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]

Download as PDF 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 daltland on DSKBBV9HB2PROD with NOTICES 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. VerDate Sep<11>2014 20:33 Jul 27, 2018 Jkt 244001 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 PO 00000 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 http://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 Frm 00135 Fmt 4703 Sfmt 4703 E:\FR\FM\30JYN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 30JYN1 36648 Federal Register / Vol. 83, No. 146 / Monday, July 30, 2018 / Notices 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. daltland on DSKBBV9HB2PROD with NOTICES 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). VerDate Sep<11>2014 20:33 Jul 27, 2018 Jkt 244001 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). PO 00000 10 See, 11 See Frm 00136 Fmt 4703 Sfmt 4703 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, E:\FR\FM\30JYN1.SGM 30JYN1 Federal Register / Vol. 83, No. 146 / Monday, July 30, 2018 / Notices 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 daltland on DSKBBV9HB2PROD with NOTICES 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. VerDate Sep<11>2014 20:33 Jul 27, 2018 Jkt 244001 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. PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 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 E:\FR\FM\30JYN1.SGM U.S.C. 78o–3(b)(6). U.S.C. 78o–3(b)(5). 30JYN1 daltland on DSKBBV9HB2PROD with NOTICES 36650 Federal Register / Vol. 83, No. 146 / Monday, July 30, 2018 / Notices 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. VerDate Sep<11>2014 20:33 Jul 27, 2018 Jkt 244001 (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 Frm 00138 Fmt 4703 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 E:\FR\FM\30JYN1.SGM 30JYN1 daltland on DSKBBV9HB2PROD with NOTICES Federal Register / Vol. 83, No. 146 / Monday, July 30, 2018 / Notices 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 VerDate Sep<11>2014 20:33 Jul 27, 2018 Jkt 244001 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 (http://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 (http://www.sec.gov/ E:\FR\FM\30JYN1.SGM 30JYN1 36652 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). VerDate Sep<11>2014 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 http:// 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. E:\FR\FM\30JYN1.SGM 30JYN1

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]


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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend 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 http://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\
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    \3\ See FINRA Rules 12505 and 13505.
    \4\ See FINRA Rules 12512 and 13512.
    \5\ See FINRA Rules 12513 and 13513.
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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\
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    \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).
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    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\
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    \9\ See FINRA Rules 12214(d)(2) and 13214(d)(2).
    \10\ See, e.g., FINRA Rules 12512(c) and 13512(c).
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    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).
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    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).
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    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.
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    \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).
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    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).
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    \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).
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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.
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    \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).
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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\
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    \29\ As is current practice, arbitrators would not receive an 
honorarium for an unopposed subpoena request.
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    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.
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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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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 (http://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 (http://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