Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend the Customer and Industry Codes of Arbitration Procedure To Revise the Public Arbitrator Definition, 21449-21452 [2013-08323]

Download as PDF Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices obligations. The Exchange does not believe that removing this functionality will disincentivize Market Makers from posting more aggressive quotes. Rather, the Exchange believes that, similar to the market maker quoter, Market Makers will use the Market Maker Peg Order to satisfy the Exchange’s quoting requirements, while continuing to enter and manage more aggressively priced orders using existing order types. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. To the contrary, the proposed changes to the Market Maker Peg Order type functionality will further align the Exchange’s functionality with that offered by certain other competing market centers. Specifically, the rule change proposed herein is based on Nasdaq Rule 4751(f)(15) and EDGX Rule 11.5(c)(15).11 By adopting changes to functionality to align with functionality in place elsewhere, as well as simplifying such functionality, the Exchange believes that it is reducing the potential for confusion amongst market participants. The Exchange has requested that the Commission waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Doing so will allow the Exchange to make the improvements and clarifications to the Market Maker Peg Order effective immediately and address any technical or operative issues that member organizations may experience if the Exchange’s implementation of Market Maker Peg Order is different from that of other exchanges. Therefore, the Commission designates the proposal operative upon filing.14 At any time within 60 days of the filing of the 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. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 15 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments 21449 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 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 the filing also will be available for inspection and copying at the principal office of the Exchange. 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–BATS– 2013–022 and should be submitted on or before May 1, 2013. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. 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: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Kevin M. O’Neill, Deputy Secretary. Electronic Comments [FR Doc. 2013–08330 Filed 4–9–13; 8:45 am] III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not significantly affect the protection of investors or the public interest, does not impose any significant burden on competition, and, by its terms, does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 19b– 4(f)(6) thereunder.13 • 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–BATS–2013–022 on the subject line. BILLING CODE 8011–01–P Paper Comments Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend the Customer and Industry Codes of Arbitration Procedure To Revise the Public Arbitrator Definition TKELLEY on DSK3SPTVN1PROD with NOTICES 11 See Securities Exchange Act Release Nos. 67203 (June 14, 2012), 77 FR 37086 (June 20, 2012) (SR NASDAQ–2012–066); 67959 (October 2, 2012), 77 FR 61449 (October 9, 2012) (SR–EDGX–2012– 44); 68596 (January 7, 2013), 78 FR 2477 (January 11, 2013) (SR–EDGX–2012–49). 12 15 U.S.C. 78s(b)(3)(A). 13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the Exchange to give the Commission written notice of the Exchange’s intent to file the proposed rule change, along with a brief description and text of the proposed rule change, VerDate Mar<15>2010 17:59 Apr 09, 2013 Jkt 229001 • 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–BATS–2013–022. This file number should be included on the 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 Exchange has satisfied this requirement. 14 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 15 15 U.S.C. 78s(b)(2)(B). PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69297; File No. SR–FINRA– 2013–003] April 4, 2013. I. Introduction On January 4, 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 16 17 E:\FR\FM\10APN1.SGM CFR 200.30–3(a)(12). 10APN1 21450 Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices of 1934 (‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend FINRA’s Customer and Industry Codes of Arbitration Procedure (collectively, the ‘‘Codes’’) to revise the definition of ‘‘public arbitrator’’ in the Codes. Specifically, the proposed rule change would (a) exclude persons associated with a mutual fund or hedge fund from serving as public arbitrators and (b) require individuals to wait for two years after ending certain affiliations before they may be permitted to serve as public arbitrators. The proposed rule change was published for comment in the Federal Register on January 17, 2013.3 The Commission received 45 comment letters on the proposed rule change,4 and a response 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Exchange Act Release No. 68632 (Jan. 11, 2013), 78 FR 3925 (Jan. 17, 2013) (‘‘Notice’’). The comment period closed on February 7, 2013. 4 See Letter from Steven B. Caruso, Maddox Hargett & Caruso, dated Jan. 16, 2013 (‘‘Caruso Letter’’); letter from David Neuman, Stoltmann Law Offices, dated Jan. 16, 2013 (‘‘Neuman Letter’’); letter from Richard M. Layne, Law Office of Richard M. Layne, dated Jan. 28, 2013 (‘‘Layne Letter’’); letter from Seth E. Lipner, Professor of Law, Zickloin School of Business, Baruch College, and Member, Deutsch & Lipner, dated Jan. 29, 2013 (‘‘Lipner Letter’’); letter from Carl J. Carlson, Tousley Brain Stephens, dated Jan. 29, 2013 (‘‘Carlson Letter’’); letter from David Harrison, Law Offices of David Harrison, dated Jan. 29, 2013 (‘‘Harrison Letter’’); letter from Philip M. Aidikoff, dated Jan. 29, 2013 (‘‘Aidikoff Letter’’); letter from Scott L. Silver, Silver Law Group, dated Jan. 30, 2013 (‘‘Silver Letter’’); letter from Robert A. Uhl, Adjunct Professor of Law, Securities Arbitration and Director, Pepperdine Investor Advocacy Clinic, and Partner, Aidikoff, Uhl & Bakhtiari, dated Jan. 30, 2013 (‘‘Uhl Letter’’); letter from Andrew A. Lipkowitz, Student Intern, and Christine Lazaro, Acting Director, St. John’s University School of Law Securities Arbitration Clinic, dated Feb. 4, 2013 (‘‘St. John’s Letter’’); letter from Robert C. Port, Cohen Goldstein Port & Gottlieb, dated Feb. 5, 2013 (‘‘Port Letter’’); letter from Lisa A. Catalano, dated Feb. 5, 2013 (‘‘Catalano Letter’’); letter from Scott R. Shewan, Pape & Shewan, dated Feb. 6, 2013 (‘‘Shewan Letter’’); letter from Jon C. Furgison, Law Offices of Jon C. Furgison, dated Feb. 6, 2013 (‘‘Furgison Letter’’); letter from Steven J. Gard, Reznicsek Fraser White & Shaffer, dated Feb. 6, 2013 (‘‘Gard Letter’’); letter from Jonathan W. Evans and Michael S. Edmiston, Jonathan W. Evans & Associates, dated Feb. 6, 2013 (‘‘Evans and Edmiston Letter’’); letter from Robert Savage, Visiting Assistant Clinical Professor, Florida International University College of Law, dated Feb. 7, 2013 (‘‘Savage Letter I’’); letter from Robert Savage dated Feb. 7, 2013 (‘‘Savage Letter II’’); letter from James A. Dunlap, Jr., James A. Dunlap Jr. & Associates, dated Feb. 7, 2013 (‘‘Dunlap Letter’’); letter from Diane Nygaard, Kenner, Schmitt & Nygaard, dated Feb. 7, 2013 (‘‘Nygaard Letter’’); letter from W. Scott Greco, Greco & Greco, dated Feb. 7, 2013 (‘‘Greco Letter’’); letter from A. Heath Abshure, NASAA President and Arkansas Securities Commissioner, dated Feb. 7, 2013 (‘‘NASAA Letter’’); letter from Robert S. Banks, Jr., Banks Law Office, dated Feb. 7, 2013 (‘‘Banks Letter’’); letter from Dale Ledbetter, Esq., Ledbetter and Associates, dated Feb. 7, 2013 (‘‘Ledbetter Letter’’); letter from Scott C. Ilgenfritz, President, Public Investors Arbitration Bar Association, dated TKELLEY on DSK3SPTVN1PROD with NOTICES 2 17 VerDate Mar<15>2010 17:59 Apr 09, 2013 Jkt 229001 to comments from FINRA.5 This order approves the proposed rule change. II. Description of the Proposal As stated in the Notice, FINRA classifies arbitrators under the Codes as either ‘‘non-public’’ (otherwise known as ‘‘industry’’ arbitrators) or ‘‘public.’’ Arbitrators are generally considered non-public if they are affiliated with the securities industry either because they (1) are currently or were formerly employed in a securities business; or (2) provide professional services to securities businesses. Arbitrators are generally considered public if they (1) do not have any significant affiliation with the securities industry; and (2) are not related to anyone with a significant affiliation with the securities industry. To improve investor confidence in the neutrality of FINRA’s public arbitrator roster, FINRA has amended its arbitrator definitions a number of times over the years. In 2004, FINRA amended the definitions of ‘‘public arbitrator’’ and ‘‘non-public arbitrator’’ to: Feb. 7, 2013 (‘‘PIABA Letter’’); letter from Elizabeth Zeck, Willoughby & Hoefer, dated Feb. 7, 2013 (‘‘Zeck Letter’’); letter from James A. Sigler, dated Feb. 7, 2013 (‘‘Sigler Letter’’); letter from Robert W. Goehring, dated Feb. 7, 2013 (‘‘Goehring Letter’’); letter from William S. Shepherd, Shepherd Smith Edwards & Kantas, dated Feb. 7, 2013 (‘‘Shepherd Letter’’); letter from Leonard Steiner, Beverly Hills, California, dated Feb. 7, 2013 (‘‘Steiner Letter’’); letter from Joseph Fogel, Fogel & Associates, dated Feb. 7, 2013 (‘‘Fogel Letter’’); letter from Richard A. Lewins, dated Feb. 7, 2013 (‘‘Lewins Letter’’); letter from Jenice L. Malecki, Malecki Law, dated Feb. 7, 2013 (‘‘Malecki Letter’’); letter from Mark E. Sanders, Halling & Cayo, dated Feb. 7, 2013 (‘‘Sanders Letter’’); letter from Jeffrey Sonn, Sonn & Erez, dated Feb. 7, 2013 (‘‘Sonn Letter’’); letter from Thomas C. Costello, dated Feb. 7, 2013 (‘‘Costello Letter’’); letter from Barry D. Estell, dated Feb. 7, 2013 (‘‘Estell Letter’’); letter from Royal Lea, dated Feb. 7, 2013 (‘‘Lea Letter’’); letter from Peter Mougey, Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, dated Feb. 7, 2013 (‘‘Mougey Letter’’); letter from William A. Jacobson, Associate Clinical Professor, Cornell Law School, and Director, Cornell Securities Law Clinic, and Malavika Rao, Cornell Law School ‘14, dated Feb. 7, 2013 (‘‘Cornell Letter’’); letter from David T. Bellaire, Executive Vice President and General Counsel, Financial Services Institute, dated Feb. 7, 2013 (‘‘FSI Letter’’); letter from Theodore M. Davis, dated Feb. 8, 2013 (‘‘Davis Letter’’); letter from Nicholas J. Guiliano, dated Feb. 8, 2013 (‘‘Guiliano Letter’’); letter from Mitchell Ostwald, dated Feb. 8, 2013 (‘‘Ostwald Letter’’); letter from Charles Michael Tobin, The Tobin Law Firm, dated Feb 22, 2013 (‘‘Tobin Letter’’). Comment letters are available at https://www.sec.gov. 5 See Letter from Margo A. Hassan, Assistant Chief Counsel, FINRA Dispute Resolution, to Elizabeth M. Murphy, Secretary, Commission, dated Mar. 11, 2013 (‘‘Response Letter’’). The text of the proposed rule change and a copy of FINRA’s Response Letter are available on FINRA’s Web site at https://www.finra.org, at the principal office of FINRA, and at the Commission’s Public Reference Room. A copy of the Response Letter is also available on the Commission’s Web site at https:// www.sec.gov. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 • Increase from three years to five years the amount of time necessary after leaving the securities industry to transition from a non-public to public arbitrator; • Clarify that ‘‘retired’’ from the industry includes anyone who spent a substantial part of his or her career in the industry; • Prohibit anyone who has been associated with the industry for at least twenty years from ever becoming a public arbitrator, regardless of how long ago the association ended; • Exclude from the definition of ‘‘public arbitrator’’ attorneys, accountants, or other professionals whose firms have derived ten percent or more of their annual revenue in the previous two years from clients involved in securities-related activities (‘‘Ten-Percent Rule’’); and • Provide that investment advisers may not serve as public arbitrators, and may only serve as non-public arbitrators if they otherwise qualify as non-public.6 In 2007, FINRA again revised the definition of ‘‘public arbitrator’’ to: • Exclude individuals who were employed by, or who served as an officer or director of, a company in a control relationship with a brokerdealer. • Exclude individuals with a spouse or immediate family member who was employed by, or who served as an officer or director of, a company in a control relationship with a brokerdealer; and • Clarify that people registered through a broker-dealer could not be public arbitrators even if they are employed by a non-broker-dealer (such as a bank).7 Finally, in 2008, FINRA revised the public arbitrator definition to add a dollar limit to the Ten-Percent Rule. The amended definition was designed to preclude an attorney, accountant, or other professional from serving as a public arbitrator if the individual’s firm derived $50,000 or more in annual revenue in the past two years from professional services rendered to certain industry entities relating to customer 6 See Exchange Act Rel. No. 49573 (April 16, 2004), 69 FR 21871 (Apr. 22, 2004) (File No. SR– NASD–2003–95) (Order Granting Approval to a Proposed Rule Change Relating to Arbitrator Classification and Disclosure in NASD Arbitrations). The changes were announced in Notice to Members 04–49 (June 2004). 7 See Act Rel. No. 54607 (Oct. 16, 2006), 71 FR 62026 (Oct. 20, 2006) (File No. SR–NASD–2005– 094) (Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to Amendments to the Classification of Arbitrators Pursuant to Rule 10308 of the NASD Code of Arbitration Procedure). The changes were announced in Notice to Members 06–64 (Nov. 2006). E:\FR\FM\10APN1.SGM 10APN1 Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices disputes concerning an investment account or transaction.8 The proposed rule change is designed to improve investor confidence in the neutrality of FINRA’s public arbitrator roster. In particular, the proposed rule change would (a) exclude persons associated with a mutual fund or hedge fund from serving as public arbitrators and (b) require individuals to wait for two years after ending certain affiliations before they may be permitted to serve as public arbitrators. FINRA has indicated that it would announce the effective date of the proposed rule change in a Regulatory Notice to be published no later than 60 days following Commission approval, and that the effective date would be no later than 30 days following publication of the Regulatory Notice announcing Commission approval. III. Discussion of Comment Letters As stated above, the Commission received 45 comment letters on the proposed rule change in response to the Notice. Thirty-eight of those commenters (represented by 39 comment letters) generally supported FINRA’s proposal to revise the definition of ‘‘public arbitrator’’ to exclude persons associated with a mutual fund or hedge fund from serving as public arbitrators.9 Of those commenters, however, many stated that while they agreed with the proposed rule change, they thought FINRA should exclude additional categories of persons from the definition of ‘‘public arbitrator.’’ Moreover, some otherwise supportive commenters thought that FINRA should lengthen the proposed cooling off period. A. Exclusions TKELLEY on DSK3SPTVN1PROD with NOTICES Three commenters suggested that the definition of ‘‘public arbitrator’’ should be further narrowed to expressly exclude from ever acting as a public arbitrator persons associated with issuers or sponsors of private 8 See Exchange Act Rel. No. 57492 (Mar. 13, 2008), 73 FR 15025 (Mar. 20, 2008) (File No. SR– NASD–2007–021) (Order Approving Proposed Rule Change to Amend the Definition of Public Arbitrator). The changes were announced in Regulatory Notice 08–22 (May 2008). 9 See Caruso Letter; Neuman Letter; Layne Letter; Lipner Letter; Carlson Letter; Aidikoff Letter; Silver Letter; Uhl Letter; St. John’s Letter; Port Letter; Catalano Letter; Shewan Letter; Furgison Letter; Evans and Edmiston Letter; Savage Letter I; Savage Letter II; Dunlap Letter; Nygaard Letter; Greco Letter; NASAA Letter; Banks Letter; Ledbetter Letter; PIABA Letter; Zeck Letter; Sigler Letter; Goehring Letter; Shepherd Letter; Fogel Letter; Lewins Letter; Malecki Letter; Sanders Letter; Sonn Letter; Costello Letter; Estell Letter; Cornell Letter; Davis Letter; Guiliano Letter; Ostwald Letter; Tobin Letter. VerDate Mar<15>2010 17:59 Apr 09, 2013 Jkt 229001 placements, publicly offered non-traded REITs, variable insurance products, and other investment products.10 These commenters also suggested that the definition of ‘‘public arbitrator’’ should exclude persons who have ever worked for more than a de minimis time as a stockbroker or investment advisor, as well as persons with more than a de minimis time of affiliation with a FINRA member firm, an investment advisory firm, a hedge fund, a mutual fund, or an issuer, sponsor, marketer, or seller of securities or investment products with embedded securities.11 Similarly, two commenters suggested that anyone who has been licensed to do business in the securities industry or depended on the industry for more than a de minimis amount of his or her livelihood for any appreciable length of time should be excluded from the definition of ‘‘public arbitrator.’’ 12 One commenter suggested that the definition of ‘‘public arbitrator’’ should exclude any attorney whose firm has derived $50,000 or ten percent or more of its annual revenue in the prior two years from professional services rendered to claimants in customer disputes concerning an investment account or transaction.13 Another commenter suggested that individuals who have been employed by securities industry trade organizations such as FINRA should be barred from being classified as public arbitrators.14 One commenter generally approved of the proposed rule change but maintained that, in the context of customer disputes, FINRA’s current definition of ‘‘non-public arbitrator’’ must be broadened to include the entire securities industry, particularly if FINRA plans to open up its forum to non-members.15 Finally, another commenter believed the proposed rule change should exclude additional categories of individuals from the definition of ‘‘public arbitrator’’ but ultimately disapproved of the proposed rule change on the grounds that it would continue to permit individuals who previously worked in and have financial interests connected to the securities industry to be classified as public arbitrators.16 This commenter also expressed the view that the amended rule would continue to give FINRA staff too much discretion in classifying 10 See PIABA Letter; Sanders Letter; Cornell Letter. 11 Id. 12 See Lewins Letter; Cornell Letter. 13 See FSI Letter. 14 See Davis Letter. 15 See NASAA Letter. 16 See Gard Letter. PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 21451 arbitrators. Another commenter expressed the same concern.17 B. Cooling-Off Period Fourteen commenters suggested that FINRA’s proposal to require individuals to wait for two years after ending certain affiliations before they may be permitted to serve as public arbitrators should be amended to increase the proposed ‘‘cooling off’’ period from two years to at least five years.18 Five commenters suggested that the proposed cooling off period should generally be longer than two years.19 Three commenters generally disapproved of the length of the proposed two-year cooling off period on the grounds that it would not serve the interests of investors.20 Two commenters suggested expanding the proposed cooling off period from two years to ten.21 One commenter suggested that no individual who has spent ten years or more in the securities industry should ever be classified as a public arbitrator.22 Another commenter suggested that anyone associated with the industry for twenty or more years should be prohibited from ever becoming a public arbitrator.23 Eleven commenters suggested that no cooling off period is sufficient and that only individuals who have never had an affiliation with the financial services industry should be eligible to serve as public arbitrators.24 In its Response Letter, FINRA stated that the purpose of the proposed rule change is to respond to investor representatives’ concerns that certain arbitrators on the public roster were not perceived as public because of their background and experience. Specifically, FINRA stated that the proposed rule change would affect certain persons whose job precludes them from being classified as a public arbitrator but does not qualify them as a non-public arbitrator. In addition, FINRA stated that the proposed rule would require persons precluded by their job from being classified as a public arbitrator to wait two years 17 See Gard Letter; Estell Letter. Caruso Letter; Neuman Letter; Layne Letter; Harrison Letter; Silver Letter; St. John’s Letter; Catalano Letter; Zeck Letter; Shepherd Letter; Malecki Letter; Costello Letter; Estell Letter; Cornell Letter; Guiliano Letter. 19 See Greco Letter; PIABA Letter; Fogel Letter; Lewins Letter; Sanders Letter. 20 See Dunlap Letter; Nygaard Letter; Goehring Letter. 21 See Carlson Letter; Evans and Edmiston Letter. 22 See Uhl Letter. 23 See Harrison Letter. 24 See Lipner Letter; Aidikoff Letter; Silver Letter; Port Letter; Shewan Letter; Furgison Letter; Evans and Edmiston Letter; NASAA Letter; Sonn Letter; Davis Letter; Ostwald Letter. 18 See E:\FR\FM\10APN1.SGM 10APN1 21452 Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES before being eligible to join the public roster after moving to a job that would not otherwise disqualify them for service. FINRA maintained that the proposed two-year cooling off period responds to the concerns raised by investor representatives and would be a positive step toward enhancing investors’ perception of fairness in FINRA’s arbitration forum. FINRA also stated that it intends to further review, under the auspices of the National Arbitration and Mediation Committee, both the public and non-public arbitrator definitions with a view towards clarifying the definitions and reviewing additional issues such as those raised in comment letters on the proposed rule change. Therefore, FINRA declined to amend the proposed rule change. IV. Commission’s Findings The Commission has carefully reviewed the proposed rule change, the comments received, and FINRA’s Response Letter. Based on its review of the record, the Commission 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.25 In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,26 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 exclude persons associated with a mutual fund or hedge fund from serving as public arbitrators and require individuals to wait for two years after ending certain affiliations before they may be permitted to serve as public arbitrators would benefit investors and other participants in the forum by improving investor confidence in the neutrality of FINRA’s public arbitrator roster. While the Commission appreciates the suggestions regarding exclusions from the definition of ‘‘public arbitrator’’ and the proposed two-year cooling off period, we believe that FINRA has responded adequately to comments. We also agree with the Response Letter’s position that the proposed rule change should improve investors’ perception about the fairness 25 In approving this proposed rule change, the Commission has considered the rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 26 15 U.S.C. 78o–3(b)(6). VerDate Mar<15>2010 17:59 Apr 09, 2013 Jkt 229001 and neutrality of FINRA’s public arbitrator roster, particularly given the Response Letter’s representation that FINRA intends to conduct a comprehensive review of both the public and non-public arbitrator definitions with a view towards further clarifying the definitions and reviewing additional issues such as those raised in comment letters on the proposed rule change. For the reasons stated above, the Commission finds that the proposed 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,27 that the proposed rule change (SR–FINRA– 2013–003) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–08323 Filed 4–9–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69311; File No. SR– NYSEArca–2013–36] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Standard Options Transaction Fees April 4, 2013. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on March 27, 2013, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 27 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 28 17 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Standard Options Transaction Fees. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, 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 self-regulatory organization 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 those 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 parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this filing is to modify the transaction charges for executing standard options trades on NYSE Arca. The Exchange proposes to raise the Take Liquidity Rate in both Penny Pilot Issues and non-Penny Pilot issues, while reducing the Post Liquidity credit for NYSE Arca Market Makers in nonPenny Pilot issues. The Exchange also proposes to modify the Customer Monthly Posting Credit Tiers and Qualifications to provide additional tiers to incent an increased level of Customer activity, and create new Tiers for a similar increase in Customer activity by providing higher Post Liquidity credits in non-Penny Pilot issues. First, the Exchange proposes to no longer differentiate the Take Liquidity rate by contra party, so that a participant will have a single fee for Taking Liquidity in Penny Pilot issues. The Exchange proposes to raise the Take Liquidity rate for all non-Customers trading in Penny Pilot issues to $0.47 per contract. Similarly, the Exchange proposes raising the Take Liquidity fee for Electronic Executions in non-Penny Pilot issues for all participants, with similar increases but differentiated fees by participant type. The Take Liquidity fee for LMMs trading in non-Penny Pilot issues will be increased from $0.78 to E:\FR\FM\10APN1.SGM 10APN1

Agencies

[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21449-21452]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08323]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69297; File No. SR-FINRA-2013-003]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Amend the 
Customer and Industry Codes of Arbitration Procedure To Revise the 
Public Arbitrator Definition

April 4, 2013.

I. Introduction

    On January 4, 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

[[Page 21450]]

of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
a proposed rule change to amend FINRA's Customer and Industry Codes of 
Arbitration Procedure (collectively, the ``Codes'') to revise the 
definition of ``public arbitrator'' in the Codes. Specifically, the 
proposed rule change would (a) exclude persons associated with a mutual 
fund or hedge fund from serving as public arbitrators and (b) require 
individuals to wait for two years after ending certain affiliations 
before they may be permitted to serve as public arbitrators. The 
proposed rule change was published for comment in the Federal Register 
on January 17, 2013.\3\ The Commission received 45 comment letters on 
the proposed rule change,\4\ and a response to comments from FINRA.\5\ 
This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 68632 (Jan. 11, 2013), 78 FR 
3925 (Jan. 17, 2013) (``Notice''). The comment period closed on 
February 7, 2013.
    \4\ See Letter from Steven B. Caruso, Maddox Hargett & Caruso, 
dated Jan. 16, 2013 (``Caruso Letter''); letter from David Neuman, 
Stoltmann Law Offices, dated Jan. 16, 2013 (``Neuman Letter''); 
letter from Richard M. Layne, Law Office of Richard M. Layne, dated 
Jan. 28, 2013 (``Layne Letter''); letter from Seth E. Lipner, 
Professor of Law, Zickloin School of Business, Baruch College, and 
Member, Deutsch & Lipner, dated Jan. 29, 2013 (``Lipner Letter''); 
letter from Carl J. Carlson, Tousley Brain Stephens, dated Jan. 29, 
2013 (``Carlson Letter''); letter from David Harrison, Law Offices 
of David Harrison, dated Jan. 29, 2013 (``Harrison Letter''); letter 
from Philip M. Aidikoff, dated Jan. 29, 2013 (``Aidikoff Letter''); 
letter from Scott L. Silver, Silver Law Group, dated Jan. 30, 2013 
(``Silver Letter''); letter from Robert A. Uhl, Adjunct Professor of 
Law, Securities Arbitration and Director, Pepperdine Investor 
Advocacy Clinic, and Partner, Aidikoff, Uhl & Bakhtiari, dated Jan. 
30, 2013 (``Uhl Letter''); letter from Andrew A. Lipkowitz, Student 
Intern, and Christine Lazaro, Acting Director, St. John's University 
School of Law Securities Arbitration Clinic, dated Feb. 4, 2013 
(``St. John's Letter''); letter from Robert C. Port, Cohen Goldstein 
Port & Gottlieb, dated Feb. 5, 2013 (``Port Letter''); letter from 
Lisa A. Catalano, dated Feb. 5, 2013 (``Catalano Letter''); letter 
from Scott R. Shewan, Pape & Shewan, dated Feb. 6, 2013 (``Shewan 
Letter''); letter from Jon C. Furgison, Law Offices of Jon C. 
Furgison, dated Feb. 6, 2013 (``Furgison Letter''); letter from 
Steven J. Gard, Reznicsek Fraser White & Shaffer, dated Feb. 6, 2013 
(``Gard Letter''); letter from Jonathan W. Evans and Michael S. 
Edmiston, Jonathan W. Evans & Associates, dated Feb. 6, 2013 
(``Evans and Edmiston Letter''); letter from Robert Savage, Visiting 
Assistant Clinical Professor, Florida International University 
College of Law, dated Feb. 7, 2013 (``Savage Letter I''); letter 
from Robert Savage dated Feb. 7, 2013 (``Savage Letter II''); letter 
from James A. Dunlap, Jr., James A. Dunlap Jr. & Associates, dated 
Feb. 7, 2013 (``Dunlap Letter''); letter from Diane Nygaard, Kenner, 
Schmitt & Nygaard, dated Feb. 7, 2013 (``Nygaard Letter''); letter 
from W. Scott Greco, Greco & Greco, dated Feb. 7, 2013 (``Greco 
Letter''); letter from A. Heath Abshure, NASAA President and 
Arkansas Securities Commissioner, dated Feb. 7, 2013 (``NASAA 
Letter''); letter from Robert S. Banks, Jr., Banks Law Office, dated 
Feb. 7, 2013 (``Banks Letter''); letter from Dale Ledbetter, Esq., 
Ledbetter and Associates, dated Feb. 7, 2013 (``Ledbetter Letter''); 
letter from Scott C. Ilgenfritz, President, Public Investors 
Arbitration Bar Association, dated Feb. 7, 2013 (``PIABA Letter''); 
letter from Elizabeth Zeck, Willoughby & Hoefer, dated Feb. 7, 2013 
(``Zeck Letter''); letter from James A. Sigler, dated Feb. 7, 2013 
(``Sigler Letter''); letter from Robert W. Goehring, dated Feb. 7, 
2013 (``Goehring Letter''); letter from William S. Shepherd, 
Shepherd Smith Edwards & Kantas, dated Feb. 7, 2013 (``Shepherd 
Letter''); letter from Leonard Steiner, Beverly Hills, California, 
dated Feb. 7, 2013 (``Steiner Letter''); letter from Joseph Fogel, 
Fogel & Associates, dated Feb. 7, 2013 (``Fogel Letter''); letter 
from Richard A. Lewins, dated Feb. 7, 2013 (``Lewins Letter''); 
letter from Jenice L. Malecki, Malecki Law, dated Feb. 7, 2013 
(``Malecki Letter''); letter from Mark E. Sanders, Halling & Cayo, 
dated Feb. 7, 2013 (``Sanders Letter''); letter from Jeffrey Sonn, 
Sonn & Erez, dated Feb. 7, 2013 (``Sonn Letter''); letter from 
Thomas C. Costello, dated Feb. 7, 2013 (``Costello Letter''); letter 
from Barry D. Estell, dated Feb. 7, 2013 (``Estell Letter''); letter 
from Royal Lea, dated Feb. 7, 2013 (``Lea Letter''); letter from 
Peter Mougey, Levin, Papantonio, Thomas, Mitchell, Rafferty & 
Proctor, dated Feb. 7, 2013 (``Mougey Letter''); letter from William 
A. Jacobson, Associate Clinical Professor, Cornell Law School, and 
Director, Cornell Securities Law Clinic, and Malavika Rao, Cornell 
Law School `14, dated Feb. 7, 2013 (``Cornell Letter''); letter from 
David T. Bellaire, Executive Vice President and General Counsel, 
Financial Services Institute, dated Feb. 7, 2013 (``FSI Letter''); 
letter from Theodore M. Davis, dated Feb. 8, 2013 (``Davis 
Letter''); letter from Nicholas J. Guiliano, dated Feb. 8, 2013 
(``Guiliano Letter''); letter from Mitchell Ostwald, dated Feb. 8, 
2013 (``Ostwald Letter''); letter from Charles Michael Tobin, The 
Tobin Law Firm, dated Feb 22, 2013 (``Tobin Letter''). Comment 
letters are available at https://www.sec.gov.
    \5\ See Letter from Margo A. Hassan, Assistant Chief Counsel, 
FINRA Dispute Resolution, to Elizabeth M. Murphy, Secretary, 
Commission, dated Mar. 11, 2013 (``Response Letter''). The text of 
the proposed rule change and a copy of FINRA's Response Letter are 
available on FINRA's Web site at https://www.finra.org, at the 
principal office of FINRA, and at the Commission's Public Reference 
Room. A copy of the Response Letter is also available on the 
Commission's Web site at https://www.sec.gov.
---------------------------------------------------------------------------

II. Description of the Proposal

    As stated in the Notice, FINRA classifies arbitrators under the 
Codes as either ``non-public'' (otherwise known as ``industry'' 
arbitrators) or ``public.'' Arbitrators are generally considered non-
public if they are affiliated with the securities industry either 
because they (1) are currently or were formerly employed in a 
securities business; or (2) provide professional services to securities 
businesses. Arbitrators are generally considered public if they (1) do 
not have any significant affiliation with the securities industry; and 
(2) are not related to anyone with a significant affiliation with the 
securities industry.
    To improve investor confidence in the neutrality of FINRA's public 
arbitrator roster, FINRA has amended its arbitrator definitions a 
number of times over the years.
    In 2004, FINRA amended the definitions of ``public arbitrator'' and 
``non-public arbitrator'' to:
     Increase from three years to five years the amount of time 
necessary after leaving the securities industry to transition from a 
non-public to public arbitrator;
     Clarify that ``retired'' from the industry includes anyone 
who spent a substantial part of his or her career in the industry;
     Prohibit anyone who has been associated with the industry 
for at least twenty years from ever becoming a public arbitrator, 
regardless of how long ago the association ended;
     Exclude from the definition of ``public arbitrator'' 
attorneys, accountants, or other professionals whose firms have derived 
ten percent or more of their annual revenue in the previous two years 
from clients involved in securities-related activities (``Ten-Percent 
Rule''); and
     Provide that investment advisers may not serve as public 
arbitrators, and may only serve as non-public arbitrators if they 
otherwise qualify as non-public.\6\ In 2007, FINRA again revised the 
definition of ``public arbitrator'' to:
---------------------------------------------------------------------------

    \6\ See Exchange Act Rel. No. 49573 (April 16, 2004), 69 FR 
21871 (Apr. 22, 2004) (File No. SR-NASD-2003-95) (Order Granting 
Approval to a Proposed Rule Change Relating to Arbitrator 
Classification and Disclosure in NASD Arbitrations). The changes 
were announced in Notice to Members 04-49 (June 2004).
---------------------------------------------------------------------------

     Exclude individuals who were employed by, or who served as 
an officer or director of, a company in a control relationship with a 
broker-dealer.
     Exclude individuals with a spouse or immediate family 
member who was employed by, or who served as an officer or director of, 
a company in a control relationship with a broker-dealer; and
     Clarify that people registered through a broker-dealer 
could not be public arbitrators even if they are employed by a non-
broker-dealer (such as a bank).\7\
---------------------------------------------------------------------------

    \7\ See Act Rel. No. 54607 (Oct. 16, 2006), 71 FR 62026 (Oct. 
20, 2006) (File No. SR-NASD-2005-094) (Order Approving Proposed Rule 
Change and Amendment No. 1 Thereto Relating to Amendments to the 
Classification of Arbitrators Pursuant to Rule 10308 of the NASD 
Code of Arbitration Procedure). The changes were announced in Notice 
to Members 06-64 (Nov. 2006).
---------------------------------------------------------------------------

    Finally, in 2008, FINRA revised the public arbitrator definition to 
add a dollar limit to the Ten-Percent Rule. The amended definition was 
designed to preclude an attorney, accountant, or other professional 
from serving as a public arbitrator if the individual's firm derived 
$50,000 or more in annual revenue in the past two years from 
professional services rendered to certain industry entities relating to 
customer

[[Page 21451]]

disputes concerning an investment account or transaction.\8\
---------------------------------------------------------------------------

    \8\ See Exchange Act Rel. No. 57492 (Mar. 13, 2008), 73 FR 15025 
(Mar. 20, 2008) (File No. SR-NASD-2007-021) (Order Approving 
Proposed Rule Change to Amend the Definition of Public Arbitrator). 
The changes were announced in Regulatory Notice 08-22 (May 2008).
---------------------------------------------------------------------------

    The proposed rule change is designed to improve investor confidence 
in the neutrality of FINRA's public arbitrator roster. In particular, 
the proposed rule change would (a) exclude persons associated with a 
mutual fund or hedge fund from serving as public arbitrators and (b) 
require individuals to wait for two years after ending certain 
affiliations before they may be permitted to serve as public 
arbitrators.
    FINRA has indicated that it would announce the effective date of 
the proposed rule change in a Regulatory Notice to be published no 
later than 60 days following Commission approval, and that the 
effective date would be no later than 30 days following publication of 
the Regulatory Notice announcing Commission approval.

III. Discussion of Comment Letters

    As stated above, the Commission received 45 comment letters on the 
proposed rule change in response to the Notice. Thirty-eight of those 
commenters (represented by 39 comment letters) generally supported 
FINRA's proposal to revise the definition of ``public arbitrator'' to 
exclude persons associated with a mutual fund or hedge fund from 
serving as public arbitrators.\9\ Of those commenters, however, many 
stated that while they agreed with the proposed rule change, they 
thought FINRA should exclude additional categories of persons from the 
definition of ``public arbitrator.'' Moreover, some otherwise 
supportive commenters thought that FINRA should lengthen the proposed 
cooling off period.
---------------------------------------------------------------------------

    \9\ See Caruso Letter; Neuman Letter; Layne Letter; Lipner 
Letter; Carlson Letter; Aidikoff Letter; Silver Letter; Uhl Letter; 
St. John's Letter; Port Letter; Catalano Letter; Shewan Letter; 
Furgison Letter; Evans and Edmiston Letter; Savage Letter I; Savage 
Letter II; Dunlap Letter; Nygaard Letter; Greco Letter; NASAA 
Letter; Banks Letter; Ledbetter Letter; PIABA Letter; Zeck Letter; 
Sigler Letter; Goehring Letter; Shepherd Letter; Fogel Letter; 
Lewins Letter; Malecki Letter; Sanders Letter; Sonn Letter; Costello 
Letter; Estell Letter; Cornell Letter; Davis Letter; Guiliano 
Letter; Ostwald Letter; Tobin Letter.
---------------------------------------------------------------------------

A. Exclusions

    Three commenters suggested that the definition of ``public 
arbitrator'' should be further narrowed to expressly exclude from ever 
acting as a public arbitrator persons associated with issuers or 
sponsors of private placements, publicly offered non-traded REITs, 
variable insurance products, and other investment products.\10\ These 
commenters also suggested that the definition of ``public arbitrator'' 
should exclude persons who have ever worked for more than a de minimis 
time as a stockbroker or investment advisor, as well as persons with 
more than a de minimis time of affiliation with a FINRA member firm, an 
investment advisory firm, a hedge fund, a mutual fund, or an issuer, 
sponsor, marketer, or seller of securities or investment products with 
embedded securities.\11\ Similarly, two commenters suggested that 
anyone who has been licensed to do business in the securities industry 
or depended on the industry for more than a de minimis amount of his or 
her livelihood for any appreciable length of time should be excluded 
from the definition of ``public arbitrator.'' \12\
---------------------------------------------------------------------------

    \10\ See PIABA Letter; Sanders Letter; Cornell Letter.
    \11\ Id.
    \12\ See Lewins Letter; Cornell Letter.
---------------------------------------------------------------------------

    One commenter suggested that the definition of ``public 
arbitrator'' should exclude any attorney whose firm has derived $50,000 
or ten percent or more of its annual revenue in the prior two years 
from professional services rendered to claimants in customer disputes 
concerning an investment account or transaction.\13\ Another commenter 
suggested that individuals who have been employed by securities 
industry trade organizations such as FINRA should be barred from being 
classified as public arbitrators.\14\
---------------------------------------------------------------------------

    \13\ See FSI Letter.
    \14\ See Davis Letter.
---------------------------------------------------------------------------

    One commenter generally approved of the proposed rule change but 
maintained that, in the context of customer disputes, FINRA's current 
definition of ``non-public arbitrator'' must be broadened to include 
the entire securities industry, particularly if FINRA plans to open up 
its forum to non-members.\15\
---------------------------------------------------------------------------

    \15\ See NASAA Letter.
---------------------------------------------------------------------------

    Finally, another commenter believed the proposed rule change should 
exclude additional categories of individuals from the definition of 
``public arbitrator'' but ultimately disapproved of the proposed rule 
change on the grounds that it would continue to permit individuals who 
previously worked in and have financial interests connected to the 
securities industry to be classified as public arbitrators.\16\ This 
commenter also expressed the view that the amended rule would continue 
to give FINRA staff too much discretion in classifying arbitrators. 
Another commenter expressed the same concern.\17\
---------------------------------------------------------------------------

    \16\ See Gard Letter.
    \17\ See Gard Letter; Estell Letter.
---------------------------------------------------------------------------

B. Cooling-Off Period

    Fourteen commenters suggested that FINRA's proposal to require 
individuals to wait for two years after ending certain affiliations 
before they may be permitted to serve as public arbitrators should be 
amended to increase the proposed ``cooling off'' period from two years 
to at least five years.\18\ Five commenters suggested that the proposed 
cooling off period should generally be longer than two years.\19\ Three 
commenters generally disapproved of the length of the proposed two-year 
cooling off period on the grounds that it would not serve the interests 
of investors.\20\ Two commenters suggested expanding the proposed 
cooling off period from two years to ten.\21\ One commenter suggested 
that no individual who has spent ten years or more in the securities 
industry should ever be classified as a public arbitrator.\22\ Another 
commenter suggested that anyone associated with the industry for twenty 
or more years should be prohibited from ever becoming a public 
arbitrator.\23\ Eleven commenters suggested that no cooling off period 
is sufficient and that only individuals who have never had an 
affiliation with the financial services industry should be eligible to 
serve as public arbitrators.\24\
---------------------------------------------------------------------------

    \18\ See Caruso Letter; Neuman Letter; Layne Letter; Harrison 
Letter; Silver Letter; St. John's Letter; Catalano Letter; Zeck 
Letter; Shepherd Letter; Malecki Letter; Costello Letter; Estell 
Letter; Cornell Letter; Guiliano Letter.
    \19\ See Greco Letter; PIABA Letter; Fogel Letter; Lewins 
Letter; Sanders Letter.
    \20\ See Dunlap Letter; Nygaard Letter; Goehring Letter.
    \21\ See Carlson Letter; Evans and Edmiston Letter.
    \22\ See Uhl Letter.
    \23\ See Harrison Letter.
    \24\ See Lipner Letter; Aidikoff Letter; Silver Letter; Port 
Letter; Shewan Letter; Furgison Letter; Evans and Edmiston Letter; 
NASAA Letter; Sonn Letter; Davis Letter; Ostwald Letter.
---------------------------------------------------------------------------

    In its Response Letter, FINRA stated that the purpose of the 
proposed rule change is to respond to investor representatives' 
concerns that certain arbitrators on the public roster were not 
perceived as public because of their background and experience. 
Specifically, FINRA stated that the proposed rule change would affect 
certain persons whose job precludes them from being classified as a 
public arbitrator but does not qualify them as a non-public arbitrator. 
In addition, FINRA stated that the proposed rule would require persons 
precluded by their job from being classified as a public arbitrator to 
wait two years

[[Page 21452]]

before being eligible to join the public roster after moving to a job 
that would not otherwise disqualify them for service. FINRA maintained 
that the proposed two-year cooling off period responds to the concerns 
raised by investor representatives and would be a positive step toward 
enhancing investors' perception of fairness in FINRA's arbitration 
forum. FINRA also stated that it intends to further review, under the 
auspices of the National Arbitration and Mediation Committee, both the 
public and non-public arbitrator definitions with a view towards 
clarifying the definitions and reviewing additional issues such as 
those raised in comment letters on the proposed rule change. Therefore, 
FINRA declined to amend the proposed rule change.

IV. Commission's Findings

    The Commission has carefully reviewed the proposed rule change, the 
comments received, and FINRA's Response Letter. Based on its review of 
the record, the Commission 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.\25\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\26\ 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.
---------------------------------------------------------------------------

    \25\ In approving this proposed rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \26\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    More specifically, the Commission finds that the proposed rule 
change to exclude persons associated with a mutual fund or hedge fund 
from serving as public arbitrators and require individuals to wait for 
two years after ending certain affiliations before they may be 
permitted to serve as public arbitrators would benefit investors and 
other participants in the forum by improving investor confidence in the 
neutrality of FINRA's public arbitrator roster. While the Commission 
appreciates the suggestions regarding exclusions from the definition of 
``public arbitrator'' and the proposed two-year cooling off period, we 
believe that FINRA has responded adequately to comments. We also agree 
with the Response Letter's position that the proposed rule change 
should improve investors' perception about the fairness and neutrality 
of FINRA's public arbitrator roster, particularly given the Response 
Letter's representation that FINRA intends to conduct a comprehensive 
review of both the public and non-public arbitrator definitions with a 
view towards further clarifying the definitions and reviewing 
additional issues such as those raised in comment letters on the 
proposed rule change.
    For the reasons stated above, the Commission finds that the 
proposed 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,\27\ that the proposed rule change (SR-FINRA-2013-003) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08323 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P
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