Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change Creating Fee and Honorarium for Late Cancellation of a Prehearing Conference, 38327-38329 [2018-16721]

Download as PDF Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices David R. Strickler United States Copyright Royalty Judge. Jesse M. Feder United States Copyright Royalty Judge. Dated: August 1, 2018. Crystal Robinson, Committee Management Officer. Dated: July 27, 2018. Suzanne M. Barnett, Chief United States Copyright Royalty Judge. Dr. Carla D. Hayden, Librarian of Congress. BILLING CODE 7555–01–P [FR Doc. 2018–16729 Filed 8–3–18; 8:45 am] [FR Doc. 2018–16780 Filed 8–3–18; 8:45 am] [Release No. 34–83750; File No. SR– CboeBZX–2018–010] BILLING CODE 1410–72–P NATIONAL SCIENCE FOUNDATION sradovich on DSK3GMQ082PROD with NOTICES Proposal Review; Notice of Meetings In accordance with the Federal Advisory Committee Act (Pub. L. 92– 463, as amended), the National Science Foundation (NSF) announces its intent to hold proposal review meetings throughout the year. The purpose of these meetings is to provide advice and recommendations concerning proposals submitted to the NSF for financial support. The agenda for each of these meetings is to review and evaluate proposals as part of the selection process for awards. The review and evaluation may also include assessment of the progress of awarded proposals. These meetings will primarily take place at NSF’s headquarters, 2415 Eisenhower Avenue, Alexandria, VA 22314. These meetings will be closed to the public. The proposals being reviewed include information of a proprietary or confidential nature, including technical information; financial data, such as salaries; and personal information concerning individuals associated with the proposals. These matters are exempt under 5 U.S.C. 552b(c), (4) and (6) of the Government in the Sunshine Act. NSF will continue to review the agenda and merits of each meeting for overall compliance of the Federal Advisory Committee Act. These closed proposal review meetings will not be announced on an individual basis in the Federal Register. NSF intends to publish a notice similar to this on a quarterly basis. For an advance listing of the closed proposal review meetings that include the names of the proposal review panel and the time, date, place, and any information on changes, corrections, or cancellations, please visit the NSF website: https://www.nsf.gov/events/ advisory.jsp. This information may also be requested by telephoning, 703/292– 8687. VerDate Sep<11>2014 17:36 Aug 03, 2018 Jkt 244001 SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Withdrawal of a Proposed Rule Change To Adopt BZX Rule 14.11(k) To Permit the Listing and Trading of Managed Portfolio Shares and To List and Trade Shares of the ClearBridge Appreciation ETF, ClearBridge Large Cap ETF, ClearBridge Mid Cap Growth ETF, ClearBridge Select ETF, and ClearBridge All Cap Value ETF July 31, 2018. On February 5, 2018, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt BZX Rule 14.11(k) to permit the listing and trading of Managed Portfolio Shares, and to list and trade shares of the ClearBridge Appreciation ETF, ClearBridge Large Cap ETF, ClearBridge Mid Cap Growth ETF, ClearBridge Select ETF, and ClearBridge All Cap Value ETF under proposed BZX Rule 14.11(k). The proposed rule change was published for comment in the Federal Register on February 20, 2018.3 On April 3, 2018, pursuant to Section 19(b)(2) of the Exchange Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 On May 21, 2018, the Commission instituted proceedings under Section 19(b)(2)(B) of the Exchange Act 6 to determine whether to approve or disapprove the proposed rule change.7 The Commission has 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 82705 (February 13, 2018), 83 FR 7256. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 82984, 83 FR 15181 (April 9, 2018). 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 83293, 83 FR 24367 (May 25, 2018). 2 17 PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 38327 received four comment letters on the proposed rule change.8 On July 27, 2018, the Exchange withdrew the proposed rule change (SR–CboeBZX–2018–010). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Robert W. Errett, Deputy Secretary. [FR Doc. 2018–16722 Filed 8–3–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83752; File No. SR–FINRA– 2018–019] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change Creating Fee and Honorarium for Late Cancellation of a Prehearing Conference July 31, 2018. I. Introduction On May 4, 2018, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend FINRA Rules 12500 and 12501 of the Code of Arbitration Procedure for Customer Disputes (‘‘Customer Code’’) and FINRA Rules 13500 and 13501 of the Code of Arbitration Procedure for Industry Disputes (‘‘Industry Code’’ and together, ‘‘Codes’’), to charge a $100 per-arbitrator fee to parties who request cancellation of a prehearing conference within three business days before a scheduled prehearing conference. The proposed rule change would also amend FINRA Rules 12214(a) and 13214(a) of the Codes to create a $100 honorarium to pay each arbitrator scheduled to attend a prehearing conference that was cancelled within three business days of the prehearing conference. 8 See letters to Brent J. Fields, Secretary, Commission, from: (1) Todd J. Broms, Chief Executive Officer, Broms & Company LLC, dated March 13, 2018; (2) Simon P. Goulet, Co-Founder, Blue Tractor Group, LLC, dated March 19, 2018; (3) Terence W. Norman, Founder, Blue Tractor Group, LLC, dated March 20, 2018; and (4) Terence W. Norman, Founder, Blue Tractor Group, LLC, dated May 8, 2018. The comment letters are available at https://www.sec.gov/comments/sr-cboebzx-2018010/cboebzx2018010.htm. 9 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\06AUN1.SGM 06AUN1 38328 Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices The proposed rule change was published for comment in the Federal Register on May 14, 2018.3 The public comment period closed on June 8, 2018. The Commission received one comment letter in response to the Notice, supporting the proposed rule change.4 This order approves the proposed rule change. II. Description of the Proposed Rule Change 5 sradovich on DSK3GMQ082PROD with NOTICES Cancellation Fee Parties to an arbitration typically schedule prehearing conferences with the arbitrator(s) before the hearing on the merits of the claim.6 During these conferences, the participants set discovery, briefing and motions deadlines, schedule subsequent hearing sessions, and address other preliminary matters.7 A prehearing conference may also address other outstanding matters, such as discovery disputes or substantive motions (e.g., motions to dismiss or motions to amend).8 FINRA stated that its arbitrators devote considerable time preparing for prehearing conferences and forgo other opportunities by reserving time on their schedules.9 Currently, however, parties can cancel prehearing conferences up to, and including, the day of the conference without penalty.10 Consequently, FINRA has found that late cancellations (in particular, those that occur within three or fewer business days of a scheduled prehearing conference) have negatively impacted its roster of arbitrators by creating scheduling inconveniences for, and uncompensated work by, arbitrators.11 To help alleviate these burdens, FINRA is proposing to amend FINRA Rules 12500 and 12501 of the Customer Code and FINRA Rules 13500 and 3 See Exchange Act Release No. 83227 (May 4, 2018), 83 FR 23306 (May 14, 2018) (File No. SR– FINRA–2018–019 (‘‘Notice’’). 4 See Letter from Steven B. Caruso, Maddox Hargett Caruso, P.C., dated May 15, 2018 (‘‘Caruso Letter’’), available at https://www.sec.gov. 5 The subsequent description of the proposed rule change is substantially excerpted from FINRA’s description in the Notice. See Notice, 83 FR at 23306–23308. 6 See FINRA Rules 12100(w) and 13100(w). 7 See FINRA Rules 12500(c) and 13500(c). 8 See FINRA Rules 12501(b) and 13501(b). 9 See Notice, 83 FR at 23309. 10 Id. 11 In the past, arbitrators have resigned from the roster because FINRA’s dispute resolution forum does not provide a payment to arbitrators for cancellations of prehearing conferences. FINRA notes that one reason former arbitrators have given for their resignation is the lack of compensation for prehearing conferences that are cancelled on short notice. FINRA has identified 17 separate complaints relating to 22 arbitrators with respect to the late cancellations of prehearing conferences. See Notice, 83 FR at 23307, note 12. VerDate Sep<11>2014 17:36 Aug 03, 2018 Jkt 244001 13501 of the Industry Code,12 which govern prehearing conferences, to provide that if a cancellation 13 request is agreed to by the parties or requested by one or more parties within three business days before a scheduled prehearing conference and granted, the party or parties shall be charged a fee of $100 per arbitrator scheduled to attend the prehearing conference (‘‘late cancellation fee’’).14 The date of the party’s or parties’ cancellation request would control whether the fee is assessed, not the date of the arbitrator or arbitrators’ decision on such a request, if a decision is required.15 If the arbitrator(s) cancel a prehearing conference on their own, the parties would not be charged.16 Under the proposal, if more than one party requests the cancellation of a prehearing conference, the arbitrator(s) would have the authority to allocate the fee in the award between or among the requesting parties.17 However, depending on the facts and circumstances of the request, the arbitrator(s) could assess the fee to one party or to a non-requesting party or parties if the arbitrator(s) determine that these parties caused or contributed to the need for the cancellation.18 Under the proposal, however, if an extraordinary circumstance prevents a party from making a timely cancellation request, the arbitrator(s) would have the discretion to waive the late cancellation fee, provided they receive a written explanation of the circumstance.19 FINRA would notify parties and arbitrator(s) that the prehearing conference was cancelled and remind parties to provide an explanation, if applicable, before the close of the arbitration case.20 If the fee is waived, the party’s or parties’ obligation to pay the fee would be eliminated. FINRA, however, would pay the $100 perarbitrator honorarium (discussed below) to the arbitrator(s) scheduled to attend the prehearing conference.21 12 To simplify this explanation, FINRA’s discussion of the proposed changes focuses on changes to the Customer Code. However, the proposed changes also apply to the Industry Code. See Notice, 83 FR at 23307, note 13. 13 References to cancellations of prehearing conferences include postponements of such conferences. See Notice, 83 FR at 23309, note 29. 14 See Notice, 83 FR at 23307. 15 A decision would be required if only one party requests that the prehearing conference be cancelled. See Notice, 83 FR at 23307, note 14. 16 See Notice, 83 FR at 23307. 17 See Notice, 83 FR at 23307. 18 See Notice, 83 FR at 23307. See also FINRA Rules 12904(e)(8) and 13904(e)(8); see generally FINRA Rules 12601(b) and 13601(b). 19 See Notice, 83 FR at 23307. 20 Id. 21 Id. PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 Honorarium In addition, FINRA is proposing to amend FINRA Rules 12214(a) and 13214(a) to provide that FINRA would pay an honorarium of $100 to each arbitrator scheduled to attend a prehearing conference that was cancelled within three business days of the prehearing conference by agreement of the parties or was requested by one or more parties within three business days of the prehearing conference and granted. As discussed above, if the arbitrator(s) waive the fee, the obligation to pay the fee would be eliminated, but FINRA would still pay the $100 perarbitrator honorarium to the arbitrator(s) scheduled to attend the prehearing conference. III. Comment Summary As noted above, the Commission received one comment letter on the proposed rule change, supporting the proposal.22 The commenter states that late cancellations often result in scheduling inconvenience for, and uncompensated work by, arbitrators. The commenter believes that the proposal represents a ‘‘fair, equitable and reasonable’’ solution to these concerns because the fee and honorarium recognize the ‘‘considerable preparation by arbitrators . . . that is required prior to a prehearing conference.’’ 23 Accordingly, the commenter believes that the proposal would ‘‘lead to an improved and expanded roster of arbitrators.’’ 24 IV. Discussion and Commission Findings After careful review of the proposed rule change and the comment letter, the Commission finds that the proposal is consistent with the requirements of the Exchange Act and the rules and regulations thereunder that are applicable to a national securities association.25 Specifically, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Exchange Act,26 which requires, among other things, that FINRA rules 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 Exchange Act Section 15A(b)(5) of 22 See supra note 4. Letter. 23 Caruso 24 Id. 25 In approving this rule change, the Commission has considered the rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 26 15 U.S.C. 78o–3(b)(6). E:\FR\FM\06AUN1.SGM 06AUN1 Federal Register / Vol. 83, No. 151 / Monday, August 6, 2018 / Notices the Exchange Act,27 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. sradovich on DSK3GMQ082PROD with NOTICES Public Interest The Commission agrees with FINRA and the commenter that the proposed rule change would protect investors and the public interest by improving FINRA’s ability to recruit and retain qualified arbitrators willing to devote the time and effort necessary to consider prehearing issues, which FINRA asserts is an essential element for it to operate an effective arbitration forum.28 Currently, parties can cancel prehearing conferences up to, and including, the same day of the conference without penalty. Late cancellations of prehearing conferences do, however, penalize the arbitrators who would not receive compensation for the time and effort devoted to preparing for the conference, as well as the potential for lost personal or professional opportunities caused by reserving the scheduled meeting time. These burdens could negatively impact an arbitrator’s decision to remain on the FINRA arbitrator roster or an individual’s decision to join the roster. The proposed rule change would eliminate these disincentives by compensating arbitrators in the event of a late cancellation. For these reasons, the Commission believes the proposed rule change is consistent with the Section 15A(b)(6) requirement that FINRA rules be designed to protect the public interest. Equitable Allocation of Fees The Commission also agrees that the proposed rule change represents an equitable allocation of the fees associated with using the FINRA arbitration forum.29 In particular, the Commission notes the proposed late cancellation fee would be allocated among those parties responsible for canceling the meeting within three days of the prehearing conferences. Even if a party or parties did not request the cancellation, the proposed rule change would permit arbitrators to allocate all, or a portion of the fee, to those parties if the arbitrators determine that they caused or contributed to the late cancellation.30 The Commission recognizes that the proposed rule change could increase the U.S.C. 78o–3(b)(5). 28 See Notice, 83 FR at 23308. 29 Id. See also Caruso Letter. 30 See Notice, 83 FR at 23308. 17:36 Aug 03, 2018 V. Conclusion It is therefore ordered pursuant to Section 19(b)(2) of the Exchange Act 34 that the proposal (SR–FINRA–2018– 019), be and hereby is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.35 Robert W. Errett, Deputy Secretary. [FR Doc. 2018–16721 Filed 8–3–18; 8:45 am] BILLING CODE 8011–01–P 31 Id. 32 Id. 27 15 VerDate Sep<11>2014 cost to parties of using the arbitration forum.31 However, the Commission also recognizes that the late cancellation fee would compensate arbitrators directly inconvenienced by the late cancellation of a prehearing conference and address a practice that negatively impacts the roster of arbitrators. In particular, the Commission notes that FINRA would compensate arbitrators for their preparation time and opportunity cost associated with reserving a meeting date when a prehearing conference is cancelled on short notice.32 The Commission believes that it is reasonable to compensate the inconvenienced arbitrators for the time and opportunity cost. Furthermore, the Commission notes that parties to an arbitration could avoid the proposed late termination fee by, among other ways, providing notice of cancellation more than three business days prior to a scheduled prehearing conference.33 Furthermore, the Commission notes that the arbitrator(s) could assess the fee to one party or to a non-requesting party or parties if the arbitrator(s) determine that these parties caused or contributed to the need for the cancellation. Finally, if an extraordinary circumstance prevents a party from making a timely cancellation request, the arbitrator(s) would have the discretion to waive the late cancellation fee, provided they receive a written explanation of the circumstance For these reasons, the Commission believes the proposed rule change is also consistent with the Section 15A(b)(5) requirement that FINRA rules provide for the equitable allocation of reasonable fees among persons using any facility or system that FINRA operates or controls. 33 See Notice, 83 FR at 23308. U.S.C. 78s(b)(2). 35 17 CFR 200.30–3(a)(12). 34 15 Jkt 244001 PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 38329 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83745; File No. SR–NSCC– 2017–805] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Amendment No. 1 to an Advance Notice To Adopt a Recovery & WindDown Plan and Related Rules July 31, 2018. On December 18, 2017, National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) advance notice SR–NSCC–2017–805 (‘‘Advance Notice’’) pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) and Rule 19b–4(n)(1)(i) under the Securities Exchange Act of 1934 (‘‘Act’’).1 The notice of filing and extension of the review period of the Advance Notice was published for comment in the Federal Register on January 30, 2018.2 1 12 U.S.C. 5465(e)(1) and 17 CFR 240.19b– 4(n)(1)(i), respectively. On December 18, 2017, NSCC filed the Advance Notice as a proposed rule change (SR–NSCC–2017–017) with the Commission pursuant to Section 19(b)(1) of the Act and Rule 19b–4 thereunder (‘‘Proposed Rule Change’’). (17 CFR 240.19b–4 and 17 CFR 240.19b–4, respectively.) The Proposed Rule Change was published in the Federal Register on January 8, 2018. See Securities Exchange Act Release No. 82430 (January 2, 2018), 83 FR 841 (January 8, 2018) (SR–NSCC–2017–017). On February 8, 2018, the Commission designated a longer period within which to approve, disapprove, or institute proceedings to determine whether to approve or disapprove the Proposed Rule Change. See Securities Exchange Act Release No. 82669 (February 8, 2018), 83 FR 6653 (February 14, 2018) (SR–DTC–2017–021; SR–FICC–2017–021; SR– NSCC–2017–017). On March 20, 2018, the Commission instituted proceedings to determine whether to approve or disapprove the Proposed Rule Change. See Securities Exchange Act Release No. 82908 (March 20, 2018), 83 FR 12986 (March 26, 2018) (SR–NSCC–2017–017). On June 25, 2018, the Commission designated a longer period for Commission action on the proceedings to determine whether to approve or disapprove the Proposed Rule Change. Therefore, September 5, 2018 is the date by which the Commission should either approve or disapprove the Proposed Rule Change. See Securities Exchange Act Release No. 83509 (June 25, 2018), 83 FR 30785 (June 29, 2018) (SR– DTC–2017–021; SR–FICC–2017–021; SR–NSCC– 2017–017). On June 28, 2018, NSCC filed Amendment No. 1 to the Proposed Rule Change. See Securities Exchange Act Release No. 83632 (July 13, 2018), 83 FR 34166 (July 19, 2018) (SR– NSCC–2017–017). As of the date of this release, the Commission has not received any comments on the Proposed Rule Change. 2 Securities Exchange Act Release No. 82581 (January 24, 2018), 83 FR 4327 (January 30, 2018) (SR–NSCC–2017–805). Pursuant to Section Continued E:\FR\FM\06AUN1.SGM 06AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 151 (Monday, August 6, 2018)]
[Notices]
[Pages 38327-38329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16721]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83752; File No. SR-FINRA-2018-019]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change Creating Fee 
and Honorarium for Late Cancellation of a Prehearing Conference

July 31, 2018.

I. Introduction

    On May 4, 2018, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend FINRA Rules 12500 and 
12501 of the Code of Arbitration Procedure for Customer Disputes 
(``Customer Code'') and FINRA Rules 13500 and 13501 of the Code of 
Arbitration Procedure for Industry Disputes (``Industry Code'' and 
together, ``Codes''), to charge a $100 per-arbitrator fee to parties 
who request cancellation of a prehearing conference within three 
business days before a scheduled prehearing conference. The proposed 
rule change would also amend FINRA Rules 12214(a) and 13214(a) of the 
Codes to create a $100 honorarium to pay each arbitrator scheduled to 
attend a prehearing conference that was cancelled within three business 
days of the prehearing conference.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 38328]]

    The proposed rule change was published for comment in the Federal 
Register on May 14, 2018.\3\ The public comment period closed on June 
8, 2018. The Commission received one comment letter in response to the 
Notice, supporting the proposed rule change.\4\ This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \3\ See Exchange Act Release No. 83227 (May 4, 2018), 83 FR 
23306 (May 14, 2018) (File No. SR-FINRA-2018-019 (``Notice'').
    \4\ See Letter from Steven B. Caruso, Maddox Hargett Caruso, 
P.C., dated May 15, 2018 (``Caruso Letter''), available at https://www.sec.gov.
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II. Description of the Proposed Rule Change \5\
---------------------------------------------------------------------------

    \5\ The subsequent description of the proposed rule change is 
substantially excerpted from FINRA's description in the Notice. See 
Notice, 83 FR at 23306-23308.
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Cancellation Fee

    Parties to an arbitration typically schedule prehearing conferences 
with the arbitrator(s) before the hearing on the merits of the 
claim.\6\ During these conferences, the participants set discovery, 
briefing and motions deadlines, schedule subsequent hearing sessions, 
and address other preliminary matters.\7\ A prehearing conference may 
also address other outstanding matters, such as discovery disputes or 
substantive motions (e.g., motions to dismiss or motions to amend).\8\
---------------------------------------------------------------------------

    \6\ See FINRA Rules 12100(w) and 13100(w).
    \7\ See FINRA Rules 12500(c) and 13500(c).
    \8\ See FINRA Rules 12501(b) and 13501(b).
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    FINRA stated that its arbitrators devote considerable time 
preparing for prehearing conferences and forgo other opportunities by 
reserving time on their schedules.\9\ Currently, however, parties can 
cancel prehearing conferences up to, and including, the day of the 
conference without penalty.\10\ Consequently, FINRA has found that late 
cancellations (in particular, those that occur within three or fewer 
business days of a scheduled prehearing conference) have negatively 
impacted its roster of arbitrators by creating scheduling 
inconveniences for, and uncompensated work by, arbitrators.\11\
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    \9\ See Notice, 83 FR at 23309.
    \10\ Id.
    \11\ In the past, arbitrators have resigned from the roster 
because FINRA's dispute resolution forum does not provide a payment 
to arbitrators for cancellations of prehearing conferences. FINRA 
notes that one reason former arbitrators have given for their 
resignation is the lack of compensation for prehearing conferences 
that are cancelled on short notice. FINRA has identified 17 separate 
complaints relating to 22 arbitrators with respect to the late 
cancellations of prehearing conferences. See Notice, 83 FR at 23307, 
note 12.
---------------------------------------------------------------------------

    To help alleviate these burdens, FINRA is proposing to amend FINRA 
Rules 12500 and 12501 of the Customer Code and FINRA Rules 13500 and 
13501 of the Industry Code,\12\ which govern prehearing conferences, to 
provide that if a cancellation \13\ request is agreed to by the parties 
or requested by one or more parties within three business days before a 
scheduled prehearing conference and granted, the party or parties shall 
be charged a fee of $100 per arbitrator scheduled to attend the 
prehearing conference (``late cancellation fee'').\14\ The date of the 
party's or parties' cancellation request would control whether the fee 
is assessed, not the date of the arbitrator or arbitrators' decision on 
such a request, if a decision is required.\15\ If the arbitrator(s) 
cancel a prehearing conference on their own, the parties would not be 
charged.\16\
---------------------------------------------------------------------------

    \12\ To simplify this explanation, FINRA's discussion of the 
proposed changes focuses on changes to the Customer Code. However, 
the proposed changes also apply to the Industry Code. See Notice, 83 
FR at 23307, note 13.
    \13\ References to cancellations of prehearing conferences 
include postponements of such conferences. See Notice, 83 FR at 
23309, note 29.
    \14\ See Notice, 83 FR at 23307.
    \15\ A decision would be required if only one party requests 
that the prehearing conference be cancelled. See Notice, 83 FR at 
23307, note 14.
    \16\ See Notice, 83 FR at 23307.
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    Under the proposal, if more than one party requests the 
cancellation of a prehearing conference, the arbitrator(s) would have 
the authority to allocate the fee in the award between or among the 
requesting parties.\17\ However, depending on the facts and 
circumstances of the request, the arbitrator(s) could assess the fee to 
one party or to a non-requesting party or parties if the arbitrator(s) 
determine that these parties caused or contributed to the need for the 
cancellation.\18\
---------------------------------------------------------------------------

    \17\ See Notice, 83 FR at 23307.
    \18\ See Notice, 83 FR at 23307. See also FINRA Rules 
12904(e)(8) and 13904(e)(8); see generally FINRA Rules 12601(b) and 
13601(b).
---------------------------------------------------------------------------

    Under the proposal, however, if an extraordinary circumstance 
prevents a party from making a timely cancellation request, the 
arbitrator(s) would have the discretion to waive the late cancellation 
fee, provided they receive a written explanation of the 
circumstance.\19\ FINRA would notify parties and arbitrator(s) that the 
prehearing conference was cancelled and remind parties to provide an 
explanation, if applicable, before the close of the arbitration 
case.\20\ If the fee is waived, the party's or parties' obligation to 
pay the fee would be eliminated. FINRA, however, would pay the $100 
per-arbitrator honorarium (discussed below) to the arbitrator(s) 
scheduled to attend the prehearing conference.\21\
---------------------------------------------------------------------------

    \19\ See Notice, 83 FR at 23307.
    \20\ Id.
    \21\ Id.
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Honorarium

    In addition, FINRA is proposing to amend FINRA Rules 12214(a) and 
13214(a) to provide that FINRA would pay an honorarium of $100 to each 
arbitrator scheduled to attend a prehearing conference that was 
cancelled within three business days of the prehearing conference by 
agreement of the parties or was requested by one or more parties within 
three business days of the prehearing conference and granted. As 
discussed above, if the arbitrator(s) waive the fee, the obligation to 
pay the fee would be eliminated, but FINRA would still pay the $100 
per-arbitrator honorarium to the arbitrator(s) scheduled to attend the 
prehearing conference.

III. Comment Summary

    As noted above, the Commission received one comment letter on the 
proposed rule change, supporting the proposal.\22\ The commenter states 
that late cancellations often result in scheduling inconvenience for, 
and uncompensated work by, arbitrators. The commenter believes that the 
proposal represents a ``fair, equitable and reasonable'' solution to 
these concerns because the fee and honorarium recognize the 
``considerable preparation by arbitrators . . . that is required prior 
to a prehearing conference.'' \23\ Accordingly, the commenter believes 
that the proposal would ``lead to an improved and expanded roster of 
arbitrators.'' \24\
---------------------------------------------------------------------------

    \22\ See supra note 4.
    \23\ Caruso Letter.
    \24\ Id.
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IV. Discussion and Commission Findings

    After careful review of the proposed rule change and the comment 
letter, the Commission finds that the proposal is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder that are applicable to a national securities 
association.\25\ Specifically, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Exchange 
Act,\26\ which requires, among other things, that FINRA rules 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 Exchange Act Section 
15A(b)(5) of

[[Page 38329]]

the Exchange Act,\27\ 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.
---------------------------------------------------------------------------

    \25\ In approving this rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \26\ 15 U.S.C. 78o-3(b)(6).
    \27\ 15 U.S.C. 78o-3(b)(5).
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Public Interest

    The Commission agrees with FINRA and the commenter that the 
proposed rule change would protect investors and the public interest by 
improving FINRA's ability to recruit and retain qualified arbitrators 
willing to devote the time and effort necessary to consider prehearing 
issues, which FINRA asserts is an essential element for it to operate 
an effective arbitration forum.\28\ Currently, parties can cancel 
prehearing conferences up to, and including, the same day of the 
conference without penalty. Late cancellations of prehearing 
conferences do, however, penalize the arbitrators who would not receive 
compensation for the time and effort devoted to preparing for the 
conference, as well as the potential for lost personal or professional 
opportunities caused by reserving the scheduled meeting time. These 
burdens could negatively impact an arbitrator's decision to remain on 
the FINRA arbitrator roster or an individual's decision to join the 
roster. The proposed rule change would eliminate these disincentives by 
compensating arbitrators in the event of a late cancellation. For these 
reasons, the Commission believes the proposed rule change is consistent 
with the Section 15A(b)(6) requirement that FINRA rules be designed to 
protect the public interest.
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    \28\ See Notice, 83 FR at 23308.
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Equitable Allocation of Fees

    The Commission also agrees that the proposed rule change represents 
an equitable allocation of the fees associated with using the FINRA 
arbitration forum.\29\ In particular, the Commission notes the proposed 
late cancellation fee would be allocated among those parties 
responsible for canceling the meeting within three days of the 
prehearing conferences. Even if a party or parties did not request the 
cancellation, the proposed rule change would permit arbitrators to 
allocate all, or a portion of the fee, to those parties if the 
arbitrators determine that they caused or contributed to the late 
cancellation.\30\
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    \29\ Id. See also Caruso Letter.
    \30\ See Notice, 83 FR at 23308.
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    The Commission recognizes that the proposed rule change could 
increase the cost to parties of using the arbitration forum.\31\ 
However, the Commission also recognizes that the late cancellation fee 
would compensate arbitrators directly inconvenienced by the late 
cancellation of a prehearing conference and address a practice that 
negatively impacts the roster of arbitrators. In particular, the 
Commission notes that FINRA would compensate arbitrators for their 
preparation time and opportunity cost associated with reserving a 
meeting date when a prehearing conference is cancelled on short 
notice.\32\ The Commission believes that it is reasonable to compensate 
the inconvenienced arbitrators for the time and opportunity cost. 
Furthermore, the Commission notes that parties to an arbitration could 
avoid the proposed late termination fee by, among other ways, providing 
notice of cancellation more than three business days prior to a 
scheduled prehearing conference.\33\ Furthermore, the Commission notes 
that the arbitrator(s) could assess the fee to one party or to a non-
requesting party or parties if the arbitrator(s) determine that these 
parties caused or contributed to the need for the cancellation. 
Finally, if an extraordinary circumstance prevents a party from making 
a timely cancellation request, the arbitrator(s) would have the 
discretion to waive the late cancellation fee, provided they receive a 
written explanation of the circumstance
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    \31\ Id.
    \32\ Id.
    \33\ See Notice, 83 FR at 23308.
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    For these reasons, the Commission believes the proposed rule change 
is also consistent with the Section 15A(b)(5) requirement that FINRA 
rules provide for the equitable allocation of reasonable fees among 
persons using any facility or system that FINRA operates or controls.

V. Conclusion

    It is therefore ordered pursuant to Section 19(b)(2) of the 
Exchange Act \34\ that the proposal (SR-FINRA-2018-019), be and hereby 
is approved.
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    \34\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-16721 Filed 8-3-18; 8:45 am]
 BILLING CODE 8011-01-P

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