Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Arbitrator Payment Rule To Pay Each Arbitrator a $200 Honorarium To Decide Without a Hearing Session a Contested Subpoena Request or a Contested Order for Production or Appearance, 36647-36652 [2018-16166]
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Federal Register / Vol. 83, No. 146 / Monday, July 30, 2018 / Notices
supervision of the board of trustees of
the Trust (‘‘Board’’), provides
continuous investment management of
the assets of each Subadvised Fund.
Consistent with the terms of the
Investment Management Agreement, the
Adviser may, subject to the approval of
the Board, delegate portfolio
management responsibilities of all or a
portion of the assets of a Subadvised
Fund to one or more Sub-Advisers.2 The
Adviser will continue to have overall
responsibility for the management and
investment of the assets of each
Subadvised Fund. The Adviser will
evaluate, select, and recommend SubAdvisers to manage the assets of a
Subadvised Fund and will oversee,
monitor and review the Sub-Advisers
and their performance and recommend
the removal or replacement of SubAdvisers.
2. Applicants request an order to
permit the Adviser, subject to the
approval of the Board, to enter into
investment sub-advisory agreements
with the Sub-Advisers (each, a ‘‘SubAdvisory Agreement’’) and materially
amend such Sub-Advisory Agreements
without obtaining the shareholder
approval required under section 15(a) of
the Act and rule 18f–2 under the Act.3
Applicants also seek an exemption from
the Disclosure Requirements to permit a
Subadvised Fund to disclose (as both a
dollar amount and a percentage of the
Subadvised Fund’s net assets): (a) The
aggregate fees paid to the Adviser and
any Wholly-Owned Sub-Adviser; (b) the
aggregate fees paid to Non-Affiliated
Sub-Advisers; and (c) the fee paid to
each Affiliated Sub-Adviser
(collectively, Aggregate Fee
Disclosure’’).4
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2 As
used herein, a ‘‘Sub-Adviser’’ for a
Subadvised Fund is (1) an indirect or direct
‘‘wholly owned subsidiary’’ (as such term is defined
in the Act) of the Adviser for that Subadvised Fund,
or (2) a sister company of the Adviser for that
Subadvised Fund that is an indirect or direct
‘‘wholly-owned subsidiary’’ of the same company
that, indirectly or directly, wholly owns the Adviser
(each of (1) and (2) a ‘‘Wholly-Owned Sub-Adviser’’
and collectively, the ‘‘Wholly-Owned SubAdvisers’’), or (3) not an ‘‘affiliated person’’ (as such
term is defined in section 2(a)(3) of the Act) of the
Subadvised Fund, any Feeder Fund invested in a
Master Fund, the Trust, or the Adviser, except to
the extent that an affiliation arises solely because
the Sub-Adviser serves as a sub-adviser to a
Subadvised Fund (‘‘Non-Affiliated Sub-Advisers’’).
3 The requested relief will not extend to any subadviser, other than a Wholly-Owned Sub-Adviser,
who is an affiliated person, as defined in section
2(a)(3) of the Act, of the Subadvised Fund, of any
Feeder Fund, or of the Adviser, other than by
reason of serving as a sub-adviser to one or more
of the Subadvised Funds (‘‘Affiliated SubAdviser’’).
4 For any Subadvised Fund that is a Master Fund,
the relief would also permit any Feeder Fund
invested in that Master Fund to disclose Aggregate
Fee Disclosure.
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3. Applicants agree that any order
granting the requested relief will be
subject to the terms and conditions
stated in the application. Such terms
and conditions provide for, among other
safeguards, appropriate disclosure to
Subadvised Funds’ shareholders and
notification about sub-advisory changes
and enhanced Board oversight to protect
the interests of the Subadvised Funds’
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 equivalent to
that of individual portfolio managers, so
that requiring shareholder approval of
Sub-Advisory Agreements would
impose unnecessary delays and
expenses on the Subadvised Funds.
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 Funds.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–16155 Filed 7–27–18; 8:45 am]
BILLING CODE 8011–01–P
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36647
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83699; File No. SR–FINRA–
2018–026]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Amend the
Arbitrator Payment Rule To Pay Each
Arbitrator a $200 Honorarium To
Decide Without a Hearing Session a
Contested Subpoena Request or a
Contested Order for Production or
Appearance
July 24, 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 July 13,
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 12214(c) of the Code of Arbitration
Procedure for Customer Disputes
(‘‘Customer Code’’) and FINRA Rule
13214(c) through (e) of the Code of
Arbitration Procedure for Industry
Disputes (‘‘Industry Code’’ and together,
‘‘Codes’’), to provide that FINRA will
pay each arbitrator a $200 honorarium
to decide without a hearing session a
contested subpoena request or a
contested order for production or
appearance.
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
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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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
The proposed rule change would
amend FINRA Rules 12214 and 13214
that govern the payments (referred to as
honorarium) arbitrators receive for
deciding contested requests to issue
subpoenas and orders for production
and appearance. The proposed rule
change would provide uniformity
regarding when and how much
arbitrators receive when deciding
contested subpoenas and orders for
production and appearance without a
hearing session.
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Background
In arbitration, the parties exchange
documents and information to prepare
for the arbitration through the discovery
process. The Codes require parties to
cooperate with each other and exchange
documents or information to expedite
the arbitration.3 If an individual or
entity objects to a discovery request, the
party seeking the documents or
information may request that the
arbitrator issue a subpoena 4 or an
order.5
Requests to Issue a Subpoena
Under the Codes, parties may request
that the panel issue a subpoena to
parties in an arbitration, non-parties, as
well as entities and individuals who are
not FINRA members.6 If the subpoena
will be served on a FINRA member,
FINRA rules favor the use of orders
rather than subpoenas, unless
circumstances dictate otherwise.7 A
party’s request (or motion) to issue a
subpoena becomes a ‘‘contested
subpoena request’’ if there is an
objection raised to the scope or
propriety of the subpoena.8
To decide a contested subpoena
request, the arbitrator must review the
motion requesting issuance of the
subpoena, the draft subpoena, any
written objections, and any other
documents supporting a party’s
position.9 When arbitrators decide these
contested requests, they must review
3 See
FINRA Rules 12505 and 13505.
4 See FINRA Rules 12512 and 13512.
5 See FINRA Rules 12513 and 13513.
6 See FINRA Rules 12512(a)(1) and 13512(a)(1).
7 See FINRA Rules 12512(a)(2) and 13512(a)(2).
8 See FINRA Rules 12512(c) and 13512(c).
9 See FINRA Rules 12214(d)(2) and 13214(d)(2).
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and consider all parties’ objections and
render their decision promptly on the
issuance and scope of the subpoena.10
Currently, under FINRA Rule
12214(d),11 each arbitrator who decides
one or more contested subpoenas
without a hearing session 12 receives a
one-time honorarium of $250 during the
life of the arbitration case.13 The rule
caps the total amount that the parties
could pay the arbitrators to decide a
contested subpoena request in any one
case at $750.14 This means that
regardless of the number of contested
subpoena requests that arbitrators
decide without a hearing session in an
arbitration case, an arbitrator will
receive one honorarium payment of
$250.15 The panel allocates the cost of
the honorarium to the parties in the
award.16
If a party’s request to issue a subpoena
does not receive any objections, it
remains unopposed, and arbitrators do
not receive an honorarium for issuing an
unopposed subpoena.
Request To Issue an Order for
Production or Appearance
If a party is seeking documents or
information, or the appearance of a
witness from a FINRA member, the
Codes direct the parties to request the
issuance of an order for production or
appearance,17 rather than a subpoena.18
A party’s motion to issue an order
becomes a ‘‘contested order request’’ if
a party objects to the scope or propriety
of the order.19
An arbitrator would decide a
contested order request by reviewing the
e.g., FINRA Rules 12512(c) and 13512(c).
also FINRA Rule 13214(d).
12 A hearing session is a meeting between the
parties and arbitrators of four hours or less,
including a hearing or prehearing conference. See
FINRA Rules 12100(p) and 13100(p).
13 See FINRA Rules 12214(d)(1) and 13214(d)(1).
14 Id. The chairperson of a three-person panel will
decide the contested subpoena request without a
hearing session, for which the chairperson would
be paid $250. The honorarium for contested
subpoena requests could increase in $250
increments, if, for example, the chairperson recuses
or withdraws from the panel and the replacement
chairperson must decide another contested
subpoena request without a hearing session. In this
instance, the replacement chairperson would
receive a $250 honorarium for this work. In no
event would the parties be charged more than $750
per case.
15 If a hearing session is required to decide the
motion, each arbitrator who participates in the
hearing session will receive a $300 honorarium
instead. See FINRA Rules 12214(a) and 13214(a).
16 See FINRA Rules 12214(d)(3) and 13214(d)(3).
17 FINRA Rules 12513(a) and 13513(a) provide
that upon a motion of a party, the panel may order
the appearance of any employee or associated
person of a FINRA member or the production of any
documents in the possession or control of such
persons or members, without the use of subpoenas.
18 See FINRA Rules 12512(a)(2) and 13512(a)(2).
19 See FINRA Rules 12513(c) and 13513(c).
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10 See,
11 See
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motion requesting issuance of the
order,20 the draft order,21 and any
written objections from the party
receiving the motion.22 Further, when
arbitrators decide these contested order
requests, they must review and consider
all parties’ objections and render their
decision promptly on the issuance and
scope of the order.23 Thus, arbitrators
review similar documents and follow
the same process when deciding
contested order requests as they do
when deciding contested subpoena
requests.
The Codes do not expressly provide
an honorarium for arbitrators who
decide requests for such orders without
a hearing session. Thus, FINRA
categorizes requests to issue orders for
production as discovery-related
motions 24 rather than requests to issue
subpoenas and, thus, FINRA pays the
$200 honorarium for each. FINRA pays
the $200 honorarium for an order for
production, whether contested or
unopposed. FINRA does not pay the
honorarium, however, for an order for
appearance, regardless of whether it is
contested or unopposed.
Concerns About Current Subpoena and
Order Honorarium Structure
Parties label requests for subpoenas or
orders interchangeably, which is
understandable given the similarities of
the requests and the work arbitrators do
to decide them without a hearing
session. However, the Codes treat the
two discovery mechanisms differently.
As noted, the Codes favor the use of
orders over subpoenas when a party
seeks documents or witnesses from a
FINRA member.25 If a request to issue
a subpoena should have been a request
to issue an order, a change in the
labelling of the document can result in
the arbitrators receiving a reduced
honorarium (i.e., $200 for an order
versus $250 for a contested subpoena or
no payment at all if the change is to an
order of appearance).
The Codes also impose a per-case
honorarium cap of $250 that each
arbitrator who decides a contested
subpoena request without a hearing
session may receive.26 Arbitrators do
not receive an honorarium for deciding
an unopposed subpoena request. There
is no per-case cap on deciding requests
20 See
FINRA Rules 12513(b) and 13513(b).
21 Id.
22 See
FINRA Rules 12513(c) and 13513(c).
e.g., FINRA Rules 12513(c) and 13513(c).
24 FINRA Rules 12214(c) and 13214(c) provide
that FINRA will pay each arbitrator an honorarium
of $200 to decide a discovery-related motion
without a hearing session.
25 See FINRA Rules 12512(a)(2) and 13512(a)(2).
26 See FINRA Rules 12214(d)(1) and 13214(d)(1).
23 See,
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one or more subpoenas.30 FINRA is
proposing to include this current
practice in the rule, so that parties may
mitigate their costs. Thus, under the
proposed rule change, if parties request
one or more subpoenas in one motion,
Proposed Rule Change
for example, and one or all of the
subpoena requests become contested,
FINRA believes that the subpoena or
each arbitrator who decides the motion
order label on a discovery-related
motion should not dictate the amount of would receive one honorarium payment
of $200. In addition to helping to
honorarium that arbitrators receive or
the frequency with which they are paid. minimize costs, requesting multiple
subpoenas in one motion helps expedite
The honoraria that arbitrators receive
the arbitration, which benefits parties
should reflect the time and effort they
and arbitrators.
spend in deciding requests without a
FINRA believes that reducing the
hearing session and fairly compensate
them for this work. Accordingly, FINRA honorarium for contested subpoena
requests and removing the per-case cap
is proposing to amend FINRA Rules
on these payments would provide
12214(c) and 13214(c) to provide that
consistency and fairness to the arbitrator
FINRA would pay each arbitrator an
payment rules by ensuring that the
honorarium of $200 to decide, without
a hearing session: (i) A discovery-related payment arbitrators receive for deciding
motion; 27 (ii) a motion that contains one these requests is commensurate with the
time and effort spent on each motion.
or more contested subpoena requests 28
or contested orders for production or
Contested Orders for Production or
appearance; or (iii) a motion that
Appearance
contains one or more contested
FINRA would amend Rule 12214(c) to
subpoena requests and contested orders
provide a $200 honorarium for deciding
for production or appearance. FINRA
a contested order for production or
believes that unifying the honorarium
appearance without a hearing session.
structure for these discovery
This means that arbitrators would
mechanisms would remove
inconsistencies from FINRA’s rules and receive an honorarium for deciding
without a hearing session, a contested
make them more transparent as well as
arbitrator order for appearance as well
eliminate confusion for parties,
arbitrators and staff that can occur when as for production. Under the proposed
rule change, arbitrators would no longer
a discovery request is mislabeled.
receive an honorarium for unopposed
Contested Subpoena Requests
requests to issue an order for production
as these requests do not require the
The proposed rule change would
reduce the honorarium that an arbitrator amount of time and effort needed to
receives to decide a contested subpoena resolve contested requests.
The proposed rule change would
request from $250 to $200; however, it
describe what constitutes a contested
would also remove the per-case cap on
order for production or appearance by
these payments. Thus, under the
modeling the description on that of a
proposed rule change, an arbitrator
contested subpoena request. Thus,
would receive a $200 honorarium for
proposed FINRA Rule 12214(c)(2)(iii)
each contested subpoena request that he
would provide that a contested order for
29
or she decides.
production or appearance shall include
FINRA recognizes that removing the
a motion requesting the issuance of an
per-case cap on contested subpoena
order for production or appearance, a
requests could result in an increase in
written objection from the party
fees for the parties. In response to this
opposing the issuance of the order, and
concern, the proposed rule change
any other documents supporting a
would permit a party or parties to use
party’s position.
one motion to request the issuance of
Moreover, like a contested subpoena
request, a party would be permitted to
27 Under the proposed rule change, FINRA would
request the issuance of one or more
add a contested subpoena request and a contested
orders in one motion,31 and if one or all
order for production or appearance to the
of the arbitrator orders become
discovery-related motions rule; however, FINRA
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to issue orders of production however.
Moreover, arbitrators receive an
honorarium for deciding such requests,
whether they are contested or
unopposed.
would not change the rule language explaining
what constitutes a discovery-related motion.
28 The proposal would retain what constitutes a
contested subpoena by moving the description from
FINRA Rule 12214(d)(2) to FINRA Rule
12214(c)(2)(ii).
29 As is current practice, arbitrators would not
receive an honorarium for an unopposed subpoena
request.
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30 The proposed rule change would also permit
parties to request the issuance of one or more orders
in the same motion or a combination of subpoena
and order requests.
31 The proposed rule change would also permit
parties to request the issuance of one or more
subpoenas in the same motion or a combination of
subpoena and order requests.
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36649
contested, each arbitrator who decides
the motion would receive one
honorarium payment of $200. In
addition to helping to minimize costs,
requesting multiple orders in one
motion helps expedite the arbitration,
which benefits parties and arbitrators.
FINRA believes that adding contested
orders for production or appearance to
its honorarium rules would make the
rules more transparent, so that parties
and arbitrators understand how and
when the honorarium and fees are
assessed for contested orders. Moreover,
FINRA believes that limiting
honorarium to contested orders makes
the honorarium rules more consistent
and more equitable to the parties, as the
fees FINRA would assess for arbitrators
to decide contested orders for
production or appearance would be
proportionate with the time and effort
that they spend deciding such orders.
Nonsubstantive Changes
In addition to the amendments
discussed above to simplify the
honorarium structure for contested
subpoenas requests and contested
orders for production and appearance,
the proposed rule change would also
amend Rules 12214(a) and 13214(a) to
make a few nonsubstantive changes.
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,32 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,33 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 simplify the structure of
arbitrator honorarium for deciding
32 15
33 15
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U.S.C. 78o–3(b)(6).
U.S.C. 78o–3(b)(5).
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of the purposes of the Act. A discussion
of the economic impacts of the proposed
amendments follows.
contested subpoena requests and
contested orders for production or
appearance without a hearing session by
making the honorarium amount the
same ($200) for each request. Further,
the proposed rule change makes the
honorarium structure more transparent
by including expressly the current
practice of paying arbitrators for
deciding contested orders for
production without a hearing session in
the Codes’ payment rules. For
consistency and fairness, the proposed
rule change would also extend the
honorarium to include contested orders
for appearance without a hearing
session. These changes, FINRA believes,
make the arbitrator honorarium
structure easier to understand for parties
and arbitrators and easier for FINRA to
apply, and, therefore, will help parties,
arbitrators and staff conserve resources
that they might otherwise spend in
trying to interpret the rules and
understand the honorarium structure.
Further, FINRA believes structuring
the arbitrator honorarium rules so that
arbitrators receive an honorarium for
each contested subpoena request or
contested order for production or
appearance they decide without a
hearing session ensures that the
honoraria arbitrators receive are
proportionate with the time and effort
they spend deciding such requests and
the fees parties are assessed are
equitable in relation to the services that
they receive. Last, the proposed rule
change allows parties to combine
multiple requests for subpoenas or
orders into one motion as a way to
minimize costs and expedite the
discovery process. For these reasons,
FINRA believes that the proposed rule
change 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
ensuring that arbitrators are
compensated equitably for the services
that they provide, which would enhance
FINRA’s ability to retain qualified
arbitrators willing to devote the time
and effort necessary to consider
thoroughly the discovery issues
presented. Retaining qualified
arbitrators is an essential element,
FINRA believes, in maintaining its
ability to operate an effective arbitration
forum for the purposes of investor
protection and market integrity.
(b) Economic Baseline
The economic baseline for the
proposal is the current rules under the
Codes that address the payments to
arbitrators for deciding discoveryrelated motions and requests to issue
subpoenas or orders. The proposal is
expected to affect the parties to an
arbitration, their counsel, and FINRA
arbitrators.
The existing fee structure for
payments to arbitrators for deciding
requests to issue subpoenas or orders
without a hearing session has led to
confusion and uncertainty with respect
to the amount of fees that parties incur.
As a result, parties and their counsel
may incur time and other expenses to
interpret the rules and understand the
payment structure, as well as the
possible time and expense to
communicate and receive clarification
from FINRA.
Arbitrators incur more costs to decide
contested requests to issue subpoenas or
orders without a hearing session than
unopposed requests. The costs to
arbitrators for deciding contested
requests include the time to review the
materials and the effort to make a
decision. Alternatively, arbitrators
spend less time and effort to review
unopposed requests.35
The honorarium that arbitrators
receive, and the fees parties incur, may
not be commensurate with the effort
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
34 For example, arbitrators raised issues with
FINRA concerning the inconsistencies in the
existing honorarium structure for requests to issue
subpoenas or orders without a hearing session.
35 For most unopposed requests, arbitrators can
resolve them by signing the subpoena or order that
accompanies the request.
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(a) Need for the Rule
The existing structure for payments to
arbitrators for deciding requests to issue
subpoenas or orders without a hearing
session has been difficult for parties and
arbitrators to understand due to the
differences between when and under
what circumstances arbitrators will
receive payments.34 Parties can incur
different fees, and arbitrators can
receive different honorarium, for
contested and unopposed requests to
issue subpoenas and orders. The
existing structure can also make it
confusing for FINRA to apply. Under
the proposed amendments, the
payments arbitrators receive would be
more commensurate with their time and
effort to consider the requests. The
proposed amendments would also
simplify the structure of the payments.
PO 00000
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Sfmt 4703
expended by arbitrators to decide the
requests. The existing fee structure can
result in instances where arbitrators do
not receive an honorarium for their time
and effort to consider a contested
request (i.e., contested orders of
appearance decided without a hearing
session). Arbitrators also do not receive
additional honorarium to decide
multiple contested requests for
subpoenas. In general, the absence of an
honorarium when arbitrators decide
certain contested requests may serve as
a disincentive for arbitrators to give
their best efforts or the time necessary
to make a decision. The existing fee
structure can also result in instances
where arbitrators receive an honorarium
even though they incur little time or
effort to decide a request (e.g.,
unopposed orders of production).
There were 7,370 arbitration cases
closed in 2016 and 2017. Among the
7,370 cases, there were 497 cases (6.7
percent) with contested requests for
subpoenas, 1,210 cases (16.4 percent)
with unopposed requests for subpoenas,
and 1,334 cases (18.1 percent) with
requests for orders. The information
available does not distinguish between
contested and unopposed requests for
orders of production and appearance.
We are therefore not able to estimate the
potential change to the fees parties
would incur and the honorarium that
arbitrators would receive as a result of
the proposed amendments.
Although the majority of the cases
with contested subpoenas (454 or 91.3
percent) have three arbitrators, in the
experience of FINRA staff, typically
only one arbitrator decides contested
subpoenas without a hearing session.
Thus, although parties could currently
incur fees of $750 for contested
subpoenas if three arbitrators decide the
requests without a hearing session, the
typical fee parties currently incur is
$250.
(c) Economic Impact
The proposed amendments would
simplify and make uniform the structure
for payments to arbitrators for deciding
requests to issue subpoenas or orders
without a hearing session. The benefits
of the proposed amendments include a
decrease in the time and expense parties
would incur to understand the payment
structure, an increase in the incentives
of arbitrators to decide contested
subpoenas and orders, and an increase
in the efficiency of the forum.
Depending on the composition and
timing of the requests, however, the fees
parties incur could either increase or
decrease. The honorarium payments
arbitrators receive could also increase or
decrease. The benefits and costs of the
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proposed amendments, including the
changes to the fees parties incur and the
honorarium arbitrators receive, are
discussed in further detail below.
A benefit of the proposed
amendments is the reduction in the
complexity of the fee schedule. Parties
and their counsel would be more certain
with respect to the assessment of fees,
and would therefore incur less time and
expense to interpret the fee schedule.
Parties and their counsel would also be
less likely to incur the time and expense
from requesting clarification from
FINRA.
Another benefit of the proposed
amendments is that the honorarium
arbitrators receive would be more
commensurate with their time and effort
to decide requests to issue subpoenas or
orders. Arbitrators would receive an
honorarium to decide all contested
requests to issue subpoenas or orders
without a hearing session. Arbitrators
would therefore have more incentive to
devote the time and effort necessary to
decide these requests. Arbitrators would
also receive no honorarium to decide
unopposed requests to issue subpoenas
or orders, which reflects the minimal
time and effort needed to review such
requests.
The changes to the fee schedule
would also increase the efficiency of the
arbitration process. Parties and their
counsel could minimize the amount of
fees assessed by filing a request to issue
multiple subpoenas or orders in one
motion instead of several separate
motions. This could also increase the
arbitrators’ efficiency by having them
decide at the same time requests to issue
multiple subpoenas or orders that are
based largely on the same facts or
arguments. The filing of one motion that
requests the issuance of multiple
subpoenas or orders could also expedite
the discovery process, and decrease the
amount of time to an arbitration
decision.
The proposed amendments would
also benefit the parties that incur fewer
fees and the arbitrators who receive
additional honorarium, but would
impose costs on the parties that incur
additional fees and the arbitrators who
receive less honorarium. A decrease in
the fees that parties incur would
correspond to a decrease in the
honorarium that arbitrators receive, and
an increase in the fees that parties incur
would correspond to an increase in the
honorarium that arbitrators receive.
The total fees parties incur, and the
total honorarium that arbitrators receive,
could either increase or decrease
depending on the composition and
timing of the requests. For example,
parties would be subject to fees for
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20:33 Jul 27, 2018
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contested requests to issue orders of
appearance without a hearing session,
but would not be subject to fees for
unopposed requests to issue orders of
production. In addition, the fees for
submitting contested requests to issue
subpoenas without a hearing session
would decrease from $250 to $200 per
arbitrator. The per-case cap on these
payments, however, would be removed.
Therefore, parties would be assessed
additional fees if they submit multiple
contested requests for subpoenas.
Among the 497 cases with contested
subpoenas, 399 cases (or 80.3 percent)
had only one contested request for
subpoenas, whereas 98 cases (or 19.7
percent) had more than one contested
request for subpoenas. For the cases
with two or more contested requests for
subpoenas, the median number of days
between requests is less than two
months. This suggests that contested
requests for subpoenas are often
submitted within short periods of time,
and that counsel could reasonably
anticipate these requests and submit the
requests at one time. The potential
additional fees to parties from
submitting multiple contested requests
for subpoenas from the removal of the
per-case cap, therefore, is likely to be
minimal.
If parties file a contested request to
issue one or more subpoenas or orders
at one time and these are not based on
the same facts or arguments (i.e.,
unrelated), then arbitrators may not
receive honorarium payments
commensurate with their time and effort
to decide the request. This could serve
as a disincentive for arbitrators to give
their best efforts or the time necessary
to make decisions on these requests.
The Director, however, could separate
the motions and pay the arbitrators
accordingly, thereby mitigating these
potential effects.
(d) Alternatives Considered
Arbitrators raised issues with FINRA
concerning the inconsistencies in the
existing honorarium structure for
requests to issue subpoenas or orders
without a hearing session. Along with
the proposed amendments, FINRA
considered other changes to the existing
honorarium structure. Other changes
would have included an increase in the
honorarium that arbitrators receive to
decide discovery-related motions,
contested subpoena requests, and
requests for contested orders for
production or appearance. The
honorarium payments would have been
similar to the honorarium that
arbitrators receive for currently deciding
contested subpoenas ($250) or for
PO 00000
Frm 00139
Fmt 4703
Sfmt 4703
36651
deciding motions in discovery
prehearings ($300).
FINRA believes that the fee structure
under the proposed amendments would
provide arbitrators with honoraria that
are commensurate with their efforts to
decide these requests. FINRA also
believes that the proposed amendments
provide incentives for parties to
combine their requests for submission
simultaneously to minimize 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 rule-comments@
sec.gov. Please include File Number SR–
FINRA–2018–026 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–2018–026. 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/
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Federal Register / Vol. 83, No. 146 / Monday, July 30, 2018 / Notices
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 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–
2018–026 and should be submitted on
or before August 20, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–16166 Filed 7–27–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33168; 812–14853]
OFI Carlyle Private Credit Fund and OC
Private Capital, LLC; Notice of
Application
July 24, 2018.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
daltland on DSKBBV9HB2PROD with NOTICES
AGENCY:
Notice of an application under section
6(c) of the Investment Company Act of
1940 (the ‘‘Act’’) for an exemption from
sections 18(a)(2), 18(c), and 18(i) of the
Act, pursuant to sections 6(c) and 23(c)
of the Act, granting an exemption from
rule 23c–3 under the Act, and for an
order pursuant to section 17(d) of the
Act and rule 17d–1 under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
registered closed-end management
36 17
CFR 200.30–3(a)(12).
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20:33 Jul 27, 2018
Jkt 244001
investment companies to issue multiple
classes of shares of beneficial interest
(‘‘Shares’’) and to impose asset-based
service and/or distribution fees and
early withdrawal charges.
APPLICANTS: OFI Carlyle Private Credit
Fund (the ‘‘Initial Fund’’) and OC
Private Capital, LLC (the ‘‘Adviser’’).
FILING DATES: The application was filed
on December 15, 2017, and amended on
March 26, 2018, June 6, 2018, and July
3, 2018.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on August 17, 2018, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090;
Applicants, 6803 South Tucson Way,
Centennial, Colorado 80112.
FOR FURTHER INFORMATION CONTACT:
Kieran G. Brown, Senior Counsel, at
(202) 551–6773 or Nadya B. Roytblat,
Assistant Director, at (202) 551–6825
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. The Initial Fund is a Delaware
statutory trust that is registered under
the Act as a non-diversified, closed-end
management investment company. The
Initial Fund’s investment objective is to
produce current income by
opportunistically allocating its assets
across a wide range of credit strategies.
2. The Adviser, a Delaware limited
liability company, is registered as an
investment adviser under the
Investment Advisers Act of 1940. The
PO 00000
Frm 00140
Fmt 4703
Sfmt 4703
Adviser serves as investment adviser to
the Initial Fund.
3. The applicants seek an order to
permit the Initial Fund to issue multiple
classes of Shares, each having its own
fee and expense structure, and to
impose asset-based service and/or
distribution fees and early withdrawal
charges.
4. Applicants request that the order
also apply to any other registered
closed-end management investment
company that conducts a continuous
offering of its shares, existing now or in
the future, for which the Adviser, its
successors,1 or any entity controlling,
controlled by, or under common control
with the Adviser, or its successors, acts
as investment adviser, and which
provides periodic liquidity with respect
to its Shares through tender offers
conducted in compliance with either
rule 23c–3 under the Act or rule 13e–
4 under the Securities Exchange Act of
1934 (the ‘‘1934 Act’’) (each such
closed-end investment company, a
‘‘Future Fund’’ and, together with the
Initial Fund, each, a ‘‘Fund’’ and
collectively, the ‘‘Funds’’).2
5. The Initial Fund currently issues a
single class of Shares (the ‘‘Initial Class
Shares’’). The Shares are currently being
offered on a continuous basis pursuant
to a registration statement under the
Securities Act of 1933 at their net asset
value per share plus the applicable sales
load. The Initial Fund, as a closed-end
investment company, does not
continuously redeem Shares as does an
open-end management investment
company. Shares of the Initial Fund are
not listed on any securities exchange
and do not trade on an over-the-counter
system such as NASDAQ. Applicants do
not expect that any secondary market
will ever develop for the Shares.
6. If the requested relief is granted, the
Initial Fund intends to offer multiple
classes of Shares, such as the Initial
Class Shares and a new Share class (the
‘‘New Class Shares’’), or any other
classes. Because of the different
distribution fees, shareholder services
fees, and any other class expenses that
may be attributable to the different
classes, the net income attributable to,
and any dividends payable on, each
class of Shares may differ from each
other from time to time.
1 A successor in interest is limited to an entity
that results from a reorganization into another
jurisdiction or a change in the type of business
organization.
2 The Initial Fund and any Future Fund relying
on the requested relief will do so in a manner
consistent with the terms and conditions of the
application. Applicants represent that any person
presently intending to rely on the requested relief
is listed as an applicant.
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]]>Agencies
[Federal Register Volume 83, Number 146 (Monday, July 30, 2018)]
[Notices]
[Pages 36647-36652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16166]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83699; File No. SR-FINRA-2018-026]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
the Arbitrator Payment Rule To Pay Each Arbitrator a $200 Honorarium To
Decide Without a Hearing Session a Contested Subpoena Request or a
Contested Order for Production or Appearance
July 24, 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 July 13, 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 Rule 12214(c) of the Code of
Arbitration Procedure for Customer Disputes (``Customer Code'') and
FINRA Rule 13214(c) through (e) of the Code of Arbitration Procedure
for Industry Disputes (``Industry Code'' and together, ``Codes''), to
provide that FINRA will pay each arbitrator a $200 honorarium to decide
without a hearing session a contested subpoena request or a contested
order for production or appearance.
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
[[Page 36648]]
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
The proposed rule change would amend FINRA Rules 12214 and 13214
that govern the payments (referred to as honorarium) arbitrators
receive for deciding contested requests to issue subpoenas and orders
for production and appearance. The proposed rule change would provide
uniformity regarding when and how much arbitrators receive when
deciding contested subpoenas and orders for production and appearance
without a hearing session.
Background
In arbitration, the parties exchange documents and information to
prepare for the arbitration through the discovery process. The Codes
require parties to cooperate with each other and exchange documents or
information to expedite the arbitration.\3\ If an individual or entity
objects to a discovery request, the party seeking the documents or
information may request that the arbitrator issue a subpoena \4\ or an
order.\5\
---------------------------------------------------------------------------
\3\ See FINRA Rules 12505 and 13505.
\4\ See FINRA Rules 12512 and 13512.
\5\ See FINRA Rules 12513 and 13513.
---------------------------------------------------------------------------
Requests to Issue a Subpoena
Under the Codes, parties may request that the panel issue a
subpoena to parties in an arbitration, non-parties, as well as entities
and individuals who are not FINRA members.\6\ If the subpoena will be
served on a FINRA member, FINRA rules favor the use of orders rather
than subpoenas, unless circumstances dictate otherwise.\7\ A party's
request (or motion) to issue a subpoena becomes a ``contested subpoena
request'' if there is an objection raised to the scope or propriety of
the subpoena.\8\
---------------------------------------------------------------------------
\6\ See FINRA Rules 12512(a)(1) and 13512(a)(1).
\7\ See FINRA Rules 12512(a)(2) and 13512(a)(2).
\8\ See FINRA Rules 12512(c) and 13512(c).
---------------------------------------------------------------------------
To decide a contested subpoena request, the arbitrator must review
the motion requesting issuance of the subpoena, the draft subpoena, any
written objections, and any other documents supporting a party's
position.\9\ When arbitrators decide these contested requests, they
must review and consider all parties' objections and render their
decision promptly on the issuance and scope of the subpoena.\10\
---------------------------------------------------------------------------
\9\ See FINRA Rules 12214(d)(2) and 13214(d)(2).
\10\ See, e.g., FINRA Rules 12512(c) and 13512(c).
---------------------------------------------------------------------------
Currently, under FINRA Rule 12214(d),\11\ each arbitrator who
decides one or more contested subpoenas without a hearing session \12\
receives a one-time honorarium of $250 during the life of the
arbitration case.\13\ The rule caps the total amount that the parties
could pay the arbitrators to decide a contested subpoena request in any
one case at $750.\14\ This means that regardless of the number of
contested subpoena requests that arbitrators decide without a hearing
session in an arbitration case, an arbitrator will receive one
honorarium payment of $250.\15\ The panel allocates the cost of the
honorarium to the parties in the award.\16\
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\11\ See also FINRA Rule 13214(d).
\12\ A hearing session is a meeting between the parties and
arbitrators of four hours or less, including a hearing or prehearing
conference. See FINRA Rules 12100(p) and 13100(p).
\13\ See FINRA Rules 12214(d)(1) and 13214(d)(1).
\14\ Id. The chairperson of a three-person panel will decide the
contested subpoena request without a hearing session, for which the
chairperson would be paid $250. The honorarium for contested
subpoena requests could increase in $250 increments, if, for
example, the chairperson recuses or withdraws from the panel and the
replacement chairperson must decide another contested subpoena
request without a hearing session. In this instance, the replacement
chairperson would receive a $250 honorarium for this work. In no
event would the parties be charged more than $750 per case.
\15\ If a hearing session is required to decide the motion, each
arbitrator who participates in the hearing session will receive a
$300 honorarium instead. See FINRA Rules 12214(a) and 13214(a).
\16\ See FINRA Rules 12214(d)(3) and 13214(d)(3).
---------------------------------------------------------------------------
If a party's request to issue a subpoena does not receive any
objections, it remains unopposed, and arbitrators do not receive an
honorarium for issuing an unopposed subpoena.
Request To Issue an Order for Production or Appearance
If a party is seeking documents or information, or the appearance
of a witness from a FINRA member, the Codes direct the parties to
request the issuance of an order for production or appearance,\17\
rather than a subpoena.\18\ A party's motion to issue an order becomes
a ``contested order request'' if a party objects to the scope or
propriety of the order.\19\
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\17\ FINRA Rules 12513(a) and 13513(a) provide that upon a
motion of a party, the panel may order the appearance of any
employee or associated person of a FINRA member or the production of
any documents in the possession or control of such persons or
members, without the use of subpoenas.
\18\ See FINRA Rules 12512(a)(2) and 13512(a)(2).
\19\ See FINRA Rules 12513(c) and 13513(c).
---------------------------------------------------------------------------
An arbitrator would decide a contested order request by reviewing
the motion requesting issuance of the order,\20\ the draft order,\21\
and any written objections from the party receiving the motion.\22\
Further, when arbitrators decide these contested order requests, they
must review and consider all parties' objections and render their
decision promptly on the issuance and scope of the order.\23\ Thus,
arbitrators review similar documents and follow the same process when
deciding contested order requests as they do when deciding contested
subpoena requests.
---------------------------------------------------------------------------
\20\ See FINRA Rules 12513(b) and 13513(b).
\21\ Id.
\22\ See FINRA Rules 12513(c) and 13513(c).
\23\ See, e.g., FINRA Rules 12513(c) and 13513(c).
---------------------------------------------------------------------------
The Codes do not expressly provide an honorarium for arbitrators
who decide requests for such orders without a hearing session. Thus,
FINRA categorizes requests to issue orders for production as discovery-
related motions \24\ rather than requests to issue subpoenas and, thus,
FINRA pays the $200 honorarium for each. FINRA pays the $200 honorarium
for an order for production, whether contested or unopposed. FINRA does
not pay the honorarium, however, for an order for appearance,
regardless of whether it is contested or unopposed.
---------------------------------------------------------------------------
\24\ FINRA Rules 12214(c) and 13214(c) provide that FINRA will
pay each arbitrator an honorarium of $200 to decide a discovery-
related motion without a hearing session.
---------------------------------------------------------------------------
Concerns About Current Subpoena and Order Honorarium Structure
Parties label requests for subpoenas or orders interchangeably,
which is understandable given the similarities of the requests and the
work arbitrators do to decide them without a hearing session. However,
the Codes treat the two discovery mechanisms differently. As noted, the
Codes favor the use of orders over subpoenas when a party seeks
documents or witnesses from a FINRA member.\25\ If a request to issue a
subpoena should have been a request to issue an order, a change in the
labelling of the document can result in the arbitrators receiving a
reduced honorarium (i.e., $200 for an order versus $250 for a contested
subpoena or no payment at all if the change is to an order of
appearance).
---------------------------------------------------------------------------
\25\ See FINRA Rules 12512(a)(2) and 13512(a)(2).
---------------------------------------------------------------------------
The Codes also impose a per-case honorarium cap of $250 that each
arbitrator who decides a contested subpoena request without a hearing
session may receive.\26\ Arbitrators do not receive an honorarium for
deciding an unopposed subpoena request. There is no per-case cap on
deciding requests
[[Page 36649]]
to issue orders of production however. Moreover, arbitrators receive an
honorarium for deciding such requests, whether they are contested or
unopposed.
---------------------------------------------------------------------------
\26\ See FINRA Rules 12214(d)(1) and 13214(d)(1).
---------------------------------------------------------------------------
Proposed Rule Change
FINRA believes that the subpoena or order label on a discovery-
related motion should not dictate the amount of honorarium that
arbitrators receive or the frequency with which they are paid. The
honoraria that arbitrators receive should reflect the time and effort
they spend in deciding requests without a hearing session and fairly
compensate them for this work. Accordingly, FINRA is proposing to amend
FINRA Rules 12214(c) and 13214(c) to provide that FINRA would pay each
arbitrator an honorarium of $200 to decide, without a hearing session:
(i) A discovery-related motion; \27\ (ii) a motion that contains one or
more contested subpoena requests \28\ or contested orders for
production or appearance; or (iii) a motion that contains one or more
contested subpoena requests and contested orders for production or
appearance. FINRA believes that unifying the honorarium structure for
these discovery mechanisms would remove inconsistencies from FINRA's
rules and make them more transparent as well as eliminate confusion for
parties, arbitrators and staff that can occur when a discovery request
is mislabeled.
---------------------------------------------------------------------------
\27\ Under the proposed rule change, FINRA would add a contested
subpoena request and a contested order for production or appearance
to the discovery-related motions rule; however, FINRA would not
change the rule language explaining what constitutes a discovery-
related motion.
\28\ The proposal would retain what constitutes a contested
subpoena by moving the description from FINRA Rule 12214(d)(2) to
FINRA Rule 12214(c)(2)(ii).
---------------------------------------------------------------------------
Contested Subpoena Requests
The proposed rule change would reduce the honorarium that an
arbitrator receives to decide a contested subpoena request from $250 to
$200; however, it would also remove the per-case cap on these payments.
Thus, under the proposed rule change, an arbitrator would receive a
$200 honorarium for each contested subpoena request that he or she
decides.\29\
---------------------------------------------------------------------------
\29\ As is current practice, arbitrators would not receive an
honorarium for an unopposed subpoena request.
---------------------------------------------------------------------------
FINRA recognizes that removing the per-case cap on contested
subpoena requests could result in an increase in fees for the parties.
In response to this concern, the proposed rule change would permit a
party or parties to use one motion to request the issuance of one or
more subpoenas.\30\ FINRA is proposing to include this current practice
in the rule, so that parties may mitigate their costs. Thus, under the
proposed rule change, if parties request one or more subpoenas in one
motion, for example, and one or all of the subpoena requests become
contested, each arbitrator who decides the motion would receive one
honorarium payment of $200. In addition to helping to minimize costs,
requesting multiple subpoenas in one motion helps expedite the
arbitration, which benefits parties and arbitrators.
---------------------------------------------------------------------------
\30\ The proposed rule change would also permit parties to
request the issuance of one or more orders in the same motion or a
combination of subpoena and order requests.
---------------------------------------------------------------------------
FINRA believes that reducing the honorarium for contested subpoena
requests and removing the per-case cap on these payments would provide
consistency and fairness to the arbitrator payment rules by ensuring
that the payment arbitrators receive for deciding these requests is
commensurate with the time and effort spent on each motion.
Contested Orders for Production or Appearance
FINRA would amend Rule 12214(c) to provide a $200 honorarium for
deciding a contested order for production or appearance without a
hearing session. This means that arbitrators would receive an
honorarium for deciding without a hearing session, a contested
arbitrator order for appearance as well as for production. Under the
proposed rule change, arbitrators would no longer receive an honorarium
for unopposed requests to issue an order for production as these
requests do not require the amount of time and effort needed to resolve
contested requests.
The proposed rule change would describe what constitutes a
contested order for production or appearance by modeling the
description on that of a contested subpoena request. Thus, proposed
FINRA Rule 12214(c)(2)(iii) would provide that a contested order for
production or appearance shall include a motion requesting the issuance
of an order for production or appearance, a written objection from the
party opposing the issuance of the order, and any other documents
supporting a party's position.
Moreover, like a contested subpoena request, a party would be
permitted to request the issuance of one or more orders in one
motion,\31\ and if one or all of the arbitrator orders become
contested, each arbitrator who decides the motion would receive one
honorarium payment of $200. In addition to helping to minimize costs,
requesting multiple orders in one motion helps expedite the
arbitration, which benefits parties and arbitrators.
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\31\ The proposed rule change would also permit parties to
request the issuance of one or more subpoenas in the same motion or
a combination of subpoena and order requests.
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FINRA believes that adding contested orders for production or
appearance to its honorarium rules would make the rules more
transparent, so that parties and arbitrators understand how and when
the honorarium and fees are assessed for contested orders. Moreover,
FINRA believes that limiting honorarium to contested orders makes the
honorarium rules more consistent and more equitable to the parties, as
the fees FINRA would assess for arbitrators to decide contested orders
for production or appearance would be proportionate with the time and
effort that they spend deciding such orders.
Nonsubstantive Changes
In addition to the amendments discussed above to simplify the
honorarium structure for contested subpoenas requests and contested
orders for production and appearance, the proposed rule change would
also amend Rules 12214(a) and 13214(a) to make a few nonsubstantive
changes.
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,\32\ 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,\33\ 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.
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\32\ 15 U.S.C. 78o-3(b)(6).
\33\ 15 U.S.C. 78o-3(b)(5).
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FINRA believes that the proposed rule change would simplify the
structure of arbitrator honorarium for deciding
[[Page 36650]]
contested subpoena requests and contested orders for production or
appearance without a hearing session by making the honorarium amount
the same ($200) for each request. Further, the proposed rule change
makes the honorarium structure more transparent by including expressly
the current practice of paying arbitrators for deciding contested
orders for production without a hearing session in the Codes' payment
rules. For consistency and fairness, the proposed rule change would
also extend the honorarium to include contested orders for appearance
without a hearing session. These changes, FINRA believes, make the
arbitrator honorarium structure easier to understand for parties and
arbitrators and easier for FINRA to apply, and, therefore, will help
parties, arbitrators and staff conserve resources that they might
otherwise spend in trying to interpret the rules and understand the
honorarium structure.
Further, FINRA believes structuring the arbitrator honorarium rules
so that arbitrators receive an honorarium for each contested subpoena
request or contested order for production or appearance they decide
without a hearing session ensures that the honoraria arbitrators
receive are proportionate with the time and effort they spend deciding
such requests and the fees parties are assessed are equitable in
relation to the services that they receive. Last, the proposed rule
change allows parties to combine multiple requests for subpoenas or
orders into one motion as a way to minimize costs and expedite the
discovery process. For these reasons, FINRA believes that the proposed
rule change 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 ensuring that arbitrators
are compensated equitably for the services that they provide, which
would enhance FINRA's ability to retain qualified arbitrators willing
to devote the time and effort necessary to consider thoroughly the
discovery issues presented. Retaining qualified arbitrators is an
essential element, FINRA believes, in maintaining its ability 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
The existing structure for payments to arbitrators for deciding
requests to issue subpoenas or orders without a hearing session has
been difficult for parties and arbitrators to understand due to the
differences between when and under what circumstances arbitrators will
receive payments.\34\ Parties can incur different fees, and arbitrators
can receive different honorarium, for contested and unopposed requests
to issue subpoenas and orders. The existing structure can also make it
confusing for FINRA to apply. Under the proposed amendments, the
payments arbitrators receive would be more commensurate with their time
and effort to consider the requests. The proposed amendments would also
simplify the structure of the payments.
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\34\ For example, arbitrators raised issues with FINRA
concerning the inconsistencies in the existing honorarium structure
for requests to issue subpoenas or orders without a hearing session.
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(b) Economic Baseline
The economic baseline for the proposal is the current rules under
the Codes that address the payments to arbitrators for deciding
discovery-related motions and requests to issue subpoenas or orders.
The proposal is expected to affect the parties to an arbitration, their
counsel, and FINRA arbitrators.
The existing fee structure for payments to arbitrators for deciding
requests to issue subpoenas or orders without a hearing session has led
to confusion and uncertainty with respect to the amount of fees that
parties incur. As a result, parties and their counsel may incur time
and other expenses to interpret the rules and understand the payment
structure, as well as the possible time and expense to communicate and
receive clarification from FINRA.
Arbitrators incur more costs to decide contested requests to issue
subpoenas or orders without a hearing session than unopposed requests.
The costs to arbitrators for deciding contested requests include the
time to review the materials and the effort to make a decision.
Alternatively, arbitrators spend less time and effort to review
unopposed requests.\35\
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\35\ For most unopposed requests, arbitrators can resolve them
by signing the subpoena or order that accompanies the request.
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The honorarium that arbitrators receive, and the fees parties
incur, may not be commensurate with the effort expended by arbitrators
to decide the requests. The existing fee structure can result in
instances where arbitrators do not receive an honorarium for their time
and effort to consider a contested request (i.e., contested orders of
appearance decided without a hearing session). Arbitrators also do not
receive additional honorarium to decide multiple contested requests for
subpoenas. In general, the absence of an honorarium when arbitrators
decide certain contested requests may serve as a disincentive for
arbitrators to give their best efforts or the time necessary to make a
decision. The existing fee structure can also result in instances where
arbitrators receive an honorarium even though they incur little time or
effort to decide a request (e.g., unopposed orders of production).
There were 7,370 arbitration cases closed in 2016 and 2017. Among
the 7,370 cases, there were 497 cases (6.7 percent) with contested
requests for subpoenas, 1,210 cases (16.4 percent) with unopposed
requests for subpoenas, and 1,334 cases (18.1 percent) with requests
for orders. The information available does not distinguish between
contested and unopposed requests for orders of production and
appearance. We are therefore not able to estimate the potential change
to the fees parties would incur and the honorarium that arbitrators
would receive as a result of the proposed amendments.
Although the majority of the cases with contested subpoenas (454 or
91.3 percent) have three arbitrators, in the experience of FINRA staff,
typically only one arbitrator decides contested subpoenas without a
hearing session. Thus, although parties could currently incur fees of
$750 for contested subpoenas if three arbitrators decide the requests
without a hearing session, the typical fee parties currently incur is
$250.
(c) Economic Impact
The proposed amendments would simplify and make uniform the
structure for payments to arbitrators for deciding requests to issue
subpoenas or orders without a hearing session. The benefits of the
proposed amendments include a decrease in the time and expense parties
would incur to understand the payment structure, an increase in the
incentives of arbitrators to decide contested subpoenas and orders, and
an increase in the efficiency of the forum. Depending on the
composition and timing of the requests, however, the fees parties incur
could either increase or decrease. The honorarium payments arbitrators
receive could also increase or decrease. The benefits and costs of the
[[Page 36651]]
proposed amendments, including the changes to the fees parties incur
and the honorarium arbitrators receive, are discussed in further detail
below.
A benefit of the proposed amendments is the reduction in the
complexity of the fee schedule. Parties and their counsel would be more
certain with respect to the assessment of fees, and would therefore
incur less time and expense to interpret the fee schedule. Parties and
their counsel would also be less likely to incur the time and expense
from requesting clarification from FINRA.
Another benefit of the proposed amendments is that the honorarium
arbitrators receive would be more commensurate with their time and
effort to decide requests to issue subpoenas or orders. Arbitrators
would receive an honorarium to decide all contested requests to issue
subpoenas or orders without a hearing session. Arbitrators would
therefore have more incentive to devote the time and effort necessary
to decide these requests. Arbitrators would also receive no honorarium
to decide unopposed requests to issue subpoenas or orders, which
reflects the minimal time and effort needed to review such requests.
The changes to the fee schedule would also increase the efficiency
of the arbitration process. Parties and their counsel could minimize
the amount of fees assessed by filing a request to issue multiple
subpoenas or orders in one motion instead of several separate motions.
This could also increase the arbitrators' efficiency by having them
decide at the same time requests to issue multiple subpoenas or orders
that are based largely on the same facts or arguments. The filing of
one motion that requests the issuance of multiple subpoenas or orders
could also expedite the discovery process, and decrease the amount of
time to an arbitration decision.
The proposed amendments would also benefit the parties that incur
fewer fees and the arbitrators who receive additional honorarium, but
would impose costs on the parties that incur additional fees and the
arbitrators who receive less honorarium. A decrease in the fees that
parties incur would correspond to a decrease in the honorarium that
arbitrators receive, and an increase in the fees that parties incur
would correspond to an increase in the honorarium that arbitrators
receive.
The total fees parties incur, and the total honorarium that
arbitrators receive, could either increase or decrease depending on the
composition and timing of the requests. For example, parties would be
subject to fees for contested requests to issue orders of appearance
without a hearing session, but would not be subject to fees for
unopposed requests to issue orders of production. In addition, the fees
for submitting contested requests to issue subpoenas without a hearing
session would decrease from $250 to $200 per arbitrator. The per-case
cap on these payments, however, would be removed. Therefore, parties
would be assessed additional fees if they submit multiple contested
requests for subpoenas.
Among the 497 cases with contested subpoenas, 399 cases (or 80.3
percent) had only one contested request for subpoenas, whereas 98 cases
(or 19.7 percent) had more than one contested request for subpoenas.
For the cases with two or more contested requests for subpoenas, the
median number of days between requests is less than two months. This
suggests that contested requests for subpoenas are often submitted
within short periods of time, and that counsel could reasonably
anticipate these requests and submit the requests at one time. The
potential additional fees to parties from submitting multiple contested
requests for subpoenas from the removal of the per-case cap, therefore,
is likely to be minimal.
If parties file a contested request to issue one or more subpoenas
or orders at one time and these are not based on the same facts or
arguments (i.e., unrelated), then arbitrators may not receive
honorarium payments commensurate with their time and effort to decide
the request. This could serve as a disincentive for arbitrators to give
their best efforts or the time necessary to make decisions on these
requests. The Director, however, could separate the motions and pay the
arbitrators accordingly, thereby mitigating these potential effects.
(d) Alternatives Considered
Arbitrators raised issues with FINRA concerning the inconsistencies
in the existing honorarium structure for requests to issue subpoenas or
orders without a hearing session. Along with the proposed amendments,
FINRA considered other changes to the existing honorarium structure.
Other changes would have included an increase in the honorarium that
arbitrators receive to decide discovery-related motions, contested
subpoena requests, and requests for contested orders for production or
appearance. The honorarium payments would have been similar to the
honorarium that arbitrators receive for currently deciding contested
subpoenas ($250) or for deciding motions in discovery prehearings
($300).
FINRA believes that the fee structure under the proposed amendments
would provide arbitrators with honoraria that are commensurate with
their efforts to decide these requests. FINRA also believes that the
proposed amendments provide incentives for parties to combine their
requests for submission simultaneously to minimize 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-2018-026 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-2018-026. 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/
[[Page 36652]]
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 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-2018-026 and should be
submitted on or before August 20, 2018.
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\36\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-16166 Filed 7-27-18; 8:45 am]
BILLING CODE 8011-01-P
