hearing is held, no initial prehearing conference or other prehearing [[Page 7088]] conference will be held, and the arbitrator will render an award based on the pleadings and other materials submitted by the parties.'' FINRA would replace the first ``held'' in the sentence with the term ``requested'' to better reflect that a hearing would only occur if the customer requested it. FINRA believes the amendment would add clarity to the rule text. FINRA is further proposing to amend Rule 12600(a) that discusses exceptions to when required hearings will be held to specify Rule 12800(c) as one of the exceptions. To add clarity on how arbitrators are paid in cases where the customer requests a hearing, FINRA is proposing to amend Rule 12800(f) to clarify that the regular provisions of the Code relating to arbitrator honoraria would apply in such cases. Since the Special Proceeding would be a new form of adjudication at the forum, FINRA intends to provide substantial training to arbitrators including, but not limited to, updating FINRA's written training materials for arbitrators, posting a Neutral Workshop video on the FINRA website for arbitrators to view on-demand, and including discussions about the Special Proceeding in FINRA's publication for arbitrators and mediators, The Neutral Corner. FINRA would instruct arbitrators that the arbitrator's role in a Special Proceeding might be different than it is in a full hearing because parties would not be permitted to question opposing parties' witnesses. FINRA would emphasize that in a Special Proceeding the arbitrator might need to ask more questions than he or she would ask in a regular hearing to gain clarity on issues and to assess witness credibility. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,\11\ which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. As discussed above, the Task Force recommended that FINRA provide the claimant with an additional cost effective option for personal contact with the arbitrator deciding the case and give each party the opportunity to argue its case, to ask questions, and to respond to contentions from the other side. FINRA believes that the proposed rule change aligns with the Task Force's recommendations. --------------------------------------------------------------------------- \11\ 15 U.S.C. 78o-3(b)(6). --------------------------------------------------------------------------- In addition, FINRA believes that the proposed rule change is consistent with the provisions of the Act because it would provide parties with claims of $50,000 or less with an additional, cost effective, hearing option for resolving disputes. FINRA believes that the proposed rule change would limit the potential costs of a hearing and provide parties with the opportunity to present their case without cross-examination from their opponents. The ability to present their case without cross-examination may benefit those who believe that a direct confrontation could intimidate their testimony. FINRA believes that the broader role of arbitrators for a Special Proceeding in asking questions of the parties would serve a similar function to cross- examination, such as gaining clarity on issues and assessing witness credibility, but within a potentially less intimidating environment. B. Self-Regulatory Organization's Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Economic Impact Assessment (a) Need for the Rule As noted above, the Code currently provides two methods for administering arbitration cases with claims involving $50,000 or less, excluding interest and expenses. The default method is based exclusively on the parties' pleadings and other materials submitted by the parties, and the alternative method involves a full hearing. Although a full hearing provides the parties a more complete opportunity to present their cases to an arbitrator, for the reasons discussed above, the parties sometimes forego a full hearing. The proposal provides an additional method for administering these arbitration cases that would allow for oral testimony while limiting the costs of the proceedings. (b) Economic Baseline The economic baseline for the proposal is the two current methods for administering arbitration cases with claims involving $50,000 or less. The proposal is expected to affect customers, either as claimant or respondent, with a claim involving $50,000 or less; industry parties, as claimant, with a claim involving $50,000 or less; and industry parties as respondents to these claims. The proposal is also expected to affect FINRA arbitrators. The parties today that opt for a decision on the pleadings or for a full hearing face trade-offs between the two choices. A decision on the pleadings is dependent solely on the parties' pleadings and other submitted materials, and the cost to parties is generally limited to filing fees and the legal fees and expenses to submit the materials. On the other hand, a full hearing is dependent on the pleadings and submitted materials as well as oral testimony and arguments. In addition to filing fees and legal fees to submit the materials, parties can also incur arbitration hearing session fees, travel and lodging expenses, lost income, and other costs associated with the time spent at the hearings such as accommodations for dependent care. These costs increase with the number of hearings and are also dependent on the characteristics of the parties. For example, parties that live further away from the hearing site or that are less able to travel will incur higher travel costs than parties that live closer to the hearing site or that are more able to travel.\12\ In addition, the costs associated with the time spent at hearings may be greater for some parties than for other parties. --------------------------------------------------------------------------- \12\ In customer cases, the hearing location will generally be the location (of FINRA's designated hearing locations) closest to the investor's residence at the time of the events giving rise to the dispute. Investors may also seek to change the hearing location by obtaining the other party's consent or by requesting a change from FINRA. In industry cases, the hearing location will generally be the location closest to where the associated person was employed at the time of the events giving rise to the dispute. FINRA's hearing locations can be found at: Dispute Resolution Regional Offices and Hearing Locations. --------------------------------------------------------------------------- The costs of a full hearing are greater and more uncertain at the outset than the costs of a decision on the pleadings. Among other factors, parties selecting the arbitration format will weigh the potential benefits of providing testimony and arguments at a full hearing relative to its higher and more uncertain costs. The greater and more uncertain costs of a full hearing may cause parties to forego providing oral testimony and arguments and instead opt for a decision on the pleadings. Parties also may forego providing oral testimony and arguments to avoid cross-examination. The parties not selecting the arbitration format may instead prefer a decision on the pleadings. A decision on the pleadings is likely to minimize their costs and prevents the potential influence of oral testimony on the award decision. Alternatively, in a full hearing, these parties are likely to incur greater costs and have exposure to the potential [[Page 7089]] persuasive influence of oral testimony and arguments on the award decision. In either instance, the parties not selecting the arbitration format would have incentive to settle a dispute and forego arbitration if the settlement amount and the costs of settling a dispute are less than the expected arbitration award and the costs of arbitrating the dispute. For arbitration cases with close dates from January 2016 to December 2016, FINRA staff is able to identify 194 arbitration cases that had an amount of compensatory relief requested of less than or equal to $50,000 and were closed through a decision on the pleadings (154) or by hearing (40).\13\ Of the 40 arbitrations that FINRA staff identifies as closed by a full hearing, 29 had one or two hearing sessions, and 11 had three or more hearing sessions. The maximum number of hearing sessions was eight. --------------------------------------------------------------------------- \13\ The 194 arbitration cases were out of a total of 625 that FINRA staff identified as being closed through a decision on the pleadings or closed by hearings from January 2016 to December 2016. Approximately two-thirds of the 194 claims involved a customer as either a claimant or respondent, but typically as a claimant, and the remaining one-third of these claims involved a dispute among industry parties. Among the 40 cases that were closed by a hearing, approximately one-third involved a customer. --------------------------------------------------------------------------- (c) Economic Impact The Special Proceeding would provide a new third option for administering arbitration cases with claims involving $50,000 or less, and would not remove the ability of parties to choose either a decision on the pleadings or a full hearing. A primary benefit of this new third option is the increase in the ability of customers and intra-industry claimants to provide oral testimony but with fewer costs, including the provision of oral testimony without cross-examination, and with greater certainty of its length than in a full hearing. In general, a Special Proceeding would increase the number of options available to customers and intra-industry claimants in choosing the method which would provide the most benefits relative to its costs, and would therefore increase the overall net benefits of the forum to these parties. A Special Proceeding would provide customers and intra-industry claimants the benefit of providing oral testimony to an arbitrator but subject to several conditions.\14\ These conditions not only limit the potential costs of the forum (see below), but also provide parties the opportunity to present their case without cross-examination from their opponents. The ability to present their case without cross-examination may benefit those who believe that a direct confrontation could intimidate their testimony. As a result, arbitrators may play a broader role in a Special Proceeding in asking questions of the parties that would serve a similar function to cross-examination, such as gaining clarity on issues and assessing witness credibility, but within a potentially less intimidating environment. Arbitrators would need to spend time and incur any associated costs related to reviewing the additional training materials for a Special Proceeding. --------------------------------------------------------------------------- \14\ A limit to the number of hearings would not only affect the arbitration fees that parties could incur but also the travel and lodging expenses, lost income, and other costs associated with the time spent at the hearings. --------------------------------------------------------------------------- Parties to the Special Proceeding are expected to incur lower costs to participate in the forum than parties to a full hearing, particularly if the parties proceed by telephonic conference.\15\ The magnitude of the cost reduction to the parties would be dependent on their ability to attend hearing sessions in person; parties that reside further away from a hearing site or that have difficulty traveling would incur greater costs of an in-person hearing than parties that reside closer to a hearing site or that have less difficulty traveling. --------------------------------------------------------------------------- \15\ FINRA believes that most hearings would proceed by telephonic conference, thereby saving time and expenses. --------------------------------------------------------------------------- A Special Proceeding would also limit the number of hearings, and the arbitration fees, including hearing session fees, would be based on the current fee schedule.\16\ The limit on the number of hearing sessions requires the claimants and respondents to present their case within the span of one day. As discussed above, 11 of the 40 arbitrations with compensatory damages of less than $50,000 that FINRA staff identified as closed by a full hearing had three or more hearing sessions. These arbitrations therefore would have required one or more days of hearings. Parties to the Special Proceeding would not be subject to additional days of hearings and its related costs (i.e., legal fees and expenses, arbitration fees, lost income, and other costs associated with the time spent at the hearings), and parties to the arbitration would also not be subject to the potential delays related to the scheduling of additional hearings. Relative to a decision on the pleadings, however, parties would incur additional costs to participate in a Special Proceeding including legal fees and expenses, arbitration and hearing session fees, and time. --------------------------------------------------------------------------- \16\ The filing fees for claims are the same regardless of the method chosen to resolve the dispute and are dependent on claim size. Hearing session fees currently range from $50, for claims up to $2,500, to $450, for claims greater than $10,000. Parties that opt for a Special Proceeding or full hearing, in lieu of a decision on the pleadings, would also incur the other types of arbitration fees including pre-hearing session fees. --------------------------------------------------------------------------- The extent to which the benefits and costs associated with the forum increase or decrease for claims of $50,000 or less is dependent on what the parties would have chosen absent this new option. Customers and intra-industry claimants would have a greater ability to choose the method based on the trade-off between the potential value of providing oral testimony and arguments with a corresponding increase in forum costs. The costs incurred by the parties not selecting the arbitration format could increase or decrease depending on the method that would have been chosen absent the new option. If the customer or intra- industry claimant would have chosen a decision on the pleadings, then the costs to these parties such as arbitration and hearing session fees would likely increase under a Special Proceeding. They would also have exposure to the potential influence of oral testimony and arguments on the award decision. A decision to conduct a Special Proceeding in lieu of a full hearing would potentially decrease the costs incurred by these parties through lower hearing session fees and lower costs to participate in the hearings. To the extent that the Special Proceeding increases the expected costs of parties not selecting the arbitration format to participate in the forum and their exposure to the potential influence of oral testimony, these parties could have additional impetus to consider settlement. (d) Alternatives Considered FINRA considered a range of alternatives during this process. The alternatives to the proposal include more or less restrictive limiting conditions for a Special Proceeding, and providing the new option to a broader range of claims such as those with higher dollar amounts. As discussed above, the Task Force recommended allowing parties with claims involving $50,000 or less to be able to appear in whatever manner they prefer: In person, by phone or by videoconference. FINRA determined that it is in the best interest of the parties to hold hearings by telephone because this method is the most expeditious and inexpensive format for hearings. As stated above, FINRA is proposing that parties can agree to other methods of appearance, including appearing in person or by videoconference. The Task Force also recommended a shorter time limit on [[Page 7090]] each case to enable an arbitrator to hear several cases in a hearing day and to limit the time commitment of the parties. FINRA was concerned that a period shorter than the proposed two hearing session time limit would restrict the parties' presentations and their ability to answer questions posed by the arbitrator. The proposal reflects the changes that FINRA believes were the most appropriate to propose for the reasons discussed herein. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use 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-2018-003 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-2018-003. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (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 website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR- FINRA-2018-003 and should be submitted on or before March 9, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\17\ --------------------------------------------------------------------------- \17\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-03202 Filed 2-15-18; 8:45 am] BILLING CODE 8011-01-P
![7086 Federal Register / Vol. 83, No. 33 / Friday, February 16, 2018 / Notices
B. Self-Regulatory Organization’s number should be included on the Authority, Inc. (‘‘FINRA’’) filed with the
Statement on Burden on Competition subject line if email is used. To help the Securities and Exchange Commission
The Exchange does not believe that Commission process and review your (‘‘SEC’’ or ‘‘Commission’’) the proposed
the proposed rule change will impose comments more efficiently, please use rule change as described in Items I, II,
any burden on competition that is not only one method. The Commission will and III below, which Items have been
necessary or appropriate in furtherance post all comments on the Commission’s prepared by FINRA. The Commission is
of the Act. On the contrary, the internet website (http://www.sec.gov/ publishing this notice to solicit
Exchange believes that the proposed rules/sro.shtml). Copies of the comments on the proposed rule change
feature to Directed Orders will enhance submission, all subsequent from interested persons.
competition in the U.S. option markets amendments, all written statements
with respect to the proposed rule I. Self-Regulatory Organization’s
by providing enhanced functionality Statement of the Terms of Substance of
thereby making the Exchange more change that are filed with the
Commission, and all written the Proposed Rule Change
competitive with other exchanges.
communications relating to the FINRA is proposing to amend FINRA
Additionally, respecting intra-market
proposed rule change between the Rules 12600 and 12800 of the Code of
competition, the additional feature for
Commission and any person, other than Arbitration Procedure for Customer
Directed Orders will be available to all
those that may be withheld from the Disputes (‘‘Customer Code’’) and 13600
OFPs that submit Directed Orders to the
public in accordance with the and 13800 of the Code of Arbitration
Exchange.
provisions of 5 U.S.C. 552, will be Procedure for Industry Disputes
C. Self-Regulatory Organization’s available for website viewing and (‘‘Industry Code,’’ and together with the
Statement on Comments on the printing in the Commission’s Public Customer Code, the ‘‘Codes’’), to amend
Proposed Rule Change Received From Reference Room, 100 F Street NE, the hearing provisions to provide an
Members, Participants, or Others Washington, DC 20549 on official additional hearing option for parties in
The Exchange has neither solicited business days between the hours of arbitration with claims of $50,000 or
nor received comments on the proposed 10:00 a.m. and 3:00 p.m. Copies of such less, excluding interest and expenses.
rule change. filing also will be available for The text of the proposed rule change
inspection and copying at the principal is available on FINRA’s website at
III. Date of Effectiveness of the office of the Exchange. All comments http://www.finra.org, at the principal
Proposed Rule Change and Timing for received will be posted without change. office of FINRA and at the
Commission Action Persons submitting comments are Commission’s Public Reference Room.
Within 45 days of the date of cautioned that we do not redact or edit
personal identifying information from II. Self-Regulatory Organization’s
publication of this notice in the Federal
comment submissions. You should Statement of the Purpose of, and
Register or within such longer period
submit only information that you wish Statutory Basis for, the Proposed Rule
up to 90 days (i) as the Commission may
to make available publicly. All Change
designate if it finds such longer period
to be appropriate and publishes its submissions should refer to File In its filing with the Commission,
reasons for so finding or (ii) as to which Number SR–BOX–2018–06, and should FINRA included statements concerning
the self-regulatory organization be submitted on or before March 9, the purpose of and basis for the
consents, the Commission will: 2018. proposed rule change and discussed any
(A) by order approve or disapprove For the Commission, by the Division of comments it received on the proposed
the proposed rule change, or Trading and Markets, pursuant to delegated rule change. The text of these statements
(B) institute proceedings to determine authority.16 may be examined at the places specified
whether the proposed rule change Eduardo A. Aleman, in Item IV below. FINRA has prepared
should be disapproved. Assistant Secretary. summaries, set forth in sections A, B,
IV. Solicitation of Comments [FR Doc. 2018–03199 Filed 2–15–18; 8:45 am] and C below, of the most significant
BILLING CODE 8011–01–P aspects of such statements.
Interested persons are invited to
submit written data, views, and A. Self-Regulatory Organization’s
arguments concerning the foregoing, Statement of the Purpose of, and
SECURITIES AND EXCHANGE
including whether the proposed rule Statutory Basis for, the Proposed Rule
COMMISSION
change is consistent with the Act. Change
Comments may be submitted by any of [Release No. 34–82693; File No. SR–FINRA–
2018–003] 1. Purpose
the following methods:
The Codes provide two methods for
Electronic Comments Self-Regulatory Organizations; administering arbitration cases with
Financial Industry Regulatory
• Use the Commission’s internet claims involving $50,000 or less,
Authority, Inc.; Notice of Filing of a excluding interest and expenses. The
comment form (http://www.sec.gov/
Proposed Rule Change Relating to default method is a decision by a single
rules/sro.shtml); or
• Send an email to rule-comments@ Simplified Arbitration arbitrator based on the parties’
sec.gov. Please include File Number SR– February 12, 2018. pleadings and other materials submitted
BOX–2018–06 on the subject line. Pursuant to Section 19(b)(1) of the by the parties. The alternative method
Securities Exchange Act of 1934 involves a full hearing with a single
daltland on DSKBBV9HB2PROD with NOTICES
Paper Comments arbitrator. Under the Customer Code, a
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
• Send paper comments in triplicate notice is hereby given that on January customer may request a hearing
to Brent J. Fields, Secretary, Securities 29, 2018, Financial Industry Regulatory (regardless of whether the customer is a
and Exchange Commission, 100 F Street claimant or respondent),3 and under the
NE, Washington, DC 20549–1090. 16 17 CFR 200.30–3(a)(12). Industry Code, the claimant may request
All submissions should refer to File 1 15 U.S.C. 78s(b)(1).
Number SR–BOX–2018–06. This file 2 17 CFR 240.19b–4. 3 See FINRA Rule 12800(c).
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![Federal Register / Vol. 83, No. 33 / Friday, February 16, 2018 / Notices 7087
a hearing.4 If a hearing is requested, it questions, and to respond to contentions closing statement, exclusive of
is generally held in-person, and there from the other side. The Task Force also questions from the arbitrator and
are no limits on the number of hearing recommended that the intermediate responses to such questions;
sessions that can take place. process should allow the arbitrator to • the respondents, collectively,
FINRA believes that forum users with probe contentions in the papers in an would be limited to two hours to
claims involving $50,000 or less would interactive format.7 present their case and 1⁄2 hour for any
benefit by having an additional, FINRA considered the Task Force’s rebuttal and closing statement,
intermediate form of adjudication that recommendations and questions in exclusive of questions from the
would provide them with an developing the format for an arbitrator and responses to such
opportunity to argue their cases before intermediate form of adjudication.8 questions;
an arbitrator in a shorter, limited Accordingly, FINRA is proposing to • notwithstanding the
telephonic hearing format. Therefore, amend Rules 12800(c) and 13800(c) to abovementioned conditions, the
FINRA is proposing to amend the Codes provide that parties that opt for a arbitrator would have the discretion to
to include a Special Proceeding for hearing must select between two cede his or her allotted time to the
Simplified Arbitration (‘‘Special hearing options. Option One would be parties;
Proceeding’’). The Special Proceeding the current hearing option that provides • in no event could a Special
would be limited to two hearing for the regular provisions of the Codes Proceeding exceed two hearing sessions,
sessions, exclusive of prehearing relating to prehearings and hearings, exclusive of prehearing conferences, to
conferences,5 with parties being given including all fee provisions. If the be completed in one day;
time limits for their presentations. As parties choose Option One, they would • the parties would not be permitted
discussed above, parties with claims continue to have in-person hearings to question the opposing parties’
involving $50,000 or less are currently without time limits, and they would witnesses;
limited to a decision based on the continue to be permitted to question • the Customer Code would provide
pleadings and other materials submitted opposing parties’ witnesses. that a customer could not call an
by the parties, or a full hearing that Option Two would be the new opposing party, a current or former
typically takes place in-person and is Special Proceeding subject to the regular associated person of a member party, or
not limited in duration. While a party provisions of the Code relating to a current or former employee of a
might wish for an opportunity to prehearings and hearings, including all member party as a witness, and
present his or her case to an arbitrator, fee provisions, with several limiting members and associated persons could
the travel and expenses associated with conditions. The conditions are intended not call a customer of a member party
a full hearing might prevent that party to ensure that the parties have an as a witness; and
from requesting one. In addition, the opportunity to present their case to an • the Industry Code would provide
prospect of cross-examination by an arbitrator in a convenient and cost that members and associated persons
opposing party might act as a deterrent effective manner without being subject could not call an opposing party as a
for parties seeking to avoid a direct to cross-examination by an opposing witness.
confrontation with their opponents. party. Except for the two hearing session
These concerns particularly impact pro Specifically: time limit for a Special Proceeding,
se, senior, and seriously ill parties. • A Special Proceeding would be FINRA would not impose any
The suggestion to propose an held by telephone unless the parties restrictions on the arbitrator’s ability to
intermediate form of adjudication agree to another method of appearance; 9 ask the parties questions and has
originated from the FINRA Dispute • the claimants, collectively, would incorporated a substantial amount of
Resolution Task Force (‘‘Task Force’’).6 be limited to two hours to present their time for arbitrator questions.
The Task Force observed that customers case and 1⁄2 hour for any rebuttal and Specifically, since FINRA would limit
whose cases were decided on the papers the parties’ combined presentations to
were the least satisfied of any group of 7 Id. at 29. five hours, the arbitrator would have up
forum users. They also noted that, from 8 The Task Force provided the following to three hours to ask questions. In
questions for FINRA to consider in developing an addition, under the proposed rule
the arbitrator’s perspective, it is more intermediate form of adjudication: (1) Whether
difficult to assess crucial issues of parties appearing should be able to amplify
change FINRA would not prohibit the
credibility when deciding cases on the positions taken in their papers and to answer arbitrator from allowing parties
papers. The Task Force recommended questions posed by the arbitrator; (2) whether fact additional time for their presentations
witnesses should be permitted to tell their stories or witness testimonies, so long as the
that the goal of the intermediate process to the arbitrator; (3) whether there should be a clear
should be to give the claimant personal boundary between the informal, expedited
hearing on the merits is completed
contact with the arbitrator deciding the adjudication and a full-blown hearing; (4) whether within the two hearing session limit.10
case and to give each party the witnesses should be subject to cross-examination by FINRA is further proposing to amend
adverse counsel; (5) whether parties should be able Rule 12800(a) to add clarity to the rule
opportunity to argue its case, to ask to compel the attendance of particular witnesses,
and if so, should there be a limit; (6) what
by explaining the customer’s options
4 See FINRA Rule 13800(c). arrangements should be made for parties who are earlier in the rule text. FINRA is
5 See FINRA Rules 12100 and 13100 (Definitions). not appearing in person; and (7) whether arbitrators proposing to amend the sentence in
Under these rules, ‘‘hearing’’ means the hearing on should use the session as an opportunity to press Rule 12800(c) that states that ‘‘[I]f no
the merits of an arbitration and a ‘‘hearing session’’ the parties to settle.
is defined as any meeting between the parties and 9 The Task Force recommended allowing parties
hearing is held, no initial prehearing
arbitrator(s) of four hours or less, including a with claims involving $50,000 or less to be able to conference or other prehearing
daltland on DSKBBV9HB2PROD with NOTICES
hearing or a prehearing conference. appear in whatever manner they prefer: in person,
6 The Task Force was formed in 2014 to suggest by phone or by videoconference. FINRA determined 10 The Task Force recommended a shorter time
strategies to enhance the transparency, impartiality, that it is in the best interest of the parties to hold limit on each case to enable an arbitrator to hear
and efficiency of FINRA’s securities dispute hearings by telephone because this method is the several cases in a hearing day and to limit the time
resolution forum. On December 16, 2015, the Task most expeditious and inexpensive format for commitment of the parties. FINRA was concerned
Force issued its Final Report and hearings. As stated above, FINRA is proposing that that a period shorter than the proposed two hearing
Recommendations, available at http:// parties can agree to other methods of appearance, session time limit would restrict the parties’
www.finra.org/sites/default/files/Final-DR-task- including appearing in person or by presentations and their ability to answer questions
force-report.pdf. videoconference. posed by the arbitrator.
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![7090 Federal Register / Vol. 83, No. 33 / Friday, February 16, 2018 / Notices
each case to enable an arbitrator to hear internet website (http://www.sec.gov/ primarily by ICE Clear Europe. ICE Clear
several cases in a hearing day and to rules/sro.shtml). Copies of the Europe filed the proposed rule changes
limit the time commitment of the submission, all subsequent pursuant to Section 19(b)(3)(A) of the
parties. FINRA was concerned that a amendments, all written statements Act,3 and Rule 19b–4(f)(4)(ii)
period shorter than the proposed two with respect to the proposed rule thereunder,4 so that the proposal was
hearing session time limit would restrict change that are filed with the immediately effective upon filing with
the parties’ presentations and their Commission, and all written the Commission. The Commission is
ability to answer questions posed by the communications relating to the publishing this notice to solicit
arbitrator. The proposal reflects the proposed rule change between the comments on the proposed rule change
changes that FINRA believes were the Commission and any person, other than from interested persons.
most appropriate to propose for the those that may be withheld from the
I. Clearing Agency’s Statement of the
reasons discussed herein. public in accordance with the
Terms of Substance of the Proposed
provisions of 5 U.S.C. 552, will be
C. Self-Regulatory Organization’s Rule Change
available for website viewing and
Statement on Comments on the printing in the Commission’s Public ICE Clear Europe proposes revising
Proposed Rule Change Received From Reference Room, 100 F Street NE, the ICE Clear Europe Rules (the
Members, Participants, or Others Washington, DC 20549, on official ‘‘Clearing House Rules’’) 5 to add new
Written comments were neither business days between the hours of 10 rules to accommodate the transition of
solicited nor received. a.m. and 3 p.m. Copies of such filing trading in certain F&O Contracts from
also will be available for inspection and one Market to another.
III. Date of Effectiveness of the
copying at the principal office of II. Clearing Agency’s Statement of the
Proposed Rule Change and Timing for FINRA. All comments received will be
Commission Action Purpose of, and Statutory Basis for, the
posted without change. Persons Proposed Rule Change
Within 45 days of the date of submitting comments are cautioned that
publication of this notice in the Federal we do not redact or edit personal In its filing with the Commission, ICE
Register or within such longer period (i) identifying information from comment Clear Europe included statements
as the Commission may designate up to submissions. You should submit only concerning the purpose of and basis for
90 days of such date if it finds such information that you wish to make the proposed rule change and discussed
longer period to be appropriate and available publicly. All submissions any comments it received on the
publishes its reasons for so finding or should refer to File Number SR–FINRA– proposed rule change. The text of these
(ii) as to which the self-regulatory 2018–003 and should be submitted on statements may be examined at the
organization consents, the Commission or before March 9, 2018. places specified in Item IV below. ICE
will: Clear Europe has prepared summaries,
For the Commission, by the Division of set forth in sections (A), (B), and (C)
(A) By order approve or disapprove Trading and Markets, pursuant to delegated
such proposed rule change, or authority.17
below, of the most significant aspects of
(B) institute proceedings to determine such statements.
Eduardo A. Aleman,
whether the proposed rule change Assistant Secretary. (A) Clearing Agency’s Statement of the
should be disapproved. [FR Doc. 2018–03202 Filed 2–15–18; 8:45 am] Purpose of, and Statutory Basis for, the
IV. Solicitation of Comments BILLING CODE 8011–01–P
Proposed Rule Change
Interested persons are invited to (a) Purpose
submit written data, views and ICE Futures Europe has announced
SECURITIES AND EXCHANGE
arguments concerning the foregoing, that certain F&O Contracts currently
COMMISSION
including whether the proposed rule listed on that exchange and cleared at
change is consistent with the Act. [Release No. 34–82687; File No. SR–ICEEU– ICE Clear Europe will be removed from
Comments may be submitted by any of 2018–003] trading and that equivalent contracts
the following methods: will commence trading on the ICE
Self-Regulatory Organizations; ICE
Electronic Comments Futures U.S., Inc. (‘‘ICE Futures US’’)
Clear Europe Limited; Notice of Filing
exchange.6 Clearing of the transitioning
• Use the Commission’s internet and Immediate Effectiveness of a
contracts will remain at ICE Clear
comment form (http://www.sec.gov/ Proposed Rule Change Relating to the
Europe. The purpose of the proposed
rules/sro.shtml); or ICE Clear Europe Rules for the
amendments is to accommodate this
• Send an email to rule-comments@ Transition of Trading in Certain F&O
transition under the Clearing House
sec.gov. Please include File Number SR– Contracts
Rules.
FINRA–2018–003 on the subject line. February 12, 2018. Specifically, ICE Clear Europe is
Paper Comments Pursuant to Section 19(b)(1) of the adopting a new Part 23 of the Rules,
Securities Exchange Act of 1934 which will apply to the announced
• Send paper comments in triplicate (‘‘Act’’),1 and Rule 19b–4 thereunder,2 transition as well as any future similar
to Secretary, Securities and Exchange notice is hereby given that on February transitions. Part 23 will apply where the
Commission, 100 F Street NE, 7, 2018, ICE Clear Europe Limited (‘‘ICE Clearing House identifies by Circular
Washington, DC 20549–1090. Clear Europe’’) filed with the Securities one or more F&O Contracts for which
All submissions should refer to File and Exchange Commission
daltland on DSKBBV9HB2PROD with NOTICES
Number SR–FINRA–2018–003. This file (‘‘Commission’’) the proposed rule 3 15 U.S.C. 78s(b)(3)(A).
number should be included on the changes described in Items I, II, and III 4 17 CFR 240.19b–4(f)(4)(ii).
subject line if email is used. To help the below, which Items have been prepared
5 Capitalized terms used but not defined herein
Commission process and review your have the meanings specified in the Clearing House
Rules.
comments more efficiently, please use 17 17 CFR 200.30–3(a)(12). 6 ICE Futures Europe Circular 18/002 (Jan. 10,
only one method. The Commission will 1 15 U.S.C. 78s(b)(1). 2018); ICE Futures Europe Circular 18/009 (Jan. 23,
post all comments on the Commission’s 2 17 CFR 240.19b–4. 2018).
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Document Created: 2018-02-16 00:55:34
Document Modified: 2018-02-16 00:55:34
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| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
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