[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Notices]
[Pages 20741-20742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8897]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64226; File No. SR-FINRA-2011-005]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Granting Approval of a Proposed Rule Change
Relating to Promissory Note Proceedings
April 7, 2011.
I. Introduction
On February 4, 2011, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend Rule 13806 of the Code of Arbitration
Procedure for Industry Disputes (``Industry Code'') to provide that
FINRA will appoint a chair-qualified public arbitrator also qualified
to resolve statutory discrimination cases. The proposed rule change was
published for comment in the Federal Register on February 22, 2011.\3\
The Commission did not receive any comments on the proposal. This order
approves the proposed change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities and Exchange Act Release No. 63909 (February
15, 2011), 76 FR 9838 (February 22, 2011) (``Notice'').
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II. Description of the Proposal
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.\4\ Under 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) \5\ to resolve the dispute.\6\ 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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\4\ 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 (August 2009). The effective
date was September 14, 2009.
\5\ See Rule 13802(c)(3).
\6\ 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.\7\ Experience with the new procedures led 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.\8\
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\7\ 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).
\8\ 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.
As explained in the Notice, FINRA believes that the proposed rule
change is consistent with the provisions of Section 15A(b)(6) of the
Act,\9\ 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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\9\ 15 U.S.C. 78o-3(b)(6).
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III. Discussion of Comment Letters
The Commission did not receive any comment letters regarding the
proposed rule change.
IV. Commission Findings
The Commission has carefully reviewed the proposed rule change and
finds that the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
national securities association.\10\ In particular, the Commission
finds that the proposed rule change is consistent with 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. More
specifically, the Commission finds that the proposed rule change to
allow chair-qualified arbitrators to hear promissory note cases would
help to ensure that there are sufficient number of qualified
arbitrators readily available to resolve such cases.
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\10\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\11\ 15 U.S.C. 78o-3(b)(6).
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[[Page 20742]]
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-FINRA-2011-005), be, and
hereby is, approved.
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\12\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8897 Filed 4-12-11; 8:45 am]
BILLING CODE 8011-01-P