Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Amend the FINRA Codes of Arbitration Procedure To Increase Arbitrator Chairperson Honoraria and Certain Arbitration Fees, 84053-84057 [2020-28310]
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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Notices
improves the efficiency of the filing
process by obviating the need for OCC
to propose another change to its rules to
resolve the error in the future while not
changing the purpose of or basis for the
Proposed Rule Change. Updating the list
of vendor agreements as part of the
immediate proposal would similarly
reduce the need for future filings
without changing the purpose of or
basis for the Proposed Rule Change.
For similar reasons as discussed
above, the Commission finds that Partial
Amendment No. 1 is consistent with the
requirement that OCC’s rules be
designed to promote the prompt and
accurate clearance and settlement of
securities transactions and assure the
safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible under Section 17A(b)(3)(F)
of the Exchange Act.27 Accordingly, the
Commission finds good cause for
approving the proposed rule change, as
modified by Partial Amendment No. 1,
on an accelerated basis, pursuant to
Section 19(b)(2) of the Exchange Act.28
VI. Conclusion
On the basis of the foregoing, the
Commission finds that the Proposed
Rule Change is consistent with the
requirements of the Exchange Act, and
in particular, the requirements of
Section 17A of the Exchange Act 29 and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act,30
that the Proposed Rule Change (SR–
OCC–2020–013), as modified by Partial
Amendment No. 1, be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–28317 Filed 12–22–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90705; File No. SR–FINRA–
2020–035]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving a
Proposed Rule Change To Amend the
FINRA Codes of Arbitration Procedure
To Increase Arbitrator Chairperson
Honoraria and Certain Arbitration Fees
December 17, 2020.
I. Introduction
On October 16, 2020, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend the Code of Arbitration
Procedure for Customer Disputes
(‘‘Customer Code’’) and the Code of
Arbitration Procedure for Industry
Disputes (‘‘Industry Code’’) (together,
‘‘Codes’’) to increase arbitrator
chairperson (‘‘Chair’’) honoraria.
Specifically, the proposed rule change
would: (1) Increase the additional
hearing day honorarium Chairs receive
for each hearing on the merits from $125
to $250 and (2) create a new $125 Chair
honorarium for each prehearing
conference in which the Chair
participates. Under the proposed rule
change, these increases would be
funded primarily by certain increases to
the member surcharge and process fees
for claims of more than $250,000 or
claims for non-monetary or unspecified
damages. The proposed rule change
would also increase filing fees and
hearing session fees for customers,
associated persons and members
bringing claims of more than $500,000
or claims for non-monetary or
unspecified damage.
The proposed rule change was
published for comment in the Federal
Register on October 26, 2020.3 The
public comment period closed on
November 16, 2020. The Commission
received one comment letter in response
to the Notice.4 On December 9, 2020,
FINRA consented to an extension of the
1 15
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27 15
U.S.C. 78q–1(b)(3)(F).
28 15 U.S.C. 78s(b)(2).
29 In approving this Proposed Rule Change, the
Commission has considered the proposed rules’
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
30 15 U.S.C. 78s(b)(2).
31 17 CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Exchange Act Release No. 90227 (Oct. 20, 2020),
85 FR 67794 (Oct. 26, 2020) (File No. SR–FINRA–
2020–035 (‘‘Notice’’).
4 Letter from the Steven B. Caruso, Maddox
Hargett Caruso, P.C., dated October 20, 2020
(‘‘Caruso Letter’’), available at https://www.sec.gov/
comments/sr-finra-2020-035/srfinra20200357927147-224628.htm.
2 17
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84053
time period in which the Commission
must approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to approve or disapprove the
proposed rule change to December 31,
2020.5 This order approves the
proposed rule change.
II. Description of the Proposed Rule
Change
FINRA makes arbitrator honoraria
payments to its arbitrators for the
services they provide to FINRA’s
dispute resolution forum. Currently,
under FINRA Rule 12214(a)(1),
arbitrators receive $300 for each hearing
session in which the arbitrator
participates.6 In recognition of their
increased experience and the extra
responsibilities they must perform
during an arbitration,7 Chairs currently
receive an additional $125 for serving as
Chair during a hearing (‘‘hearing day
honorarium’’).8 The Chair receives the
additional honorarium for each hearing
day, regardless of the number of hearing
sessions held per day.9 Currently,
Chairs do not receive an additional
honorarium for prehearing conferences,
which they are required to lead and for
which they are required to perform
additional tasks, such as setting
discovery, briefing, and motion
deadlines, scheduling subsequent
hearing sessions, and drafting
prehearing orders.10
A. Proposed Increases to Arbitrator
Chair Honoraria
The proposed rule change would
amend FINRA Rules 12214 and 13214 to
increase the arbitrator Chair honoraria.
Specifically, the proposed rule change
would increase the hearing day
honorarium from $125 to $250 to better
compensate the Chair for the additional
training and responsibilities required of
the position. In addition, the proposed
rule change would establish a new
5 See letter from Mignon McLemore, Assistant
General Counsel, Office of General Counsel, FINRA,
to Lourdes Gonzalez, Assistant Chief Counsel,
Division of Trading and Markets, Commission,
dated December 9, 2020.
6 A ‘‘hearing session’’ is any meeting between the
parties and arbitrator(s) of four hours or less,
including a hearing or a prehearing conference. See
FINRA Rules 12100(p) and 13100(p).
7 For example, during a typical arbitration, the
Chair oversees the discovery process, conducts the
initial prehearing conference (‘‘IPHC’’) and
subsequent prehearing conferences as needed,
drafts rulings and orders, and manages efficient
hearings. See Notice at note 4.
8 See FINRA Rule 12214(a)(2). The term
‘‘hearing’’ means the hearing on the merits of an
arbitration under FINRA Rules 12600 and 13600.
See FINRA Rules 12100(o) and 13100(o).
9 A typical day has two hearing sessions. See
Notice at note 3.
10 See FINRA Rules 12500(c) and 13500(c).
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honorarium to pay a Chair an additional
$125 for each prehearing conference in
which he or she participates. Under the
proposed rule change, Chairs would
receive the additional prehearing
conference compensation even if an
arbitration case closes without a
hearing. For example, if the Chair
participates in a prehearing
conference,11 but the parties settle the
case, the Chair would still receive some
compensation for serving as Chair.
B. Proposed Increases to Arbitration
Fees
To fund increases in the arbitrator
Chair honoraria, the proposed rule
change would also increase the member
surcharge, member process fees, filing
fees, and hearing session fees that the
forum assesses the parties during the
course of an arbitration case.
1. Proposed Increases to Member
Surcharge
Under FINRA Rules 12901 and 13901,
FINRA assesses a surcharge against each
member that: (1) Files a claim,
counterclaim, cross claim, or third party
claim under the Codes; (2) is named as
a respondent in a claim, counterclaim,
cross claim, or third party claim filed
and served under the Codes; or (3)
employed, at the time the dispute arose,
an associated person who is named as
a respondent in a claim, counterclaim,
cross claim, or third party claim filed
and served under the Codes. Member
surcharges are intended to allocate the
costs of administering the arbitration
case to the firms that are involved in
those cases.12 Because the cost of
administering an arbitration case
generally is proportional to the
aggregate claim amount,13 the member
surcharge increases with the size of the
claim amount.14 Proposed FINRA Rules
12901 and 13901 would increase the
member surcharge for claims of more
than $250,000 and claims for nonmonetary or unspecified damages. Table
1 illustrates the proposed dollar and
percentage changes for each tier.15
MEMBER SURCHARGE SCHEDULE—TABLE 1
Amount of claim
(exclusive of interest and expenses)
Current
surcharge
$.01 to $5,000 ..................................................................................................
$5,000.01–$10,000 ..........................................................................................
$10,000.01–$25,000 ........................................................................................
$25,000.01–$50,000 ........................................................................................
$50,000.01–$100,000 ......................................................................................
$100,000.01–$250,000 ....................................................................................
$250,000.01–$500,000 ....................................................................................
$500,000.01–$1,000,000 .................................................................................
$1,000,000.01–$5,000,000 ..............................................................................
$5,000,000.01–$10,000,000 ............................................................................
Over $10,000,000 ............................................................................................
Non-Monetary/Not Specified ............................................................................
2. Proposed Increases to Filing Fee
Under FINRA Rules 12900(a)(1) and
13900(a)(1), if a customer, associated
person or other non-member files a
claim, counterclaim, cross claim, or
third party claim, they must pay a filing
Proposed fee
$150
325
450
750
1,100
1,700
1,900
2,475
3,025
3,600
4,025
1,900
fee to initiate an arbitration. As with
member surcharges, the filing fee is
based on the claim amount or type of
damages requested.16 The proposed rule
change would amend FINRA Rules
12900 and 13900 to increase the filing
$150
325
450
750
1,100
1,700
2,025
2,625
3,200
3,850
4,325
2,000
Percentage
change
(%)
Change
$0
0
0
0
0
0
125
150
175
250
300
100
0
0
0
0
0
0
7
6
6
7
7
5
fees for customers, associated persons or
other non-members bringing claims of
more than $500,000 and claims for nonmonetary or unspecified damages. Table
2 shows the proposed dollar and
percentage changes.17
FILING FEES FOR CUSTOMERS, ASSOCIATED PERSONS OR OTHER NON-MEMBER CLAIMANTS—TABLE 2
Amount of claim
(exclusive of interest and expenses)
Current claim
filing fee
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$.01 to $1,000 ..................................................................................................
$1,000.01–$2,500 ............................................................................................
$2,500.01–$5,000 ............................................................................................
$5,000.01–$10,000 ..........................................................................................
$10,000.01–$25,000 ........................................................................................
$25,000.01–$50,000 ........................................................................................
$50,000.01–$100,000 ......................................................................................
$100,000.01–$500,000 ....................................................................................
$500,000.01–$1,000,000 .................................................................................
$1,000,000.01–$5,000,000 ..............................................................................
Over $5,000,000 ..............................................................................................
Non-Monetary/Not Specified ............................................................................
11 See
FINRA Rules 12500(a) and 13500(a).
Notice at 67796. The member surcharge is
the responsibility of the member party and cannot
12 See
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$50
75
175
325
425
600
975
1,425
1,725
2,000
2,250
1,575
be allocated to any other party (‘‘non-allocable’’).
See FINRA Rules 12901(a)(6) and 13901(f).
13 See Notice at 67796.
14 Id.
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Proposed
claim filing fee
$50
75
175
325
425
600
975
1,425
1,740
2,025
2,300
1,600
Percentage
change
(%)
Change
$0
0
0
0
0
0
0
0
15
25
50
25
15 Id.
16 See
17 See
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FINRA Rules 12900(a)(1) and 13900(a)(1).
Notice at 67797.
23DEN1
0
0
0
0
0
0
0
0
1
1
2
2
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The proposed rule change would also
amend FINRA Rules 12900(b) and
13900(b) to increase the filing fees that
members pay for claims of more than
$500,000 and claims for non-monetary
or unspecified damages. Table 3 shows
the proposed dollar and percentage
changes.18
FILING FEES FOR MEMBER CLAIMANT—TABLE 3
Amount of claim
(exclusive of interest and expenses)
Current claim
filing fee
$.01 to $1,000 ..................................................................................................
$1,000.01–$2,500 ............................................................................................
$2,500.01–$5,000 ............................................................................................
$5,000.01–$10,000 ..........................................................................................
$10,000.01–$25,000 ........................................................................................
$25,000.01–$50,000 ........................................................................................
$50,000.01–$100,000 ......................................................................................
$100,000.01–$500,000 ....................................................................................
$500,000.01–$1,000,000 .................................................................................
$1,000,000.01–$5,000,000 ..............................................................................
Over $5,000,000 ..............................................................................................
Non-Monetary/Not Specified ............................................................................
3. Proposed Increases to Process Fee
Under FINRA Rules 12903 and 13903,
each member that is a party to an
arbitration or employed an associated
person who is a party to an arbitration
Proposed
claim filing fee
$225
350
525
750
1,050
1,450
1,750
2,125
2,550
3,400
4,000
1,700
in which the claim amount is more than
$25,000 must pay a process fee based on
the amount of the claim.19 The proposed
rule change would amend FINRA Rules
12903 and 13903 to increase the
Percentage
change
(%)
Change
$225
350
525
750
1,050
1,450
1,750
2,125
2,650
3,550
4,200
1,800
$0
0
0
0
0
0
0
0
100
150
200
100
0
0
0
0
0
0
0
0
4
4
5
6
member process fees for claim amounts
larger than $250,000 and for claims for
non-monetary or unspecified damages.
Table 4 illustrates the proposed dollar
and percentage changes.20
MEMBER PROCESS FEE SCHEDULE—TABLE 4
Amount of claim
(exclusive of interest and expenses)
Current
process fee
$.01–$25,000 ...................................................................................................
$25,000.01–$50,000 ........................................................................................
$50,000.01–$100,000 ......................................................................................
$100,000.01–$250,000 ....................................................................................
$250,000.01–$500,000 ....................................................................................
$500,000.01–$1,000,000 .................................................................................
$1,000,000.01–$5,000,000 ..............................................................................
$5,000,000.01–$10,000,000 ............................................................................
Over $10,000,000 ............................................................................................
Non-Monetary/Not Specified ............................................................................
4. Proposed Increases to Hearing
Session Fee
Under FINRA Rules 12902(a) and
13902(a), FINRA assesses hearing
session fees against the parties for each
hearing and pre-hearing session
conducted by a panel.21 In the award,
the panel determines the amount of the
Proposed fee
$0
1,750
2,250
3,250
3,750
5,075
6,175
6,800
7,000
3,750
hearing session fees that each party is
required to pay.22 The arbitrators may
apportion the fees in any manner,
including assessing the entire amount
against one party.23 The proposed rule
change would amend FINRA Rules
12902 and 13902 to increase the fees for
claims of more than $500,000 and for
claims for non-monetary or unspecified
Percentage
change
(%)
Change
$0
0
0
0
3,875
5,225
6,375
7,050
7,300
3,850
$0
0
0
0
125
150
200
250
300
100
0
0
0
0
3
3
3
4
4
3
damages. There are different hearing
session fees for hearings with one
arbitrator versus hearings with three
arbitrators. Under the proposed rule
change, the fees would not change for
hearings with one arbitrator. Table 5
illustrates the proposed dollar and
percentage changes.24
HEARING SESSION FEES FOR SESSION WITH THREE ARBITRATORS—TABLE 5
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Amount of claim
(exclusive of interest and expenses)
Current fee for
session w/
three
arbitrators
Proposed fee
for session w/
three
arbitrators
NA
NA
NA
NA
Up to $2,500 ....................................................................................................
$2,500.01–$5,000 ............................................................................................
18 Id.
19 Like
the member surcharge, the process fee is
non-allocable to other parties to the arbitration. See
FINRA Rules 12903(d) and 13903(d). See also
FINRA Rules 12701(b) and 13701(b).
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20 See
23 See
21 See
Notice at 67797.
supra note 8.
22 The term ‘‘panel’’ means the arbitration panel,
whether it consists of one or more arbitrators. See
FINRA Rules 12100(u) and 13100(s).
24 See
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Percentage
change
(%)
Change
NA
NA
NA
NA
FINRA Rules 12902(a)(1) and 13902(a)(1).
Notice at 67798.
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HEARING SESSION FEES FOR SESSION WITH THREE ARBITRATORS—TABLE 5—Continued
Amount of claim
(exclusive of interest and expenses)
Current fee for
session w/
three
arbitrators
Proposed fee
for session w/
three
arbitrators
NA
NA
$600
750
1,125
1,300
1,400
1,500
1,125
NA
NA
$600
750
1,125
1,325
1,435
1,575
1,150
$5,000.01–$10,000 ..........................................................................................
$10,000.01–$25,000 ........................................................................................
$25,000.01–$50,000 ........................................................................................
$50,000.01–$100,000 ......................................................................................
$100,000.01–$500,000 ....................................................................................
$500,000.01–$1,000,000 .................................................................................
$1,000,000.01–$5,000,000 ..............................................................................
Over $5,000,000 ..............................................................................................
Non-Monetary/Not Specified ............................................................................
C. Technical Changes
The proposed rule change would
amend FINRA Rules 12901 and 13901 to
make the formatting more consistent in
the fee schedules. In addition, the
proposed rule change would amend
FINRA Rule 12900(c)(3) to change the
cross-reference in the rule from Rule
12202(c) to Rule 12202.
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III. Discussion and Commission
Findings
After careful review of the proposed
rule change and the comment letter, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Exchange Act and
the rules and regulations thereunder
that are applicable to a national
securities association.25 Specifically, the
Commission finds that the proposed
rule change is consistent with Section
15A(b)(6) of the Exchange Act,26 which
requires, among other things, that
FINRA rules be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest,
and Section 15A(b)(5) of the Exchange
Act,27 which requires, among other
things, that FINRA rules provide for the
equitable allocation of reasonable dues,
fees and other charges among members
and issuers and other persons using any
facility or system that FINRA operates
or controls.
A. Protection of Investors and the Public
Interest
FINRA’s proposed rule change aims to
address concerns related to recruiting
and retaining arbitrators for its forum
roster, including increasing the
probability that local public Chairs
would be proposed for selection. FINRA
25 In approving this rule change, the Commission
has considered the rule’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
26 15 U.S.C. 78o–3(b)(6).
27 15 U.S.C. 78o–3(b)(5).
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stated that Chair-eligible arbitrators
have indicated that they are not
interested in completing the required
Chair training and serving on the Chair
roster because of the extra work
required compared to the modest,
additional Chair honorarium currently
offered.28 And forum users have
expressed concern with empaneling
non-local public arbitrators to Chair
their proceedings.29 FINRA believes that
increasing the current per-day Chair
honorarium for hearings on the merits
and establishing a Chair honorarium for
prehearing conferences would provide
more of an incentive for eligible
arbitrators to become Chairs and to more
adequately compensate Chairs for their
additional work.30 The commenter
agrees with FINRA, stating that
increasing the additional hearing day
honorarium that Chairs receive for each
hearing on the merits, would ‘‘provide
more of an incentive for both new and
experienced arbitrators to become
Chairs, would increase the number of
arbitrators on the Chair roster and will
serve to reduce the number of non-local
Chair arbitrators all of which will
expand the quality and depth of the
arbitrator roster which is a critical
component for protecting investors and
the public interest.’’ 31 The commenter
also believes that the proposal rule
change would ‘‘more adequately
compensate Chairs for their additional
work.’’ 32
28 See
Notice at 67795.
29 Id.
30 See
Notice at 67799.
Letter.
32 Id. (stating that the proposed $125 Chair
honorarium for each prehearing conference in
which the Chair participates would compensate
Chairs who do not currently receive an additional
honorarium for prehearing conferences, even
though Chairs are required to lead the prehearing
conferences and perform additional tasks in
connection with the prehearing conferences, such
as setting discovery, briefing, and motion deadlines,
scheduling subsequent hearing sessions, drafting
prehearing orders, and rendering decisions on
discovery and other case-related motions).
31 Caruso
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Percentage
change
(%)
Change
NA
NA
$0
0
0
25
35
75
25
NA
NA
0
0
0
2
3
5
2
The Commission acknowledges
FINRA’s concern that fewer Chaireligible arbitrators may be taking on the
additional burdens of being on the Chair
roster due to insufficient compensation.
The Commission believes that
increasing the amount that FINRA
compensates its Chair-eligible
arbitrators may incentivize them to take
on the additional training and
responsibilities associated with the
position.33 Consequently, FINRA may
be able to recruit new, and retain
current, Chairs for its roster, potentially
alleviating the shortage of Chairs in
certain locations and the concomitant
negative impact (e.g., dissatisfied parties
and scheduling delays).
B. Equitable Allocation of Reasonable
Fees
FINRA stated that the proposed
increases to Chair honoraria would
increase its expenses for operating the
forum by approximately $1.1 million.34
To offset these expenses, the proposed
rule change would increase fees charged
to parties for using its arbitration forum.
In particular, the proposed rule change
would increase the member surcharge,
member process fees, filing fees, and
hearing session fees. As illustrated
above, FINRA would increase the
member surcharge and process fees for
claims of more than $250,000 or claims
33 To qualify as a Chair, an arbitrator must
complete Chair training and have served on at least
three arbitrations through award in which hearings
were held, or be a lawyer who served on at least
one arbitration through award in which hearings
were held. See FINRA Rules 12400(c) and 13400(c);
see also supra note 10 and accompanying text.
34 From 2014 through 2019, FINRA paid the
hearing day honorarium on an average of 2,569
times per year. In order to fund the proposed
hearing day honorarium increase from $125 to
$250, FINRA would need to raise revenue by
approximately $368,000 annually. See Notice at
note 12. From 2014 through 2019, FINRA
conducted an average of 4,954 prehearing
conferences per year. In order to pay the proposed
additional Chair prehearing honorarium of $125,
FINRA would need to raise revenue by
approximately $724,000 annually. See Notice at
note 15.
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for non-monetary or unspecified
damages. The proposed rule change
would also increase filing fees and
hearing session fees for customers,
associated persons and members
bringing claims of more than $500,000
or claims for non-monetary or
unspecified damages. FINRA believes
the proposed rule change appropriately
allocates the proposed fee increases
among users of the forum by allocating
the increases among high claim amounts
and continuing its policy that the costs
of the forum are borne 85 percent by
members and 15 percent by
customers.35
FINRA also believes the amount of the
fee increases are reasonable. FINRA
believes that the proposed fee increases
would generate sufficient revenue to
offset the proposed increases in the
arbitrator Chair honoraria without
placing an undue burden on users of the
forum, particularly customers and
claimants with small claims.36 For
example, the filing fee increases for nonmember claimants will range from $15
to $50 (1%–2% increase); 37 the hearing
session fee increases will range from
$25 to $75 (2%–5% increase); 38 the
increases to the member surcharge will
range from $100 to $300 (3%–4%
increase); 39 and the filing fee increases
for member claimants will range from
$100 to $200 (4%–6% increase).40
FINRA believes these represent
‘‘minimal’’ increases.41 Similarly, the
commenter believes that increasing the
filing fees and hearing session fees for
customers, associated persons, and
members bringing claims of more than
$500,000 or claims for non-monetary or
unspecified damages, is a fair, equitable
and reasonable allocation of the costs
among people using the forum that will
be associated with the implementation
of the proposed rule amendments.42
The Commission believes that
increasing the amount of honoraria paid
to arbitrators who chair hearings and
pre-hearing conferences in the FINRA
35 See Notice at 67799; see also Notice at note 9
(stating that the FINRA Dispute Resolution Task
Force suggested raising arbitration fees to fund
arbitrator honoraria increases consistent with the
current arbitration fee structure, which assigns a
majority of the costs of the forum to firms through
the member surcharge and process fees).
36 See Notice at 67796.
37 See Table 2 (Filing Fees for Customers,
Associated Persons or Other Non-Member
Claimants) supra; see also Notice at 67797.
38 See Table 5 (Hearing Session Fees for Session
with Three Arbitrators) supra; see also Notice at
67798.
39 See Table 4 (Member Process Fee Schedule)
supra; see also Notice at 67797.
40 See Table 3 (Filing Fees for Member Claimant)
supra; see also Notice at 67797.
41 See Notice at 67794.
42 See Caruso Letter.
VerDate Sep<11>2014
21:21 Dec 22, 2020
Jkt 253001
forum as proposed here would help
improve the arbitration process for its
users. To offset the costs of this
improvement, FINRA designed the
arbitration fee structure to distribute
much of the increased costs of the forum
to member firms that are parties to an
arbitration proceeding and to parties
associated with large claims or nonmonetary or unspecified claims. The
Commission believes that this proposed
distribution of fees will help keep the
FINRA arbitration forum accessible.
Otherwise, the Commission believes
that increasing fees on claimants with
small claims could discourage retail
investors from bringing their claims.43
Accordingly, the proposed allocation of
the fee increases will help ensure that
FINRA’s arbitration forum remains
accessible and affordable to parties.
As stated above, the filing fee
increases for non-member claimants
will range from $15 to $50; the hearing
session fee increases will range from
$25 to $75; the increases to the member
surcharge will range from $100 to $300;
and the filing fee increases for member
claimants range from $100 to $200.
Because these increases would only
apply to claims over $250,000 and, in
some instances, over $500,000, they
represent a small percentage of effected
claims (collectively, 1%–6%).
The Commission believes that the
proposed rule change is consistent with
the Exchange Act. In particular, the
Commission believes that the proposed
rule change is appropriate and designed
to protect investors and the public
interest, consistent with Section
15A(b)(6) of the Exchange Act.
Specifically, the Commission believes
that the proposed increase to the
hearing day Chair honorarium and the
addition of a Chair honorarium for
prehearing conferences are in the public
interest because they would help
improve the arbitration process for its
users, including retail investors.
Moreover, the Commission believes that
the proposed fee increases represent an
equitable allocation of reasonable dues,
fees and other charges among members
and issuers and other persons using any
facility, consistent with Section
15A(b)(5). For these reasons, the
Commission finds that the proposed
rule change is consistent with the
Exchange Act and the rules and
regulations thereunder.
It is therefore ordered pursuant to
Section 19(b)(2) of the Exchange Act 44
43 See
44 15
PO 00000
Notice at 67801.
U.S.C. 78s(b)(2).
Frm 00175
Fmt 4703
that the proposal (SR–FINRA–2020–
035), be and hereby is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–28310 Filed 12–22–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90707; File No. SR–
NYSENAT–2020–37]
Self-Regulatory Organizations; NYSE
National, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the Rule
6.6800 Series
December 17, 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 December
4, 2020, NYSE National, Inc. (‘‘NYSE
National’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. 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
The Exchange proposes to amend the
Rule 6.6800 Series, the Exchange’s
compliance rule (‘‘Compliance Rule’’)
regarding the National Market System
Plan Governing the Consolidated Audit
Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’) 3
to be consistent with a conditional
exemption granted by the Commission
from certain allocation reporting
requirements set forth in Sections
6.4(d)(ii)(A)(1) and (2) of the CAT NMS
Plan (‘‘Allocation Exemption’’).4 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.
45 17
CFR 200.30–3(a)(12).
U.S.C. 78a.
2 17 CFR 240.19b–4.
3 Unless otherwise specified, capitalized terms
used in this rule filing are defined as set forth in
the Compliance Rule.
4 See Securities Exchange Act Rel. No. 90223
(October 19, 2020), 85 FR 67576 (October 23, 2020)
(‘‘Allocation Exemptive Order’’).
1 15
IV. Conclusion
Sfmt 4703
84057
E:\FR\FM\23DEN1.SGM
23DEN1
]]>Agencies
[Federal Register Volume 85, Number 247 (Wednesday, December 23, 2020)]
[Notices]
[Pages 84053-84057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28310]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90705; File No. SR-FINRA-2020-035]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change To Amend the
FINRA Codes of Arbitration Procedure To Increase Arbitrator Chairperson
Honoraria and Certain Arbitration Fees
December 17, 2020.
I. Introduction
On October 16, 2020, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the Code of Arbitration
Procedure for Customer Disputes (``Customer Code'') and the Code of
Arbitration Procedure for Industry Disputes (``Industry Code'')
(together, ``Codes'') to increase arbitrator chairperson (``Chair'')
honoraria. Specifically, the proposed rule change would: (1) Increase
the additional hearing day honorarium Chairs receive for each hearing
on the merits from $125 to $250 and (2) create a new $125 Chair
honorarium for each prehearing conference in which the Chair
participates. Under the proposed rule change, these increases would be
funded primarily by certain increases to the member surcharge and
process fees for claims of more than $250,000 or claims for non-
monetary or unspecified damages. The proposed rule change would also
increase filing fees and hearing session fees for customers, associated
persons and members bringing claims of more than $500,000 or claims for
non-monetary or unspecified damage.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The proposed rule change was published for comment in the Federal
Register on October 26, 2020.\3\ The public comment period closed on
November 16, 2020. The Commission received one comment letter in
response to the Notice.\4\ On December 9, 2020, FINRA consented to an
extension of the time period in which the Commission must approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
rule change to December 31, 2020.\5\ This order approves the proposed
rule change.
---------------------------------------------------------------------------
\3\ Exchange Act Release No. 90227 (Oct. 20, 2020), 85 FR 67794
(Oct. 26, 2020) (File No. SR-FINRA-2020-035 (``Notice'').
\4\ Letter from the Steven B. Caruso, Maddox Hargett Caruso,
P.C., dated October 20, 2020 (``Caruso Letter''), available at
https://www.sec.gov/comments/sr-finra-2020-035/srfinra2020035-7927147-224628.htm.
\5\ See letter from Mignon McLemore, Assistant General Counsel,
Office of General Counsel, FINRA, to Lourdes Gonzalez, Assistant
Chief Counsel, Division of Trading and Markets, Commission, dated
December 9, 2020.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
FINRA makes arbitrator honoraria payments to its arbitrators for
the services they provide to FINRA's dispute resolution forum.
Currently, under FINRA Rule 12214(a)(1), arbitrators receive $300 for
each hearing session in which the arbitrator participates.\6\ In
recognition of their increased experience and the extra
responsibilities they must perform during an arbitration,\7\ Chairs
currently receive an additional $125 for serving as Chair during a
hearing (``hearing day honorarium'').\8\ The Chair receives the
additional honorarium for each hearing day, regardless of the number of
hearing sessions held per day.\9\ Currently, Chairs do not receive an
additional honorarium for prehearing conferences, which they are
required to lead and for which they are required to perform additional
tasks, such as setting discovery, briefing, and motion deadlines,
scheduling subsequent hearing sessions, and drafting prehearing
orders.\10\
---------------------------------------------------------------------------
\6\ A ``hearing session'' is any meeting between the parties and
arbitrator(s) of four hours or less, including a hearing or a
prehearing conference. See FINRA Rules 12100(p) and 13100(p).
\7\ For example, during a typical arbitration, the Chair
oversees the discovery process, conducts the initial prehearing
conference (``IPHC'') and subsequent prehearing conferences as
needed, drafts rulings and orders, and manages efficient hearings.
See Notice at note 4.
\8\ See FINRA Rule 12214(a)(2). The term ``hearing'' means the
hearing on the merits of an arbitration under FINRA Rules 12600 and
13600. See FINRA Rules 12100(o) and 13100(o).
\9\ A typical day has two hearing sessions. See Notice at note
3.
\10\ See FINRA Rules 12500(c) and 13500(c).
---------------------------------------------------------------------------
A. Proposed Increases to Arbitrator Chair Honoraria
The proposed rule change would amend FINRA Rules 12214 and 13214 to
increase the arbitrator Chair honoraria. Specifically, the proposed
rule change would increase the hearing day honorarium from $125 to $250
to better compensate the Chair for the additional training and
responsibilities required of the position. In addition, the proposed
rule change would establish a new
[[Page 84054]]
honorarium to pay a Chair an additional $125 for each prehearing
conference in which he or she participates. Under the proposed rule
change, Chairs would receive the additional prehearing conference
compensation even if an arbitration case closes without a hearing. For
example, if the Chair participates in a prehearing conference,\11\ but
the parties settle the case, the Chair would still receive some
compensation for serving as Chair.
---------------------------------------------------------------------------
\11\ See FINRA Rules 12500(a) and 13500(a).
---------------------------------------------------------------------------
B. Proposed Increases to Arbitration Fees
To fund increases in the arbitrator Chair honoraria, the proposed
rule change would also increase the member surcharge, member process
fees, filing fees, and hearing session fees that the forum assesses the
parties during the course of an arbitration case.
1. Proposed Increases to Member Surcharge
Under FINRA Rules 12901 and 13901, FINRA assesses a surcharge
against each member that: (1) Files a claim, counterclaim, cross claim,
or third party claim under the Codes; (2) is named as a respondent in a
claim, counterclaim, cross claim, or third party claim filed and served
under the Codes; or (3) employed, at the time the dispute arose, an
associated person who is named as a respondent in a claim,
counterclaim, cross claim, or third party claim filed and served under
the Codes. Member surcharges are intended to allocate the costs of
administering the arbitration case to the firms that are involved in
those cases.\12\ Because the cost of administering an arbitration case
generally is proportional to the aggregate claim amount,\13\ the member
surcharge increases with the size of the claim amount.\14\ Proposed
FINRA Rules 12901 and 13901 would increase the member surcharge for
claims of more than $250,000 and claims for non-monetary or unspecified
damages. Table 1 illustrates the proposed dollar and percentage changes
for each tier.\15\
---------------------------------------------------------------------------
\12\ See Notice at 67796. The member surcharge is the
responsibility of the member party and cannot be allocated to any
other party (``non-allocable''). See FINRA Rules 12901(a)(6) and
13901(f).
\13\ See Notice at 67796.
\14\ Id.
\15\ Id.
Member Surcharge Schedule--Table 1
----------------------------------------------------------------------------------------------------------------
Amount of claim (exclusive of interest and Current Percentage
expenses) surcharge Proposed fee Change change (%)
----------------------------------------------------------------------------------------------------------------
$.01 to $5,000.................................. $150 $150 $0 0
$5,000.01-$10,000............................... 325 325 0 0
$10,000.01-$25,000.............................. 450 450 0 0
$25,000.01-$50,000.............................. 750 750 0 0
$50,000.01-$100,000............................. 1,100 1,100 0 0
$100,000.01-$250,000............................ 1,700 1,700 0 0
$250,000.01-$500,000............................ 1,900 2,025 125 7
$500,000.01-$1,000,000.......................... 2,475 2,625 150 6
$1,000,000.01-$5,000,000........................ 3,025 3,200 175 6
$5,000,000.01-$10,000,000....................... 3,600 3,850 250 7
Over $10,000,000................................ 4,025 4,325 300 7
Non-Monetary/Not Specified...................... 1,900 2,000 100 5
----------------------------------------------------------------------------------------------------------------
2. Proposed Increases to Filing Fee
Under FINRA Rules 12900(a)(1) and 13900(a)(1), if a customer,
associated person or other non-member files a claim, counterclaim,
cross claim, or third party claim, they must pay a filing fee to
initiate an arbitration. As with member surcharges, the filing fee is
based on the claim amount or type of damages requested.\16\ The
proposed rule change would amend FINRA Rules 12900 and 13900 to
increase the filing fees for customers, associated persons or other
non-members bringing claims of more than $500,000 and claims for non-
monetary or unspecified damages. Table 2 shows the proposed dollar and
percentage changes.\17\
---------------------------------------------------------------------------
\16\ See FINRA Rules 12900(a)(1) and 13900(a)(1).
\17\ See Notice at 67797.
Filing Fees for Customers, Associated Persons or Other Non-Member Claimants--Table 2
----------------------------------------------------------------------------------------------------------------
Amount of claim (exclusive of interest and Current claim Proposed claim Percentage
expenses) filing fee filing fee Change change (%)
----------------------------------------------------------------------------------------------------------------
$.01 to $1,000.................................. $50 $50 $0 0
$1,000.01-$2,500................................ 75 75 0 0
$2,500.01-$5,000................................ 175 175 0 0
$5,000.01-$10,000............................... 325 325 0 0
$10,000.01-$25,000.............................. 425 425 0 0
$25,000.01-$50,000.............................. 600 600 0 0
$50,000.01-$100,000............................. 975 975 0 0
$100,000.01-$500,000............................ 1,425 1,425 0 0
$500,000.01-$1,000,000.......................... 1,725 1,740 15 1
$1,000,000.01-$5,000,000........................ 2,000 2,025 25 1
Over $5,000,000................................. 2,250 2,300 50 2
Non-Monetary/Not Specified...................... 1,575 1,600 25 2
----------------------------------------------------------------------------------------------------------------
[[Page 84055]]
The proposed rule change would also amend FINRA Rules 12900(b) and
13900(b) to increase the filing fees that members pay for claims of
more than $500,000 and claims for non-monetary or unspecified damages.
Table 3 shows the proposed dollar and percentage changes.\18\
---------------------------------------------------------------------------
\18\ Id.
Filing Fees for Member Claimant--Table 3
----------------------------------------------------------------------------------------------------------------
Amount of claim (exclusive of interest and Current claim Proposed claim Percentage
expenses) filing fee filing fee Change change (%)
----------------------------------------------------------------------------------------------------------------
$.01 to $1,000.................................. $225 $225 $0 0
$1,000.01-$2,500................................ 350 350 0 0
$2,500.01-$5,000................................ 525 525 0 0
$5,000.01-$10,000............................... 750 750 0 0
$10,000.01-$25,000.............................. 1,050 1,050 0 0
$25,000.01-$50,000.............................. 1,450 1,450 0 0
$50,000.01-$100,000............................. 1,750 1,750 0 0
$100,000.01-$500,000............................ 2,125 2,125 0 0
$500,000.01-$1,000,000.......................... 2,550 2,650 100 4
$1,000,000.01-$5,000,000........................ 3,400 3,550 150 4
Over $5,000,000................................. 4,000 4,200 200 5
Non-Monetary/Not Specified...................... 1,700 1,800 100 6
----------------------------------------------------------------------------------------------------------------
3. Proposed Increases to Process Fee
Under FINRA Rules 12903 and 13903, each member that is a party to
an arbitration or employed an associated person who is a party to an
arbitration in which the claim amount is more than $25,000 must pay a
process fee based on the amount of the claim.\19\ The proposed rule
change would amend FINRA Rules 12903 and 13903 to increase the member
process fees for claim amounts larger than $250,000 and for claims for
non-monetary or unspecified damages. Table 4 illustrates the proposed
dollar and percentage changes.\20\
---------------------------------------------------------------------------
\19\ Like the member surcharge, the process fee is non-allocable
to other parties to the arbitration. See FINRA Rules 12903(d) and
13903(d). See also FINRA Rules 12701(b) and 13701(b).
\20\ See Notice at 67797.
Member Process Fee Schedule--Table 4
----------------------------------------------------------------------------------------------------------------
Amount of claim (exclusive of interest and Current Percentage
expenses) process fee Proposed fee Change change (%)
----------------------------------------------------------------------------------------------------------------
$.01-$25,000.................................... $0 $0 $0 0
$25,000.01-$50,000.............................. 1,750 0 0 0
$50,000.01-$100,000............................. 2,250 0 0 0
$100,000.01-$250,000............................ 3,250 0 0 0
$250,000.01-$500,000............................ 3,750 3,875 125 3
$500,000.01-$1,000,000.......................... 5,075 5,225 150 3
$1,000,000.01-$5,000,000........................ 6,175 6,375 200 3
$5,000,000.01-$10,000,000....................... 6,800 7,050 250 4
Over $10,000,000................................ 7,000 7,300 300 4
Non-Monetary/Not Specified...................... 3,750 3,850 100 3
----------------------------------------------------------------------------------------------------------------
4. Proposed Increases to Hearing Session Fee
Under FINRA Rules 12902(a) and 13902(a), FINRA assesses hearing
session fees against the parties for each hearing and pre-hearing
session conducted by a panel.\21\ In the award, the panel determines
the amount of the hearing session fees that each party is required to
pay.\22\ The arbitrators may apportion the fees in any manner,
including assessing the entire amount against one party.\23\ The
proposed rule change would amend FINRA Rules 12902 and 13902 to
increase the fees for claims of more than $500,000 and for claims for
non-monetary or unspecified damages. There are different hearing
session fees for hearings with one arbitrator versus hearings with
three arbitrators. Under the proposed rule change, the fees would not
change for hearings with one arbitrator. Table 5 illustrates the
proposed dollar and percentage changes.\24\
---------------------------------------------------------------------------
\21\ See supra note 8.
\22\ The term ``panel'' means the arbitration panel, whether it
consists of one or more arbitrators. See FINRA Rules 12100(u) and
13100(s).
\23\ See FINRA Rules 12902(a)(1) and 13902(a)(1).
\24\ See Notice at 67798.
Hearing Session Fees for Session With Three Arbitrators--Table 5
----------------------------------------------------------------------------------------------------------------
Current fee Proposed fee
Amount of claim (exclusive of interest and for session w/ for session w/ Percentage
expenses) three three Change change (%)
arbitrators arbitrators
----------------------------------------------------------------------------------------------------------------
Up to $2,500.................................... NA NA NA NA
$2,500.01-$5,000................................ NA NA NA NA
[[Page 84056]]
$5,000.01-$10,000............................... NA NA NA NA
$10,000.01-$25,000.............................. NA NA NA NA
$25,000.01-$50,000.............................. $600 $600 $0 0
$50,000.01-$100,000............................. 750 750 0 0
$100,000.01-$500,000............................ 1,125 1,125 0 0
$500,000.01-$1,000,000.......................... 1,300 1,325 25 2
$1,000,000.01-$5,000,000........................ 1,400 1,435 35 3
Over $5,000,000................................. 1,500 1,575 75 5
Non-Monetary/Not Specified...................... 1,125 1,150 25 2
----------------------------------------------------------------------------------------------------------------
C. Technical Changes
The proposed rule change would amend FINRA Rules 12901 and 13901 to
make the formatting more consistent in the fee schedules. In addition,
the proposed rule change would amend FINRA Rule 12900(c)(3) to change
the cross-reference in the rule from Rule 12202(c) to Rule 12202.
III. Discussion and Commission Findings
After careful review of the proposed rule change and the comment
letter, the Commission finds that the proposed rule change is
consistent with the requirements of the Exchange Act and the rules and
regulations thereunder that are applicable to a national securities
association.\25\ Specifically, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Exchange
Act,\26\ which requires, among other things, that FINRA rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, and, in general, to
protect investors and the public interest, and Section 15A(b)(5) of the
Exchange Act,\27\ which requires, among other things, that FINRA rules
provide for the equitable allocation of reasonable dues, fees and other
charges among members and issuers and other persons using any facility
or system that FINRA operates or controls.
---------------------------------------------------------------------------
\25\ In approving this rule change, the Commission has
considered the rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\26\ 15 U.S.C. 78o-3(b)(6).
\27\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------
A. Protection of Investors and the Public Interest
FINRA's proposed rule change aims to address concerns related to
recruiting and retaining arbitrators for its forum roster, including
increasing the probability that local public Chairs would be proposed
for selection. FINRA stated that Chair-eligible arbitrators have
indicated that they are not interested in completing the required Chair
training and serving on the Chair roster because of the extra work
required compared to the modest, additional Chair honorarium currently
offered.\28\ And forum users have expressed concern with empaneling
non-local public arbitrators to Chair their proceedings.\29\ FINRA
believes that increasing the current per-day Chair honorarium for
hearings on the merits and establishing a Chair honorarium for
prehearing conferences would provide more of an incentive for eligible
arbitrators to become Chairs and to more adequately compensate Chairs
for their additional work.\30\ The commenter agrees with FINRA, stating
that increasing the additional hearing day honorarium that Chairs
receive for each hearing on the merits, would ``provide more of an
incentive for both new and experienced arbitrators to become Chairs,
would increase the number of arbitrators on the Chair roster and will
serve to reduce the number of non-local Chair arbitrators all of which
will expand the quality and depth of the arbitrator roster which is a
critical component for protecting investors and the public interest.''
\31\ The commenter also believes that the proposal rule change would
``more adequately compensate Chairs for their additional work.'' \32\
---------------------------------------------------------------------------
\28\ See Notice at 67795.
\29\ Id.
\30\ See Notice at 67799.
\31\ Caruso Letter.
\32\ Id. (stating that the proposed $125 Chair honorarium for
each prehearing conference in which the Chair participates would
compensate Chairs who do not currently receive an additional
honorarium for prehearing conferences, even though Chairs are
required to lead the prehearing conferences and perform additional
tasks in connection with the prehearing conferences, such as setting
discovery, briefing, and motion deadlines, scheduling subsequent
hearing sessions, drafting prehearing orders, and rendering
decisions on discovery and other case-related motions).
---------------------------------------------------------------------------
The Commission acknowledges FINRA's concern that fewer Chair-
eligible arbitrators may be taking on the additional burdens of being
on the Chair roster due to insufficient compensation. The Commission
believes that increasing the amount that FINRA compensates its Chair-
eligible arbitrators may incentivize them to take on the additional
training and responsibilities associated with the position.\33\
Consequently, FINRA may be able to recruit new, and retain current,
Chairs for its roster, potentially alleviating the shortage of Chairs
in certain locations and the concomitant negative impact (e.g.,
dissatisfied parties and scheduling delays).
---------------------------------------------------------------------------
\33\ To qualify as a Chair, an arbitrator must complete Chair
training and have served on at least three arbitrations through
award in which hearings were held, or be a lawyer who served on at
least one arbitration through award in which hearings were held. See
FINRA Rules 12400(c) and 13400(c); see also supra note 10 and
accompanying text.
---------------------------------------------------------------------------
B. Equitable Allocation of Reasonable Fees
FINRA stated that the proposed increases to Chair honoraria would
increase its expenses for operating the forum by approximately $1.1
million.\34\ To offset these expenses, the proposed rule change would
increase fees charged to parties for using its arbitration forum. In
particular, the proposed rule change would increase the member
surcharge, member process fees, filing fees, and hearing session fees.
As illustrated above, FINRA would increase the member surcharge and
process fees for claims of more than $250,000 or claims
[[Page 84057]]
for non-monetary or unspecified damages. The proposed rule change would
also increase filing fees and hearing session fees for customers,
associated persons and members bringing claims of more than $500,000 or
claims for non-monetary or unspecified damages. FINRA believes the
proposed rule change appropriately allocates the proposed fee increases
among users of the forum by allocating the increases among high claim
amounts and continuing its policy that the costs of the forum are borne
85 percent by members and 15 percent by customers.\35\
---------------------------------------------------------------------------
\34\ From 2014 through 2019, FINRA paid the hearing day
honorarium on an average of 2,569 times per year. In order to fund
the proposed hearing day honorarium increase from $125 to $250,
FINRA would need to raise revenue by approximately $368,000
annually. See Notice at note 12. From 2014 through 2019, FINRA
conducted an average of 4,954 prehearing conferences per year. In
order to pay the proposed additional Chair prehearing honorarium of
$125, FINRA would need to raise revenue by approximately $724,000
annually. See Notice at note 15.
\35\ See Notice at 67799; see also Notice at note 9 (stating
that the FINRA Dispute Resolution Task Force suggested raising
arbitration fees to fund arbitrator honoraria increases consistent
with the current arbitration fee structure, which assigns a majority
of the costs of the forum to firms through the member surcharge and
process fees).
---------------------------------------------------------------------------
FINRA also believes the amount of the fee increases are reasonable.
FINRA believes that the proposed fee increases would generate
sufficient revenue to offset the proposed increases in the arbitrator
Chair honoraria without placing an undue burden on users of the forum,
particularly customers and claimants with small claims.\36\ For
example, the filing fee increases for non-member claimants will range
from $15 to $50 (1%-2% increase); \37\ the hearing session fee
increases will range from $25 to $75 (2%-5% increase); \38\ the
increases to the member surcharge will range from $100 to $300 (3%-4%
increase); \39\ and the filing fee increases for member claimants will
range from $100 to $200 (4%-6% increase).\40\ FINRA believes these
represent ``minimal'' increases.\41\ Similarly, the commenter believes
that increasing the filing fees and hearing session fees for customers,
associated persons, and members bringing claims of more than $500,000
or claims for non-monetary or unspecified damages, is a fair, equitable
and reasonable allocation of the costs among people using the forum
that will be associated with the implementation of the proposed rule
amendments.\42\
---------------------------------------------------------------------------
\36\ See Notice at 67796.
\37\ See Table 2 (Filing Fees for Customers, Associated Persons
or Other Non-Member Claimants) supra; see also Notice at 67797.
\38\ See Table 5 (Hearing Session Fees for Session with Three
Arbitrators) supra; see also Notice at 67798.
\39\ See Table 4 (Member Process Fee Schedule) supra; see also
Notice at 67797.
\40\ See Table 3 (Filing Fees for Member Claimant) supra; see
also Notice at 67797.
\41\ See Notice at 67794.
\42\ See Caruso Letter.
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The Commission believes that increasing the amount of honoraria
paid to arbitrators who chair hearings and pre-hearing conferences in
the FINRA forum as proposed here would help improve the arbitration
process for its users. To offset the costs of this improvement, FINRA
designed the arbitration fee structure to distribute much of the
increased costs of the forum to member firms that are parties to an
arbitration proceeding and to parties associated with large claims or
non-monetary or unspecified claims. The Commission believes that this
proposed distribution of fees will help keep the FINRA arbitration
forum accessible. Otherwise, the Commission believes that increasing
fees on claimants with small claims could discourage retail investors
from bringing their claims.\43\ Accordingly, the proposed allocation of
the fee increases will help ensure that FINRA's arbitration forum
remains accessible and affordable to parties.
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\43\ See Notice at 67801.
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As stated above, the filing fee increases for non-member claimants
will range from $15 to $50; the hearing session fee increases will
range from $25 to $75; the increases to the member surcharge will range
from $100 to $300; and the filing fee increases for member claimants
range from $100 to $200. Because these increases would only apply to
claims over $250,000 and, in some instances, over $500,000, they
represent a small percentage of effected claims (collectively, 1%-6%).
The Commission believes that the proposed rule change is consistent
with the Exchange Act. In particular, the Commission believes that the
proposed rule change is appropriate and designed to protect investors
and the public interest, consistent with Section 15A(b)(6) of the
Exchange Act. Specifically, the Commission believes that the proposed
increase to the hearing day Chair honorarium and the addition of a
Chair honorarium for prehearing conferences are in the public interest
because they would help improve the arbitration process for its users,
including retail investors. Moreover, the Commission believes that the
proposed fee increases represent an equitable allocation of reasonable
dues, fees and other charges among members and issuers and other
persons using any facility, consistent with Section 15A(b)(5). For
these reasons, the Commission finds that the proposed rule change is
consistent with the Exchange Act and the rules and regulations
thereunder.
IV. Conclusion
It is therefore ordered pursuant to Section 19(b)(2) of the
Exchange Act \44\ that the proposal (SR-FINRA-2020-035), be and hereby
is approved.
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\44\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28310 Filed 12-22-20; 8:45 am]
BILLING CODE 8011-01-P
