Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rule 9231 To Provide for the Compensation of All Panelists That Serve in Connection With a FINRA Disciplinary Hearing, 29005-29009 [2020-10285]
Download as PDF
<![CDATA[
Federal Register / Vol. 85, No. 94 / Thursday, May 14, 2020 / Notices
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
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:
jbell on DSKJLSW7X2PROD with NOTICES
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–
CboeEDGA–2020–013 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–CboeEDGA–2020–013. 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. 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
VerDate Sep<11>2014
19:51 May 13, 2020
Jkt 250001
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeEDGA–2020–013 and
should be submitted on or before June
4, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–10288 Filed 5–13–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88839; File No. SR–FINRA–
2020–014]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend FINRA Rule
9231 To Provide for the Compensation
of All Panelists That Serve in
Connection With a FINRA Disciplinary
Hearing
May 8, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 5,
2020, 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. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
this filing by the Commission. 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 9231 to provide for the
compensation of all panelists that serve
in connection with a FINRA
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6). Rule 19b–4(f)(6)
requires a self-regulatory organization to give the
Commission written notice of its intent to file the
proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. FINRA has satisfied this requirement.
1 15
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
29005
disciplinary hearing, regardless of
whether it is an Extended or nonExtended Hearing.4
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
FINRA Rule 9231 governs the
appointment by FINRA’s Chief Hearing
Officer of Hearing Panels, both
Extended and non-Extended, and
replacement Hearing Officers.
A Hearing Panel consists of a Hearing
Officer and two Panelists.5 Each
Panelist must be associated with a
FINRA member or retired therefrom.6
Service as a Panelist is voluntary.
Rule 9231 authorizes the Chief
Hearing Officer to exercise his or her
discretion to compensate Panelists who
serve on Extended Hearing Panels only.
The proposed rule change would amend
Rule 9231 to provide for the
compensation of all Panelists,
irrespective of whether they serve on
Extended or non-Extended Hearing
Panels, and without the exercise of
discretion by the Chief Hearing Officer.
FINRA believes the proposed rule
change will encourage a greater and
more diverse pool of eligible individuals
4 FINRA Rule 9231(c) sets forth the circumstances
in which a hearing may be designated an Extended
Hearing. Matters that require an Extended Hearing
are assigned an Extended Hearing Panel. For the
purposes of this proposal only, the term ‘‘Hearing
Panel’’ collectively refers to both Extended and
non-Extended Hearing Panels.
5 See FINRA Rule 9231(b) and (c). If, after
appointment, a Panelist withdraws, is unable to
serve, or is disqualified, the Chief Hearing Officer
may, in his or her discretion, determine whether to
appoint a replacement Panelist. If two Panelists
withdraw, are unable to serve, or are disqualified,
the Chief Hearing Officer must appoint two
replacement Panelists. See FINRA Rule 9234.
6 See FINRA Rule 9231(b) and (c).
E:\FR\FM\14MYN1.SGM
14MYN1
29006
Federal Register / Vol. 85, No. 94 / Thursday, May 14, 2020 / Notices
to agree to serve on Hearing Panels. A
larger and more diverse pool of eligible
individuals willing to serve as Panelists
will facilitate the Chief Hearing Officer’s
ability readily to appoint Hearing Panels
with appropriate experience and
expertise as needed.
Background
FINRA’s disciplinary process begins
with the Department of Enforcement
filing a complaint with the Office of
Hearing Officers (‘‘OHO’’) alleging that
a Respondent 7 is violating or has
violated a rule, regulation, or statutory
provision, including the federal
securities laws and related regulations,
that FINRA has jurisdiction to enforce.8
Following the filing of a complaint, the
Chief Hearing Officer assigns a Hearing
Officer to preside over the disciplinary
proceeding 9 and appoints Panelists to
an Extended or non-Extended Hearing
Panel to conduct the disciplinary
proceeding. Disciplinary matters are
assigned to an Extended Hearing Panel
if, upon consideration of the complexity
of the issues involved, the probable
length of the hearing, or other factors
that the Chief Hearing Officer deems
material, the Chief Hearing Officer
determines that a matter shall be an
Extended Hearing.10
jbell on DSKJLSW7X2PROD with NOTICES
Responsibilities of Hearing Panelists;
Criteria for Appointment
Panelists are essential to FINRA’s
disciplinary process. The Hearing Panel
listens to the presentation of evidence
and issues a written decision setting
forth findings as to whether a
Respondent engaged in violative
conduct and describing the sanctions, if
any, imposed.11 In addition to traveling
to hearing locations and attending
hearings, Panelists are expected to
review materials in preparation for the
hearing, participate in conference calls
with the Hearing Officer, review posthearing briefs, participate in
deliberations (which may require a full
7 A Respondent is a FINRA member or associated
person against whom a complaint is filed. See
FINRA Rule 9120(aa).
8 See FINRA Rule 9211.
9 See FINRA Rule 9213. A Hearing Officer must
be an attorney who is an employee of FINRA or
former employee of FINRA who previously acted as
a Hearing Officer. See FINRA Rule 9120(r). Among
other things, a Hearing Officer administers prehearing matters, including most motions, resolves
procedural and evidentiary matters, oversees the
settlement and discovery process, regulates the
course of the proceeding, and drafts a decision that
represents the view of the majority of the Hearing
Panel. See FINRA Rule 9235.
10 See FINRA Rule 9231(c). Rule 9231 does not
establish a minimum number of hearing days
required to make a hearing an Extended Hearing.
OHO’s policy is to treat any hearing scheduled to
last five or more days as an Extended Hearing.
11 See FINRA Rule 9260 Series.
VerDate Sep<11>2014
18:29 May 13, 2020
Jkt 250001
day or several days of shorter sessions),
and review and comment on a draft
Hearing Panel decision. Hearing Panel
decisions generally may be appealed to,
and are subject to discretionary review
by, the National Adjudicatory Council
(‘‘NAC’’).12 Hearing Panel decisions are
also subject to discretionary review by
FINRA’s Board of Governors, and final
disciplinary action by FINRA may be
appealed to the Commission.13
The appointment of Panelists is
subject to specific criteria under Rules
9231 and 9232. These criteria help
ensure that Panelists possess the
requisite experience and expertise to
fulfill their responsibilities in a manner
that results in fair, deliberative
disciplinary proceedings. The Chief
Hearing Officer appoints Panelists from
a pool that generally includes persons
who: (1) Previously served on a District
Committee; 14 (2) currently serve or
previously served on a Regional
Committee; (3) previously served on the
NAC; (4) previously served on a
disciplinary subcommittee of the NAC
or the National Business Conduct
Committee; (5) previously served as a
FINRA Governor or Director, but do not
currently serve in either of these
positions; 15 or (6) currently serve or
previously served on a committee
appointed or approved by the FINRA
Board, but does not serve currently on
the NAC or as a Director or a Governor
of the FINRA Board.16 If the complaint
alleges at least one cause of action
involving a violation of a statute or a
rule described in Rule 9120(u), the Chief
Hearing Officer may select one Panelist
who currently serves or previously
served on the Market Regulation
Committee.17
12 See FINRA Rules 9311 and 9312. In addition,
a member of FINRA’s Board of Governors may call
a disciplinary proceeding for review by the FINRA
Board. See FINRA Rule 9351. A Respondent may
appeal a final disciplinary action by FINRA to the
SEC pursuant to Section 19(d)(2) of the Exchange
Act and FINRA Rule 9370.
13 See FINRA Rules 9351 and 9370.
14 In 2018, FINRA reorganized its 11 District
Committees into five Regional Committees.
15 FINRA, Inc. (FINRA), a securities association
registered under Section 15A of the Exchange Act,
is the parent company of FINRA Regulation, Inc.
(FINRA Regulation). ‘‘Governor’’ refers to a member
of the Board of Governors of FINRA. ‘‘Director’’
refers to a member of the Board of Directors of
FINRA Regulation.
16 See FINRA Rule 9231(b)(1)(A) to (F).
17 See FINRA Rule 9231(b)(2). A former Market
Regulation Committee member must have served no
earlier than four years before the date the complaint
was served upon the Respondent who was the first
Respondent served in the disciplinary proceeding.
See also FINRA Rule 9232(b).
FINRA Rule 9120(u) refers to the federal
securities laws and the rules and regulations
adopted thereunder and various FINRA rules and
policies relating to (i) the quotations of securities;
(ii) the execution of transactions; (iii) the reporting
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
The selection of Panelists from among
those eligible under Rule 9231 is subject
to criteria set forth in Rule 9232. The
Chief Hearing Officer must determine
which Regional Committee shall be the
Primary Regional Committee from
which he or she will first seek
Panelists.18 Once a Primary Regional
Committee has been designated, the
Chief Hearing Officer selects Panelists
from (1) the current members of the
Primary Regional Committee; (2) the
categories of persons eligible to serve as
Panelists under FINRA Rule 9231 who
are located in the same geographic area
as the Primary Regional Committee;
and, if applicable, (3) current or former
members of the Market Regulation
Committee.19 Selection is based on (1)
expertise; (2) the absence of any conflict
of interest or bias, and any appearance
thereof; (3) availability; and (4) the
frequency with which a person has
served as a Panelist during the past two
years, favoring the selection of a person
as a Panelist who has never served or
served infrequently as a Panelist during
that period.20
Rule 9232 does not preclude the Chief
Hearing Officer from appointing
Panelists from other categories of those
eligible under Rule 9231. The Chief
Hearing Officer may make such an
appointment if he or she determines
that one or more persons from other
categories of eligible Panelists more
clearly meet the criteria of paragraph
(d)(1) through (4) of Rule 9232 and the
public interest or the administration of
FINRA’s regulatory and enforcement
of transactions; and (iv) trading practices, including
rules prohibiting manipulation and insider trading,
and trading-related rules such as FINRA Rule 4560
and FINRA Rule 5200, 6000, 7100, 7200, 7300 and
7400 Series.
18 See FINRA Rule 9232(a). The Chief Hearing
Officer designates a Regional Committee as the
Primary Regional Committee based on the relevant
facts and circumstances of the case, including but
not limited to (1) the location of a Respondent’s
principal office if the Respondent is or was a
member firm; (2) the location of a Respondent’s
office at the time of the alleged misconduct if the
Respondent is or was an associated person; (3) the
location of the office of a member or an associated
person, or a former member or associated person,
where the alleged misconduct occurred; (4) the
location of witnesses at the time of the filing of the
complaint, especially the location of witnesses who
are or were customers of a Respondent; (5) the
location, at the time of the alleged misconduct, of
the main, branch, or other office in which
supervisory personnel, who are or were responsible
for the supervision of a Respondent, were
employed; and (6) the location, at the time of the
alleged misconduct, of the main, branch, or other
office in which supervisory personnel, who are or
were responsible for the supervision of the office,
division, function, or segment of the member where
the alleged misconduct occurred, were employed.
See FINRA Rule 9232(c).
19 See FINRA Rule 9232(d).
20 See supra footnote 19.
E:\FR\FM\14MYN1.SGM
14MYN1
Federal Register / Vol. 85, No. 94 / Thursday, May 14, 2020 / Notices
program would be enhanced by the
selection of such Panelists.21
Compensation of Panelists
The Chief Hearing Officer has
discretion to compensate any or all
Panelists of an Extended Hearing Panel
at the rate then in effect for arbitrators
appointed under the Rule 12000
Series.22 In practice, the Chief Hearing
Officer exercises his or her discretion to
compensate all Panelists on all
Extended Hearing Panels. The Chief
Hearing Officer does not have the
authority to compensate Panelists on
non-Extended Hearing Panels. In
practice, because only hearings that are
scheduled to last five or more days are
designated Extended Hearings, Panelists
who serve on hearings that are
scheduled to last four or fewer days are
not compensated.23
OHO has encountered increasing
difficulty in finding eligible individuals
willing to serve on Hearing Panels. At
the same time, the number, length and
complexity of hearings are increasing.
Some eligible individuals have
indicated that they are only willing to
serve on Extended Hearing Panels
because they want to be compensated
for their time. Others have indicated
that they should be compensated for
their time in the case of a hearing lasting
more than one or two days.
FINRA places a high value on a fair,
efficient, and expeditious adjudicatory
process. OHO therefore must be able to
quickly and efficiently assign
adjudicated matters to Hearing Panels,
both Extended and non-Extended, and
schedule cases for hearing. FINRA
believes OHO’s ability to identify
willing and eligible Panelists will be
improved if all Hearing Panelists are
compensated.
As is the case with Extended Hearing
Panelists, the Chief Hearing Officer
would compensate all non-Extended
Hearing Panelists if granted discretion
to do so. Rather than adding a grant of
discretion to cover non-Extended
Hearing Panels, FINRA instead proposes
to amend Rule 9231 to provide that all
Panelists—i.e., both Extended and nonExtended Hearing Panelists—will be
compensated at the rate then in effect
for arbitrators set forth in FINRA Rule
12214(a)(1), (3) and (4). The proposed
rule change does not establish or change
jbell on DSKJLSW7X2PROD with NOTICES
21 See
FINRA Rule 9232(e).
FINRA Rule 9231(c). The FINRA Rule
12000 Series is the Code of Arbitration Procedure
for Customer Disputes.
23 OHO conducts disciplinary hearings in all 50
states, thereby requiring most Panelists to travel to
FINRA hearings. FINRA covers all travel-related
expenses for Panelists regardless of the length of the
hearing.
22 See
VerDate Sep<11>2014
18:29 May 13, 2020
Jkt 250001
a fee in connection with FINRA
disciplinary proceedings. Extended
Hearing Panelists are currently paid
pursuant to the payment provisions set
forth in Rule 12214(a)(1), (3) and (4).
The proposed rule change merely
extends those payment provisions to
Panelists who serve in connection with
non-Extended Hearings.
Payments to arbitrators is established
in Rule 12214. The payments that nonExtended Hearing Panelists would be
eligible to receive are set forth in Rule
12214(a)(1), (3) and (4). Rule 12214(a)(1)
provides for a $300 payment to an
arbitrator for each hearing session in
which he or she participates. A typical
hearing day may consist of two fourhour hearing sessions.24 Rule
12214(a)(3) establishes a $50 payment to
an arbitrator for travel to a hearing
session that is postponed. Rule
12214(a)(4) provides for a $600 payment
to an arbitrator if a hearing session other
than a prehearing conference is
postponed within ten days before the
scheduled date.
Other honoraria provided for by Rule
12214 are inapplicable to Hearing
Panelists. Rule 12214(a)(2) provides for
an additional $125 per day to the
chairperson for each hearing on the
merits. An OHO Hearing Officer who is
a FINRA employee serves as the chair of
each Hearing Panel. Thus, the provision
in Rule 12214(a)(2) has no effect in the
case of Hearing Panelists.
Rule 12214(a)(5) provides for a $100
payment to each arbitrator for a
prehearing conference that is cancelled
by agreement of the parties, or is
requested by one or more of the parties,
within three business days of its
scheduled date. Hearing Panelists,
however, typically do not participate in
prehearing conferences.25 In most cases,
the OHO Hearing Officer handles a
prehearing conference alone. In the
limited cases where Hearing Panelists
participate in a prehearing conference,
those conferences are set by the OHO
Hearing Officer and are not scheduled at
the request of a party. Therefore, the
provision in Rule 12214(a)(5) is likewise
inapplicable to Hearing Panelists.
In addition, the honoraria established
in Rule 12214(b), (c) and (d) do not
apply to Hearing Panelists. Rule
12214(b) authorizes a higher or
24 A hearing session is a meeting of four hours or
less. See FINRA Rule 12100(p). Occasionally, a
Panelist may prepare for and travel to a hearing
only to discover just prior to a hearing session that
he or she cannot participate. This may occur, for
example, if a Panelist discovers just prior to the
commencement of a hearing session that she must
recuse herself because of her connection to a
witness. In such a case, the Panelist will be
compensated for one hearing session.
25 See FINRA Rule 9241.
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
29007
additional honorarium in the case of a
foreign hearing location; all FINRA
disciplinary hearings, however, occur at
U.S. locations. Rule 12214(c) provides
for honorarium payments to arbitrators
for deciding motions concerning
discovery, contested subpoena requests,
and contested orders for production or
appearance without a hearing session.
Subpoenas are not issued in FINRA
disciplinary hearings, however, and
discovery-related motions are decided
by the OHO Hearing Officer alone.26
Rule 12214(d) provides an additional
honorarium for explained decisions
written in support of arbitration awards.
This provision does not apply to
Hearing Panel decisions written in
connection with FINRA disciplinary
proceedings, which are governed by
Rule 9268, and is therefore inapplicable
to Hearing Panelists.
FINRA notes that, except in limited
circumstances, Rule 12214 does not
provide for payments for time spent on
travel or preparation. Non-Extended
Hearing Panelists, like Extended
Hearing Panelists, therefore still may
accrue not-insubstantial amounts of
uncompensated time in connection with
service on a Hearing Panel.
FINRA has filed the proposed rule
change for immediate effectiveness. The
proposed rule change will become
operative 30 days after the date of filing.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(8) of the Act,27 which
requires, among other things, that
FINRA rules provide a fair procedure for
the disciplining of members and
persons associated with members.
FINRA believes that the proposed rule
change, consistent with this purpose of
the Act, will help assure that complaints
filed with OHO continue to be heard
and resolved in a timely manner by
Panelists with the expertise, experience,
and perspective necessary to render a
fair and informed judgment and, where
necessary, to impose appropriately
remedial sanctions. By compensating all
Panelists, the proposed rule change will
encourage a greater number of eligible
individuals to agree to devote their time
and experience in service as Panelists.
This will enable the Chief Hearing
Officer to appoint Hearing Panels from
a larger and potentially more diverse
group of eligible individuals willing to
serve and capable of responding to the
complex issues and time demands
presented by disciplinary hearings.
26 See
27 15
E:\FR\FM\14MYN1.SGM
FINRA Rules 9252 and 9253.
U.S.C. 78o–3(b)(8).
14MYN1
29008
Federal Register / Vol. 85, No. 94 / Thursday, May 14, 2020 / Notices
FINRA also believes that the proposed
rule change is consistent with the
provisions of Section 15A(b)(6) of the
Act,28 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 encouraging a greater
number of eligible individuals to serve
as Panelists by compensating them for
their time and expertise will enhance
FINRA’s disciplinary processes,
promote high business standards for
FINRA members, and allow for the
prompt adjudication of allegations of
misconduct by FINRA members and
their associated persons. It is in the
public interest, and consistent with the
Act’s purpose, that FINRA disciplinary
proceedings be timely resolved and that
appropriate sanctions be imposed where
necessary to redress customer harm and
deter future misconduct.
jbell on DSKJLSW7X2PROD with NOTICES
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. The
proposed rule change is intended solely
to enhance the administration of
FINRA’s process for the disciplining of
members and persons associated with
members. FINRA believes the proposed
rule change will allow the Chief Hearing
Officer flexibility to appoint Panelists
and thereby maintain the timely
progress of cases to a hearing. FINRA
does not believe that the proposed rule
change will have any negative effect on
members or impose any new costs.
Economic Impact Assessment
As described above, under current
FINRA rules, the Chief Hearing Officer
may pay honoraria only to individuals
who serve as Panelists at Extended
Hearings. The rules do not allow OHO
to pay honoraria to Panelists at nonExtended Hearings. As a result,
potential Panelists may lack sufficient
incentive to serve on non-Extended
Hearing Panels, which impairs OHO’s
ability to assemble Hearing Panels for
non-Extended Hearings expediently.
FINRA believes that paying honoraria to
all Hearing Panelists, regardless of
whether the hearing is designated as an
Extended Hearing, will expand the
number of qualified current or retired
industry members willing to serve on
Hearing Panels.
28 15
U.S.C. 78o–3(b)(6).
VerDate Sep<11>2014
18:29 May 13, 2020
Jkt 250001
Economic Baseline
The baseline for the proposal is Rule
9231, which allows for payments to
Panelists serving on Extended Hearing
Panels only. Based on FINRA’s
experience, this inequity creates a
preference among eligible individuals to
serve on Extended Hearing Panels. This
can limit the pool of Panelists available
to serve for non-Extended Hearings.
Of the 59 hearings that occurred
between 2017 and 2019, 51% were
Extended Hearings, and thus generated
payments to Panelists.29 In the threeyear sample period, OHO conducted
hearings, on average, 82 days per year,
of which 57 days were for Extended
Hearings. FINRA spent, on average,
$68,400 annually to pay Extended
Hearing Panelists.30
Anticipated Benefits
The proposal provides a monetary
benefit of $600 per day to Hearing
Panelists serving on non-Extended
Hearing Panels, among other potential
payments. This proposed honorarium
may potentially create a new incentive
for industry members to serve (or
continue to serve) on non-Extended
Hearing Panels. The proposal may also
benefit FINRA as it should increase the
number of eligible individuals willing to
serve as Panelists and make it easier for
FINRA to assemble Hearing Panels with
appropriate experience and expertise,
which is the regulatory objective.
Both industry members and investors
share an incentive to have enforcement
actions timely brought before a suitably
qualified panel. To the extent that the
proposal expands the pool of willing
Panelists, and thereby improves
FINRA’s ability to expeditiously
organize expert Hearing Panels, both of
these groups will benefit.
Anticipated Costs
The proposed rule change, which
expands honoraria to non-Extended
Hearing Panelists, would not impose
any additional requirements or fees on
firms or respondents in FINRA
disciplinary hearings. Direct costs
associated with this proposal will be
incurred by FINRA only. FINRA
estimates these costs at approximately
$26,400 per year. Based on its
experience with paying honoraria to
Panelists in Extended Hearings, OHO
does not anticipate that paying
honoraria to Panelists serving on non29 In 2017, there were 25 hearings, 14 of which
were Extended Hearings; in 2018, of 21 hearings, 10
were Extended Hearings; and in 2019, of 13
hearings, six were Extended Hearings.
30 Figures based on a three-year period from
January 2017 to December 2019.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
Extended Hearing Panels will adversely
impact the hearing process.
Alternatives Considered
FINRA considered allowing the Chief
Hearing Officer to use his or her
discretion in determining whether to
compensate Hearing Panelists. A
primary objective of the amendment is
to increase eligible Hearing Panelists’
incentive to serve. Therefore, requiring
compensation in the form of an
honorarium at the rate set for arbitrators
to all Hearing Panelists—rather than at
the discretion of the Chief Hearing
Officer—should only increase the
likelihood that the amendment will
yield the desired outcome.
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 31 and Rule 19b–
4(f)(6) thereunder.32
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or 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
31 15
32 17
E:\FR\FM\14MYN1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
14MYN1
Federal Register / Vol. 85, No. 94 / Thursday, May 14, 2020 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2020–014 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–2020–014. 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
a.m. and 3 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–
2020–014 and should be submitted on
or before June 4, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–10285 Filed 5–13–20; 8:45 am]
jbell on DSKJLSW7X2PROD with NOTICES
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88845; File No. SRCboeBYX–2020–014]
Self-Regulatory Organizations; Cboe
BYX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Adopting Rule
14.12 Governing the Trading, Pursuant
to Unlisted Trading Privileges, of
Exchange-Traded Fund Shares
May 8, 2020.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 7,
2020, Cboe BYX Exchange, Inc.
(‘‘Exchange’’ or ‘‘BYX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 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
Cboe BYX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to adopt Rule 14.12 to permit the
trading, pursuant to unlisted trading
privileges, of Exchange-Traded Fund
Shares. Additionally, the Exchange
proposes to make corresponding
changes to Rule 14.1(a). The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/byx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
1 15
U.S.C. 78s(b)(1).
CFR 240.19b-4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b-4(f)(6).
2 17
33 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
20:32 May 13, 2020
Jkt 250001
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
29009
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to adopt Rule
14.12 to permit the trading, pursuant to
unlisted trading privileges (‘‘UTP’’), of
Exchange-Traded Fund (also referred to
as ‘‘ETF’’) Shares,5 which substantially
conforms to Cboe BZX Exchange, Inc.
(‘‘BZX’’) Rule 14.11(l).6 Additionally,
the Exchange proposes to make
corresponding changes to Rule 14.1(a) to
reference Exchange-Traded Fund Shares
and proposed Rule 14.12, where
applicable.
The Exchange does not currently list
any securities as a primary listing
market. Consistent with this fact,
Exchange Rule 14.1(a) currently states
that all securities traded on the
Exchange are traded pursuant to UTP
and that the Exchange will not list any
securities before first filing and
obtaining Commission approval of rules
that incorporate qualitative listing
criteria and comply with Rules 10A–3 7
(‘‘Rule 10A–3’’) and 10C–1 8 (‘‘Rule
10C–1’’) under the Act. Therefore, the
provisions of existing Rules 14.2
through 14.9, 14.11, and proposed Rule
14.12 that permit the listing of certain
Equity Securities 9 will not be effective
5 ETF Shares means shares of stock issued by an
Exchange-Traded Fund. See proposed Rule
14.12(c)(1).
6 See Securities and Exchange Act Release No.
88566 (April 6, 2020) 85 FR 20312 (April 10, 2020)
(SR–CboeBZX–2019–097) (the ‘‘BZX Approval
Order’’).
7 Rule 10A–3 obligates the Exchange to prohibit
the initial or continued listing of any security of an
issuer that is not in compliance with certain
required standards. See 17 CFR 240.10A–3.
8 Rule 10C–1 obligates the Exchange to establish
listing standards that require each member of a
listed issuer’s compensation committee to be a
member of the issuer’s board and to be
independent, as well as establish certain factors that
an issuer must consider when evaluating the
independence of a director. See 17 CFR 240.10C–
1.
9 As provided in Rule 14.1(a), the term ‘‘Equity
Security’’ means, but is not limited to, common
stock, secondary classes of common stock, preferred
stock and similar issues, shares or certificates of
beneficial interest of trusts, notes, limited
partnership interests, warrants, certificates of
deposit for common stock, convertible debt
securities, ADRs, CVRs, Investment Company Units,
Trust Issued Receipts (including those based on
Investment Shares), Commodity-Based Trust
Continued
E:\FR\FM\14MYN1.SGM
14MYN1
]]>Agencies
[Federal Register Volume 85, Number 94 (Thursday, May 14, 2020)]
[Notices]
[Pages 29005-29009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10285]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88839; File No. SR-FINRA-2020-014]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rule 9231 To Provide for the
Compensation of All Panelists That Serve in Connection With a FINRA
Disciplinary Hearing
May 8, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 5, 2020, 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. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. 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.
\3\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) requires a self-
regulatory organization to give the Commission written notice of its
intent to file the proposed rule change at least five business days
prior to the date of filing of the proposed rule change, or such
shorter time as designated by the Commission. FINRA has satisfied
this requirement.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 9231 to provide for the
compensation of all panelists that serve in connection with a FINRA
disciplinary hearing, regardless of whether it is an Extended or non-
Extended Hearing.\4\
---------------------------------------------------------------------------
\4\ FINRA Rule 9231(c) sets forth the circumstances in which a
hearing may be designated an Extended Hearing. Matters that require
an Extended Hearing are assigned an Extended Hearing Panel. For the
purposes of this proposal only, the term ``Hearing Panel''
collectively refers to both Extended and non-Extended Hearing
Panels.
---------------------------------------------------------------------------
The text of the proposed rule change is available on FINRA's
website at https://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA Rule 9231 governs the appointment by FINRA's Chief Hearing
Officer of Hearing Panels, both Extended and non-Extended, and
replacement Hearing Officers.
A Hearing Panel consists of a Hearing Officer and two Panelists.\5\
Each Panelist must be associated with a FINRA member or retired
therefrom.\6\ Service as a Panelist is voluntary.
---------------------------------------------------------------------------
\5\ See FINRA Rule 9231(b) and (c). If, after appointment, a
Panelist withdraws, is unable to serve, or is disqualified, the
Chief Hearing Officer may, in his or her discretion, determine
whether to appoint a replacement Panelist. If two Panelists
withdraw, are unable to serve, or are disqualified, the Chief
Hearing Officer must appoint two replacement Panelists. See FINRA
Rule 9234.
\6\ See FINRA Rule 9231(b) and (c).
---------------------------------------------------------------------------
Rule 9231 authorizes the Chief Hearing Officer to exercise his or
her discretion to compensate Panelists who serve on Extended Hearing
Panels only. The proposed rule change would amend Rule 9231 to provide
for the compensation of all Panelists, irrespective of whether they
serve on Extended or non-Extended Hearing Panels, and without the
exercise of discretion by the Chief Hearing Officer. FINRA believes the
proposed rule change will encourage a greater and more diverse pool of
eligible individuals
[[Page 29006]]
to agree to serve on Hearing Panels. A larger and more diverse pool of
eligible individuals willing to serve as Panelists will facilitate the
Chief Hearing Officer's ability readily to appoint Hearing Panels with
appropriate experience and expertise as needed.
Background
FINRA's disciplinary process begins with the Department of
Enforcement filing a complaint with the Office of Hearing Officers
(``OHO'') alleging that a Respondent \7\ is violating or has violated a
rule, regulation, or statutory provision, including the federal
securities laws and related regulations, that FINRA has jurisdiction to
enforce.\8\ Following the filing of a complaint, the Chief Hearing
Officer assigns a Hearing Officer to preside over the disciplinary
proceeding \9\ and appoints Panelists to an Extended or non-Extended
Hearing Panel to conduct the disciplinary proceeding. Disciplinary
matters are assigned to an Extended Hearing Panel if, upon
consideration of the complexity of the issues involved, the probable
length of the hearing, or other factors that the Chief Hearing Officer
deems material, the Chief Hearing Officer determines that a matter
shall be an Extended Hearing.\10\
---------------------------------------------------------------------------
\7\ A Respondent is a FINRA member or associated person against
whom a complaint is filed. See FINRA Rule 9120(aa).
\8\ See FINRA Rule 9211.
\9\ See FINRA Rule 9213. A Hearing Officer must be an attorney
who is an employee of FINRA or former employee of FINRA who
previously acted as a Hearing Officer. See FINRA Rule 9120(r). Among
other things, a Hearing Officer administers pre-hearing matters,
including most motions, resolves procedural and evidentiary matters,
oversees the settlement and discovery process, regulates the course
of the proceeding, and drafts a decision that represents the view of
the majority of the Hearing Panel. See FINRA Rule 9235.
\10\ See FINRA Rule 9231(c). Rule 9231 does not establish a
minimum number of hearing days required to make a hearing an
Extended Hearing. OHO's policy is to treat any hearing scheduled to
last five or more days as an Extended Hearing.
---------------------------------------------------------------------------
Responsibilities of Hearing Panelists; Criteria for Appointment
Panelists are essential to FINRA's disciplinary process. The
Hearing Panel listens to the presentation of evidence and issues a
written decision setting forth findings as to whether a Respondent
engaged in violative conduct and describing the sanctions, if any,
imposed.\11\ In addition to traveling to hearing locations and
attending hearings, Panelists are expected to review materials in
preparation for the hearing, participate in conference calls with the
Hearing Officer, review post-hearing briefs, participate in
deliberations (which may require a full day or several days of shorter
sessions), and review and comment on a draft Hearing Panel decision.
Hearing Panel decisions generally may be appealed to, and are subject
to discretionary review by, the National Adjudicatory Council
(``NAC'').\12\ Hearing Panel decisions are also subject to
discretionary review by FINRA's Board of Governors, and final
disciplinary action by FINRA may be appealed to the Commission.\13\
---------------------------------------------------------------------------
\11\ See FINRA Rule 9260 Series.
\12\ See FINRA Rules 9311 and 9312. In addition, a member of
FINRA's Board of Governors may call a disciplinary proceeding for
review by the FINRA Board. See FINRA Rule 9351. A Respondent may
appeal a final disciplinary action by FINRA to the SEC pursuant to
Section 19(d)(2) of the Exchange Act and FINRA Rule 9370.
\13\ See FINRA Rules 9351 and 9370.
---------------------------------------------------------------------------
The appointment of Panelists is subject to specific criteria under
Rules 9231 and 9232. These criteria help ensure that Panelists possess
the requisite experience and expertise to fulfill their
responsibilities in a manner that results in fair, deliberative
disciplinary proceedings. The Chief Hearing Officer appoints Panelists
from a pool that generally includes persons who: (1) Previously served
on a District Committee; \14\ (2) currently serve or previously served
on a Regional Committee; (3) previously served on the NAC; (4)
previously served on a disciplinary subcommittee of the NAC or the
National Business Conduct Committee; (5) previously served as a FINRA
Governor or Director, but do not currently serve in either of these
positions; \15\ or (6) currently serve or previously served on a
committee appointed or approved by the FINRA Board, but does not serve
currently on the NAC or as a Director or a Governor of the FINRA
Board.\16\ If the complaint alleges at least one cause of action
involving a violation of a statute or a rule described in Rule 9120(u),
the Chief Hearing Officer may select one Panelist who currently serves
or previously served on the Market Regulation Committee.\17\
---------------------------------------------------------------------------
\14\ In 2018, FINRA reorganized its 11 District Committees into
five Regional Committees.
\15\ FINRA, Inc. (FINRA), a securities association registered
under Section 15A of the Exchange Act, is the parent company of
FINRA Regulation, Inc. (FINRA Regulation). ``Governor'' refers to a
member of the Board of Governors of FINRA. ``Director'' refers to a
member of the Board of Directors of FINRA Regulation.
\16\ See FINRA Rule 9231(b)(1)(A) to (F).
\17\ See FINRA Rule 9231(b)(2). A former Market Regulation
Committee member must have served no earlier than four years before
the date the complaint was served upon the Respondent who was the
first Respondent served in the disciplinary proceeding. See also
FINRA Rule 9232(b).
FINRA Rule 9120(u) refers to the federal securities laws and the
rules and regulations adopted thereunder and various FINRA rules and
policies relating to (i) the quotations of securities; (ii) the
execution of transactions; (iii) the reporting of transactions; and
(iv) trading practices, including rules prohibiting manipulation and
insider trading, and trading-related rules such as FINRA Rule 4560
and FINRA Rule 5200, 6000, 7100, 7200, 7300 and 7400 Series.
---------------------------------------------------------------------------
The selection of Panelists from among those eligible under Rule
9231 is subject to criteria set forth in Rule 9232. The Chief Hearing
Officer must determine which Regional Committee shall be the Primary
Regional Committee from which he or she will first seek Panelists.\18\
Once a Primary Regional Committee has been designated, the Chief
Hearing Officer selects Panelists from (1) the current members of the
Primary Regional Committee; (2) the categories of persons eligible to
serve as Panelists under FINRA Rule 9231 who are located in the same
geographic area as the Primary Regional Committee; and, if applicable,
(3) current or former members of the Market Regulation Committee.\19\
Selection is based on (1) expertise; (2) the absence of any conflict of
interest or bias, and any appearance thereof; (3) availability; and (4)
the frequency with which a person has served as a Panelist during the
past two years, favoring the selection of a person as a Panelist who
has never served or served infrequently as a Panelist during that
period.\20\
---------------------------------------------------------------------------
\18\ See FINRA Rule 9232(a). The Chief Hearing Officer
designates a Regional Committee as the Primary Regional Committee
based on the relevant facts and circumstances of the case, including
but not limited to (1) the location of a Respondent's principal
office if the Respondent is or was a member firm; (2) the location
of a Respondent's office at the time of the alleged misconduct if
the Respondent is or was an associated person; (3) the location of
the office of a member or an associated person, or a former member
or associated person, where the alleged misconduct occurred; (4) the
location of witnesses at the time of the filing of the complaint,
especially the location of witnesses who are or were customers of a
Respondent; (5) the location, at the time of the alleged misconduct,
of the main, branch, or other office in which supervisory personnel,
who are or were responsible for the supervision of a Respondent,
were employed; and (6) the location, at the time of the alleged
misconduct, of the main, branch, or other office in which
supervisory personnel, who are or were responsible for the
supervision of the office, division, function, or segment of the
member where the alleged misconduct occurred, were employed. See
FINRA Rule 9232(c).
\19\ See FINRA Rule 9232(d).
\20\ See supra footnote 19.
---------------------------------------------------------------------------
Rule 9232 does not preclude the Chief Hearing Officer from
appointing Panelists from other categories of those eligible under Rule
9231. The Chief Hearing Officer may make such an appointment if he or
she determines that one or more persons from other categories of
eligible Panelists more clearly meet the criteria of paragraph (d)(1)
through (4) of Rule 9232 and the public interest or the administration
of FINRA's regulatory and enforcement
[[Page 29007]]
program would be enhanced by the selection of such Panelists.\21\
---------------------------------------------------------------------------
\21\ See FINRA Rule 9232(e).
---------------------------------------------------------------------------
Compensation of Panelists
The Chief Hearing Officer has discretion to compensate any or all
Panelists of an Extended Hearing Panel at the rate then in effect for
arbitrators appointed under the Rule 12000 Series.\22\ In practice, the
Chief Hearing Officer exercises his or her discretion to compensate all
Panelists on all Extended Hearing Panels. The Chief Hearing Officer
does not have the authority to compensate Panelists on non-Extended
Hearing Panels. In practice, because only hearings that are scheduled
to last five or more days are designated Extended Hearings, Panelists
who serve on hearings that are scheduled to last four or fewer days are
not compensated.\23\
---------------------------------------------------------------------------
\22\ See FINRA Rule 9231(c). The FINRA Rule 12000 Series is the
Code of Arbitration Procedure for Customer Disputes.
\23\ OHO conducts disciplinary hearings in all 50 states,
thereby requiring most Panelists to travel to FINRA hearings. FINRA
covers all travel-related expenses for Panelists regardless of the
length of the hearing.
---------------------------------------------------------------------------
OHO has encountered increasing difficulty in finding eligible
individuals willing to serve on Hearing Panels. At the same time, the
number, length and complexity of hearings are increasing. Some eligible
individuals have indicated that they are only willing to serve on
Extended Hearing Panels because they want to be compensated for their
time. Others have indicated that they should be compensated for their
time in the case of a hearing lasting more than one or two days.
FINRA places a high value on a fair, efficient, and expeditious
adjudicatory process. OHO therefore must be able to quickly and
efficiently assign adjudicated matters to Hearing Panels, both Extended
and non-Extended, and schedule cases for hearing. FINRA believes OHO's
ability to identify willing and eligible Panelists will be improved if
all Hearing Panelists are compensated.
As is the case with Extended Hearing Panelists, the Chief Hearing
Officer would compensate all non-Extended Hearing Panelists if granted
discretion to do so. Rather than adding a grant of discretion to cover
non-Extended Hearing Panels, FINRA instead proposes to amend Rule 9231
to provide that all Panelists--i.e., both Extended and non-Extended
Hearing Panelists--will be compensated at the rate then in effect for
arbitrators set forth in FINRA Rule 12214(a)(1), (3) and (4). The
proposed rule change does not establish or change a fee in connection
with FINRA disciplinary proceedings. Extended Hearing Panelists are
currently paid pursuant to the payment provisions set forth in Rule
12214(a)(1), (3) and (4). The proposed rule change merely extends those
payment provisions to Panelists who serve in connection with non-
Extended Hearings.
Payments to arbitrators is established in Rule 12214. The payments
that non-Extended Hearing Panelists would be eligible to receive are
set forth in Rule 12214(a)(1), (3) and (4). Rule 12214(a)(1) provides
for a $300 payment to an arbitrator for each hearing session in which
he or she participates. A typical hearing day may consist of two four-
hour hearing sessions.\24\ Rule 12214(a)(3) establishes a $50 payment
to an arbitrator for travel to a hearing session that is postponed.
Rule 12214(a)(4) provides for a $600 payment to an arbitrator if a
hearing session other than a prehearing conference is postponed within
ten days before the scheduled date.
---------------------------------------------------------------------------
\24\ A hearing session is a meeting of four hours or less. See
FINRA Rule 12100(p). Occasionally, a Panelist may prepare for and
travel to a hearing only to discover just prior to a hearing session
that he or she cannot participate. This may occur, for example, if a
Panelist discovers just prior to the commencement of a hearing
session that she must recuse herself because of her connection to a
witness. In such a case, the Panelist will be compensated for one
hearing session.
---------------------------------------------------------------------------
Other honoraria provided for by Rule 12214 are inapplicable to
Hearing Panelists. Rule 12214(a)(2) provides for an additional $125 per
day to the chairperson for each hearing on the merits. An OHO Hearing
Officer who is a FINRA employee serves as the chair of each Hearing
Panel. Thus, the provision in Rule 12214(a)(2) has no effect in the
case of Hearing Panelists.
Rule 12214(a)(5) provides for a $100 payment to each arbitrator for
a prehearing conference that is cancelled by agreement of the parties,
or is requested by one or more of the parties, within three business
days of its scheduled date. Hearing Panelists, however, typically do
not participate in prehearing conferences.\25\ In most cases, the OHO
Hearing Officer handles a prehearing conference alone. In the limited
cases where Hearing Panelists participate in a prehearing conference,
those conferences are set by the OHO Hearing Officer and are not
scheduled at the request of a party. Therefore, the provision in Rule
12214(a)(5) is likewise inapplicable to Hearing Panelists.
---------------------------------------------------------------------------
\25\ See FINRA Rule 9241.
---------------------------------------------------------------------------
In addition, the honoraria established in Rule 12214(b), (c) and
(d) do not apply to Hearing Panelists. Rule 12214(b) authorizes a
higher or additional honorarium in the case of a foreign hearing
location; all FINRA disciplinary hearings, however, occur at U.S.
locations. Rule 12214(c) provides for honorarium payments to
arbitrators for deciding motions concerning discovery, contested
subpoena requests, and contested orders for production or appearance
without a hearing session. Subpoenas are not issued in FINRA
disciplinary hearings, however, and discovery-related motions are
decided by the OHO Hearing Officer alone.\26\ Rule 12214(d) provides an
additional honorarium for explained decisions written in support of
arbitration awards. This provision does not apply to Hearing Panel
decisions written in connection with FINRA disciplinary proceedings,
which are governed by Rule 9268, and is therefore inapplicable to
Hearing Panelists.
---------------------------------------------------------------------------
\26\ See FINRA Rules 9252 and 9253.
---------------------------------------------------------------------------
FINRA notes that, except in limited circumstances, Rule 12214 does
not provide for payments for time spent on travel or preparation. Non-
Extended Hearing Panelists, like Extended Hearing Panelists, therefore
still may accrue not-insubstantial amounts of uncompensated time in
connection with service on a Hearing Panel.
FINRA has filed the proposed rule change for immediate
effectiveness. The proposed rule change will become operative 30 days
after the date of filing.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(8) of the Act,\27\ which requires, among
other things, that FINRA rules provide a fair procedure for the
disciplining of members and persons associated with members. FINRA
believes that the proposed rule change, consistent with this purpose of
the Act, will help assure that complaints filed with OHO continue to be
heard and resolved in a timely manner by Panelists with the expertise,
experience, and perspective necessary to render a fair and informed
judgment and, where necessary, to impose appropriately remedial
sanctions. By compensating all Panelists, the proposed rule change will
encourage a greater number of eligible individuals to agree to devote
their time and experience in service as Panelists. This will enable the
Chief Hearing Officer to appoint Hearing Panels from a larger and
potentially more diverse group of eligible individuals willing to serve
and capable of responding to the complex issues and time demands
presented by disciplinary hearings.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78o-3(b)(8).
---------------------------------------------------------------------------
[[Page 29008]]
FINRA also believes that the proposed rule change is consistent
with the provisions of Section 15A(b)(6) of the Act,\28\ 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 encouraging a
greater number of eligible individuals to serve as Panelists by
compensating them for their time and expertise will enhance FINRA's
disciplinary processes, promote high business standards for FINRA
members, and allow for the prompt adjudication of allegations of
misconduct by FINRA members and their associated persons. It is in the
public interest, and consistent with the Act's purpose, that FINRA
disciplinary proceedings be timely resolved and that appropriate
sanctions be imposed where necessary to redress customer harm and deter
future misconduct.
---------------------------------------------------------------------------
\28\ 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. The proposed rule change is
intended solely to enhance the administration of FINRA's process for
the disciplining of members and persons associated with members. FINRA
believes the proposed rule change will allow the Chief Hearing Officer
flexibility to appoint Panelists and thereby maintain the timely
progress of cases to a hearing. FINRA does not believe that the
proposed rule change will have any negative effect on members or impose
any new costs.
Economic Impact Assessment
As described above, under current FINRA rules, the Chief Hearing
Officer may pay honoraria only to individuals who serve as Panelists at
Extended Hearings. The rules do not allow OHO to pay honoraria to
Panelists at non-Extended Hearings. As a result, potential Panelists
may lack sufficient incentive to serve on non-Extended Hearing Panels,
which impairs OHO's ability to assemble Hearing Panels for non-Extended
Hearings expediently. FINRA believes that paying honoraria to all
Hearing Panelists, regardless of whether the hearing is designated as
an Extended Hearing, will expand the number of qualified current or
retired industry members willing to serve on Hearing Panels.
Economic Baseline
The baseline for the proposal is Rule 9231, which allows for
payments to Panelists serving on Extended Hearing Panels only. Based on
FINRA's experience, this inequity creates a preference among eligible
individuals to serve on Extended Hearing Panels. This can limit the
pool of Panelists available to serve for non-Extended Hearings.
Of the 59 hearings that occurred between 2017 and 2019, 51% were
Extended Hearings, and thus generated payments to Panelists.\29\ In the
three-year sample period, OHO conducted hearings, on average, 82 days
per year, of which 57 days were for Extended Hearings. FINRA spent, on
average, $68,400 annually to pay Extended Hearing Panelists.\30\
---------------------------------------------------------------------------
\29\ In 2017, there were 25 hearings, 14 of which were Extended
Hearings; in 2018, of 21 hearings, 10 were Extended Hearings; and in
2019, of 13 hearings, six were Extended Hearings.
\30\ Figures based on a three-year period from January 2017 to
December 2019.
---------------------------------------------------------------------------
Anticipated Benefits
The proposal provides a monetary benefit of $600 per day to Hearing
Panelists serving on non-Extended Hearing Panels, among other potential
payments. This proposed honorarium may potentially create a new
incentive for industry members to serve (or continue to serve) on non-
Extended Hearing Panels. The proposal may also benefit FINRA as it
should increase the number of eligible individuals willing to serve as
Panelists and make it easier for FINRA to assemble Hearing Panels with
appropriate experience and expertise, which is the regulatory
objective.
Both industry members and investors share an incentive to have
enforcement actions timely brought before a suitably qualified panel.
To the extent that the proposal expands the pool of willing Panelists,
and thereby improves FINRA's ability to expeditiously organize expert
Hearing Panels, both of these groups will benefit.
Anticipated Costs
The proposed rule change, which expands honoraria to non-Extended
Hearing Panelists, would not impose any additional requirements or fees
on firms or respondents in FINRA disciplinary hearings. Direct costs
associated with this proposal will be incurred by FINRA only. FINRA
estimates these costs at approximately $26,400 per year. Based on its
experience with paying honoraria to Panelists in Extended Hearings, OHO
does not anticipate that paying honoraria to Panelists serving on non-
Extended Hearing Panels will adversely impact the hearing process.
Alternatives Considered
FINRA considered allowing the Chief Hearing Officer to use his or
her discretion in determining whether to compensate Hearing Panelists.
A primary objective of the amendment is to increase eligible Hearing
Panelists' incentive to serve. Therefore, requiring compensation in the
form of an honorarium at the rate set for arbitrators to all Hearing
Panelists--rather than at the discretion of the Chief Hearing Officer--
should only increase the likelihood that the amendment will yield the
desired outcome.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \31\ and Rule 19b-
4(f)(6) thereunder.\32\
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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
[[Page 29009]]
Send an email to [email protected]. Please include
File Number SR-FINRA-2020-014 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-2020-014. 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 a.m. and 3
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-2020-014 and should be submitted on or before June 4, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
---------------------------------------------------------------------------
\33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10285 Filed 5-13-20; 8:45 am]
BILLING CODE 8011-01-P
