Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Codes of Arbitration Procedure To Increase the Late Cancellation Fee, 9773-9776 [2015-03660]

Download as PDF Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices not offered any explanation as to why permitting its pegging orders to peg to hidden interest is, on balance, good for its members or the quality of its market or why it is otherwise consistent with section 6(b)(5) of the Act. Similarly, the Exchange’s filing does not explain why this use of an order type would be available to floor brokers or to those who submit orders through a floor broker, but would not otherwise be available to other exchange members. IV. Procedure: Request for Written Comments tkelley on DSK3SPTVN1PROD with NOTICES The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the concerns identified above, as well as any other concerns they may have with the proposed rule change. Although there do not appear to be any issues relevant to approval or disapproval which would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.21 Interested persons are invited to submit written data, views, and arguments regarding whether the proposal should be approved or disapproved by March 17, 2015. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by March 31, 2015. The Commission invites the written views of interested persons concerning whether the proposal is consistent with section 6(b)(5) of the Act,22 any other provision of the Act, or the rules and regulations thereunder. The Commission asks that commenters address the sufficiency and merit of the Exchange’s statements in support of the proposed rule change, in addition to any other comments they may wish to submit about the proposed rule change. Floor brokers to stay with a quickly changing quote.’’ See Securities Exchange Act Release No. 61081 (Dec. 1, 2009), 74 FR 64105 (Dec. 7, 2009) (approving the predecessor Exchange’s proposal to update d-Quote functionality and provide for eQuotes to peg to the National Best Bid or Offer). The Commission further notes that the Exchange’s rules are based on the rules of the New York Stock Exchange, Inc. 21 Section 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Public Law 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 22 Id. VerDate Sep<11>2014 17:31 Feb 23, 2015 Jkt 235001 In particular, the Commission seeks comment on the following: 1. As described above, the Exchange proposes to add a new definition for ‘‘next available best-priced interest’’ in connection with pegging interest. As shown in the Exchange’s example, discussed above,23 the proposal would, when pegging interest is entered with a limit price outside the PBBO, allow pegging interest to peg to a NonDisplay Reserve Order or Non-Display Reserve e-Quote that is not at the top of the Exchange’s book. Therefore, the functionality would allow the member entering pegging interest with a limit price to potentially detect the presence of a hidden order outside the PBBO, if there are no other displayable orders at that price point. Given that, as noted above,24 pegging interest was instituted originally to facilitate the ability of manual Floor brokers to maintain orders at the best displayed prices, do commenters believe that allowing pegging interest to potentially operate in this manner is beneficial, or detrimental, to Exchange members or the quality of the Exchange’s market? 25 2. Do commenters believe that the Exchange’s proposal sufficiently describes the characteristics, functionality, priority, and execution pricing of each of its order types and modifiers? If not, which aspects of the Exchange’s order types and modifiers remain ambiguous or undescribed? Please be specific. 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 rule-comments@ sec.gov. Please include File Number SR– NYSEMKT–2014–95 on the subject line. 9773 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 such 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– NYSEMKT–2014–95 and should be submitted on or before March 17, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Brent J. Fields, Secretary. [FR Doc. 2015–03678 Filed 2–23–15; 8:45 am] BILLING CODE 8011–01–P Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEMKT–2014–95. This file number should be included on the subject line if email is used. To help the 23 See text accompanying note 16, supra. supra, note 20 and accompanying text. 25 The Commission notes that, while ALO orders or Day ISO orders on the Exchange can be re-priced in a manner that reveals the existence of hidden orders, ALO orders or Day ISO orders are displayed and would tighten the quoted spread. The Commission approved the ALO order and the Day ISO order re-pricing mechanism on the basis that their re-pricing mechanism would contribute to public price discovery, an objective consistent with the requirements of the Act. See Securities Exchange Act Release No. 73333 (Oct. 9, 2014), 79 FR 62223 (Oct. 16, 2014) (approving the Exchange’s proposal to make the Add Liquidity Only modifier available for Limit Orders and to make the Day Time-In-Force condition and Add Liquidity Only modifier available for Intermarket Sweep Orders). 24 See, PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74289; File No. SR–FINRA– 2015–003] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Codes of Arbitration Procedure To Increase the Late Cancellation Fee February 18, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 5, 2015, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed 26 17 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\24FEN1.SGM 24FEN1 9774 Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices rule change as described in Items I, II, and III below, which Items have been substantially prepared by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend Rules 12214 and 12601 of the Code of Arbitration Procedure for Customer Disputes (‘‘Customer Code’’) and Rules 13214 and 13601 of the Code of Arbitration Procedure for Industry Disputes (‘‘Industry Code’’) (together, ‘‘Codes’’) to require that parties give more advance notice before cancelling or postponing a hearing, or be assessed a higher late cancellation fee if such notice is not provided. The text of the proposed rule change is available at the principal office of FINRA, on FINRA’s Web site at https://www.finra.org, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Introduction tkelley on DSK3SPTVN1PROD with NOTICES Under current Rules 12601(b)(2) and 13601(b)(2) of the Codes, each arbitrator selected for a case receives a $100 honorarium when a hearing is postponed or cancelled 3 within three business days of the scheduled date. However, if the postponement or cancellation occurs more than three business days in advance of the 3 If the parties settle an arbitration case, hearings that were scheduled to occur after settlement are cancelled, and depending on the timing of the cancellation, could result in the assessment of a cancellation fee. See Rules 12902(d) and 13902(d). These rules incorporate the fees and costs incurred under Rules 12601 and 13601, and, therefore, would incorporate the proposed rule change to the late cancellation fee. VerDate Sep<11>2014 17:31 Feb 23, 2015 Jkt 235001 scheduled hearing, the arbitrators do not receive an honorarium.4 FINRA is proposing to amend Rules 12601(b)(2) and 13601(b)(2) 5 to require that if a postponement or cancellation request is made by one or more parties within ten calendar days before a scheduled hearing session and granted, the party or parties making the request would pay a fee of $600 per arbitrator (‘‘Late Cancellation Fee’’). Under the proposed rule change, therefore, the Late Cancellation Fee for a three-person arbitration panel would be $1,800, instead of $300 under the current rules.6 The primary purpose of the proposed rule change is to encourage parties to provide more advance notice of postponements and cancellations, or, in the alternative, to compensate arbitrators more than they are currently paid for lost time and opportunities in the event of a late postponement or cancellation. Under the proposed rule change, the Late Cancellation Fee would be assessed if a hearing is postponed or cancelled within ten calendar days before a scheduled hearing session. To simplify the discussion, the following explanation will use the term ‘‘cancellation’’ or a variation thereof to describe either scenario. Background In FINRA arbitration, once the parties select arbitrators, they hold an initial pre-hearing conference with the parties, usually over the telephone, to discuss procedural issues, the mediation alternative, discovery, and scheduling of hearings.7 In many cases, the hearing dates are selected months in advance, thus requiring arbitrators to reserve these dates and forego other opportunities that would result in a conflict with the scheduled dates. 4 For each postponement agreed to by the parties, or granted upon request of one or more parties, FINRA assesses a postponement fee to the parties, equal to the applicable hearing session fee (‘‘Postponement Fee’’). See Rules 12601(b)(1) and 13601(b)(1). This fee is paid to FINRA and not passed through to the arbitrators. 5 FINRA would also amend the Late Cancellation Fee reference (defined infra) in Rules 12214(a) and 13214(a). 6 Pursuant to an analysis of FINRA’s data, for the period from September 1, 2013 to August 31, 2014, approximately 80 percent of arbitration cases were heard by a three-person panel. The number of arbitrators that the parties may select for a case typically depends on the amount of the claim. See Rules 12401 and 13401 (describing, among other things, the parameters for when panels may consist of three arbitrators). 7 A hearing is a meeting between the parties and the arbitrators of four hours or less to determine the merits of the arbitration. See Rules 12100(m) and 13100(m); see also Rules 12100(n) and 13100(n). A typical day in an arbitration case has two hearing sessions. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 FINRA has received many complaints from arbitrators concerning the current late cancellation rule (‘‘Late Cancellation Rule’’),8 which applies when parties postpone, settle in advance of, or otherwise cancel a scheduled hearing session within three business days of its start date. It is the most frequent complaint Dispute Resolution staff receives from arbitrators. In fact, when FINRA formed the Dispute Resolution Task Force (‘‘Task Force’’) in 2014 to consider possible enhancements to its arbitration and mediation forum, the majority of arbitrator responses to the Task Force’s request for comments suggested that FINRA should address the issue of late hearing cancellation requests.9 According to feedback received by FINRA, the current rule is inadequate because the three-business-day cancellation window does not provide arbitrators, who have committed to dates to hear a case, with enough time to schedule other income-generating opportunities. Moreover, the $100 honorarium for these late cancellations does not adequately compensate arbitrators for the preparation time expended and the income that would have been earned from conducting a hearing. FINRA has learned that the lack of sufficient notice and compensation is frustrating for arbitrators and is a reason some arbitrators leave FINRA’s roster. Proposal To Increase Late Cancellation Fees and Cancellation Timeframe FINRA is proposing, therefore, to amend the Codes 10 to require that parties give more advance notice before cancelling a hearing, or be assessed a higher Late Cancellation Fee if such notice is not provided. Specifically, FINRA would amend Rule 12601(b)(2) to require that if a cancellation request is made by one or more parties within ten calendar days before a scheduled hearing session and granted, the party or parties making the request shall pay a 8 See Rules 12601(b)(2) and 13601(b)(2). Task Force comprises individuals from the public and industry sectors, who work together to suggest strategies to enhance the transparency, impartiality, and efficiency of FINRA’s securities dispute resolution forum for all participants. See FINRA Dispute Resolution Task Force, available at https://www.finra.org/ArbitrationAndMediation/ FINRADisputeResolution/ MoreonFINRADisputeResolution/P600966. 10 FINRA is proposing to amend Rules 12601 and 12214 of the Customer Code and Rules 13601 and 13214 of the Industry Code. To simplify the explanation, FINRA’s discussion of the proposed rule changes focuses on changes to the Customer Code rules. However, the proposed rule changes, and, thus, the discussion also apply to the Industry Code rules. 9 The E:\FR\FM\24FEN1.SGM 24FEN1 Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices tkelley on DSK3SPTVN1PROD with NOTICES fee of $600 per arbitrator in addition to the Postponement Fee. First, the proposed rule change would move from three business days to ten calendar days the timeframe within which parties must cancel hearings to avoid incurring the proposed Late Cancellation Fee.11 This change would provide arbitrators with more advance notice than they currently receive, which could give them an opportunity to secure other income-generating opportunities. Further, it could help them minimize the time lost in preparing for their assigned arbitration hearings, which, depending on the number of parties involved and the complexity of the case, could involve many hours of reviewing materials. For example, parties sometimes submit detailed exhibits and legal briefs to support their positions and theories of the case for arbitrators to review in advance of the hearings. Other than the honoraria funded by the Late Cancellation Fee, FINRA does not compensate arbitrators for their preparation time in the event the hearings are cancelled. Second, the proposed rule change would increase the honorarium for late cancellations from $100 to $600 per arbitrator. The proposal would make the honorarium equal to that which arbitrators would have received for one typical day of hearings,12 no matter how many consecutive days are cancelled.13 The Late Cancellation Fee would be charged to the party or parties making the request.14 However, Rule 12601(b)(2) provides that the arbitrators may allocate all or a portion of the fee to the non-requesting party if the arbitrators determine that the nonrequesting party caused or contributed to the cancellation. If an extraordinary circumstance prevents a party or parties 11 The proposed rule change would make the calculation of deadlines consistent under the Codes. Under the Codes, ‘‘day’’ is defined as a calendar day, not a business day. See Rules 12100(j) and 13100(j). 12 An arbitrator receives an honorarium payment for each hearing session in which the arbitrator participates. If two hearing sessions are conducted in one day, an arbitrator would receive $300 for each session or a total of $600 for the day. See supra note 7. On September 29, 2014, the SEC approved a proposal to increase the amount of honoraria paid to an arbitrator for participation in a hearing session to $300 per session; the $300 rate became effective on December 15, 2014 for all cases filed on or after the approval date. See Securities Exchange Act Release No. 73245 (Sept. 29, 2014), 79 FR 59876 (Oct. 3, 2014) (Order Approving File No. SR– FINRA–2014–026) (‘‘Honoraria Increase Proposal’’). 13 See Notice to Members 04–53 (Arbitrator Hearing Adjournments), July 2004, available at https://www.finra.org/web/groups/industry/@ip/@ reg/@notice/documents/notices/p006140.pdf. 14 If the parties cannot agree on the allocation, the arbitrators typically split the fee among the parties. VerDate Sep<11>2014 17:31 Feb 23, 2015 Jkt 235001 from making a timely cancellation request, arbitrators may use their discretion to waive the fee. FINRA notes that there are some mitigation strategies that parties could employ to avoid incurring a Late Cancellation Fee. As the objective of the proposal is to encourage parties to address issues earlier in their cases, parties could provide notice of a cancellation ten or more calendar days prior to the first scheduled hearing session. Further, if the parties agree to cancel the hearing inside the ten-day window, then they could negotiate which party pays this fee or a percentage of the fee. In addition the rules permit the panel to waive the fees, and they may do so, if the circumstances warrant, like a sudden illness or accident. Third, the proposed rule change would shift the phrase ‘‘and granted’’ to the end of the first dependent clause in Rule 12601(b)(2) to clarify that the timing of the parties’ cancellation request controls whether the fee is assessed, not the timing of the arbitrators’ decision on such request, if a decision is required. For example, the parties may jointly request cancellation of a hearing. A joint request means that the parties to the arbitration agree to cancel the hearing and, thus, the arbitrator or panel is not required to decide the request. Under the proposed rule change, if the parties make such a request ten calendar days or more before a scheduled hearing, they would not be assessed a Late Cancellation Fee.15 Further, one party may make a cancellation request without the agreement of other parties to the arbitration; in such a case, the arbitrator or panel would be required to decide the party’s motion. Under the proposed rule change, if the party makes such a motion ten calendar days or more before a scheduled hearing, the party would not be assessed a Late Cancellation Fee, regardless of when the arbitrators act on the request. Fourth, FINRA notes that the Late Cancellation Fee is revenue-neutral to FINRA; it is currently passed through to the arbitrators. This practice would not change under the proposed rule change. Last, FINRA is proposing to make conforming changes to Rule 12214(a), by amending the reference to the Late Cancellation Fee in Rule 12214(a). The proposed rule change would address further a concern raised by many FINRA arbitrators—that the forum’s honoraria are too low. FINRA began the process of increasing arbitrator honoraria by filing the 15 See PO 00000 Rules 12601(a)(1) and 13601(a)(1). Frm 00088 Fmt 4703 Sfmt 4703 9775 Honoraria Increase Proposal with the SEC in June 2014, which proposed increasing the amount that arbitrators receive for one hearing session, among other things. On September 29, 2014, the SEC approved FINRA’s proposal.16 While approval of the honoraria increases was an important step, FINRA also believes that changes are needed to the Late Cancellation Rule to further compensate arbitrators for lost opportunity costs as well as time spent in preparing for arbitration hearings that do not take place. Given arbitrators’ numerous responsibilities in preparing for, managing, and conducting arbitrations, FINRA believes the proposed changes to the Late Cancellation Rule as well as the other recently-implemented honoraria increases would better compensate the arbitrators for their time commitments and their service to the forum. FINRA acknowledges that customers are likely to pay at least some of the increased Late Cancellation Fee under the proposed rule change. As a result, the proposed rule change might have an effect on settlement negotiations, especially if the potential settlement amount is small compared to the Late Cancellation Fee. For example, in cases where negotiations extend past the tencalendar-day deadline, the increased cost of cancellation, under the proposed rule change, may affect the amount agreed upon in settlement or even the probability of settlement. FINRA notes that the forum’s rules are designed to help parties resolve their disputes fairly and efficiently. Parties pursue settlement when they believe it is in their financial interest to do so. The proposed fee increase would be another factor that parties would weigh in determining when or whether to settle or to proceed to hearing. FINRA believes, however, that the proposed changes would result in fewer late cancellations by the parties, as the higher Late Cancellation Fee would provide parties with an incentive to consider and begin settlement negotiations earlier in the process, if such an approach is in their interests. In addition, FINRA believes that the proposed rule change could help it minimize arbitrator turnover by addressing arbitrators’ concerns that the current honoraria funded by the Late Cancellation Fee does not adequately compensate them for time spent and opportunities lost. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions 16 See E:\FR\FM\24FEN1.SGM supra note 12. 24FEN1 9776 Federal Register / Vol. 80, No. 36 / Tuesday, February 24, 2015 / Notices of Section 15A(b)(6) of the Act,17 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 also believes that the proposed rule change is consistent with the provisions of Section 15A(b)(5) of the Act,18 which requires, among other things, that FINRA rules provide for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system that FINRA operates or controls. FINRA believes that the proposed rule change appropriately allocates the proposed fee increase among those parties that cancel hearings on short notice. The Late Cancellation Fee would be paid by the parties, and passed through to the arbitrators to provide them with more compensation for preparation time expended and lost opportunities in the event of a cancellation on short notice. FINRA believes, therefore, that the proposed Late Cancellation Rule represents an equitable allocation of a reasonable fee to use the forum. While arbitrators would typically allocate the Late Cancellation Fee to the requesting party or parties, FINRA rules permit the arbitrators to allocate all, or a portion of the fee, to the non-requesting party, if the arbitrators determine that the nonrequesting party caused or contributed to the late cancellation. Moreover, the Late Cancellation Fee can be avoided altogether if the parties provide ten or more calendar days advance notice of such a cancellation. Finally, FINRA believes that the proposed rule change will protect investors and the public interest by improving FINRA’s ability to retain qualified arbitrators willing to devote the time and effort necessary to consider thoroughly all arbitration issues presented, which, FINRA believes, is an essential element for FINRA to achieve its mission of investor protection and market integrity. tkelley on DSK3SPTVN1PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change would result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 17 15 18 15 U.S.C. 78o–3(b)(6). U.S.C. 78o–3(b)(5). VerDate Sep<11>2014 17:31 Feb 23, 2015 Jkt 235001 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments on the proposed rule change were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR–FINRA–2015–003 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FINRA–2015–003. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet 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 Frm 00089 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Brent J. Fields, Secretary. [FR Doc. 2015–03660 Filed 2–23–15; 8:45 am] 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: PO 00000 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 such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA–2015–003 and should be submitted on or before March 17, 2015. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74287; File No. SR–NYSE– 2015–07] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Section 402.05 of the NYSE Listed Company Manual To Clarify That Listed Companies Soliciting Proxy Material Through Brokers or Other Entities Must Comply With SEC Rule 14a–13 February 18, 2015. 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 February 3, 2015, New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 19 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 E:\FR\FM\24FEN1.SGM 24FEN1

Agencies

[Federal Register Volume 80, Number 36 (Tuesday, February 24, 2015)]
[Notices]
[Pages 9773-9776]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-03660]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74289; File No. SR-FINRA-2015-003]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
the Codes of Arbitration Procedure To Increase the Late Cancellation 
Fee

February 18, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 5, 2015, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed

[[Page 9774]]

rule change as described in Items I, II, and III below, which Items 
have been substantially prepared by FINRA. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend Rules 12214 and 12601 of the Code of 
Arbitration Procedure for Customer Disputes (``Customer Code'') and 
Rules 13214 and 13601 of the Code of Arbitration Procedure for Industry 
Disputes (``Industry Code'') (together, ``Codes'') to require that 
parties give more advance notice before cancelling or postponing a 
hearing, or be assessed a higher late cancellation fee if such notice 
is not provided. The text of the proposed rule change is available at 
the principal office of FINRA, on FINRA's Web site at https://www.finra.org, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Introduction
    Under current Rules 12601(b)(2) and 13601(b)(2) of the Codes, each 
arbitrator selected for a case receives a $100 honorarium when a 
hearing is postponed or cancelled \3\ within three business days of the 
scheduled date. However, if the postponement or cancellation occurs 
more than three business days in advance of the scheduled hearing, the 
arbitrators do not receive an honorarium.\4\
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    \3\ If the parties settle an arbitration case, hearings that 
were scheduled to occur after settlement are cancelled, and 
depending on the timing of the cancellation, could result in the 
assessment of a cancellation fee. See Rules 12902(d) and 13902(d). 
These rules incorporate the fees and costs incurred under Rules 
12601 and 13601, and, therefore, would incorporate the proposed rule 
change to the late cancellation fee.
    \4\ For each postponement agreed to by the parties, or granted 
upon request of one or more parties, FINRA assesses a postponement 
fee to the parties, equal to the applicable hearing session fee 
(``Postponement Fee''). See Rules 12601(b)(1) and 13601(b)(1). This 
fee is paid to FINRA and not passed through to the arbitrators.
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    FINRA is proposing to amend Rules 12601(b)(2) and 13601(b)(2) \5\ 
to require that if a postponement or cancellation request is made by 
one or more parties within ten calendar days before a scheduled hearing 
session and granted, the party or parties making the request would pay 
a fee of $600 per arbitrator (``Late Cancellation Fee''). Under the 
proposed rule change, therefore, the Late Cancellation Fee for a three-
person arbitration panel would be $1,800, instead of $300 under the 
current rules.\6\ The primary purpose of the proposed rule change is to 
encourage parties to provide more advance notice of postponements and 
cancellations, or, in the alternative, to compensate arbitrators more 
than they are currently paid for lost time and opportunities in the 
event of a late postponement or cancellation.
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    \5\ FINRA would also amend the Late Cancellation Fee reference 
(defined infra) in Rules 12214(a) and 13214(a).
    \6\ Pursuant to an analysis of FINRA's data, for the period from 
September 1, 2013 to August 31, 2014, approximately 80 percent of 
arbitration cases were heard by a three-person panel. The number of 
arbitrators that the parties may select for a case typically depends 
on the amount of the claim. See Rules 12401 and 13401 (describing, 
among other things, the parameters for when panels may consist of 
three arbitrators).
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    Under the proposed rule change, the Late Cancellation Fee would be 
assessed if a hearing is postponed or cancelled within ten calendar 
days before a scheduled hearing session. To simplify the discussion, 
the following explanation will use the term ``cancellation'' or a 
variation thereof to describe either scenario.
Background
    In FINRA arbitration, once the parties select arbitrators, they 
hold an initial pre-hearing conference with the parties, usually over 
the telephone, to discuss procedural issues, the mediation alternative, 
discovery, and scheduling of hearings.\7\ In many cases, the hearing 
dates are selected months in advance, thus requiring arbitrators to 
reserve these dates and forego other opportunities that would result in 
a conflict with the scheduled dates. FINRA has received many complaints 
from arbitrators concerning the current late cancellation rule (``Late 
Cancellation Rule''),\8\ which applies when parties postpone, settle in 
advance of, or otherwise cancel a scheduled hearing session within 
three business days of its start date. It is the most frequent 
complaint Dispute Resolution staff receives from arbitrators.
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    \7\ A hearing is a meeting between the parties and the 
arbitrators of four hours or less to determine the merits of the 
arbitration. See Rules 12100(m) and 13100(m); see also Rules 
12100(n) and 13100(n). A typical day in an arbitration case has two 
hearing sessions.
    \8\ See Rules 12601(b)(2) and 13601(b)(2).
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    In fact, when FINRA formed the Dispute Resolution Task Force 
(``Task Force'') in 2014 to consider possible enhancements to its 
arbitration and mediation forum, the majority of arbitrator responses 
to the Task Force's request for comments suggested that FINRA should 
address the issue of late hearing cancellation requests.\9\ According 
to feedback received by FINRA, the current rule is inadequate because 
the three-business-day cancellation window does not provide 
arbitrators, who have committed to dates to hear a case, with enough 
time to schedule other income-generating opportunities. Moreover, the 
$100 honorarium for these late cancellations does not adequately 
compensate arbitrators for the preparation time expended and the income 
that would have been earned from conducting a hearing. FINRA has 
learned that the lack of sufficient notice and compensation is 
frustrating for arbitrators and is a reason some arbitrators leave 
FINRA's roster.
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    \9\ The Task Force comprises individuals from the public and 
industry sectors, who work together to suggest strategies to enhance 
the transparency, impartiality, and efficiency of FINRA's securities 
dispute resolution forum for all participants. See FINRA Dispute 
Resolution Task Force, available at https://www.finra.org/ArbitrationAndMediation/FINRADisputeResolution/MoreonFINRADisputeResolution/P600966.
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Proposal To Increase Late Cancellation Fees and Cancellation Timeframe
    FINRA is proposing, therefore, to amend the Codes \10\ to require 
that parties give more advance notice before cancelling a hearing, or 
be assessed a higher Late Cancellation Fee if such notice is not 
provided. Specifically, FINRA would amend Rule 12601(b)(2) to require 
that if a cancellation request is made by one or more parties within 
ten calendar days before a scheduled hearing session and granted, the 
party or parties making the request shall pay a

[[Page 9775]]

fee of $600 per arbitrator in addition to the Postponement Fee.
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    \10\ FINRA is proposing to amend Rules 12601 and 12214 of the 
Customer Code and Rules 13601 and 13214 of the Industry Code. To 
simplify the explanation, FINRA's discussion of the proposed rule 
changes focuses on changes to the Customer Code rules. However, the 
proposed rule changes, and, thus, the discussion also apply to the 
Industry Code rules.
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    First, the proposed rule change would move from three business days 
to ten calendar days the timeframe within which parties must cancel 
hearings to avoid incurring the proposed Late Cancellation Fee.\11\ 
This change would provide arbitrators with more advance notice than 
they currently receive, which could give them an opportunity to secure 
other income-generating opportunities. Further, it could help them 
minimize the time lost in preparing for their assigned arbitration 
hearings, which, depending on the number of parties involved and the 
complexity of the case, could involve many hours of reviewing 
materials. For example, parties sometimes submit detailed exhibits and 
legal briefs to support their positions and theories of the case for 
arbitrators to review in advance of the hearings. Other than the 
honoraria funded by the Late Cancellation Fee, FINRA does not 
compensate arbitrators for their preparation time in the event the 
hearings are cancelled.
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    \11\ The proposed rule change would make the calculation of 
deadlines consistent under the Codes. Under the Codes, ``day'' is 
defined as a calendar day, not a business day. See Rules 12100(j) 
and 13100(j).
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    Second, the proposed rule change would increase the honorarium for 
late cancellations from $100 to $600 per arbitrator. The proposal would 
make the honorarium equal to that which arbitrators would have received 
for one typical day of hearings,\12\ no matter how many consecutive 
days are cancelled.\13\ The Late Cancellation Fee would be charged to 
the party or parties making the request.\14\ However, Rule 12601(b)(2) 
provides that the arbitrators may allocate all or a portion of the fee 
to the non-requesting party if the arbitrators determine that the non-
requesting party caused or contributed to the cancellation. If an 
extraordinary circumstance prevents a party or parties from making a 
timely cancellation request, arbitrators may use their discretion to 
waive the fee.
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    \12\ An arbitrator receives an honorarium payment for each 
hearing session in which the arbitrator participates. If two hearing 
sessions are conducted in one day, an arbitrator would receive $300 
for each session or a total of $600 for the day. See supra note 7. 
On September 29, 2014, the SEC approved a proposal to increase the 
amount of honoraria paid to an arbitrator for participation in a 
hearing session to $300 per session; the $300 rate became effective 
on December 15, 2014 for all cases filed on or after the approval 
date. See Securities Exchange Act Release No. 73245 (Sept. 29, 
2014), 79 FR 59876 (Oct. 3, 2014) (Order Approving File No. SR-
FINRA-2014-026) (``Honoraria Increase Proposal'').
    \13\ See Notice to Members 04-53 (Arbitrator Hearing 
Adjournments), July 2004, available at https://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p006140.pdf.
    \14\ If the parties cannot agree on the allocation, the 
arbitrators typically split the fee among the parties.
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    FINRA notes that there are some mitigation strategies that parties 
could employ to avoid incurring a Late Cancellation Fee. As the 
objective of the proposal is to encourage parties to address issues 
earlier in their cases, parties could provide notice of a cancellation 
ten or more calendar days prior to the first scheduled hearing session. 
Further, if the parties agree to cancel the hearing inside the ten-day 
window, then they could negotiate which party pays this fee or a 
percentage of the fee. In addition the rules permit the panel to waive 
the fees, and they may do so, if the circumstances warrant, like a 
sudden illness or accident.
    Third, the proposed rule change would shift the phrase ``and 
granted'' to the end of the first dependent clause in Rule 12601(b)(2) 
to clarify that the timing of the parties' cancellation request 
controls whether the fee is assessed, not the timing of the 
arbitrators' decision on such request, if a decision is required. For 
example, the parties may jointly request cancellation of a hearing. A 
joint request means that the parties to the arbitration agree to cancel 
the hearing and, thus, the arbitrator or panel is not required to 
decide the request. Under the proposed rule change, if the parties make 
such a request ten calendar days or more before a scheduled hearing, 
they would not be assessed a Late Cancellation Fee.\15\ Further, one 
party may make a cancellation request without the agreement of other 
parties to the arbitration; in such a case, the arbitrator or panel 
would be required to decide the party's motion. Under the proposed rule 
change, if the party makes such a motion ten calendar days or more 
before a scheduled hearing, the party would not be assessed a Late 
Cancellation Fee, regardless of when the arbitrators act on the 
request.
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    \15\ See Rules 12601(a)(1) and 13601(a)(1).
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    Fourth, FINRA notes that the Late Cancellation Fee is revenue-
neutral to FINRA; it is currently passed through to the arbitrators. 
This practice would not change under the proposed rule change.
    Last, FINRA is proposing to make conforming changes to Rule 
12214(a), by amending the reference to the Late Cancellation Fee in 
Rule 12214(a).
    The proposed rule change would address further a concern raised by 
many FINRA arbitrators--that the forum's honoraria are too low. FINRA 
began the process of increasing arbitrator honoraria by filing the 
Honoraria Increase Proposal with the SEC in June 2014, which proposed 
increasing the amount that arbitrators receive for one hearing session, 
among other things. On September 29, 2014, the SEC approved FINRA's 
proposal.\16\ While approval of the honoraria increases was an 
important step, FINRA also believes that changes are needed to the Late 
Cancellation Rule to further compensate arbitrators for lost 
opportunity costs as well as time spent in preparing for arbitration 
hearings that do not take place. Given arbitrators' numerous 
responsibilities in preparing for, managing, and conducting 
arbitrations, FINRA believes the proposed changes to the Late 
Cancellation Rule as well as the other recently-implemented honoraria 
increases would better compensate the arbitrators for their time 
commitments and their service to the forum.
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    \16\ See supra note 12.
---------------------------------------------------------------------------

    FINRA acknowledges that customers are likely to pay at least some 
of the increased Late Cancellation Fee under the proposed rule change. 
As a result, the proposed rule change might have an effect on 
settlement negotiations, especially if the potential settlement amount 
is small compared to the Late Cancellation Fee. For example, in cases 
where negotiations extend past the ten-calendar-day deadline, the 
increased cost of cancellation, under the proposed rule change, may 
affect the amount agreed upon in settlement or even the probability of 
settlement. FINRA notes that the forum's rules are designed to help 
parties resolve their disputes fairly and efficiently. Parties pursue 
settlement when they believe it is in their financial interest to do 
so. The proposed fee increase would be another factor that parties 
would weigh in determining when or whether to settle or to proceed to 
hearing.
    FINRA believes, however, that the proposed changes would result in 
fewer late cancellations by the parties, as the higher Late 
Cancellation Fee would provide parties with an incentive to consider 
and begin settlement negotiations earlier in the process, if such an 
approach is in their interests. In addition, FINRA believes that the 
proposed rule change could help it minimize arbitrator turnover by 
addressing arbitrators' concerns that the current honoraria funded by 
the Late Cancellation Fee does not adequately compensate them for time 
spent and opportunities lost.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions

[[Page 9776]]

of Section 15A(b)(6) of the Act,\17\ 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 also believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(5) of the Act,\18\ 
which requires, among other things, that FINRA rules provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
members and issuers and other persons using any facility or system that 
FINRA operates or controls. FINRA believes that the proposed rule 
change appropriately allocates the proposed fee increase among those 
parties that cancel hearings on short notice. The Late Cancellation Fee 
would be paid by the parties, and passed through to the arbitrators to 
provide them with more compensation for preparation time expended and 
lost opportunities in the event of a cancellation on short notice. 
FINRA believes, therefore, that the proposed Late Cancellation Rule 
represents an equitable allocation of a reasonable fee to use the 
forum. While arbitrators would typically allocate the Late Cancellation 
Fee to the requesting party or parties, FINRA rules permit the 
arbitrators to allocate all, or a portion of the fee, to the non-
requesting party, if the arbitrators determine that the non-requesting 
party caused or contributed to the late cancellation. Moreover, the 
Late Cancellation Fee can be avoided altogether if the parties provide 
ten or more calendar days advance notice of such a cancellation.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78o-3(b)(6).
    \18\ 15 U.S.C. 78o-3(b)(5).
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    Finally, FINRA believes that the proposed rule change will protect 
investors and the public interest by improving FINRA's ability to 
retain qualified arbitrators willing to devote the time and effort 
necessary to consider thoroughly all arbitration issues presented, 
which, FINRA believes, is an essential element for FINRA to achieve its 
mission of investor protection and market integrity.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change would result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-FINRA-2015-003 on the 
subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2015-003. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet 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 such filing also will be available 
for inspection and copying at the principal office of FINRA. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-FINRA-2015-003 and 
should be submitted on or before March 17, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-03660 Filed 2-23-15; 8:45 am]
BILLING CODE 8011-01-P
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