Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to the Definition of Non-Public Arbitrator, 35248-35250 [2017-15909]
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35248
Federal Register / Vol. 82, No. 144 / Friday, July 28, 2017 / Notices
instituting proceedings to allow for
additional analysis of the Proposed Rule
Changes’ consistency with the Act and
the rules thereunder. Specifically, the
Commission believes that the Proposed
Rule Changes raise questions as to
whether they are consistent with (i)
Section 17A(b)(3)(F) of the Act,48 which
requires, in part, that clearing agency
rules be designed to assure the
safeguarding of securities in the custody
or control of the clearing agency and, in
general, protect investors and the public
interest, and (ii) Rule 17Ad–22(e)(4)
under the Act, which requires, in
general, that each covered clearing
agency establish, implement, maintain
and enforce written policies and
procedures reasonably designed to,
among other things, effectively identify,
measure, monitor, and manage their
credit exposures to participants and
those arising from its payment, clearing,
and settlement processes.49
As discussed above, pursuant to the
Proposed Rule Changes, Clearing
Agencies would adopt the Framework,
which would procedures for identifying,
measuring, monitoring, and managing
their credit exposures to members. The
Commission solicits comment on
whether the Proposed Rule Changes are
consistent with Section 17A(b)(3)(F) of
the Act 50 and Rule 17Ad–22(e)(4) under
the Act.51
IV. Request for Written Comments
asabaliauskas on DSKBBXCHB2PROD with NOTICES
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to issues raised
by the Proposed Rule Changes. In
particular, the Commission invites the
written views of interested persons
concerning whether the Proposed Rule
Changes are consistent with Sections
17A(b)(3)(F) of the Act and Rules 17Ad–
22(e)(4) under the Act, cited above, or
any other provision of the Act, or the
rules and regulations thereunder.
Interested persons are invited to submit
written data, views, and arguments on
or before August 14, 2017. Any person
who wishes to file a rebuttal to any
other person’s submission must file that
rebuttal on or before August 18, 2017.
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–
FICC–2017–002 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–81196; File No. SR–FINRA–
2017–025]
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Numbers SR–DTC–2017–005, SR–FICC–
2017–009, or SR–NSCC–2017–006. 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
Changes 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
filings also will be available for
inspection and copying at the principal
office of the Clearing Agencies and on
DTCC’s Web site (https://dtcc.com/legal/
sec-rule-filings.aspx). 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 Numbers SR–DTC–
2017–005, SR–FICC–2017–009, or SR–
NSCC–2017–006 and should be
submitted on or before August 14, 2017.
If comments are received, any rebuttal
comments should be submitted on or
before August 18, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.52
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–15905 Filed 7–27–17; 8:45 am]
48 15
U.S.C. 78q–1(b)(3)(F).
49 17 CFR 240.17Ad–22(e)(4).
50 15 U.S.C. 78q–1(b)(3)(F).
51 17 CFR 240.17Ad–22(e)(4).
VerDate Sep<11>2014
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BILLING CODE 8011–01–P
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change Relating to the
Definition of Non-Public Arbitrator
July 24, 2017.
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 July 10,
2017, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
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 FINRA
Rule 12100 of the Code of Arbitration
Procedure for Customer Disputes
(‘‘Customer Code’’) and FINRA Rule
13100 of the Code of Arbitration
Procedure for Industry Disputes
(‘‘Industry Code’’ and together,
‘‘Codes’’), to define a non-public
arbitrator to mean a person who is
otherwise qualified to serve as an
arbitrator, and is disqualified from
service as a public arbitrator under the
Codes.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA 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.
1 15
52 17
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CFR 200.30–3(a)(57).
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U.S.C. 78s(b)(1).
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Federal Register / Vol. 82, No. 144 / Friday, July 28, 2017 / Notices
asabaliauskas on DSKBBXCHB2PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
FINRA classifies arbitrators under the
Codes as either ‘‘non-public’’ or
‘‘public.’’ The Codes define these
terms.3 The non-public arbitrator
definition lists affiliations that might
qualify a person to serve as a non-public
arbitrator at the forum. Conversely, the
public arbitrator definition enumerates
criteria that disqualify an applicant from
inclusion on the public arbitrator roster.
In 2015, the SEC approved
amendments to the definitions of nonpublic arbitrator and public arbitrator in
the Codes.4 Among other things, the
amendments provided that persons who
worked in the financial industry for any
duration during their careers would
always be classified as non-public
arbitrators and the amendments added
new disqualifications to the public
arbitrator definition relating to an
arbitrator’s provision of services to
parties in securities arbitration and
litigation and to revenues earned from
the financial industry by an arbitrator’s
co-workers. The amendments also
broadened the disqualifications based
on the activities or affiliations of an
arbitrator’s family members. The intent
of the proposed rule change was to
address concerns about arbitrator
neutrality raised by forum users.5 For
example, prior to the 2015 amendments,
the Codes, with specified exceptions,
permitted former financial industry
employees who ended their industry
affiliations to qualify as public
arbitrators five years after leaving the
financial industry. Forum users raised
concerns about the neutrality of these
individuals, and indicated that they did
not believe former industry employees
should ever serve as public arbitrators.
In response to these concerns, the 2015
amendments eliminated the five-year
cooling-off period, thereby classifying
all former financial industry employees
as non-public arbitrators.
Under the definitions as revised in
2015, the non-public arbitrator roster is
composed of individuals who work, or
worked, in the financial industry, or
provide services to the financial
industry or to parties engaged in
3 See FINRA Rules 12100(r) and 13100(r) for the
definition of non-public arbitrator and Rules
12100(y) and 13100(x) for the definition of public
arbitrator.
4 See Securities Exchange Act Rel. No. 74383
(February 26, 2015), 80 FR 11695 (March 4, 2015).
5 Regulatory Notice 15–18 (Definitions of NonPublic and Public Arbitrator) describes the changes
made to the arbitrator definitions.
VerDate Sep<11>2014
18:50 Jul 27, 2017
Jkt 241001
securities arbitration and litigation. The
public arbitrator roster is composed of
individuals who do not have any
significant affiliation with the financial
industry. These arbitrators have never
been employed by the industry, do not
provide services to the industry or to
parties engaged in securities arbitration
and litigation, and do not have
immediate family members or coworkers who do so.
Eligibility Gap
The 2015 amendments to the
arbitrator definitions created an
eligibility gap whereby certain
otherwise qualified arbitrators 6 could
not serve in any capacity. The eligibility
gap was created when FINRA narrowed
the public arbitrator definition as
described above. Over 800 public
arbitrators were disqualified from the
public arbitrator roster under the
revised public arbitrator definition. In
addition, more than 100 of these
disqualified arbitrators did not meet any
of the criteria outlined in the non-public
arbitrator definition for service on the
non-public arbitrator roster. As a result
of this eligibility gap, FINRA removed
them from service at the forum.
In most instances, the basis for
removal from the roster was an
affiliation relating to an arbitrator’s
family members or co-workers. For
example, a real estate attorney in a large
law firm that has a securities practice
would be disqualified from service as a
public arbitrator if the firm derived
$50,000 or more in a calendar year from
providing services to securities entities.
In addition, employment as a real estate
attorney would not qualify the arbitrator
to serve as a non-public arbitrator under
the current definition. Therefore, the
arbitrator falls into the eligibility gap. In
addition to losing over 100 public
arbitrators, the eligibility gap required
FINRA to reject over 140 arbitrator
applicants in 2016 who met FINRA’s
minimum arbitrator qualifications.
Proposed Rule Change
FINRA is proposing to amend the
Codes to allow FINRA to appoint
individuals to the non-public arbitrator
roster if they meet FINRA’s general
arbitrator qualification criteria,7 but
cannot be classified as public
arbitrators. FINRA would amend the
non-public arbitrator definition to delete
6 Unless waived by FINRA at its discretion,
arbitrator applicants must have a minimum of five
years of paid business and/or professional
experience and at least two years of college-level
credits. Qualification criteria can be found at https://
www.finra.org/arbitration-and-mediation/finraarbitrators.
7 See id.
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35249
the specific criteria for inclusion on the
non-public arbitrator roster. Instead,
Rules 12100(r) and 13100(r) would
provide that the term ‘‘non-public
arbitrator’’ means a person who is
otherwise qualified to serve as an
arbitrator, and is disqualified from
service as a public arbitrator.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,8 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. Specifically, the
proposed rule change would close the
eligibility gap, simplify the non-public
arbitrator definition, and provide greater
choice for parties during the panel
selection process.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. A key focus
of the 2015 amendments was the
elimination of certain individuals from
the public arbitrator roster. FINRA’s
intent was not to prevent these
individuals from serving in any
capacity. Hundreds of arbitrators or
arbitrator applicants who formerly
qualified to serve as public arbitrators
are now unable to serve as arbitrators in
the forum. As a result, the pool of
eligible arbitrators has decreased, and
FINRA is forced to turn away new
candidates who would have been
eligible to serve but for the recent
amendments.
The proposed rule change would
permit these previously eligible persons
to serve as non-public arbitrators. While
not changing the public arbitrator
definition as approved by the SEC in
2015, the proposed rule change would
expand the pool of candidates eligible to
serve as non-public arbitrators. FINRA
considered revising the public arbitrator
definition to close the eligibility gap,
but chose to maintain the recently
approved criteria that exclude
individuals who have any significant
affiliation with the financial industry.
Increasing the number of qualified
arbitrators benefits all parties who come
before the forum because it permits
parties to consider additional arbitrators
during panel selection and may reduce
8 15
E:\FR\FM\28JYN1.SGM
U.S.C. 78o–3(b)(6).
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35250
Federal Register / Vol. 82, No. 144 / Friday, July 28, 2017 / Notices
costs that arise due to an insufficient
pool of qualified arbitrators such as the
costs associated with arbitrators
traveling from other hearing locations.
Further, readmitting previously
qualified persons increases the pool of
experienced arbitrators, which
strengthens the forum.
The proposal would impose no direct
or indirect costs on persons previously
eliminated from acting as arbitrators,
new candidates for arbitrator, or parties
accessing the forum.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
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:
asabaliauskas on DSKBBXCHB2PROD with NOTICES
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–2017–025 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2017–025. 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
VerDate Sep<11>2014
18:50 Jul 27, 2017
Jkt 241001
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–2017–025 and
should be submitted on or before
August 18, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–15909 Filed 7–27–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81195; File No. SR–IEX–
2017–11]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing of Amendment No. 3 and Order
Granting Accelerated Approval of
Proposed Rule Change, as Modified by
Amendment No. 3, To Modify the
Manner in Which the Exchange Opens
Trading for Non-IEX-Listed Securities
July 24, 2017.
I. Introduction
On April 13, 2017, Investors Exchange
LLC (‘‘IEX’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
PO 00000
9 17
1 15
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
Frm 00079
Fmt 4703
Sfmt 4703
19b–4 thereunder,2 a proposed rule
change to: (i) Amend IEX Rule 11.231 to
modify the manner in which the
Exchange opens trading for non-IEXlisted securities beginning at the start of
Regular Market Hours; and (ii) amend
IEX Rules 11.190 and 11.220 to specify
the order types eligible to participate in
the proposed opening process for nonIEX listed securities and priority of such
orders. The proposed rule change was
published for comment in the Federal
Register on April 28, 2017.3 On May 19,
2017, IEX filed Amendment No. 1 to the
proposal. On June 9, 2017, IEX
consented to an extension of time for
the Commission to act on the proposal
until July 5, 2017.4 On June 22, 2017,
IEX filed Amendment No. 2 to the
proposal, which superseded and
replaced Amendment No. 1 in its
entirety. On June 29, 2017, IEX filed
Amendment No. 3 to the proposal,
which superseded and replaced
Amendment No. 2 in its entirety.5 Also
on June 29, 2017, pursuant to Section
19(b)(2) of the Act,6 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to approve or disapprove the
proposed rule change.7 The Commission
received no comments on the proposed
rule change. The Commission is
publishing this notice to solicit
comment on Amendment No. 3 to the
proposed rule change from interested
persons, and is approving the proposed
rule change, as modified by Amendment
No. 3, on an accelerated basis.
2 17
CFR 240.19b–4.
Securities Exchange Act Release No. 80514
(April 24, 2017), 82 FR 19763 (‘‘Notice’’).
4 See letter from Claudia Crowley, Chief
Regulatory Officer, IEX, to Richard Holley,
Assistant Director, Division of Trading and Markets,
Commission, dated June 9, 2017.
5 Amendment No. 3 revised the proposal to: (i)
Provide additional clarity regarding the process for
determining the opening match price; (ii) modify
the definition of ‘‘Cross Tie Breaker’’ to account for
the requirement under the National Market System
Plan to Implement a Tick Size Pilot Program (‘‘Tick
Size Pilot’’) that certain securities be traded in
nickel increments; and (iii) correct certain
typographical errors. Amendment No. 3 also revised
the proposal to fix an error in the proposed rule text
in Amendment No. 2 and correct additional
typographical errors. Amendment No. 3 is available
at: https://www.sec.gov/comments/sr-iex-2017-11/
iex201711-1831518-154558.pdf.
6 15 U.S.C. 78s(b)(2).
7 See Securities Exchange Act Release No. 81052
(June 29, 2017), 82 FR 31377 (July 6, 2017). The
Commission designated July 27, 2017 as the date by
which the Commission shall approve or disapprove,
or institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
3 See
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]]>Agencies
[Federal Register Volume 82, Number 144 (Friday, July 28, 2017)]
[Notices]
[Pages 35248-35250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15909]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81196; File No. SR-FINRA-2017-025]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to
the Definition of Non-Public Arbitrator
July 24, 2017.
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 July 10, 2017, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 12100 of the Code of
Arbitration Procedure for Customer Disputes (``Customer Code'') and
FINRA Rule 13100 of the Code of Arbitration Procedure for Industry
Disputes (``Industry Code'' and together, ``Codes''), to define a non-
public arbitrator to mean a person who is otherwise qualified to serve
as an arbitrator, and is disqualified from service as a public
arbitrator under the Codes.
The text of the proposed rule change is available on FINRA's Web
site at https://www.finra.org, at the principal office of FINRA 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.
[[Page 35249]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA classifies arbitrators under the Codes as either ``non-
public'' or ``public.'' The Codes define these terms.\3\ The non-public
arbitrator definition lists affiliations that might qualify a person to
serve as a non-public arbitrator at the forum. Conversely, the public
arbitrator definition enumerates criteria that disqualify an applicant
from inclusion on the public arbitrator roster.
---------------------------------------------------------------------------
\3\ See FINRA Rules 12100(r) and 13100(r) for the definition of
non-public arbitrator and Rules 12100(y) and 13100(x) for the
definition of public arbitrator.
---------------------------------------------------------------------------
In 2015, the SEC approved amendments to the definitions of non-
public arbitrator and public arbitrator in the Codes.\4\ Among other
things, the amendments provided that persons who worked in the
financial industry for any duration during their careers would always
be classified as non-public arbitrators and the amendments added new
disqualifications to the public arbitrator definition relating to an
arbitrator's provision of services to parties in securities arbitration
and litigation and to revenues earned from the financial industry by an
arbitrator's co-workers. The amendments also broadened the
disqualifications based on the activities or affiliations of an
arbitrator's family members. The intent of the proposed rule change was
to address concerns about arbitrator neutrality raised by forum
users.\5\ For example, prior to the 2015 amendments, the Codes, with
specified exceptions, permitted former financial industry employees who
ended their industry affiliations to qualify as public arbitrators five
years after leaving the financial industry. Forum users raised concerns
about the neutrality of these individuals, and indicated that they did
not believe former industry employees should ever serve as public
arbitrators. In response to these concerns, the 2015 amendments
eliminated the five-year cooling-off period, thereby classifying all
former financial industry employees as non-public arbitrators.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Rel. No. 74383 (February 26,
2015), 80 FR 11695 (March 4, 2015).
\5\ Regulatory Notice 15-18 (Definitions of Non-Public and
Public Arbitrator) describes the changes made to the arbitrator
definitions.
---------------------------------------------------------------------------
Under the definitions as revised in 2015, the non-public arbitrator
roster is composed of individuals who work, or worked, in the financial
industry, or provide services to the financial industry or to parties
engaged in securities arbitration and litigation. The public arbitrator
roster is composed of individuals who do not have any significant
affiliation with the financial industry. These arbitrators have never
been employed by the industry, do not provide services to the industry
or to parties engaged in securities arbitration and litigation, and do
not have immediate family members or co-workers who do so.
Eligibility Gap
The 2015 amendments to the arbitrator definitions created an
eligibility gap whereby certain otherwise qualified arbitrators \6\
could not serve in any capacity. The eligibility gap was created when
FINRA narrowed the public arbitrator definition as described above.
Over 800 public arbitrators were disqualified from the public
arbitrator roster under the revised public arbitrator definition. In
addition, more than 100 of these disqualified arbitrators did not meet
any of the criteria outlined in the non-public arbitrator definition
for service on the non-public arbitrator roster. As a result of this
eligibility gap, FINRA removed them from service at the forum.
---------------------------------------------------------------------------
\6\ Unless waived by FINRA at its discretion, arbitrator
applicants must have a minimum of five years of paid business and/or
professional experience and at least two years of college-level
credits. Qualification criteria can be found at https://www.finra.org/arbitration-and-mediation/finra-arbitrators.
---------------------------------------------------------------------------
In most instances, the basis for removal from the roster was an
affiliation relating to an arbitrator's family members or co-workers.
For example, a real estate attorney in a large law firm that has a
securities practice would be disqualified from service as a public
arbitrator if the firm derived $50,000 or more in a calendar year from
providing services to securities entities. In addition, employment as a
real estate attorney would not qualify the arbitrator to serve as a
non-public arbitrator under the current definition. Therefore, the
arbitrator falls into the eligibility gap. In addition to losing over
100 public arbitrators, the eligibility gap required FINRA to reject
over 140 arbitrator applicants in 2016 who met FINRA's minimum
arbitrator qualifications.
Proposed Rule Change
FINRA is proposing to amend the Codes to allow FINRA to appoint
individuals to the non-public arbitrator roster if they meet FINRA's
general arbitrator qualification criteria,\7\ but cannot be classified
as public arbitrators. FINRA would amend the non-public arbitrator
definition to delete the specific criteria for inclusion on the non-
public arbitrator roster. Instead, Rules 12100(r) and 13100(r) would
provide that the term ``non-public arbitrator'' means a person who is
otherwise qualified to serve as an arbitrator, and is disqualified from
service as a public arbitrator.
---------------------------------------------------------------------------
\7\ See id.
---------------------------------------------------------------------------
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\8\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. Specifically, the proposed rule change would close the
eligibility gap, simplify the non-public arbitrator definition, and
provide greater choice for parties during the panel selection process.
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\8\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. A key focus of the 2015
amendments was the elimination of certain individuals from the public
arbitrator roster. FINRA's intent was not to prevent these individuals
from serving in any capacity. Hundreds of arbitrators or arbitrator
applicants who formerly qualified to serve as public arbitrators are
now unable to serve as arbitrators in the forum. As a result, the pool
of eligible arbitrators has decreased, and FINRA is forced to turn away
new candidates who would have been eligible to serve but for the recent
amendments.
The proposed rule change would permit these previously eligible
persons to serve as non-public arbitrators. While not changing the
public arbitrator definition as approved by the SEC in 2015, the
proposed rule change would expand the pool of candidates eligible to
serve as non-public arbitrators. FINRA considered revising the public
arbitrator definition to close the eligibility gap, but chose to
maintain the recently approved criteria that exclude individuals who
have any significant affiliation with the financial industry.
Increasing the number of qualified arbitrators benefits all parties who
come before the forum because it permits parties to consider additional
arbitrators during panel selection and may reduce
[[Page 35250]]
costs that arise due to an insufficient pool of qualified arbitrators
such as the costs associated with arbitrators traveling from other
hearing locations. Further, readmitting previously qualified persons
increases the pool of experienced arbitrators, which strengthens the
forum.
The proposal would impose no direct or indirect costs on persons
previously eliminated from acting as arbitrators, new candidates for
arbitrator, or parties accessing the forum.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission 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-2017-025 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2017-025. 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-2017-025 and
should be submitted on or before August 18, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-15909 Filed 7-27-17; 8:45 am]
BILLING CODE 8011-01-P
