Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating To Create a Fee and Honorarium for Late Cancellation of a Prehearing Conference, 23306-23310 [2018-10603]

Download as PDF 23306 Federal Register / Vol. 83, No. 97 / Friday, May 18, 2018 / Notices stated in the application. Such terms and conditions provide for, among other safeguards, appropriate disclosure to Subadvised Series shareholders and notification about sub-advisory changes and enhanced Board oversight to protect the interests of the Subadvised Series’ shareholders. 4. Section 6(c) of the Act provides that the Commission may exempt any person, security, or transaction or any class or classes of persons, securities, or transactions from any provisions of the Act, or any rule thereunder, if such relief is necessary or appropriate in the public interest and consistent with the protection of investors and purposes fairly intended by the policy and provisions of the Act. Applicants believe that the requested relief meets this standard because, as further explained in the application, the Investment Management Agreements will remain subject to shareholder approval while the role of the SubAdvisers is substantially similar to that of individual portfolio managers, so that requiring shareholder approval of SubAdvisory Agreements would impose unnecessary delays and expenses on the Subadvised Series. Applicants believe that the requested relief from the Disclosure Requirements meets this standard because it will improve the Adviser’s ability to negotiate fees paid to the Sub-Advisers that are more advantageous for the Subadvised Series. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–10639 Filed 5–17–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83227; File No. SR–FINRA– 2018–019] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating To Create a Fee and Honorarium for Late Cancellation of a Prehearing Conference daltland on DSKBBV9HB2PROD with NOTICES May 14, 2018. 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 May 4, 2018, Financial Industry Regulatory U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 16:38 May 17, 2018 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rules 12500 and 12501 of the Code of Arbitration Procedure for Customer Disputes (‘‘Customer Code’’) and FINRA Rules 13500 and 13501 of the Code of Arbitration Procedure for Industry Disputes (‘‘Industry Code’’ and together, ‘‘Codes’’), to charge a $100 per-arbitrator fee to parties who request cancellation of a prehearing conference within three business days before a scheduled prehearing conference. The proposed rule change would also amend FINRA Rules 12214(a) and 13214(a) of the Codes to create a $100 honorarium to pay each arbitrator scheduled to attend a prehearing conference that was cancelled within three business days of the prehearing conference. The text of the proposed rule change is available on FINRA’s website 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Introduction FINRA proposes to charge parties to an arbitration a $100 per-arbitrator fee if a prehearing conference is cancelled 3 at the request of one or more parties that was submitted within three business 3 References to cancellations of prehearing conferences include postponements of such conferences. 1 15 VerDate Sep<11>2014 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. Jkt 244001 PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 days before a scheduled prehearing conference (‘‘late cancellation fee’’). FINRA is also proposing to pay a $100 honorarium to each arbitrator who was scheduled to attend the prehearing conference that was cancelled within three business days of the prehearing conference. Background The Codes have several rules that address postponements and cancellations of hearings.4 FINRA Rules 12601(b)(1) and 13601(b)(1) provide that 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.5 In addition, under FINRA Rules 12601(b)(2) and 13601(b)(2), a party or parties that make postponement requests within 10 days before a scheduled hearing session are required to pay a $600 per-arbitrator late cancellation fee.6 Finally, if a hearing is cancelled or postponed due to settlement or withdrawal of a claim, FINRA Rules 12902(d) and 13902(d) provide that if FINRA receives a settlement or withdrawal notice 10 days or fewer prior to the date that the hearing is scheduled to begin, parties that paid a filing fee will not be entitled to any refund of the filing fee.7 FINRA believes that it is appropriate to address late cancellations of prehearing conferences by charging a late cancellation fee to the parties. In addition, FINRA proposes to pay an honorarium in the same amount to those 4 A hearing is a meeting between the arbitrators and parties to determine the merits of the arbitration. See FINRA Rules 12100(o) and 13100(o). 5 These rules also permit the panel to allocate the fee among the party or parties that agreed to or requested the postponement, to assess part or all of any postponement fees against a party that did not request the postponement if the panel determines that the non-requesting party caused or contributed to the need for the postponement, and to waive the fees. This fee is paid to FINRA and not passed through to the arbitrators. 6 These rules also permit the panel to allocate the $600 per-arbitrator fee among the requesting parties if more than one party requests postponement, to allocate all or a portion of the $600 per-arbitrator fee to the non-requesting party or parties if the arbitrators determine that the non-requesting party or parties caused or contributed to the need for the postponement, and to use its discretion to waive the fee in the event of an extraordinary circumstance, provided verification of such circumstance is received. See FINRA Rules 12601(b)(2) and 13601(b)(2). 7 Customers, associated persons, and other nonmembers who file a claim, counterclaim, cross claim or third party claim must pay a filing fee to initiate an arbitration, unless the fee is deferred. See FINRA Rule 12900(a)(1); see also FINRA Rule 13900(a)(1) (addressing filing fees for associated persons). E:\FR\FM\18MYN1.SGM 18MYN1 Federal Register / Vol. 83, No. 97 / Friday, May 18, 2018 / Notices arbitrators who were scheduled to attend the prehearing conference. Prehearing conferences are typically scheduled before the hearing on the merits begins.8 During these conferences, the arbitrator or panel meets with the parties, either in person or by telephone, to set discovery, briefing, and motions deadlines, to schedule subsequent hearing sessions, and to address other preliminary matters.9 A prehearing conference may also address other outstanding matters, such as discovery disputes or substantive motions (e.g., motions to dismiss or motions to amend).10 Prehearing conferences currently can be cancelled by the parties up to and including on the same day without penalty, unlike late postponement of arbitration hearings.11 Considerable preparation by arbitrators and logistical work by FINRA staff is required prior to prehearing conferences. Late cancellations of prehearing conferences that occur within three or fewer business days of a scheduled prehearing conference typically cause the most problems for arbitrators. In FINRA’s experience, these late cancellations often result in scheduling inconvenience for arbitrators, uncompensated work by arbitrators,12 and an operational challenge for FINRA staff who must quickly notify other parties and the arbitrator or panel about the cancellation. Proposed Rule Change Late Cancellation Fee for Prehearing Conferences FINRA is proposing to amend FINRA Rules 12500 and 12501 of the Customer Code and FINRA Rules 13500 and 13501 of the Industry Code,13 which govern prehearing conferences, to provide that if a cancellation request is agreed to by the parties or requested by one or more parties within three business days before a scheduled prehearing conference and granted, the 8 See FINRA Rules 12100(w) and 13100(w). FINRA Rules 12500(c) and 13500(c). 10 See FINRA Rules 12501(b) and 13501(b). 11 See generally FINRA Rules 12601(b) and 13601(b). 12 In the past, arbitrators have resigned from the roster because FINRA’s dispute resolution forum does not provide a payment to arbitrators for cancellations of prehearing conferences. FINRA notes that one reason former arbitrators have given for their resignation is the lack of compensation for prehearing conferences that are cancelled on short notice. FINRA has identified 17 separate complaints relating to 22 arbitrators with respect to the late cancellations of prehearing conferences. 13 To simplify this explanation, FINRA’s discussion of the proposed changes focuses on changes to the Customer Code. However, the proposed changes also apply to the Industry Code. daltland on DSKBBV9HB2PROD with NOTICES 9 See VerDate Sep<11>2014 16:38 May 17, 2018 Jkt 244001 party or parties shall be charged a fee of $100 per arbitrator scheduled to attend the prehearing conference. If more than one party requests the cancellation, the arbitrator(s) may allocate the $100 perarbitrator fee between or among the requesting parties. If one party requests the cancellation, the arbitrator(s) shall allocate the fee to that party; provided, however, the arbitrator(s) may allocate all or a portion of the $100 per-arbitrator fee to the non-requesting party or parties if the arbitrator(s) determine that the non-requesting party or parties caused or contributed to the need for the cancellation. In the event that an extraordinary circumstance prevents a party or parties from making a timely cancellation request, the arbitrator(s) may use their discretion to waive the fee, provided a written explanation of such circumstance is received. Under the proposed rule change, if a party requests or the parties agree to cancel a prehearing conference within three business days of a scheduled prehearing conference, the $100 perarbitrator fee would be charged as a fee assessment at the time the case is closed. The date of the party’s or parties’ cancellation request controls whether the fee is assessed, not the date of the arbitrators’ decision on such a request, if a decision is required.14 For example, if a party requests cancellation of the prehearing conference five business days before the scheduled prehearing conference, but the arbitrators rule on the request two business days before the scheduled conference would be held, the party would not be assessed a late cancellation fee under the proposed rule. If the arbitrators cancel a prehearing conference on their own, the parties would not be charged. In the event of a cancellation, a party or the parties would be charged only for those arbitrators who were scheduled to attend the prehearing conference. For example, after the parties complete the arbitrator selection process and a panel is appointed,15 the Director of the Office of Dispute Resolution 16 (‘‘Director’’) will schedule an Initial Prehearing Conference (‘‘IPHC’’),17 during which 14 A decision would be required if only one party requests that the prehearing conference be cancelled. 15 See generally Part IV (Appointment, Disqualification, and Authority of Arbitrators) of the FINRA Rule 12000 Series and the FINRA Rule 13000 Series. 16 The term ‘‘Director’’ means the Director of the Office of Dispute Resolution and includes FINRA staff to whom the Director has delegated authority, unless the Code provides that the Director may not delegate a specific function. See FINRA Rule 12100(m); see also FINRA Rule 13100(m). 17 See FINRA Rule 12500; see also FINRA Rule 13500. PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 23307 the parties and arbitrators meet initially, usually by telephone. If the amount of the claim is more than $100,000, the panel must consist of three arbitrators,18 all of whom would participate in the IPHC. The Director will typically appoint the chairperson of the panel to preside over prehearing conferences to resolve discovery issues.19 If more than one party cancels a prehearing conference under the proposed rule, the arbitrators would have the authority to allocate the fee in the award. The most common allocation would be between or among the parties making the request. However, depending on the facts and circumstances of the request, the arbitrators could assess the fee to one party or to a non-requesting party or parties if the arbitrators determine that these parties caused or contributed to the need for the cancellation. This authority is granted to the arbitrators under the Codes 20 and is consistent with other fee provisions in the Codes.21 If an extraordinary circumstance prevents a party from making a timely cancellation request, the arbitrators have the discretion to waive the late cancellation fee, provided they receive a written explanation of the circumstance. FINRA would notify parties and arbitrators that the prehearing conference was cancelled and remind parties to provide an explanation, if applicable, before the close of the arbitration case. If the fee is waived, the party’s or parties’ obligation to pay the fee would be eliminated. FINRA, however, would pay the $100 perarbitrator honorarium to the arbitrator(s) scheduled to attend the prehearing conference. The following example illustrates how the rule would work. A claimant files a claim for $150,000 against a firm. The parties select their arbitrators, the panel is appointed, the Director schedules an IPHC for Wednesday, August 15, 2018, and the three arbitrators are scheduled to attend. The parties meet independently and finish addressing the preliminary matters a week before the IPHC is scheduled. If the parties notify the Director of their agreement to cancel the IPHC 22 on Thursday, August 9, 2018, they would 18 See FINRA Rule 12401; see also FINRA Rule 13401. 19 See FINRA Rule 12501(a); see also FINRA Rule 13501(a). 20 See, e.g., FINRA Rules 12904(e)(8) and 13904(e)(8). 21 See generally FINRA Rules 12601(b) and 13601(b). 22 Parties may agree to forego the IPHC provided certain conditions are met. See FINRA Rule 12500(c); see also FINRA Rule 13500(c). E:\FR\FM\18MYN1.SGM 18MYN1 23308 Federal Register / Vol. 83, No. 97 / Friday, May 18, 2018 / Notices not be charged because they provided notice four business days before the scheduled prehearing conference.23 If the parties notify the Director of the cancellation on Friday, August 10, 2018, they would be assessed a $100 perarbitrator fee (or $300), because they would have provided the cancellation notice within three business days before the scheduled prehearing conference. In the example, if one party requested cancellation of the IPHC by August 10 but an extraordinary circumstance (e.g., a serious car accident) prevented timely notice, the party could provide a written explanation before the case closes for the arbitrators to consider waiving the fee. If the arbitrators waive the fee, FINRA would still pay the $100 perarbitrator honorarium to those arbitrators scheduled to attend the conference. Finally, FINRA recognizes that customers could experience an increase in costs under the proposed rule change if they are assessed a part of or the entire late cancellation fee. FINRA notes that there are some mitigation strategies that parties could employ to avoid incurring these fees. As the objective of the proposed rule change is to encourage parties to address preliminary matters further in advance of a prehearing conference; if they do so, then they could provide notice of cancellation more than three business days prior to the scheduled prehearing conference to avoid the fee entirely. Further, if the parties agree to cancel a scheduled prehearing conference three business days or fewer before the scheduled conference, they can negotiate responsibility for the fee. In addition, the rules permit the arbitrator or panel to allocate the fee to the nonrequesting party or parties if the arbitrator(s) determine that the nonrequesting party or parties caused or contributed to the need for the cancellation. daltland on DSKBBV9HB2PROD with NOTICES Arbitrator Honorarium for Late Cancellation of Prehearing Conferences The proposed rule change would pay arbitrators who were scheduled to attend the prehearing conference that was cancelled an honorarium for late cancellations of prehearing conferences by amending FINRA Rule 12214(a) 24 to provide that FINRA would pay an 23 If August 9, 2018 were a FINRA holiday, the deadline would be extended until the next business day. See FINRA Rule 12100(l); see also FINRA Rule 13100(l). In this scenario, therefore, if the latest date to avoid a fee falls on a holiday, parties would not be assessed the late cancellation fee if they notify FINRA on the next business day following the holiday. 24 FINRA Rule 13214(a) would also be amended. See supra note 13. VerDate Sep<11>2014 16:38 May 17, 2018 Jkt 244001 honorarium of $100 to each arbitrator scheduled to attend a prehearing conference that was cancelled within three business days of the prehearing conference by agreement of the parties or was requested by one or more parties within three business days of the prehearing conference and granted. If the arbitrators waive the fee, the obligation to pay the fee would be eliminated, but FINRA would still pay the $100 per-arbitrator honorarium to the arbitrator(s) scheduled to attend the prehearing conference. Nonsubstantive Changes In addition to amending FINRA Rules 12500 and 12501 25 to establish a perarbitrator fee for late cancellations of prehearing conferences and FINRA Rule 12214(a) 26 to create a corresponding honorarium, the proposed rule change would also make a few nonsubstantive changes to these rules. As noted in Item 2 of this filing, if the Commission approves the proposed rule change, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice to be published no later than 60 days following Commission approval. The effective date will be no later than 30 days following publication of the Regulatory Notice announcing Commission approval. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,27 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, and Section 15A(b)(5) of the Act,28 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 would allocate equitably the proposed late cancellation fee among those parties that cancel such conferences on short notice. The proposed fee would be paid by the parties, and passed through to the arbitrators to provide them with some compensation for the preparation time expended and for their inconvenience also FINRA Rules 13500 and 13501. also FINRA Rule 13214(a). 27 15 U.S.C. 78o–3(b)(6). 28 15 U.S.C. 78o–3(b)(5). when a prehearing conference is cancelled on short notice. While arbitrators would typically allocate the 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 or parties if the arbitrators determine that the nonrequesting party caused or contributed to the late cancellation. Moreover, the fee can be avoided altogether if the parties provide three business days’ notice of such a cancellation. For these reasons, FINRA believes that the proposed fee is an equitable allocation of a reasonable fee to use the forum. Moreover, FINRA believes that the proposed rule change would 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 prehearing issues presented, which is an essential element for FINRA to operate an effective arbitration forum for the purposes 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 will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. A discussion of the economic impacts of the proposed amendments follows. (a) Need for the Rule Unlike hearing sessions, parties can currently cancel prehearing conferences up to and including the same day of the conference without penalty.29 Late cancellations of prehearing conferences are costly to arbitrators and can negatively impact their incentive to participate in the forum. They also pose an operational challenge for FINRA staff. The proposal would create incentives for parties to address preliminary matters further in advance of a prehearing conference by charging a late cancellation fee. The proposal would also compensate arbitrators for their costs in the event of a late cancellation. (b) Economic Baseline The economic baseline for the proposal is the current rules under the Codes that address the postponements and cancellations of hearings. The proposal is expected to affect the parties to an arbitration including customers, member firms, and associated persons. 25 See 26 See PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 29 Unless otherwise noted, consistent with the rest of the document, references to cancellations include postponements. E:\FR\FM\18MYN1.SGM 18MYN1 Federal Register / Vol. 83, No. 97 / Friday, May 18, 2018 / Notices Parties would incur a $100 fee for each arbitrator scheduled to attend a prehearing conference in the event of a late cancellation.32 The late cancellation fee would increase the forum costs of parties that cancel a prehearing conference or that are responsible for the cancellation. FINRA does not expect, however, that the late cancellation fee would reduce the incentives of parties to file claims. The fee should encourage parties to be more effective in managing their schedules and calendars to avoid late cancellations and to provide appropriate notice when seeking to cancel prehearing conferences. Arbitrators also have discretion to waive the late cancellation fee in the event of an extraordinary circumstance provided that the parties give a written explanation. Parties would be able to cancel a prehearing without penalty if the cancellation is more than three business days in advance. In the event that a prehearing conference is cancelled more than three business days in advance, arbitrators would not receive compensation for any time and effort in their preparation. FINRA believes, however, that arbitrators are likely to put in more time and effort to prepare for a prehearing conference closer to the scheduled date. Earlier cancellations, therefore, are less likely to result in costs to the arbitrators and, therefore, would lessen the negative impact on the incentives to participate in the forum. (c) Economic Impact daltland on DSKBBV9HB2PROD with NOTICES The proposal is also expected to affect FINRA arbitrators. Arbitrators often spend considerable time and effort preparing for prehearing conferences. Currently, parties that cancel a prehearing conference do not incur a penalty, and arbitrators do not receive compensation for their time and effort spent preparing if a prehearing conference is cancelled (and not postponed until a later date). Late cancellations of prehearing conferences can also result in scheduling inconveniences. These factors can reduce the incentives of arbitrators to participate in the forum and the ability of FINRA to retain experienced arbitrators on the roster.30 The loss of experienced arbitrators reduces the efficacy of the forum and the protections it affords to investors and other industry participants from wrongdoing. FINRA has collected information detailing the frequency of late cancellations of prehearing conferences, from January 2018 to March 2018. FINRA is able to identify 182 instances of late cancellations of prehearing conferences, or approximately ten percent of the 1,904 scheduled prehearing conferences. Among these late cancelations, there were 474 arbitrators that could have been affected. This sample, from one calendar quarter, suggests that late cancellations of prehearing conferences could affect approximately one-quarter of arbitrators annually.31 (d) Alternatives Considered The proposal would charge parties a fee if a prehearing conference is cancelled within three business days. A benefit of the proposal is an increase in the incentives of arbitrators to participate in the forum. Arbitrators would receive at least nominal compensation for their time and effort preparing for a prehearing conference, and in particular when the cancellation is closer to the conference date and arbitrators have likely spent more time and effort to prepare. Arbitrators would also be less likely to experience scheduling inconveniences if the fee deters late cancellations of prehearing conferences. The removal of a disincentive for arbitrators to participate in the forum would reduce the likelihood that they resign from the forum. Retaining more experienced arbitrators could improve the efficacy of the forum and increase the protections it affords. 30 See supra note 12. 31 There were a total of 7,364 registered FINRA arbitrators as of January 2018. VerDate Sep<11>2014 16:38 May 17, 2018 Jkt 244001 Alternatives to the proposed amendments include applying the same parameters as scheduled hearing sessions to prehearing conferences: The number of days (10) prior to a scheduled hearing session for parties to cancel without incurring a late cancellation fee and the fee amount ($600 per arbitrator) if parties cancel late. FINRA believes that arbitrators’ costs for a late cancellation are less for a prehearing conference, which is often by phone, than for a scheduled hearing session, which is typically in person. Accordingly, FINRA believes that less advance notice and a lower fee are appropriate for cancellation of a prehearing conference. FINRA believes that the proposed amendments would incentivize parties to avoid late cancellations, while at the same time compensating arbitrators in the event of a late cancellation that is commensurate with their costs. 32 FINRA believes that the amount of the honorarium is reasonable given its understanding of the time and effort arbitrators expend when preparing for prehearing conferences. PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 23309 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–2018–019 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–2018–019. 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 website (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 E:\FR\FM\18MYN1.SGM 18MYN1 23310 Federal Register / Vol. 83, No. 97 / Friday, May 18, 2018 / Notices provisions of 5 U.S.C. 552, will be available for website 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. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA– 2018–019 and should be submitted on or before June 8, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.33 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–10603 Filed 5–17–18; 8:45 am] BILLING CODE 8011–01–P website (https://www.cboe.com/ AboutCBOE/CBOELegalRegulatory Home.aspx), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83226; File No. SR–CBOE– 2018–035] Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Silexx Trading Platform Fees Schedule May 14, 2018. daltland on DSKBBV9HB2PROD with NOTICES Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 1, 2018, Cboe Exchange, Inc. (the ‘‘Exchange’’ or ‘‘Cboe Options’’) 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 Exchange. 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 The Exchange proposes to amend the Silexx trading platform (‘‘Silexx’’ or the platform’’) Fees Schedule. The text of the proposed rule change is also available on the Exchange’s 33 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 16:38 May 17, 2018 Jkt 244001 The purpose of this filing is to include language within the Silexx Fees Schedule to: (1) Clarify that the purchase of Login IDs is subject to proration; and (2) introduce a twomonth free upgrade for users on Silexx Basic to Silexx Pro. Today, the Exchange does not prorate the pricing for Login IDs or offer free upgrades on Silexx. By way of background, Silexx is an order entry and management trading platform for listed stocks and options that support both simple and complex orders.3 The platform is a software application that is installed locally on a user’s desktop. It provides users with the capability to send option orders to U.S. options exchanges and stock orders to U.S. stock exchanges (and other trading centers), and allows users to input parameters to control the size, timing, and other variables of their trades. Silexx includes access to realtime options and stock market data, as well as access to certain historical data. The platform also provides users with the ability to maintain an electronic audit trail and provide detailed trade reporting. In addition, Silexx offers other functionality such as access to crossing orders tickets, equity order reports, and market data feeds (for 3 The platform also permits users to submit orders for commodity futures, commodity options and other non-security products to be sent to designated contract markets, futures commission merchants, introducing brokers or other applicable destinations of the users’ choice. PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 specific fees). Use of Silexx is completely optional. Login IDs Login IDs may be purchased for different versions of the platform, including Basic, Pro, Sell-Side, Pro Plus Risk, and Buy-Side Manager. The Exchange previously filed to establish set monthly fees for each version of the platform.4 The Exchange now proposes to clarify that fees related to the purchase of Login IDs are prorated. Specifically, if a user signs up for a Login ID on any version of the platform after the first calendar day of the month, the fee for that calendar month is prorated based on the remaining calendar days in that calendar month. This proration does not apply if a user cancels a Login ID prior to the end of the calendar month. Two-Month Free Upgrade Silexx Basic is an order-entry and management system that provides basic functionality including real-time data, alerts, trade reports, views of exchange books, management of the customer’s orders and positions, simple and complex order tickets, and basic risk features. Users are currently charged $200 per month per Login ID for Silexx Basic. Silexx Pro offers the same functionality as the basic platform plus additional features including an algorithmic order ticket, position analysis, charting, earnings and dividend information, delta hedging tools, volatility skews, and additional risk features. Users are currently charged $400 per month per Login ID for Silexx Pro. The Exchange proposes to introduce a two-month free-upgrade period for users that are currently on Silexx Basic. This upgrade would allow users of Silexx Basic to use the functionality of Silexx Pro for a period of two months (May 1, 2018 through June 30, 2018) at the current Silexx Basic rate of $200 per month per Login ID. After the twomonth period ends, beginning July 1, 2018, those users will be charged at the Silexx Pro rate of $400 per month until they choose to downgrade. The Exchange notes that the upgrade to Silexx Pro is optional. These proposed changes to the Silexx Fees Schedule are to take effect on May 1, 2018. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the 4 See Securities Exchange Act Release No. 82088 (November 15, 2017), 82 FR 55443 (November 21, 2017) (SR–CBOE–2017–068) E:\FR\FM\18MYN1.SGM 18MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 97 (Friday, May 18, 2018)]
[Notices]
[Pages 23306-23310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-10603]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83227; File No. SR-FINRA-2018-019]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating To 
Create a Fee and Honorarium for Late Cancellation of a Prehearing 
Conference

May 14, 2018.
    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 May 4, 2018, 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 Rules 12500 and 12501 of the Code 
of Arbitration Procedure for Customer Disputes (``Customer Code'') and 
FINRA Rules 13500 and 13501 of the Code of Arbitration Procedure for 
Industry Disputes (``Industry Code'' and together, ``Codes''), to 
charge a $100 per-arbitrator fee to parties who request cancellation of 
a prehearing conference within three business days before a scheduled 
prehearing conference. The proposed rule change would also amend FINRA 
Rules 12214(a) and 13214(a) of the Codes to create a $100 honorarium to 
pay each arbitrator scheduled to attend a prehearing conference that 
was cancelled within three business days of the prehearing conference.
    The text of the proposed rule change is available on FINRA's 
website 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.

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

1. Purpose
Introduction
    FINRA proposes to charge parties to an arbitration a $100 per-
arbitrator fee if a prehearing conference is cancelled \3\ at the 
request of one or more parties that was submitted within three business 
days before a scheduled prehearing conference (``late cancellation 
fee''). FINRA is also proposing to pay a $100 honorarium to each 
arbitrator who was scheduled to attend the prehearing conference that 
was cancelled within three business days of the prehearing conference.
---------------------------------------------------------------------------

    \3\ References to cancellations of prehearing conferences 
include postponements of such conferences.
---------------------------------------------------------------------------

Background

    The Codes have several rules that address postponements and 
cancellations of hearings.\4\ FINRA Rules 12601(b)(1) and 13601(b)(1) 
provide that 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.\5\ In 
addition, under FINRA Rules 12601(b)(2) and 13601(b)(2), a party or 
parties that make postponement requests within 10 days before a 
scheduled hearing session are required to pay a $600 per-arbitrator 
late cancellation fee.\6\ Finally, if a hearing is cancelled or 
postponed due to settlement or withdrawal of a claim, FINRA Rules 
12902(d) and 13902(d) provide that if FINRA receives a settlement or 
withdrawal notice 10 days or fewer prior to the date that the hearing 
is scheduled to begin, parties that paid a filing fee will not be 
entitled to any refund of the filing fee.\7\
---------------------------------------------------------------------------

    \4\ A hearing is a meeting between the arbitrators and parties 
to determine the merits of the arbitration. See FINRA Rules 12100(o) 
and 13100(o).
    \5\ These rules also permit the panel to allocate the fee among 
the party or parties that agreed to or requested the postponement, 
to assess part or all of any postponement fees against a party that 
did not request the postponement if the panel determines that the 
non-requesting party caused or contributed to the need for the 
postponement, and to waive the fees. This fee is paid to FINRA and 
not passed through to the arbitrators.
    \6\ These rules also permit the panel to allocate the $600 per-
arbitrator fee among the requesting parties if more than one party 
requests postponement, to allocate all or a portion of the $600 per-
arbitrator fee to the non-requesting party or parties if the 
arbitrators determine that the non-requesting party or parties 
caused or contributed to the need for the postponement, and to use 
its discretion to waive the fee in the event of an extraordinary 
circumstance, provided verification of such circumstance is 
received. See FINRA Rules 12601(b)(2) and 13601(b)(2).
    \7\ Customers, associated persons, and other non-members who 
file a claim, counterclaim, cross claim or third party claim must 
pay a filing fee to initiate an arbitration, unless the fee is 
deferred. See FINRA Rule 12900(a)(1); see also FINRA Rule 
13900(a)(1) (addressing filing fees for associated persons).
---------------------------------------------------------------------------

    FINRA believes that it is appropriate to address late cancellations 
of prehearing conferences by charging a late cancellation fee to the 
parties. In addition, FINRA proposes to pay an honorarium in the same 
amount to those

[[Page 23307]]

arbitrators who were scheduled to attend the prehearing conference.
    Prehearing conferences are typically scheduled before the hearing 
on the merits begins.\8\ During these conferences, the arbitrator or 
panel meets with the parties, either in person or by telephone, to set 
discovery, briefing, and motions deadlines, to schedule subsequent 
hearing sessions, and to address other preliminary matters.\9\ A 
prehearing conference may also address other outstanding matters, such 
as discovery disputes or substantive motions (e.g., motions to dismiss 
or motions to amend).\10\
---------------------------------------------------------------------------

    \8\ See FINRA Rules 12100(w) and 13100(w).
    \9\ See FINRA Rules 12500(c) and 13500(c).
    \10\ See FINRA Rules 12501(b) and 13501(b).
---------------------------------------------------------------------------

    Prehearing conferences currently can be cancelled by the parties up 
to and including on the same day without penalty, unlike late 
postponement of arbitration hearings.\11\ Considerable preparation by 
arbitrators and logistical work by FINRA staff is required prior to 
prehearing conferences. Late cancellations of prehearing conferences 
that occur within three or fewer business days of a scheduled 
prehearing conference typically cause the most problems for 
arbitrators. In FINRA's experience, these late cancellations often 
result in scheduling inconvenience for arbitrators, uncompensated work 
by arbitrators,\12\ and an operational challenge for FINRA staff who 
must quickly notify other parties and the arbitrator or panel about the 
cancellation.
---------------------------------------------------------------------------

    \11\ See generally FINRA Rules 12601(b) and 13601(b).
    \12\ In the past, arbitrators have resigned from the roster 
because FINRA's dispute resolution forum does not provide a payment 
to arbitrators for cancellations of prehearing conferences. FINRA 
notes that one reason former arbitrators have given for their 
resignation is the lack of compensation for prehearing conferences 
that are cancelled on short notice. FINRA has identified 17 separate 
complaints relating to 22 arbitrators with respect to the late 
cancellations of prehearing conferences.
---------------------------------------------------------------------------

Proposed Rule Change

Late Cancellation Fee for Prehearing Conferences

    FINRA is proposing to amend FINRA Rules 12500 and 12501 of the 
Customer Code and FINRA Rules 13500 and 13501 of the Industry Code,\13\ 
which govern prehearing conferences, to provide that if a cancellation 
request is agreed to by the parties or requested by one or more parties 
within three business days before a scheduled prehearing conference and 
granted, the party or parties shall be charged a fee of $100 per 
arbitrator scheduled to attend the prehearing conference. If more than 
one party requests the cancellation, the arbitrator(s) may allocate the 
$100 per-arbitrator fee between or among the requesting parties. If one 
party requests the cancellation, the arbitrator(s) shall allocate the 
fee to that party; provided, however, the arbitrator(s) may allocate 
all or a portion of the $100 per-arbitrator fee to the non-requesting 
party or parties if the arbitrator(s) determine that the non-requesting 
party or parties caused or contributed to the need for the 
cancellation. In the event that an extraordinary circumstance prevents 
a party or parties from making a timely cancellation request, the 
arbitrator(s) may use their discretion to waive the fee, provided a 
written explanation of such circumstance is received.
---------------------------------------------------------------------------

    \13\ To simplify this explanation, FINRA's discussion of the 
proposed changes focuses on changes to the Customer Code. However, 
the proposed changes also apply to the Industry Code.
---------------------------------------------------------------------------

    Under the proposed rule change, if a party requests or the parties 
agree to cancel a prehearing conference within three business days of a 
scheduled prehearing conference, the $100 per-arbitrator fee would be 
charged as a fee assessment at the time the case is closed. The date of 
the party's or parties' cancellation request controls whether the fee 
is assessed, not the date of the arbitrators' decision on such a 
request, if a decision is required.\14\ For example, if a party 
requests cancellation of the prehearing conference five business days 
before the scheduled prehearing conference, but the arbitrators rule on 
the request two business days before the scheduled conference would be 
held, the party would not be assessed a late cancellation fee under the 
proposed rule. If the arbitrators cancel a prehearing conference on 
their own, the parties would not be charged.
---------------------------------------------------------------------------

    \14\ A decision would be required if only one party requests 
that the prehearing conference be cancelled.
---------------------------------------------------------------------------

    In the event of a cancellation, a party or the parties would be 
charged only for those arbitrators who were scheduled to attend the 
prehearing conference. For example, after the parties complete the 
arbitrator selection process and a panel is appointed,\15\ the Director 
of the Office of Dispute Resolution \16\ (``Director'') will schedule 
an Initial Prehearing Conference (``IPHC''),\17\ during which the 
parties and arbitrators meet initially, usually by telephone. If the 
amount of the claim is more than $100,000, the panel must consist of 
three arbitrators,\18\ all of whom would participate in the IPHC. The 
Director will typically appoint the chairperson of the panel to preside 
over prehearing conferences to resolve discovery issues.\19\
---------------------------------------------------------------------------

    \15\ See generally Part IV (Appointment, Disqualification, and 
Authority of Arbitrators) of the FINRA Rule 12000 Series and the 
FINRA Rule 13000 Series.
    \16\ The term ``Director'' means the Director of the Office of 
Dispute Resolution and includes FINRA staff to whom the Director has 
delegated authority, unless the Code provides that the Director may 
not delegate a specific function. See FINRA Rule 12100(m); see also 
FINRA Rule 13100(m).
    \17\ See FINRA Rule 12500; see also FINRA Rule 13500.
    \18\ See FINRA Rule 12401; see also FINRA Rule 13401.
    \19\ See FINRA Rule 12501(a); see also FINRA Rule 13501(a).
---------------------------------------------------------------------------

    If more than one party cancels a prehearing conference under the 
proposed rule, the arbitrators would have the authority to allocate the 
fee in the award. The most common allocation would be between or among 
the parties making the request. However, depending on the facts and 
circumstances of the request, the arbitrators could assess the fee to 
one party or to a non-requesting party or parties if the arbitrators 
determine that these parties caused or contributed to the need for the 
cancellation. This authority is granted to the arbitrators under the 
Codes \20\ and is consistent with other fee provisions in the 
Codes.\21\
---------------------------------------------------------------------------

    \20\ See, e.g., FINRA Rules 12904(e)(8) and 13904(e)(8).
    \21\ See generally FINRA Rules 12601(b) and 13601(b).
---------------------------------------------------------------------------

    If an extraordinary circumstance prevents a party from making a 
timely cancellation request, the arbitrators have the discretion to 
waive the late cancellation fee, provided they receive a written 
explanation of the circumstance. FINRA would notify parties and 
arbitrators that the prehearing conference was cancelled and remind 
parties to provide an explanation, if applicable, before the close of 
the arbitration case. If the fee is waived, the party's or parties' 
obligation to pay the fee would be eliminated. FINRA, however, would 
pay the $100 per-arbitrator honorarium to the arbitrator(s) scheduled 
to attend the prehearing conference.
    The following example illustrates how the rule would work. A 
claimant files a claim for $150,000 against a firm. The parties select 
their arbitrators, the panel is appointed, the Director schedules an 
IPHC for Wednesday, August 15, 2018, and the three arbitrators are 
scheduled to attend. The parties meet independently and finish 
addressing the preliminary matters a week before the IPHC is scheduled. 
If the parties notify the Director of their agreement to cancel the 
IPHC \22\ on Thursday, August 9, 2018, they would

[[Page 23308]]

not be charged because they provided notice four business days before 
the scheduled prehearing conference.\23\ If the parties notify the 
Director of the cancellation on Friday, August 10, 2018, they would be 
assessed a $100 per-arbitrator fee (or $300), because they would have 
provided the cancellation notice within three business days before the 
scheduled prehearing conference. In the example, if one party requested 
cancellation of the IPHC by August 10 but an extraordinary circumstance 
(e.g., a serious car accident) prevented timely notice, the party could 
provide a written explanation before the case closes for the 
arbitrators to consider waiving the fee. If the arbitrators waive the 
fee, FINRA would still pay the $100 per-arbitrator honorarium to those 
arbitrators scheduled to attend the conference.
---------------------------------------------------------------------------

    \22\ Parties may agree to forego the IPHC provided certain 
conditions are met. See FINRA Rule 12500(c); see also FINRA Rule 
13500(c).
    \23\ If August 9, 2018 were a FINRA holiday, the deadline would 
be extended until the next business day. See FINRA Rule 12100(l); 
see also FINRA Rule 13100(l). In this scenario, therefore, if the 
latest date to avoid a fee falls on a holiday, parties would not be 
assessed the late cancellation fee if they notify FINRA on the next 
business day following the holiday.
---------------------------------------------------------------------------

    Finally, FINRA recognizes that customers could experience an 
increase in costs under the proposed rule change if they are assessed a 
part of or the entire late cancellation fee. FINRA notes that there are 
some mitigation strategies that parties could employ to avoid incurring 
these fees. As the objective of the proposed rule change is to 
encourage parties to address preliminary matters further in advance of 
a prehearing conference; if they do so, then they could provide notice 
of cancellation more than three business days prior to the scheduled 
prehearing conference to avoid the fee entirely. Further, if the 
parties agree to cancel a scheduled prehearing conference three 
business days or fewer before the scheduled conference, they can 
negotiate responsibility for the fee. In addition, the rules permit the 
arbitrator or panel to allocate the fee to the non-requesting party or 
parties if the arbitrator(s) determine that the non-requesting party or 
parties caused or contributed to the need for the cancellation.

Arbitrator Honorarium for Late Cancellation of Prehearing Conferences

    The proposed rule change would pay arbitrators who were scheduled 
to attend the prehearing conference that was cancelled an honorarium 
for late cancellations of prehearing conferences by amending FINRA Rule 
12214(a) \24\ to provide that FINRA would pay an honorarium of $100 to 
each arbitrator scheduled to attend a prehearing conference that was 
cancelled within three business days of the prehearing conference by 
agreement of the parties or was requested by one or more parties within 
three business days of the prehearing conference and granted.
---------------------------------------------------------------------------

    \24\ FINRA Rule 13214(a) would also be amended. See supra note 
13.
---------------------------------------------------------------------------

    If the arbitrators waive the fee, the obligation to pay the fee 
would be eliminated, but FINRA would still pay the $100 per-arbitrator 
honorarium to the arbitrator(s) scheduled to attend the prehearing 
conference.

Nonsubstantive Changes

    In addition to amending FINRA Rules 12500 and 12501 \25\ to 
establish a per-arbitrator fee for late cancellations of prehearing 
conferences and FINRA Rule 12214(a) \26\ to create a corresponding 
honorarium, the proposed rule change would also make a few 
nonsubstantive changes to these rules.
---------------------------------------------------------------------------

    \25\ See also FINRA Rules 13500 and 13501.
    \26\ See also FINRA Rule 13214(a).
---------------------------------------------------------------------------

    As noted in Item 2 of this filing, if the Commission approves the 
proposed rule change, FINRA will announce the effective date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 60 days following Commission approval. The effective date will be 
no later than 30 days following publication of the Regulatory Notice 
announcing Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\27\ 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, and Section 15A(b)(5) of the Act,\28\ 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.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78o-3(b)(6).
    \28\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

    FINRA believes that the proposed rule change would allocate 
equitably the proposed late cancellation fee among those parties that 
cancel such conferences on short notice. The proposed fee would be paid 
by the parties, and passed through to the arbitrators to provide them 
with some compensation for the preparation time expended and for their 
inconvenience when a prehearing conference is cancelled on short 
notice. While arbitrators would typically allocate the 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 or 
parties if the arbitrators determine that the non-requesting party 
caused or contributed to the late cancellation. Moreover, the fee can 
be avoided altogether if the parties provide three business days' 
notice of such a cancellation. For these reasons, FINRA believes that 
the proposed fee is an equitable allocation of a reasonable fee to use 
the forum.
    Moreover, FINRA believes that the proposed rule change would 
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 prehearing issues presented, which 
is an essential element for FINRA to operate an effective arbitration 
forum for the purposes 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 will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. A discussion of the economic 
impacts of the proposed amendments follows.
(a) Need for the Rule
    Unlike hearing sessions, parties can currently cancel prehearing 
conferences up to and including the same day of the conference without 
penalty.\29\ Late cancellations of prehearing conferences are costly to 
arbitrators and can negatively impact their incentive to participate in 
the forum. They also pose an operational challenge for FINRA staff. The 
proposal would create incentives for parties to address preliminary 
matters further in advance of a prehearing conference by charging a 
late cancellation fee. The proposal would also compensate arbitrators 
for their costs in the event of a late cancellation.
---------------------------------------------------------------------------

    \29\ Unless otherwise noted, consistent with the rest of the 
document, references to cancellations include postponements.
---------------------------------------------------------------------------

(b) Economic Baseline
    The economic baseline for the proposal is the current rules under 
the Codes that address the postponements and cancellations of hearings. 
The proposal is expected to affect the parties to an arbitration 
including customers, member firms, and associated persons.

[[Page 23309]]

The proposal is also expected to affect FINRA arbitrators.
    Arbitrators often spend considerable time and effort preparing for 
prehearing conferences. Currently, parties that cancel a prehearing 
conference do not incur a penalty, and arbitrators do not receive 
compensation for their time and effort spent preparing if a prehearing 
conference is cancelled (and not postponed until a later date). Late 
cancellations of prehearing conferences can also result in scheduling 
inconveniences. These factors can reduce the incentives of arbitrators 
to participate in the forum and the ability of FINRA to retain 
experienced arbitrators on the roster.\30\ The loss of experienced 
arbitrators reduces the efficacy of the forum and the protections it 
affords to investors and other industry participants from wrongdoing.
---------------------------------------------------------------------------

    \30\ See supra note 12.
---------------------------------------------------------------------------

    FINRA has collected information detailing the frequency of late 
cancellations of prehearing conferences, from January 2018 to March 
2018. FINRA is able to identify 182 instances of late cancellations of 
prehearing conferences, or approximately ten percent of the 1,904 
scheduled prehearing conferences. Among these late cancelations, there 
were 474 arbitrators that could have been affected. This sample, from 
one calendar quarter, suggests that late cancellations of prehearing 
conferences could affect approximately one-quarter of arbitrators 
annually.\31\
---------------------------------------------------------------------------

    \31\ There were a total of 7,364 registered FINRA arbitrators as 
of January 2018.
---------------------------------------------------------------------------

(c) Economic Impact
    The proposal would charge parties a fee if a prehearing conference 
is cancelled within three business days. A benefit of the proposal is 
an increase in the incentives of arbitrators to participate in the 
forum. Arbitrators would receive at least nominal compensation for 
their time and effort preparing for a prehearing conference, and in 
particular when the cancellation is closer to the conference date and 
arbitrators have likely spent more time and effort to prepare. 
Arbitrators would also be less likely to experience scheduling 
inconveniences if the fee deters late cancellations of prehearing 
conferences. The removal of a disincentive for arbitrators to 
participate in the forum would reduce the likelihood that they resign 
from the forum. Retaining more experienced arbitrators could improve 
the efficacy of the forum and increase the protections it affords.
    Parties would incur a $100 fee for each arbitrator scheduled to 
attend a prehearing conference in the event of a late cancellation.\32\ 
The late cancellation fee would increase the forum costs of parties 
that cancel a prehearing conference or that are responsible for the 
cancellation. FINRA does not expect, however, that the late 
cancellation fee would reduce the incentives of parties to file claims. 
The fee should encourage parties to be more effective in managing their 
schedules and calendars to avoid late cancellations and to provide 
appropriate notice when seeking to cancel prehearing conferences. 
Arbitrators also have discretion to waive the late cancellation fee in 
the event of an extraordinary circumstance provided that the parties 
give a written explanation.
---------------------------------------------------------------------------

    \32\ FINRA believes that the amount of the honorarium is 
reasonable given its understanding of the time and effort 
arbitrators expend when preparing for prehearing conferences.
---------------------------------------------------------------------------

    Parties would be able to cancel a prehearing without penalty if the 
cancellation is more than three business days in advance. In the event 
that a prehearing conference is cancelled more than three business days 
in advance, arbitrators would not receive compensation for any time and 
effort in their preparation. FINRA believes, however, that arbitrators 
are likely to put in more time and effort to prepare for a prehearing 
conference closer to the scheduled date. Earlier cancellations, 
therefore, are less likely to result in costs to the arbitrators and, 
therefore, would lessen the negative impact on the incentives to 
participate in the forum.
(d) Alternatives Considered
    Alternatives to the proposed amendments include applying the same 
parameters as scheduled hearing sessions to prehearing conferences: The 
number of days (10) prior to a scheduled hearing session for parties to 
cancel without incurring a late cancellation fee and the fee amount 
($600 per arbitrator) if parties cancel late. FINRA believes that 
arbitrators' costs for a late cancellation are less for a prehearing 
conference, which is often by phone, than for a scheduled hearing 
session, which is typically in person. Accordingly, FINRA believes that 
less advance notice and a lower fee are appropriate for cancellation of 
a prehearing conference. FINRA believes that the proposed amendments 
would incentivize parties to avoid late cancellations, while at the 
same time compensating arbitrators in the event of a late cancellation 
that is commensurate with their costs.

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 [email protected]. Please include 
File Number SR-FINRA-2018-019 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-2018-019. 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 website (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

[[Page 23310]]

provisions of 5 U.S.C. 552, will be available for website 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. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2018-019 and should be 
submitted on or before June 8, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-10603 Filed 5-17-18; 8:45 am]
 BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.