[Federal Register Volume 76, Number 35 (Tuesday, February 22, 2011)]
[Notices]
[Pages 9838-9840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3799]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63909; File No. SR-FINRA-2011-005]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to
Promissory Note Proceedings
February 15, 2011.
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 February 4, 2011, the 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 substantially prepared by
FINRA. The Commission is publishing this notice to solicit comments on
the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend Rule 13806 of the Code of Arbitration
Procedure for Industry Disputes (``Industry Code'') to provide that
FINRA will appoint a chair-qualified public arbitrator to a panel
resolving a promissory note dispute instead of appointing a chair-
qualified public arbitrator also qualified to resolve a statutory
discrimination claim.
The text of the proposed rule change is available on FINRA's Web
site 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. 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
In 2009, FINRA implemented new procedures to expedite the
administration of cases that solely involve a broker-dealer's claim
that an associated person failed to pay money owed on a promissory
note.\3\ Under
[[Page 9839]]
these procedures, FINRA appoints a single chair-qualified public
arbitrator from the roster of arbitrators approved to hear statutory
discrimination claims (a statutory discrimination qualified arbitrator)
\4\ to resolve the dispute.\5\ These specially qualified arbitrators
are public chair-qualified arbitrators who also are attorneys familiar
with employment law and have at least ten years of legal experience. In
addition, they may not have represented primarily the views of
employers or of employees within the last five years. FINRA proposed
using statutory discrimination qualified arbitrators because of the
depth of their experience and their familiarity with employment law. At
the time that FINRA filed the proposed rule change, these arbitrators
were underutilized at the forum.
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\3\ See Securities Exchange Act Rel. No. 60132 (June 17, 2009),
74 FR 30191 (June 24, 2009) (File No. SR-FINRA-2009-015). FINRA
announced implementation of New Rule 13806 (Promissory Note
Proceedings) in Regulatory Notice 09-48. The effective date was
September 14, 2009.
\4\ See Rule 13802(c)(3).
\5\ Under Rule 13806, if an associated person does not file an
answer, or files an answer but does not assert any counterclaims or
third party claims, regardless of the amount in dispute, a single
statutory discrimination qualified arbitrator decides the case. If
an associated person files a counterclaim or third party claim,
FINRA bases panel composition on the amount of the counterclaim or
third party claim. For counterclaims and third party claims that are
not more than $100,000, FINRA appoints a single statutory
discrimination qualified arbitrator. For counterclaims and third
party claims of more than $100,000, FINRA appoints a three-
arbitrator panel comprised of a statutory discrimination qualified
arbitrator, a public arbitrator, and a non-public arbitrator.
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Since implementing the new procedures, FINRA has found that
promissory note cases do not require extensive experience or depth of
knowledge (or the limitation on representation of employers or of
employees within the last five years). In a majority of completed
cases, arbitrators decided the case on the pleadings and the respondent
broker did not appear.\6\ Experience with the new procedures leads
FINRA to propose amending the Industry Code to provide that FINRA will
appoint a chair-qualified public arbitrator to a panel resolving a
promissory note dispute instead of appointing a statutory
discrimination qualified arbitrator. Chair-qualified arbitrators have
completed chair training and are attorneys who have served through
award on at least two cases, or, if not attorneys, are arbitrators who
have served through award on at least three cases.\7\
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\6\ Of the first 175 promissory note cases completed,
arbitrators decided the case on the pleadings 76 percent of the time
(unless the case concluded by settlement or some other means).
\7\ See Rule 12400(c).
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In addition, the number of promissory note cases has more than
doubled in the past two years. As a result of this substantial
increase, it is becoming more difficult to appoint panels solely with
statutory discrimination qualified arbitrators to these cases. Under
the proposed rule change, the number of arbitrators available for
appointment in promissory note cases would increase significantly. The
proposed rule change would ensure that FINRA has a sufficient number of
qualified arbitrators readily available to resolve these matters.
FINRA proposes to announce the effective date of the proposed rule
change in a Regulatory Notice to be published no later than 60 days
following Commission approval. The effective date will be 30 days
following publication of the Regulatory Notice announcing Commission
approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\8\ 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. FINRA believes that the proposed rule change is
consistent with the provisions of the Act noted above because it would
ensure that FINRA has a sufficient number of qualified arbitrators
readily available to resolve promissory note cases.
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\8\ 15 U.S.C. 78o-3(b)(6).
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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.
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 shall:
(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 e-mail to [email protected]. Please include
File Number SR-FINRA-2011-005 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2011-005. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, 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; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-FINRA-2011-005
and
[[Page 9840]]
should be submitted on or before March 15, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
Cathy H. Ahn,
Deputy Secretary.
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\9\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-3799 Filed 2-18-11; 8:45 am]
BILLING CODE 8011-01-P