Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Expand Time for Non-Parties To Respond to Arbitration Subpoenas and Orders of Appearance of Witnesses or Production of Documents, 3518-3521 [2019-01946]
Download as PDF
<![CDATA[
3518
Federal Register / Vol. 84, No. 29 / Tuesday, February 12, 2019 / Notices
beneficiaries or to survivors in a priority
designated by law.
Changes proposed: The RRB proposes
the following changes to Forms AA–21,
AA–21cert, and G–273a:
• Forms AA–21 and AA–21cert—
Update the fraud language in the
Certification statement to make it
consistent with other RRB applications;
• Form G–273a—Add clarifying
language above Item 10 to inform a
funeral home when to file for a lumpsum death benefit.
The RRB proposes no changes to
Form G–131.
The burden estimate for the ICR is as
follows:
Annual
responses
Form No.
Time
(minutes)
Burden
(hours)
AA–21cert with assistance ..........................................................................................................
AA–21 without assistance ...........................................................................................................
G–131 ..........................................................................................................................................
G–273a ........................................................................................................................................
3,500
200
100
4,000
20
40
5
10
1,167
133
8
667
Total ......................................................................................................................................
7,800
........................
1,975
Additional information or comments:
Copies of the forms and supporting
documents can be obtained from Brian
Foster at (312) 751–4826 or
Brian.Foster@rrb.gov.
Comments regarding the information
collection should be addressed to Brian
Foster, Railroad Retirement Board, 844
North Rush Street, Chicago, Illinois
60611–1275 or Brian.Foster@rrb.gov and
to the OMB Desk Officer for the RRB,
Fax: 202–395–6974, Email address:
OIRA_Submission@omb.eop.gov.
Brian Foster,
Clearance Officer.
[FR Doc. 2019–01942 Filed 2–11–19; 8:45 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85063; File No. SR–FINRA–
2019–004]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Expand
Time for Non-Parties To Respond to
Arbitration Subpoenas and Orders of
Appearance of Witnesses or
Production of Documents
February 6, 2019.
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 January
29, 2019, 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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Sep<11>2014
18:30 Feb 11, 2019
Jkt 247001
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 12512(d) through (e) and FINRA
Rule 12513(d) through (e) of the Code of
Arbitration Procedure for Customer
Disputes (‘‘Customer Code’’) and FINRA
Rule 13512(d) through (e) and FINRA
Rule 13513(d) through (e) of the Code of
Arbitration Procedure for Industry
Disputes (‘‘Industry Code’’ and together,
‘‘Codes’’), to expand time for nonparties to respond to arbitration
subpoenas and orders of appearance of
witnesses or production of documents,
and to make related changes to enhance
the discovery process for forum users.
The text of the proposed rule change
is available at the principal office of
FINRA, on FINRA’s website at https://
www.finra.org, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Introduction
The proposed rule change would
amend FINRA Rules 12512, 12513,
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
13512 and 13513 that govern procedures
for non-parties to object to subpoenas
and for non-parties to object to arbitrator
orders of appearance of witnesses or
production of documents. The proposed
rule change would help ensure that nonparties wanting to object to an order or
subpoena have sufficient time to do so.
The proposal will also make related
changes to enhance the discovery
process for forum users.
Background
In arbitration, the parties exchange
documents and information to prepare
for the arbitration through the discovery
process. The Codes currently provide
that parties in FINRA arbitration who
seek discovery from a non-party may
request the panel to issue: (1) An order
of appearance of witnesses or
production of documents if the nonparty is subject to FINRA’s jurisdiction
as an associated person or member firm
or (2) a subpoena if the non-party is not
subject to FINRA’s jurisdiction.3 If the
panel decides to issue the order or
subpoena, FINRA will transmit the
signed order or subpoena to the moving
party to serve on the non-party. If a nonparty receiving an order or a subpoena
objects to the scope or propriety of the
order or subpoena, the non-party may,
within 10 calendar days of service of the
order or subpoena, file written
objections through the Director of the
Office of Dispute Resolution (Director).
Concerns About Current Subpoena and
Order Rules for Non-Parties
Forum users have raised concerns that
the amount of time that non-parties
have to respond to orders and
subpoenas is insufficient.4 Since non3 See Rules 12512 and 12513. See also Rules
13512 and 13513.
4 See, e.g., Letter from Kevin M. Carroll, Managing
Director and Associate General Counsel, Securities
Industry and Financial Markets Association, to
Jennifer Piorko Mitchell, Vice President and Deputy
Corporate Secretary, FINRA, dated June 2, 2017
(responding to FINRA’s March 2017 Special Notice
E:\FR\FM\12FEN1.SGM
12FEN1
Federal Register / Vol. 84, No. 29 / Tuesday, February 12, 2019 / Notices
parties do not have access to the Dispute
Resolution Party Portal (Party Portal),5
they are currently served using other
means (first-class mail, overnight mail
service, overnight delivery service, hand
delivery, email or facsimile). Recipients
of orders and subpoenas reported that
the individual at a non-party firm who
is responsible for responding to an order
or subpoena (e.g., legal staff) may not
actually receive a copy of the order or
subpoena through internal processes
until after the tenth day from service has
passed, thereby causing the non-party
firm to risk waiving its ability to timely
object to the order or subpoena.6 As a
non-party to the arbitration, a firm is not
able to anticipate the arrival of an order
or subpoena and instruct front line
employees (e.g., receptionists or mail
room personnel) to route these high
priority documents to the appropriate
individual responsible for responding to
the discovery request. Once the
objection to an order or subpoena is
waived, the non-party must respond to
the order or subpoena or risk incurring
sanctions or disciplinary action.7 Forum
users have also raised concerns that the
use of first-class mail is not an ideal
option in discovery because it is slow.
For these reasons, FINRA seeks to offer
sufficient time for non-parties to
provide the order or subpoena to the
appropriate individual who would
respond to the discovery request.
Proposed Rule Change
FINRA is proposing three
amendments to the Codes to enhance
the discovery process for forum users,
particularly non-parties. First, FINRA is
proposing to amend the Codes to extend
the response time for non-parties to
object to an order or subpoena from 10
calendar days of service to 15 calendar
days of receipt of the order or subpoena.
Receipt of overnight mail service,
overnight delivery service, hand
delivery, email or facsimile is
accomplished on the date of delivery.
FINRA believes that the proposed rule
change would address forum users’
concerns because the proposal would
help ensure that non-parties wanting to
on FINRA’s engagement programs), www.finra.org/
sites/default/files/notice_comment_file_ref/SN32117_SIFMA-KevinCarroll_comment.pdf.
5 The Party Portal provides arbitration forum
users with a secure, online location for claim filing
and interactions relating to case administration.
Parties use the Party Portal to, among other things,
file claims, pay filing fees, receive documents from
and send documents to FINRA, receive service of
claims, submit answers to claims, submit additional
case documents, view the status of cases, select
arbitrators, schedule hearings and send documents
to other Party Portal case participants.
6 See supra note 4.
7 See Rules 12212 and 12511. See also Rules
13212 and 13511.
VerDate Sep<11>2014
18:30 Feb 11, 2019
Jkt 247001
object to an order or subpoena have
sufficient time to do so.
Second, FINRA is proposing to amend
the Codes to exclude first-class mail as
an option to serve documents on the
non-party and as an option for the nonparty to file the objection to the scope
or propriety of the order or subpoena.8
FINRA believes that by requiring forum
users to serve or transmit discoveryrelated documents through overnight
mail service, overnight delivery, hand
delivery, email or facsimile, forum users
are better able to confirm and facilitate
the timing of discovery obligations.
Third, FINRA is proposing to amend
the Codes to codify the current practice
that the Director sends, at the same
time, objections and responses to the
panel after the reply date has elapsed,
unless otherwise directed by the panel.
The Director sends the complete set of
motion papers to the panel to ensure
that the panel receives the advocacy
positions of all parties at the same time.
FINRA believes that the proposed rule
change will enhance forum users’
understanding of existing case
administration procedures and will
improve transparency concerning forum
operations.9
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,10 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. FINRA believes that the
proposed rule change would enhance
the discovery process for forum users by
giving non-parties additional time to
respond to subpoenas and orders.
8 Filing and service by first-class mail is
accomplished on the date of mailing, but it can take
several days to confirm receipt. For purposes of this
rule proposal, service by overnight mail, overnight
delivery, hand delivery, facsimile or email is
accomplished on the date of delivery.
9 FINRA notes that the proposed rule change
would impact all members, including members that
are funding portals or have elected to be treated as
capital acquisition brokers (‘‘CABs’’), given that the
funding portal and CAB rule sets incorporate the
impacted FINRA rules by reference.
10 15 U.S.C. 78o–3(b)(6).
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
3519
Further, the proposed rule change
addresses forum users’ concerns on
delays with first-class mail and would
enhance their ability to confirm and
facilitate the timing of discovery
obligations. FINRA further believes that
the proposed amendments would also
enhance the user experience at the
forum by standardizing certain
procedures relating to subpoenas and
orders and will improve transparency
concerning forum operations.
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
rule change follows.
Economic Impact Assessment
FINRA staff has undertaken an
economic impact assessment, as set
forth below, to analyze the regulatory
need for the proposed rule change, its
potential economic impacts, including
anticipated costs, benefits, and
distributional and competitive effects,
relative to the current baseline, and the
alternatives FINRA considered in
assessing how to best meet its regulatory
objectives.
(a) Regulatory Need
Under the Codes, non-parties to an
arbitration have a limited amount of
time to object to an order or subpoena.
Parties and non-parties may also use
options to transmit or serve documents
that are slow, further hindering the
ability of non-parties to timely object.11
This could cause non-parties to
inadvertently waive their ability to
timely object. Non-parties for whom the
objection process would be valuable
could incur costs associated with this
outcome.
(b) Economic Baseline
The economic baseline for the
proposed amendments are the Codes
that address the length of time for nonparties to respond to arbitrators’ orders
and subpoenas. The economic baseline
also includes the Codes that address the
options for parties and non-parties to
serve or transmit documents. The
proposal is expected to affect nonparties and parties to an arbitration.
Although FINRA does collect
information describing orders and
subpoenas, FINRA does not collect
information specifically identifying
orders or subpoenas to non-parties. The
11 See
E:\FR\FM\12FEN1.SGM
supra note 7.
12FEN1
3520
Federal Register / Vol. 84, No. 29 / Tuesday, February 12, 2019 / Notices
frequency in which parties currently
request arbitrators to issue orders or
subpoenas to non-parties, and whether
non-parties respond or object, is
therefore not available. Information is
also not available to describe the
frequency in which non-parties
inadvertently waive their ability to
timely object to an order or subpoena.
(c) Economic Impact
The proposed amendments would
extend the response time for non-parties
to object to an order or subpoena. The
proposed amendments would also
exclude first-class mail as an option to
transmit or serve documents. The
benefits and costs of the proposed
amendments are discussed below.
The proposed amendments may
benefit non-parties when responding to
orders and subpoenas. The proposed
amendments would increase the amount
of time for non-parties to formulate
sound objections and file these
objections with the Director and
requesting party. Further, non-parties
that are able to timely object as a result
of the proposed amendments, and that
receive a ruling in their favor, would not
incur the costs associated with the
release of proprietary or non-public
information.12
The proposed amendments, however,
may impose costs on requesting parties.
Non-parties that are able to timely object
as a result of the proposed amendments,
and that receive a ruling in their favor,
would not appear as a witness or
produce documents. Requesting parties
that would otherwise receive the
information may be less able to present
a case in arbitration and receive an
award in their favor. This potential cost,
however, is dependent on whether the
information would have affected the
arbitrators’ award decision.13
The proposed amendments may have
countervailing effects on the efficiency
of the arbitration forum. The increase in
the amount of time for non-parties to
respond may lengthen the discovery
phase of the arbitration proceedings,
and therefore the amount of time until
12 See supra note 4. The letter notes the potential
release of ‘‘proprietary, competitively-sensitive, or
non-public personal information’’ as a result of the
inability of non-parties to timely object to an order
or subpoena. Non-parties would also not incur the
costs to appear as a witness or to produce
documents that are in excess of the reasonable
amount paid as reimbursement by the requesting
party.
13 If arbitrators rule in favor of non-parties with
respect to the scope or propriety of the order or
subpoena, then the information would not likely
increase the ability of the requesting parties to
present a case in arbitration and receive an award
in their favor. Requesting parties, however, would
not incur the costs of non-parties to appear as a
witness or to produce documents.
VerDate Sep<11>2014
18:30 Feb 11, 2019
Jkt 247001
the resolution of the dispute. The
exclusion of first-class mail as an option
to transmit or serve documents,
however, may increase the speed of
delivery as well as the ability of parties
to determine the sequence and timing of
discovery. Whether the forum becomes
more or less efficient as a result of the
proposed amendments is dependent on
the number of additional days nonparties take to file an objection to an
order or subpoena, as well as the extent
to which parties and non-parties
transition to more efficient means of
communication.
The proposed amendments may also
have additional economic impacts. For
example, the exclusion of first-class
mail may impose additional costs on
parties and non-parties that transition to
a different, more-expensive option to
transmit or serve documents. The
proposed amendments would also
codify the current practice whereby
FINRA holds all documents from
objections and responses to orders or
subpoenas before sending them at one
time after the reply date has elapsed
(unless otherwise directed by the panel).
FINRA does not believe, however, that
any economic impact from the
clarification of procedures would be
material.
(d) Alternatives Considered
The alternatives considered to the
proposed amendments include not
extending the response time for nonparties to object to an order or
subpoena, or extending the response
time but for a different number of days.
Other alternatives considered include
not excluding first-class mail as an
option for transmitting or serving
documents, or excluding different
options.
FINRA considered the benefits to nonparties from extending the response
time to object to an order or subpoena
with the potential increase in the
amount of time for discovery. FINRA
also considered the benefits from
excluding options to transmit or serve
documents with the costs of reducing
the number of options. FINRA believes
that the proposed amendments increase
the ability of non-parties to timely
object to an order or subpoena, as well
as the efficiency of the discovery
process, while minimizing the potential
costs to parties and non-parties.
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.
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) by order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2019–004 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–2019–004. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
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
E:\FR\FM\12FEN1.SGM
12FEN1
Federal Register / Vol. 84, No. 29 / Tuesday, February 12, 2019 / Notices
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–
2019–004 and should be submitted on
or before March 5, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Eduardo A. Aleman,
Deputy Secretary.
under Section 19(b)(2)(B) of the Act 6 to
determine whether to approve or
disapprove the proposed rule change.7
The Commission received one comment
letter from the Exchange responding to
the Order Instituting Proceedings.8 On
November 27, 2018, pursuant to Section
19(b)(2) of the Act,9 the Commission
designated a longer period within which
to issue an order approving or
disapproving the proposed rule
change.10 On February 1, 2019, the
Exchange withdrew the proposed rule
change (SR–BOX–2018–14).
[FR Doc. 2019–01946 Filed 2–11–19; 8:45 am]
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Eduardo A. Aleman,
Deputy Secretary.
BILLING CODE 8011–01–P
[FR Doc. 2019–01944 Filed 2–11–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85065; File No. SR–BOX–
2018–14]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Withdrawal of
Proposed Rule Change To Adopt Rules
Governing the Trading of Complex
Qualified Contingent Cross Orders and
Complex Customer Cross Orders
February 6, 2019.
On May 22, 2018, BOX Exchange LLC
(the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 1 and Rule 19b–4 thereunder,2 a
proposed rule change to adopt rules
governing the trading of Complex
Qualified Contingent Cross Orders and
Complex Customer Cross Orders. The
proposed rule change was published for
comment in the Federal Register on
June 8, 2018.3 On July 16, 2018,
pursuant to Section 19(b)(2) of the 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
approve or disapprove the proposed
rule change.5 On September 5, 2018, the
Commission instituted proceedings
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 83367
(June 4, 2018), 83 FR 26719.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 83647,
83 FR 34635 (July 20, 2018). The Commission
designated September 6, 2018 as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
approve or disapprove, the proposed rule change.
1 15
VerDate Sep<11>2014
18:30 Feb 11, 2019
Jkt 247001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85064; File No. SR–
NYSEArca–2019–03)]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Rule 7.31–E
Relating to the Minimum Trade Size
Modifier
February 6, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’),2 and Rule 19b–4 thereunder,3
notice is hereby given that on January
28, 2019, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
6 15
U.S.C. 78s(b)(2)(B).
Securities Exchange Act Release No. 84031,
83 FR 46003 (September 11, 2018) (‘‘Order
Instituting Proceedings’’).
8 See letter to Brent J. Fields, Secretary,
Commission, from Alanna Barton, General Counsel,
Exchange, dated October 12, 2018.
9 15 U.S.C. 78s(b)(2).
10 See Securities Exchange Act Release No. 84658,
83 FR 62395 (December 3, 2018). The Commission
designated February 3, 2019 as the date by which
the Commission shall either approve or disapprove
the proposed rule change.
11 17 CFR 200.30–3(a)(12).
1 15 U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
7 See
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
3521
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Rule 7.31–E relating to the Minimum
Trade Size Modifier. The proposed rule
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 7.31–E relating to the Minimum
Trade Size (‘‘MTS’’) Modifier.
Specifically, the Exchange proposes to
make the MTS Modifier available for
Non-Displayed Limit Orders.4 The
Exchange also proposes to provide
additional optionality for ETP Holders
using the MTS Modifier with Limit IOC
Orders, Non-Displayed Limit Orders,
Mid-Point Liquidity (‘‘MPL’’) Orders,
and Tracking Orders. As proposed, ETP
Holders could choose how such orders
would trade on arrival to trade either
with (i) orders that in the aggregate meet
the MTS (current functionality), or (ii)
individual orders that each meet the
MTS (proposed functionality).
The MTS Modifier is currently
available for Limit IOC Orders,5 MPL
Orders,6 and Tracking Orders.7 As such,
4 See Rule 7.31–E(d)(2). In sum, A Non-Displayed
Limit Order is a Limit Order that is not displayed
and does not route. Id.
5 See Rule 7.31–E(b)(2)(A). In sum, a Limit Order
designated IOC is to be traded in whole or in part
on the NYSE Arca Marketplace as soon as such
order is received, and the quantity not so traded is
cancelled. Id.
6 See Rule 7.31–E(d)(3). In sum, an MPL Order is
a ‘‘Limit Order that is not displayed and does not
route, with a working price at the midpoint of the
PBBO.’’ Id.
7 See Rule 7.31–E(d)(4). In sum, a Tracking Order
is an order to buy (sell) with a limit price that is
E:\FR\FM\12FEN1.SGM
Continued
12FEN1
]]>Agencies
[Federal Register Volume 84, Number 29 (Tuesday, February 12, 2019)]
[Notices]
[Pages 3518-3521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01946]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85063; File No. SR-FINRA-2019-004]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Expand
Time for Non-Parties To Respond to Arbitration Subpoenas and Orders of
Appearance of Witnesses or Production of Documents
February 6, 2019.
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 January 29, 2019, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 12512(d) through (e) and
FINRA Rule 12513(d) through (e) of the Code of Arbitration Procedure
for Customer Disputes (``Customer Code'') and FINRA Rule 13512(d)
through (e) and FINRA Rule 13513(d) through (e) of the Code of
Arbitration Procedure for Industry Disputes (``Industry Code'' and
together, ``Codes''), to expand time for non-parties to respond to
arbitration subpoenas and orders of appearance of witnesses or
production of documents, and to make related changes to enhance the
discovery process for forum users.
The text of the proposed rule change is available at the principal
office of FINRA, on FINRA's website at https://www.finra.org, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Introduction
The proposed rule change would amend FINRA Rules 12512, 12513,
13512 and 13513 that govern procedures for non-parties to object to
subpoenas and for non-parties to object to arbitrator orders of
appearance of witnesses or production of documents. The proposed rule
change would help ensure that non-parties wanting to object to an order
or subpoena have sufficient time to do so. The proposal will also make
related changes to enhance the discovery process for forum users.
Background
In arbitration, the parties exchange documents and information to
prepare for the arbitration through the discovery process. The Codes
currently provide that parties in FINRA arbitration who seek discovery
from a non-party may request the panel to issue: (1) An order of
appearance of witnesses or production of documents if the non-party is
subject to FINRA's jurisdiction as an associated person or member firm
or (2) a subpoena if the non-party is not subject to FINRA's
jurisdiction.\3\ If the panel decides to issue the order or subpoena,
FINRA will transmit the signed order or subpoena to the moving party to
serve on the non-party. If a non-party receiving an order or a subpoena
objects to the scope or propriety of the order or subpoena, the non-
party may, within 10 calendar days of service of the order or subpoena,
file written objections through the Director of the Office of Dispute
Resolution (Director).
---------------------------------------------------------------------------
\3\ See Rules 12512 and 12513. See also Rules 13512 and 13513.
---------------------------------------------------------------------------
Concerns About Current Subpoena and Order Rules for Non-Parties
Forum users have raised concerns that the amount of time that non-
parties have to respond to orders and subpoenas is insufficient.\4\
Since non-
[[Page 3519]]
parties do not have access to the Dispute Resolution Party Portal
(Party Portal),\5\ they are currently served using other means (first-
class mail, overnight mail service, overnight delivery service, hand
delivery, email or facsimile). Recipients of orders and subpoenas
reported that the individual at a non-party firm who is responsible for
responding to an order or subpoena (e.g., legal staff) may not actually
receive a copy of the order or subpoena through internal processes
until after the tenth day from service has passed, thereby causing the
non-party firm to risk waiving its ability to timely object to the
order or subpoena.\6\ As a non-party to the arbitration, a firm is not
able to anticipate the arrival of an order or subpoena and instruct
front line employees (e.g., receptionists or mail room personnel) to
route these high priority documents to the appropriate individual
responsible for responding to the discovery request. Once the objection
to an order or subpoena is waived, the non-party must respond to the
order or subpoena or risk incurring sanctions or disciplinary
action.\7\ Forum users have also raised concerns that the use of first-
class mail is not an ideal option in discovery because it is slow. For
these reasons, FINRA seeks to offer sufficient time for non-parties to
provide the order or subpoena to the appropriate individual who would
respond to the discovery request.
---------------------------------------------------------------------------
\4\ See, e.g., Letter from Kevin M. Carroll, Managing Director
and Associate General Counsel, Securities Industry and Financial
Markets Association, to Jennifer Piorko Mitchell, Vice President and
Deputy Corporate Secretary, FINRA, dated June 2, 2017 (responding to
FINRA's March 2017 Special Notice on FINRA's engagement programs),
www.finra.org/sites/default/files/notice_comment_file_ref/SN-32117_SIFMA-KevinCarroll_comment.pdf.
\5\ The Party Portal provides arbitration forum users with a
secure, online location for claim filing and interactions relating
to case administration. Parties use the Party Portal to, among other
things, file claims, pay filing fees, receive documents from and
send documents to FINRA, receive service of claims, submit answers
to claims, submit additional case documents, view the status of
cases, select arbitrators, schedule hearings and send documents to
other Party Portal case participants.
\6\ See supra note 4.
\7\ See Rules 12212 and 12511. See also Rules 13212 and 13511.
---------------------------------------------------------------------------
Proposed Rule Change
FINRA is proposing three amendments to the Codes to enhance the
discovery process for forum users, particularly non-parties. First,
FINRA is proposing to amend the Codes to extend the response time for
non-parties to object to an order or subpoena from 10 calendar days of
service to 15 calendar days of receipt of the order or subpoena.
Receipt of overnight mail service, overnight delivery service, hand
delivery, email or facsimile is accomplished on the date of delivery.
FINRA believes that the proposed rule change would address forum users'
concerns because the proposal would help ensure that non-parties
wanting to object to an order or subpoena have sufficient time to do
so.
Second, FINRA is proposing to amend the Codes to exclude first-
class mail as an option to serve documents on the non-party and as an
option for the non-party to file the objection to the scope or
propriety of the order or subpoena.\8\ FINRA believes that by requiring
forum users to serve or transmit discovery-related documents through
overnight mail service, overnight delivery, hand delivery, email or
facsimile, forum users are better able to confirm and facilitate the
timing of discovery obligations.
---------------------------------------------------------------------------
\8\ Filing and service by first-class mail is accomplished on
the date of mailing, but it can take several days to confirm
receipt. For purposes of this rule proposal, service by overnight
mail, overnight delivery, hand delivery, facsimile or email is
accomplished on the date of delivery.
---------------------------------------------------------------------------
Third, FINRA is proposing to amend the Codes to codify the current
practice that the Director sends, at the same time, objections and
responses to the panel after the reply date has elapsed, unless
otherwise directed by the panel. The Director sends the complete set of
motion papers to the panel to ensure that the panel receives the
advocacy positions of all parties at the same time. FINRA believes that
the proposed rule change will enhance forum users' understanding of
existing case administration procedures and will improve transparency
concerning forum operations.\9\
---------------------------------------------------------------------------
\9\ FINRA notes that the proposed rule change would impact all
members, including members that are funding portals or have elected
to be treated as capital acquisition brokers (``CABs''), given that
the funding portal and CAB rule sets incorporate the impacted FINRA
rules by reference.
---------------------------------------------------------------------------
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,\10\ 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. FINRA believes that the proposed rule change would
enhance the discovery process for forum users by giving non-parties
additional time to respond to subpoenas and orders. Further, the
proposed rule change addresses forum users' concerns on delays with
first-class mail and would enhance their ability to confirm and
facilitate the timing of discovery obligations. FINRA further believes
that the proposed amendments would also enhance the user experience at
the forum by standardizing certain procedures relating to subpoenas and
orders and will improve transparency concerning forum operations.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
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 rule change follows.
Economic Impact Assessment
FINRA staff has undertaken an economic impact assessment, as set
forth below, to analyze the regulatory need for the proposed rule
change, its potential economic impacts, including anticipated costs,
benefits, and distributional and competitive effects, relative to the
current baseline, and the alternatives FINRA considered in assessing
how to best meet its regulatory objectives.
(a) Regulatory Need
Under the Codes, non-parties to an arbitration have a limited
amount of time to object to an order or subpoena. Parties and non-
parties may also use options to transmit or serve documents that are
slow, further hindering the ability of non-parties to timely
object.\11\ This could cause non-parties to inadvertently waive their
ability to timely object. Non-parties for whom the objection process
would be valuable could incur costs associated with this outcome.
---------------------------------------------------------------------------
\11\ See supra note 7.
---------------------------------------------------------------------------
(b) Economic Baseline
The economic baseline for the proposed amendments are the Codes
that address the length of time for non-parties to respond to
arbitrators' orders and subpoenas. The economic baseline also includes
the Codes that address the options for parties and non-parties to serve
or transmit documents. The proposal is expected to affect non-parties
and parties to an arbitration.
Although FINRA does collect information describing orders and
subpoenas, FINRA does not collect information specifically identifying
orders or subpoenas to non-parties. The
[[Page 3520]]
frequency in which parties currently request arbitrators to issue
orders or subpoenas to non-parties, and whether non-parties respond or
object, is therefore not available. Information is also not available
to describe the frequency in which non-parties inadvertently waive
their ability to timely object to an order or subpoena.
(c) Economic Impact
The proposed amendments would extend the response time for non-
parties to object to an order or subpoena. The proposed amendments
would also exclude first-class mail as an option to transmit or serve
documents. The benefits and costs of the proposed amendments are
discussed below.
The proposed amendments may benefit non-parties when responding to
orders and subpoenas. The proposed amendments would increase the amount
of time for non-parties to formulate sound objections and file these
objections with the Director and requesting party. Further, non-parties
that are able to timely object as a result of the proposed amendments,
and that receive a ruling in their favor, would not incur the costs
associated with the release of proprietary or non-public
information.\12\
---------------------------------------------------------------------------
\12\ See supra note 4. The letter notes the potential release of
``proprietary, competitively-sensitive, or non-public personal
information'' as a result of the inability of non-parties to timely
object to an order or subpoena. Non-parties would also not incur the
costs to appear as a witness or to produce documents that are in
excess of the reasonable amount paid as reimbursement by the
requesting party.
---------------------------------------------------------------------------
The proposed amendments, however, may impose costs on requesting
parties. Non-parties that are able to timely object as a result of the
proposed amendments, and that receive a ruling in their favor, would
not appear as a witness or produce documents. Requesting parties that
would otherwise receive the information may be less able to present a
case in arbitration and receive an award in their favor. This potential
cost, however, is dependent on whether the information would have
affected the arbitrators' award decision.\13\
---------------------------------------------------------------------------
\13\ If arbitrators rule in favor of non-parties with respect to
the scope or propriety of the order or subpoena, then the
information would not likely increase the ability of the requesting
parties to present a case in arbitration and receive an award in
their favor. Requesting parties, however, would not incur the costs
of non-parties to appear as a witness or to produce documents.
---------------------------------------------------------------------------
The proposed amendments may have countervailing effects on the
efficiency of the arbitration forum. The increase in the amount of time
for non-parties to respond may lengthen the discovery phase of the
arbitration proceedings, and therefore the amount of time until the
resolution of the dispute. The exclusion of first-class mail as an
option to transmit or serve documents, however, may increase the speed
of delivery as well as the ability of parties to determine the sequence
and timing of discovery. Whether the forum becomes more or less
efficient as a result of the proposed amendments is dependent on the
number of additional days non-parties take to file an objection to an
order or subpoena, as well as the extent to which parties and non-
parties transition to more efficient means of communication.
The proposed amendments may also have additional economic impacts.
For example, the exclusion of first-class mail may impose additional
costs on parties and non-parties that transition to a different, more-
expensive option to transmit or serve documents. The proposed
amendments would also codify the current practice whereby FINRA holds
all documents from objections and responses to orders or subpoenas
before sending them at one time after the reply date has elapsed
(unless otherwise directed by the panel). FINRA does not believe,
however, that any economic impact from the clarification of procedures
would be material.
(d) Alternatives Considered
The alternatives considered to the proposed amendments include not
extending the response time for non-parties to object to an order or
subpoena, or extending the response time but for a different number of
days. Other alternatives considered include not excluding first-class
mail as an option for transmitting or serving documents, or excluding
different options.
FINRA considered the benefits to non-parties from extending the
response time to object to an order or subpoena with the potential
increase in the amount of time for discovery. FINRA also considered the
benefits from excluding options to transmit or serve documents with the
costs of reducing the number of options. FINRA believes that the
proposed amendments increase the ability of non-parties to timely
object to an order or subpoena, as well as the efficiency of the
discovery process, while minimizing the potential costs to parties and
non-parties.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-FINRA-2019-004 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-2019-004. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the 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
[[Page 3521]]
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-2019-004
and should be submitted on or before March 5, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-01946 Filed 2-11-19; 8:45 am]
BILLING CODE 8011-01-P
