Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend the By-Laws of FINRA Dispute Resolution, Inc. To Clarify That Services Provided by Mediators Should Not Cause Them To Be Classified as Industry Members Under the By-Laws, 67038-67040 [2012-27317]
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<![CDATA[
67038
Federal Register / Vol. 77, No. 217 / Thursday, November 8, 2012 / Notices
intention of enabling the CBSX system
to provide for either function. Reference
to these features is therefore
unnecessary and accordingly, the
Exchange proposes to eliminate Rule
53.24(b) (Automatic Quote
Regeneration) and Rule 53.24(c) (Quote
Risk Monitor Function) from its rules.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
Securities Exchange Act of 1934 (the
‘‘Act’’) 3 and the rules and regulations
thereunder and, in particular, the
requirements of Section 6(b) of the Act.4
Specifically, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 5 requirements that
the rules of an exchange be designed to
promote just and equitable principles of
trade, to prevent fraudulent and
manipulative acts, to remove
impediments to and to perfect the
mechanism for a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. Since neither the
automatic quote regeneration nor the
quote risk monitor functions have ever
been made available or used, and as the
Exchange has no intention of providing
for such, the Exchange would like to
remove reference to them from its rules,
which would maintain clarity in the
rules and reduce possible confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose 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
No written comments were solicited
or received with respect to the proposed
rule change.
tkelley on DSK3SPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule does not (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
U.S.C. 78s(b)(1).
U.S.C. 78f(b).
5 15 U.S.C. 78f(b)(5).
public interest, provided that the selfregulatory organization has given the
Commission written notice of its intent
to file the proposed rule change at least
five business days prior to the date of
filing of the proposed rule change or
such shorter time as designated by the
Commission, the proposed rule change
has become effective pursuant to
Section 19(b)(3)(A) of the Act 6 and Rule
19b–4(f)(6) thereunder.7 At any time
within 60 days of the filing of such
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–CBOE–2012–103 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–CBOE–2012–103. 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 Web site (https://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
3 15
18:34 Nov 07, 2012
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–27318 Filed 11–7–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68142; File No. SR–FINRA–
2012–040]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving
Proposed Rule Change To Amend the
By-Laws of FINRA Dispute Resolution,
Inc. To Clarify That Services Provided
by Mediators Should Not Cause Them
To Be Classified as Industry Members
Under the By-Laws
November 2, 2012.
I. Introduction
On August 23, 2012 the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’ or ‘‘Act’’) 1 and
Rule 19b–4 thereunder,2 a proposed rule
change to amend the By-Laws of FINRA
Dispute Resolution, Inc. (‘‘By-Laws’’) to
clarify that services provided by
mediators, when acting in such capacity
and not representing parties in
mediation, should not cause the
individuals to be classified as Industry
Members under the By-Laws.
Specifically, the proposed rule change
would amend the definitions of Industry
8 17
4 15
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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
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the CBOE. 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–CBOE–
2012–103 and should be submitted on
or before November 29, 2012.
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
6 15
U.S.C. 78s(b)(3)(A).
7 17 CFR 240.19b–4(f)(6).
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Federal Register / Vol. 77, No. 217 / Thursday, November 8, 2012 / Notices
II. Description of the Proposal
The proposed rule change would
amend the By-Laws to clarify that
services provided by mediators when
acting in such capacity and not
representing parties in mediation
should not cause the individuals to be
classified as Industry Members under
the By-Laws. Consequently, mediators
who were otherwise qualified would be
eligible to become Public Members of
the NAMC would not be excluded
because of the mediation activity
excepted by the proposed rule.
Currently, those mediators cannot
become members of the NAMC because
of the definitions of Industry Member
and Public Member in the By-Laws.
In a FINRA mediation, all parties
agree on the selection of a mediator,
agree on the compensation of the
mediator, and agree on how to allocate
the mediator’s compensation among the
parties; the mediator receives part of the
compensation in each case from an
industry party. However, for mediations
to which investors are parties, mediators
represent neither the investors nor the
FINRA-registered individuals or
entities. Similarly, for mediations
involving industry parties only,
mediators represent neither the FINRAregistered individuals nor entities.
Pursuant to the Plan of Allocation and
Delegation of Functions by FINRA to
Subsidiaries (‘‘Delegation Plan’’), the
NAMC has the power and authority
pursuant to FINRA’s Rules to advise the
FINRA DR Board on the development
and maintenance of an equitable and
efficient system of dispute resolution
that will equally serve the needs of
public investors and FINRA members,
to monitor rules and procedures
governing the conduct of dispute
resolution, and to have such other
powers and authority as is necessary to
effectuate the purposes of FINRA’s
Rules.7 The Delegation Plan provides
that the FINRA DR Board must appoint
the NAMC, whose membership must
consist of a majority of Public
Members.8
Currently, under the By-Laws, a
mediator could be classified as an
Industry Member rather than a Public
Member for purposes of Committee
participation because of the services
provided by a mediator to an industry
party. In FINRA’s mediation forum,
mediators are retained only by
agreement of all parties to a dispute
rather than by any one party and the
parties compensate mediators jointly
pursuant to that agreement. While
mediators derive some of their revenue
from brokers or dealers, FINRA has
indicated that it does not believe the
compensation earned in the capacity as
a mediator compromises the mediator’s
neutrality.
The proposed rule change would
amend the definitions of Industry
Members and Public Members in the
By-Laws to except any services
provided in the capacity as a mediator
of disputes involving a broker or dealer
and not representing any party in such
mediations from being considered
professional services provided to
brokers or dealers.
As explained in the Notice, FINRA
believes that the proposed rule change
is consistent with the provisions of
Section 15A of the Act, including
Section 15A(b)(2) of the Act,9 in that it
provides for the organization of FINRA
and FINRA Dispute Resolution in a
manner that will permit FINRA to carry
out the purposes of the Act, to comply
3 See Dispute Resolution By-Laws, Article I(s)
(Definitions—Industry Member).
4 See Dispute Resolution By-Laws, Article I(x)
(Definitions—Public Member).
5 See Exchange Act Release No. 67784 (Sept. 5,
2012), 77 FR 55885 (Sept. 11, 2012). (‘‘Notice’’). The
comment period closed on October 2, 2012.
6 See Letter from anonymous commenter, dated
October 2, 2012 (‘‘Comment Letter’’).
7 See Plan of Allocation and Delegation of
Functions by FINRA to Subsidiaries—NASD
Dispute Resolution, § III(C)(1)(b).
8 Id. See also Rules 12102(a) and 12102(a)(1) of
the Code of Arbitration Procedure for Customer
Disputes and Rules 13102(a) and 13102(a)(1) of the
Code of Arbitration Procedure for Industry
Disputes.
9 15 U.S.C. 78o–3(b)(2).
tkelley on DSK3SPTVN1PROD with NOTICES
Members 3 and Public Members 4 in the
By-Laws to except any services
provided in the capacity as a mediator
of disputes involving a broker or dealer
and not representing any party in such
mediations from being considered
professional services provided to
brokers or dealers. The amended
definitions would allow mediators who
are otherwise qualified to be eligible to
become Public Members of the National
Arbitration and Mediation Committee
(‘‘NAMC’’), a committee appointed by
the Board of Directors of FINRA Dispute
Resolution, Inc. (‘‘DR Board’’). The
proposed rule change was published for
comment in the Federal Register on
September 11, 2012.5 The Commission
received one comment letter, from an
anonymous commenter on the proposed
rule change.6 The text of the proposed
rule change is available on FINRA’s
Web site at https://www.finra.org, at the
principal office of FINRA, on the
Commission’s Web site at https://
www.sec.gov, and at the Commission’s
Public Reference Room.
This order approves the proposed rule
change.
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18:34 Nov 07, 2012
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67039
with the Act, and to enforce compliance
by FINRA members and persons
associated with FINRA members with
the Act, the rules and regulations
thereunder, FINRA rules and other
federal securities laws. FINRA also
believes that the proposed rule change
is consistent with Section 15A(b)(4) of
the Act,10 which requires, among other
things, that FINRA’s rules assure a fair
representation of its members in the
selection of its directors and
administration of its affairs and provide
that one or more directors shall be
representative of issuers and investors
and not be associated with a member of
FINRA, broker or dealer. FINRA
believes that the proposal would assure
fair administration of its Dispute
Resolution affairs by providing another
source of qualified and experienced
candidates from which to select public
members for the NAMC.
III. Discussion of Comment Letters
The Commission received one
comment letter on the proposed rule
change in response to the Notice.11 The
Comment Letter states that ‘‘the purpose
of mediating or having a mediator is to
forego the formalness. An industry
member would have an upper-hand and
expert knowledge. [T]hen the situation
could be deemed a legal case.’’ The
Commission believes that the
commenter is suggesting that members
with industry experience would
introduce formality into what is
supposed to be an informal process.12
Notwithstanding its interpretation or the
merit of the statement underlying its
interpretation, the Commission believes
that the proposed rule change simply
prevents mediation activity from
automatically qualifying the mediator as
an Industry Member. It does not shield
the mediator from being classified as an
Industry Member for other activities that
would otherwise cause the mediator to
be considered an Industry Member.13
IV. Discussion and Commission’s
Findings
The Commission has carefully
reviewed the proposed rule change and
the comment received. Based on its
review, the Commission finds that the
proposed rule change is consistent with
10 15
U.S.C. 78o–3(b)(4).
note 6.
12 Because the commenter submitted the
Comment Letter anonymously, neither the
Commission not FINRA is able to seek clarification
of the subject matter of the letter.
13 In a telephone call with Mignon McLemore of
FINRA on October 12, 2012, she stated that FINRA
believes the Comment Letter is unclear and could
not be clarified due to the anonymity of its author.
Accordingly, FINRA believes that it could not
respond to the letter.
11 Supra
E:\FR\FM\08NON1.SGM
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tkelley on DSK3SPTVN1PROD with NOTICES
67040
Federal Register / Vol. 77, No. 217 / Thursday, November 8, 2012 / Notices
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
association. In particular, the
Commission finds that the proposed
rule change is consistent with the
provisions of Section 15A of the Act,
including Section 15A(b)(2) of the Act,
in that it facilitates the organization of
FINRA and FINRA Dispute Resolution
in a manner that will permit FINRA to
carry out the purposes of the Act, to
comply with the Act, and to enforce
compliance by FINRA members and
persons associated with FINRA
members with the Act, the rules and
regulations thereunder, FINRA rules
and other federal securities laws. The
Commission also finds that the
proposed rule change is consistent with
Section 15A(b)(4) of the Act, which
requires, among other things, that
FINRA’s rules assure a fair
representation of its members in the
selection of its directors and
administration of its affairs and provide
that one or more directors shall be
representative of issuers and investors
and not be associated with a member of
FINRA, broker or dealer.
More specifically, the Commission
finds that by enlarging the pool from
which to draw Public Members for the
NAMC, the proposed rule change
facilitates the organization of FINRA
and FINRA Dispute Resolution in a
manner consistent with Section
15A(b)(2) of the Act; the Commission
also finds that enlarging the pool from
which to draw Public Members for the
NAMC facilitates compliance with and
thus is consistent with the provision of
Section 15A(b)(4) of the Act to provide
that one or more of FINRA’s directors
shall be representative of issuers and
investors and not be associated with a
member of FINRA, broker-dealer.
The Commission appreciates the
commenter’s letter about members with
industry experience acting as mediators.
However, the Commission believes that
the proposed rule change simply
prevents mediation activity from
automatically qualifying the mediator as
an Industry Member. It does not shield
the mediator from being classified as an
Industry Member for other activities that
would otherwise cause the mediator to
be considered an Industry Member.
The Commission has reviewed the
record for the proposed rule change and
believes that the record does not contain
any information to indicate that the
proposed rule would have a significant
effect on efficiency, competition, or
capital formation. In light of the record,
the Commission has considered the
proposed rule’s impact on efficiency,
competition, and capital formation and
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18:34 Nov 07, 2012
Jkt 229001
has concluded that the proposed rule is
unlikely to have any significant effect.14
For the reasons stated above, the
Commission finds that the rule change
is consistent with the Act and the rules
and regulations thereunder.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,15 that the
proposed rule change (SR–FINRA–
2012–040) be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–27317 Filed 11–7–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68141; File No. SR–BOX–
2012–016]
Self-Regulatory Organizations; BOX
Options Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposal Regarding Quote Mitigation
November 2, 2012.
Pursuant to Section 19(b)(1) under the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
26, 2012, BOX Options Exchange LLC
(the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated the proposed rule change as
constituting a non-controversial rule
change under Rule 19b–4(f)(6) under the
Act,3 which renders the proposal
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
BOX Options Exchange LLC (the
‘‘Exchange’’) proposes to amend Rule
7250 (Quote Mitigation) and refine the
current quote mitigation strategy for its
options trading facility, BOX Market
14 See
15 U.S.C. 78c(f).
U.S.C. 78s(b)(2).
16 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
15 15
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LLC (‘‘BOX’’) by replacing the current
quote mitigation rule with a ‘‘holdback
timer’’ mechanism. The text of the
proposed rule change is available from
the principal office of the Exchange, on
the Exchange’s Internet Web site at
https://boxexchange.com, 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, the
Exchange 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. The
Exchange 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 Exchange proposes to refine the
BOX quote mitigation strategy.
Specifically, the Exchange proposes to
amend Rule 7250 (Quote Mitigation)
and replace the current rule with a
mechanism that systemically limits the
dissemination of quotations and other
changes to the BOX best bid and offer
according to prescribed time criteria (a
‘‘holdback timer’’). For instance, if there
is a change in the price of a security
underlying an option, multiple market
participants may adjust the price or size
of their quotes. Rather than
disseminating each individual change,
the holdback timer permits BOX to wait
until multiple Participants have
adjusted their quotes and then
disseminates a new quotation. This
mechanism will help to prevent the
‘‘flickering’’ of quotations.
The Exchange believes the proposed
modification to its holdback timer
mechanism within the overall BOX
quote mitigation strategy will allow the
Exchange to more effectively monitor
quotation traffic and mitigate as needed.
BOX’s current Quote Mitigation
mechanism was adopted as a response
to the implementation of Penny Pilot
Program 4 amid concerns that market
4 See Securities Exchange Act Release Nos. 55073
(January 19, 2007) 72 FR 2047 (January 17,
2007)(Order Approving BSE Quote Mitigation
Plan)(SR–BSE–2006–48), and 55155 (January 23,
2007) 72 FR 4714 (February 1, 2007)(Order
Approving Penny Pilot Program on BSE)(SR–BSE–
2006–49).
E:\FR\FM\08NON1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 217 (Thursday, November 8, 2012)]
[Notices]
[Pages 67038-67040]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27317]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68142; File No. SR-FINRA-2012-040]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Amend the By-
Laws of FINRA Dispute Resolution, Inc. To Clarify That Services
Provided by Mediators Should Not Cause Them To Be Classified as
Industry Members Under the By-Laws
November 2, 2012.
I. Introduction
On August 23, 2012 the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and
Rule 19b-4 thereunder,\2\ a proposed rule change to amend the By-Laws
of FINRA Dispute Resolution, Inc. (``By-Laws'') to clarify that
services provided by mediators, when acting in such capacity and not
representing parties in mediation, should not cause the individuals to
be classified as Industry Members under the By-Laws. Specifically, the
proposed rule change would amend the definitions of Industry
[[Page 67039]]
Members \3\ and Public Members \4\ in the By-Laws to except any
services provided in the capacity as a mediator of disputes involving a
broker or dealer and not representing any party in such mediations from
being considered professional services provided to brokers or dealers.
The amended definitions would allow mediators who are otherwise
qualified to be eligible to become Public Members of the National
Arbitration and Mediation Committee (``NAMC''), a committee appointed
by the Board of Directors of FINRA Dispute Resolution, Inc. (``DR
Board''). The proposed rule change was published for comment in the
Federal Register on September 11, 2012.\5\ The Commission received one
comment letter, from an anonymous commenter on the proposed rule
change.\6\ The text of the proposed rule change is available on FINRA's
Web site at https://www.finra.org, at the principal office of FINRA, on
the Commission's Web site at https://www.sec.gov, and at the
Commission's Public Reference Room.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Dispute Resolution By-Laws, Article I(s) (Definitions--
Industry Member).
\4\ See Dispute Resolution By-Laws, Article I(x) (Definitions--
Public Member).
\5\ See Exchange Act Release No. 67784 (Sept. 5, 2012), 77 FR
55885 (Sept. 11, 2012). (``Notice''). The comment period closed on
October 2, 2012.
\6\ See Letter from anonymous commenter, dated October 2, 2012
(``Comment Letter'').
---------------------------------------------------------------------------
This order approves the proposed rule change.
II. Description of the Proposal
The proposed rule change would amend the By-Laws to clarify that
services provided by mediators when acting in such capacity and not
representing parties in mediation should not cause the individuals to
be classified as Industry Members under the By-Laws. Consequently,
mediators who were otherwise qualified would be eligible to become
Public Members of the NAMC would not be excluded because of the
mediation activity excepted by the proposed rule. Currently, those
mediators cannot become members of the NAMC because of the definitions
of Industry Member and Public Member in the By-Laws.
In a FINRA mediation, all parties agree on the selection of a
mediator, agree on the compensation of the mediator, and agree on how
to allocate the mediator's compensation among the parties; the mediator
receives part of the compensation in each case from an industry party.
However, for mediations to which investors are parties, mediators
represent neither the investors nor the FINRA-registered individuals or
entities. Similarly, for mediations involving industry parties only,
mediators represent neither the FINRA-registered individuals nor
entities.
Pursuant to the Plan of Allocation and Delegation of Functions by
FINRA to Subsidiaries (``Delegation Plan''), the NAMC has the power and
authority pursuant to FINRA's Rules to advise the FINRA DR Board on the
development and maintenance of an equitable and efficient system of
dispute resolution that will equally serve the needs of public
investors and FINRA members, to monitor rules and procedures governing
the conduct of dispute resolution, and to have such other powers and
authority as is necessary to effectuate the purposes of FINRA's
Rules.\7\ The Delegation Plan provides that the FINRA DR Board must
appoint the NAMC, whose membership must consist of a majority of Public
Members.\8\
---------------------------------------------------------------------------
\7\ See Plan of Allocation and Delegation of Functions by FINRA
to Subsidiaries--NASD Dispute Resolution, Sec. III(C)(1)(b).
\8\ Id. See also Rules 12102(a) and 12102(a)(1) of the Code of
Arbitration Procedure for Customer Disputes and Rules 13102(a) and
13102(a)(1) of the Code of Arbitration Procedure for Industry
Disputes.
---------------------------------------------------------------------------
Currently, under the By-Laws, a mediator could be classified as an
Industry Member rather than a Public Member for purposes of Committee
participation because of the services provided by a mediator to an
industry party. In FINRA's mediation forum, mediators are retained only
by agreement of all parties to a dispute rather than by any one party
and the parties compensate mediators jointly pursuant to that
agreement. While mediators derive some of their revenue from brokers or
dealers, FINRA has indicated that it does not believe the compensation
earned in the capacity as a mediator compromises the mediator's
neutrality.
The proposed rule change would amend the definitions of Industry
Members and Public Members in the By-Laws to except any services
provided in the capacity as a mediator of disputes involving a broker
or dealer and not representing any party in such mediations from being
considered professional services provided to brokers or dealers.
As explained in the Notice, FINRA believes that the proposed rule
change is consistent with the provisions of Section 15A of the Act,
including Section 15A(b)(2) of the Act,\9\ in that it provides for the
organization of FINRA and FINRA Dispute Resolution in a manner that
will permit FINRA to carry out the purposes of the Act, to comply with
the Act, and to enforce compliance by FINRA members and persons
associated with FINRA members with the Act, the rules and regulations
thereunder, FINRA rules and other federal securities laws. FINRA also
believes that the proposed rule change is consistent with Section
15A(b)(4) of the Act,\10\ which requires, among other things, that
FINRA's rules assure a fair representation of its members in the
selection of its directors and administration of its affairs and
provide that one or more directors shall be representative of issuers
and investors and not be associated with a member of FINRA, broker or
dealer. FINRA believes that the proposal would assure fair
administration of its Dispute Resolution affairs by providing another
source of qualified and experienced candidates from which to select
public members for the NAMC.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78o-3(b)(2).
\10\ 15 U.S.C. 78o-3(b)(4).
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III. Discussion of Comment Letters
The Commission received one comment letter on the proposed rule
change in response to the Notice.\11\ The Comment Letter states that
``the purpose of mediating or having a mediator is to forego the
formalness. An industry member would have an upper-hand and expert
knowledge. [T]hen the situation could be deemed a legal case.'' The
Commission believes that the commenter is suggesting that members with
industry experience would introduce formality into what is supposed to
be an informal process.\12\ Notwithstanding its interpretation or the
merit of the statement underlying its interpretation, the Commission
believes that the proposed rule change simply prevents mediation
activity from automatically qualifying the mediator as an Industry
Member. It does not shield the mediator from being classified as an
Industry Member for other activities that would otherwise cause the
mediator to be considered an Industry Member.\13\
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\11\ Supra note 6.
\12\ Because the commenter submitted the Comment Letter
anonymously, neither the Commission not FINRA is able to seek
clarification of the subject matter of the letter.
\13\ In a telephone call with Mignon McLemore of FINRA on
October 12, 2012, she stated that FINRA believes the Comment Letter
is unclear and could not be clarified due to the anonymity of its
author. Accordingly, FINRA believes that it could not respond to the
letter.
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IV. Discussion and Commission's Findings
The Commission has carefully reviewed the proposed rule change and
the comment received. Based on its review, the Commission finds that
the proposed rule change is consistent with
[[Page 67040]]
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities association. In particular, the
Commission finds that the proposed rule change is consistent with the
provisions of Section 15A of the Act, including Section 15A(b)(2) of
the Act, in that it facilitates the organization of FINRA and FINRA
Dispute Resolution in a manner that will permit FINRA to carry out the
purposes of the Act, to comply with the Act, and to enforce compliance
by FINRA members and persons associated with FINRA members with the
Act, the rules and regulations thereunder, FINRA rules and other
federal securities laws. The Commission also finds that the proposed
rule change is consistent with Section 15A(b)(4) of the Act, which
requires, among other things, that FINRA's rules assure a fair
representation of its members in the selection of its directors and
administration of its affairs and provide that one or more directors
shall be representative of issuers and investors and not be associated
with a member of FINRA, broker or dealer.
More specifically, the Commission finds that by enlarging the pool
from which to draw Public Members for the NAMC, the proposed rule
change facilitates the organization of FINRA and FINRA Dispute
Resolution in a manner consistent with Section 15A(b)(2) of the Act;
the Commission also finds that enlarging the pool from which to draw
Public Members for the NAMC facilitates compliance with and thus is
consistent with the provision of Section 15A(b)(4) of the Act to
provide that one or more of FINRA's directors shall be representative
of issuers and investors and not be associated with a member of FINRA,
broker-dealer.
The Commission appreciates the commenter's letter about members
with industry experience acting as mediators. However, the Commission
believes that the proposed rule change simply prevents mediation
activity from automatically qualifying the mediator as an Industry
Member. It does not shield the mediator from being classified as an
Industry Member for other activities that would otherwise cause the
mediator to be considered an Industry Member.
The Commission has reviewed the record for the proposed rule change
and believes that the record does not contain any information to
indicate that the proposed rule would have a significant effect on
efficiency, competition, or capital formation. In light of the record,
the Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation and has concluded that the proposed
rule is unlikely to have any significant effect.\14\
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\14\ See 15 U.S.C. 78c(f).
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For the reasons stated above, the Commission finds that the rule
change is consistent with the Act and the rules and regulations
thereunder.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-FINRA-2012-040) be, and it
hereby is, approved.
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\15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27317 Filed 11-7-12; 8:45 am]
BILLING CODE 8011-01-P
