Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by Partial Amendment No. 1, To Amend FINRA Rule 12800 (Simplified Arbitration) To Clarify and Amend the Applicability of the Document Production Lists, 87435-87439 [2024-25425]
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Federal Register / Vol. 89, No. 212 / Friday, November 1, 2024 / Notices
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Jennaca Upperman; Comments Due:
November 4, 2024.
6. Docket No(s).: MC2025–164 and
K2025–162; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 541 to the Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Jennaca Upperman; Comments Due:
November 4, 2024.
7. Docket No(s).: MC2025–165 and
K2025–163; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 542 to the Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Katalin Clendenin; Comments Due:
November 4, 2024.
8. Docket No(s).: MC2025–166 and
K2025–164; Filing Title: USPS Request
to Add Priority Mail & USPS Ground
Advantage Contract 409 to the
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: October 25, 2024;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3035.105, and 39 CFR 3041.310; Public
Representative: Christopher Mohr;
Comments Due: November 4, 2024.
9. Docket No(s).: MC2025–167 and
K2025–165; Filing Title: USPS Request
to Add Priority Mail & USPS Ground
Advantage Contract 410 to the
Competitive Product List and Notice of
Filing Materials Under Seal; Filing
Acceptance Date: October 25, 2024;
Filing Authority: 39 U.S.C. 3642, 39 CFR
3035.105, and 39 CFR 3041.310; Public
Representative: Samuel Robinson;
Comments Due: November 4, 2024.
10. Docket No(s).: MC2025–168 and
K2025–166; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 543 to the Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Katalin Clendenin; Comments Due:
November 4, 2024.
11. Docket No(s).: MC2025–169 and
K2025–167; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 544 to the Competitive Product
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16:47 Oct 31, 2024
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List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Jana Slovinska; Comments Due:
November 4, 2024.
12. Docket No(s).: MC2025–170 and
K2025–168; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 545 to the Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Kenneth Moeller; Comments Due:
November 4, 2024.
13. Docket No(s).: MC2025–171 and
K2025–169; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 546 to the Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Anaswar Jayakumar; Comments Due:
November 4, 2024.
14. Docket No(s).: MC2025–172 and
K2025–170; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 547 to the Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Anaswar Jayakumar; Comments Due:
November 4, 2024.
15. Docket No(s).: MC2025–173 and
K2025–171; Filing Title: USPS Request
to Add Priority Mail Express, Priority
Mail & USPS Ground Advantage
Contract 548 to the Competitive Product
List and Notice of Filing Materials
Under Seal; Filing Acceptance Date:
October 25, 2024; Filing Authority: 39
U.S.C. 3642, 39 CFR 3035.105, and 39
CFR 3041.310; Public Representative:
Maxine Bradley; Comments Due:
November 4, 2024.
III. Summary Proceeding(s)
None. See section II for public
proceedings.
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2024–25424 Filed 10–31–24; 8:45 am]
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87435
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101449; File No. SR–
FINRA–2024–008]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving a
Proposed Rule Change, as Modified by
Partial Amendment No. 1, To Amend
FINRA Rule 12800 (Simplified
Arbitration) To Clarify and Amend the
Applicability of the Document
Production Lists
October 28, 2024.
I. Introduction
On May 13, 2024, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘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 (SR–FINRA–2024–008) to
amend FINRA Rule 12800 (Simplified
Arbitration) of the FINRA Code of
Arbitration Procedure for Customer
Disputes (‘‘Customer Code’’). The
proposed rule change, as subsequently
modified by a partial amendment
(‘‘Partial Amendment No. 1’’), would
address the applicability of the lists of
documents that are presumed to be
discoverable in regular arbitrations
between a customer and a member or
associated person (‘‘Document
Production Lists’’) 3 to simplified
customer arbitrations administered
under FINRA Rule 12800.4
The proposed rule change was
published for public comment in the
Federal Register on May 28, 2024.5 The
public comment period closed on June
18, 2024. The Commission received
comment letters related to this filing.6
On July 8, 2024, 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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 FINRA Rule 12506 (Document Production Lists)
describes the documents that are presumed to be
discoverable in all arbitrations between a customer
and a member firm or associated person.
4 Simplified customer arbitrations are arbitrations
in which the dispute between a customer and
member firm or associated person involves $50,000
or less, exclusive of interest and expenses. See
FINRA Rule 12800(a).
5 See Exchange Act Release No. 100204 (May 21,
2024), 89 FR 46210 (May 28, 2024) (File No. SR–
FINRA2024–008) (‘‘Notice’’).
6 The comment letters are available at https://
www.sec.gov/comments/sr-finra-2024-008/
srfinra2024008.htm.
2 17
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Federal Register / Vol. 89, No. 212 / Friday, November 1, 2024 / Notices
approve or disapprove the proposed
rule change to August 26, 2024.7 On
August 7, 2024, FINRA responded to the
comment letters received in response to
the Notice and filed Partial Amendment
No. 1 to modify the proposed rule
change.8
On August 27, 2024, the Commission
published a notice of filing of Partial
Amendment No. 1 and an order
instituting proceedings to determine
whether to approve or disapprove the
proposed rule change, as modified by
Partial Amendment No. 1.9 The
Commission received additional
comment letters in response to the
OIP.10 This order approves the proposed
rule change, as modified by Partial
Amendment No. 1 (hereinafter referred
to as the ‘‘proposed rule change’’ unless
otherwise specified).
II. Description of the Proposed Rule
Change
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A. Background
FINRA Dispute Resolution Services
(‘‘DRS’’) provides a Discovery Guide 11
to help guide the parties and arbitrators
through the discovery process in
customer arbitrations.12 The Document
Production Lists, which are included in
the Discovery Guide, outline
presumptively discoverable documents
that the parties should exchange,
7 See letter from Carissa Laughlin, Principal
Counsel, Office of General Counsel, FINRA, to
Lourdes Gonzalez, Assistant Chief Counsel,
Division of Trading and Markets, Commission,
dated July 8, 2024, https://www.finra.org/sites/
default/files/2024-07/SR-FINRA-2024-008extension1.pdf.
8 See letter from Carissa Laughlin, Principal
Counsel, Office of General Counsel, FINRA, to
Vanessa Countryman, Secretary, Commission, dated
August 7, 2024, https://www.sec.gov/comments/srfinra-2024-008/srfinra2024008-503775-1470022.pdf
(‘‘FINRA Response Letter’’); see also Partial
Amendment No. 1, https://www.finra.org/sites/
default/files/2024-08/SR-FINRA-2024-008-PartialA-1.pdf.
9 See Exchange Act Release No. 34–100787 (Aug.
21, 2024), 89 FR 68686, (Aug. 27, 2024), File No.
SR–FINRA–2024–008 (‘‘OIP’’).
10 The comment letters received in response to
the OIP are available at https://www.sec.gov/
comments/sr-finra-2024-008/srfinra2024008.htm.
11 https://www.finra.org/sites/default/files/
ArbMed/p394527.pdf.
12 See Notice at 46210. In addition to describing
the Document Production Lists, the Discovery
Guide includes information about the
circumstances under which the parties may object
to the production of documents on the Document
Production Lists, the parties’ ability to request
additional documents other than those included on
the Document Production Lists, the process for
obtaining the production of documents from nonparties, the forms that the production of documents
should take, and the parties’ right to object to the
production of documents based on confidentiality
and privilege concerns. See Notice at 46211. The
FINRA Discovery Guide and Document Production
Lists do not apply to arbitrations administered
under the Code of Arbitration Procedure for
Industry Disputes. See Notice at 46210 n.3.
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without arbitrator or DRS staff
intervention.13
Document Production Lists 1 and 2
describe the documents that are
presumed to be discoverable in all
arbitrations between a customer and a
member firm or associated person,
except in simplified customer
arbitrations as explained below.14 List 1
outlines the documents that member
firms and associated persons shall
produce; List 2 outlines the documents
that customers shall produce.15 The
proposed rule change would affect the
applicability of the Document
Production Lists in simplified customer
arbitrations.
There are three types of simplified
customer arbitrations. If the customer
does not request a hearing, the arbitrator
will render an award based on the
pleadings and other materials submitted
by the parties (‘‘paper cases’’).16 If the
customer requests a hearing, the
customer must select between one of
two hearing options, known as an
Option One hearing and an Option Two
hearing.17 If the customer requests an
Option One hearing, the regular
provisions of the Customer Code
relating to prehearings and hearings
apply (‘‘regular hearing’’), including the
Document Production Lists.18
Alternatively, the customer may request
an Option Two special proceeding,
which is an abbreviated hearing
(‘‘special proceeding’’).19
Currently, the Document Production
Lists do not apply in paper cases and
special proceedings.20 Accordingly, the
parties in such proceedings must
request documents and other
13 See Notice at 46210; see also FINRA Rule
12506.
14 Id.; see also FINRA Rule 12506(a).
15 See Notice at 46210; see also https://
www.finra.org/sites/default/files/ArbMed/
p394527.pdf.
16 See Notice at 46210; see also FINRA Rule
12800(c)(2).
17 See Notice at 46210; see also FINRA Rule
12800(c)(3).
18 See Notice at 46210; see also FINRA Rule
12800(c)(3)(A); see also FINRA DRS Party’s
Reference Guide, p. 31, https://www.finra.org/sites/
default/files/Partys-Reference-Guide.pdf
(explaining that ‘‘[t]he Document Production Lists
in the Discovery Guide as described in FINRA Rule
12506 do not apply to simplified [customer]
arbitrations decided on the papers or decided by
special proceeding. However, the Discovery Guide
does apply to simplified cases in which a customer
requests a regular hearing.’’); see also https://
www.finra.org/arbitration-mediation/simplifiedarbitrations. See Notice at 46210 n.11 and
accompanying text; see also infra note 24.
19 See Notice at 46210; see also FINRA Rule
12800(c)(3)(B).
20 See Notice at 46210. FINRA Rule 12800(g)(1)
provides that the Document Production Lists ‘‘do
not apply to arbitrations subject to this rule’’ (i.e.,
paper cases and special proceedings). Notice at
46210.
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information from each other, pursuant
to FINRA Rule 12800(g)(2). However, an
arbitrator may exercise discretion to use
relevant portions of the Document
Production Lists in paper cases and
special proceedings ‘‘in a manner
consistent with the expedited nature of
simplified proceedings.’’ 21 Absent such
an exercise of discretion by the
arbitrator, in order to obtain discovery
in these proceedings, the parties must
request documents and other
information from each other without the
benefit of the Document Production
Lists.22 As a result, no documents or
information are presumptively
discoverable in paper cases and special
proceedings, but they are presumptively
discoverable in simplified customer
arbitrations in which the customer
requests a regular hearing as noted
above.23
B. Proposed Rule Change
The proposed rule change would
amend FINRA Rule 12800(g)(1) to give
customers in paper cases and special
proceedings the option to elect whether
they want the Document Production
Lists to apply to all parties.24
Proposed Rule 12800(g)(1)(B) states
that the Document Production Lists
described in FINRA Rule 12506 would
not apply in paper cases or special
proceedings unless: (1) the customer
requests that they apply at the time he
or she initiates an arbitration pursuant
to Rule 12302 (Filing and Serving an
Initial Statement of Claim) or, (2) if the
customer is a respondent, he or she
requests that they apply no later than
the answer due date pursuant to Rule
12303 (Answering the Statement of
Claim), regardless of the parties’
21 Notice
at 46210; see FINRA Rule 12800(g)(1).
Notice at 46210; see also FINRA Rule
12800(g)(2) (providing that all production requests
must be served on all other parties and filed with
the Director within 30 days from the date that the
last answer is due; any response or objection to a
production request must be served on all other
parties and filed with the Director within 10 days
of the receipt of the request).
23 See Notice at 46210.
24 See id. at 46211. The proposed rule change also
would make technical changes to Rule 12800.
Currently, FINRA Rule 12800(c)(3)(A) states that,
when a customer requests a regular hearing, the
‘‘regular provisions’’ of the Customer Code relating
to prehearings and hearings apply. As noted above,
DRS has issued guidance clarifying this language to
mean that the Document Production Lists apply in
simplified customer arbitrations in which the
customer requests a regular hearing. See Notice at
46212; see also supra note 18. The proposed rule
change would codify this guidance. See Notice at
46212. Specifically, proposed Rule 12800(g)(1)(A)
would provide that ‘‘[t]he Document Production
Lists, described in Rule 12506, apply to arbitrations
in which the customer requests an Option One
hearing.’’
22 See
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Federal Register / Vol. 89, No. 212 / Friday, November 1, 2024 / Notices
agreement to extend any answer due
date.25
If the customer does not timely elect
to apply the Document Production Lists
to all parties as provided, proposed Rule
12800(g)(1)(B) would continue to permit
an arbitrator to exercise discretion to
use relevant portions of the Document
Production Lists in a manner consistent
with the expedited nature of simplified
customer arbitrations. Additionally,
proposed Rule 12800(g)(2) would
continue to permit the parties to request
documents and information from each
other.26
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III. Discussion of Commission Findings
After careful review of the proposed
rule change, the comment letters, and
FINRA’s response to the comments, 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.27 Specifically, as
explained in more detail below, the
Commission finds that the proposed
rule change is consistent with Section
15A(b)(6) of the Exchange Act, 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.28 The Commission addresses
the proposed rule change’s specific
provisions, and any related comments,
in turn.
Currently, the Document Production
Lists do not apply in paper cases or in
special proceedings. Accordingly, the
parties in such proceedings must
request documents and other
information from each other, pursuant
to FINRA Rule 12800(g)(2).29 The
proposed rule change would amend
FINRA Rule 12800(g)(1) to give
customers in paper cases and special
25 Id. FINRA Rule 12303 provides that
‘‘respondent(s) must serve each other party with an
answer to the statement of claim within 45 days of
receipt of the statement of claim. FINRA Rule
12207(a) provides that the parties may agree in
writing to extend or modify the deadline for serving
an answer.’’ See Notice at 46211 n.13.
26 Nothing in the Discovery Guide precludes the
parties from voluntarily agreeing to an exchange of
documents in a manner different from that set forth
in the Discovery Guide. FINRA stated that it
encourages parties to agree to the voluntary
exchange of documents and to stipulate to various
matters. See Notice at 46211 n.19; see also https://
www.finra.org/sites/default/files/ArbMed/
p394527.pdf.
27 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).
28 15 U.S.C. 78o–3(b)(6).
29 See supra note 22.
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16:47 Oct 31, 2024
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proceedings the option to elect at the
time that they initiate an arbitration or,
if they are a respondent, no later than
the answer due date, whether they want
the Document Production Lists to apply
to all parties.30 If such an election is
made, all parties would be required to
produce the documents on the
Document Production Lists, explain
why the documents cannot be
produced, or object to the production of
the documents within the timeframes
set forth in FINRA Rule 12506.31
Commenters supported the proposed
rule change.32 For example, commenters
30 A commenter suggested a technical amendment
to proposed Rule 12800(g)(1)(B) to make clear that
the Document Production Lists are found in Rule
12506 so that a pro se investor is not confused
about the applicability of the Document Production
Lists when pursuing a paper case or special
proceeding. See letter from Nikki Junda, Student
Intern, Elissa Germaine, Supervising Attorney, and
Christine Lazaro, Supervising Attorney, Securities
Arbitration Clinic of St. John’s University School of
Law, dated June 17, 2024, https://www.sec.gov/
comments/sr-finra-2024-008/srfinra2024008477251-1366154.html (‘‘St. John’s Letter I’’) at 2.
FINRA agreed by filing Partial Amendment No. 1
to modify proposed Rule 12800(g)(1)(B) to mirror
the language in proposed Rule 12800(g)(1)(A) such
that both provisions begin with ‘‘The Document
Production Lists, described in Rule 12506 . . .’’.
See Partial Amendment No. 1 and FINRA Response
Letter at 2–3.
31 See FINRA Rule 12506(b)(1).
32 See letter from Elissa Germaine, Supervising
Attorney, and Christine Lazaro, Supervising
Attorney, Securities Arbitration Clinic of St. John’s
University School of Law, dated September 17,
2024, https://www.sec.gov/comments/sr-finra-2024008/srfinra2024008-521575-1498402.pdf (‘‘St.
John’s Letter II’’); letter from Jenice Malecki,
Jacqueline Candella, Adam G. Schreck, and Claire
Sterin, Intern, Malecki Law, dated September 17,
2024, https://www.sec.gov/comments/sr-finra-2024008/srfinra2024008-521595-1498462.pdf (‘‘Malecki
Letter’’); letter from Joseph C. Peiffer, President,
Public Investor Advocate Bar Association, dated
September 17, 2024, https://www.sec.gov/
comments/sr-finra-2024-008/srfinra2024008521555-1498322.pdf (‘‘PIABA Letter II’’); letter from
William A. Jacobson, Clinical Professor of Law,
Director of the Cornell Securities Law Clinic, Noah
Moreano, Cornell Law Student, Cornell Securities
Law Clinic, Cornell Law School, dated September
16, 2024, https://www.sec.gov/comments/sr-finra2024-008/srfinra2024008-520935-1497242.pdf
(‘‘Cornell Letter’’); letter from Nicole G. Iannarone,
Associate Professor of Law, Drexel University
School of Law, dated June 18, 2024, https://
www.sec.gov/comments/sr-finra-2024-008/
srfinra2024008-483631-1383094.pdf (‘‘Iannarone
Letter’’); letter from Clare M. Farrelly, MBA,
Student Intern, Fairbridge Investor Rights Clinic,
Elisabeth Haub School of Law, Pace University,
dated June 18, 2024, https://www.sec.gov/
comments/sr-finra-2024-008/srfinra2024008483651-1383114.pdf (‘‘Pace Letter’’); letter from Jill
I. Gross, Vice Dean for Academic Affairs and
Professor of Law, Elisabeth Haub School of Law,
Pace University, dated June 18, 2024, https://
www.sec.gov/comments/sr-finra-2024-008/
srfinra2024008-1382774.htm (‘‘Gross Letter’’); letter
from Scott Eichhorn, Director, and Melanie S.
Cherdack, Associate Director, Investor Rights
Clinic, University of Miami School of Law, dated
June 18, 2024, https://www.sec.gov/comments/srfinra-2024-008/srfinra2024008-483571-1382814.pdf
(‘‘Miami Letter’’); letter from Joseph C. Peiffer,
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87437
stated that applying the Document
Production Lists to paper cases and
special proceedings would generally
protect investors,33 enhance the fairness
of the proceedings and arbitration
process,34 balance the need for
efficiency and fairness,35 and enhance
fairness without unduly raising costs.36
In addition, multiple commenters stated
that the proposed changes would
enhance pro se customers’ awareness
and understanding of the discovery
process and support them in seeking
material evidence necessary to their
claims.37 Some commenters also
suggested additional changes.
One commenter suggested changes to
proposed Rule 12800(g)(1)(B) to give a
customer who is a respondent more
time to request application of the
Document Productions Lists. As
proposed, if the customer is a
respondent, he or she must request that
the Document Production Lists apply no
later than the date he or she must
answer a statement of claim pursuant to
Rule 12303, regardless of the parties’
agreement to extend any answer due
date. The commenter suggested that
when a customer respondent obtains an
extension of time to answer, the
customer should be allowed to opt in to
the Document Production Lists when
the customer files the answer pursuant
to an agreed deadline extension, rather
than on the original due date for the
answer.38
In response, FINRA stated that the
proposed rule change ‘‘balances the
expedited nature of simplified customer
arbitrations and the ability of customer
respondents to make an informed
decision regarding whether to use the
Document Production Lists.’’ 39 For
example, if a customer could request
that the Document Production Lists
apply when the customer respondent
files the answer and the answer is not
filed until just before the special
proceeding hearing date, then ‘‘this
would require the arbitrator and parties
to reschedule the hearing date to a date
President, Public Investor Advocate Bar
Association, dated June 18, 2024, https://
www.sec.gov/comments/sr-finra-2024-008/
srfinra2024008-483331-1382594.pdf (‘‘PIABA Letter
I’’); St. John’s Letter I; and letter from Steven B.
Caruso, dated May 24, 2024, https://www.sec.gov/
comments/sr-finra-2024-008/srfinra2024008477251-1366154.html (‘‘Caruso Letter’’).
33 See PIABA Letter I at 1.
34 See Gross Letter at 1.
35 See Pace Letter at 1.
36 Id. at 2.
37 See Caruso Letter at 1; PIABA Letter I at 1–2;
Pace Letter at 3; St. John’s Letter I at 1–2; Cornell
Letter at 2, St. John’s Letter II at 1; and Malecki
Letter at 2–3.
38 See Pace Letter at 3–4.
39 FINRA Response Letter at 3.
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Federal Register / Vol. 89, No. 212 / Friday, November 1, 2024 / Notices
at least two months later than originally
scheduled to allow parties adequate
time to respond to the Document
Production Lists.’’ 40 Similarly, allowing
customer respondents to request that the
Document Production Lists apply when
filing the answer in a papers case rather
than by the answer due date could
significantly delay the conclusion of
such cases, which are generally the most
expedited form of arbitration case.41
Furthermore, FINRA stated that to the
extent a customer respondent does not
timely elect to apply the Document
Production Lists to all parties, proposed
Rule 12800(g)(1)(B) continues to allow
the arbitrator discretion to use relevant
portions of the Document Production
Lists in a manner consistent with the
expedited nature of simplified customer
arbitrations.42 In addition, the parties
can still request documents and
information from each other pursuant to
FINRA Rule 12800(g)(2).43 For these
reasons, FINRA did not accept the
suggested change.
Another commenter suggested that
FINRA add a hyperlink or cross
reference to the Discovery Guide within
the rules whenever the Document
Production Lists are mentioned to help
investors locate and use FINRA
guidance.44 This commenter also
suggested that FINRA make guidance on
its website easier to locate for parties in
simplified arbitrations.45 Another
commenter recommended that FINRA
provide parties a ‘‘plain language
explanation of the discovery process
and how it will differ with use of the
Discovery Guide.’’ 46
In response to the commenters’
suggestions, FINRA: (1) updated the
‘‘Related Links’’ section of the web
pages for FINRA Rules 12506, 12507,
12508, and 12800 to include a hyperlink
to the Discovery Guide web page; 47 (2)
updated the FINRA Rule 12800 web
page by adding hyperlinks to any crossreferenced FINRA Rules; 48 and (3)
updated its ‘‘Overview of Arbitration &
Mediation’’ web page by adding a
hyperlink to cross-reference its
‘‘Simplified Arbitrations’’ web page.49
In addition, FINRA stated that it would
develop and publish guidance about
discovery that will be available to all
parties in simplified arbitration and
40 Id.
at 3–4.
FINRA Response Letter at 4.
42 Id.; see also Notice at 46211.
43 See FINRA Response Letter at 4; see also Notice
at 46211.
44 See St. John’s Letter I at 2.
45 Id.
46 Miami Letter at 3.
47 See FINRA Response Letter at 5–6.
48 Id. at 6.
49 See FINRA Response Letter at 5.
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41 See
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would, among other things, direct
parties to the Discovery Guide.50
Finally, one commenter
recommended providing and requiring
more arbitrator training, including
providing arbitrators greater discretion
to award sanctions for discovery
violations.51 Specifically, this
commenter stated that enhanced
training should provide arbitrators with
sufficient detail on: (1) the requirements
of parties when asserting objections; (2)
the adequate bases for objections to
overcome the presumption of
discoverability; (3) how objections may
lead to the risk that arbitrators do not
have relevant documents and
information to decide the case; and (4)
the circumstances under which an
arbitrator may award sanctions against
parties who assert boilerplate
objection.52
In response, FINRA stated that it
currently provides mandatory training
and various other resources to
arbitrators regarding the discovery
process.53 For example, arbitrators must
pass FINRA’s Basic Arbitrator Training
Program in order to serve on FINRA
arbitration cases.54 The Basic Arbitrator
Training Program includes a module
dedicated to the discovery process.55
FINRA stated that this module also
reminds arbitrators that pro se parties
‘‘may need more procedural direction
and specific deadlines for discovery
requests and responses.’’ 56 Moreover, in
order to qualify as a chairperson,
arbitrators must complete training
containing three modules with
information about the discovery process
and issues, including motions to compel
discovery.57 In addition, DRS also offers
voluntary, subject-specific training
modules, including an online course
titled ‘‘Discovery, Abuses and
Sanctions’’ that focuses on the
50 Id.;
51 See
see also Notice at 46211.
Miami Letter at 3–4.
52 Id.
53 See
FINRA Response Letter at 6.
(citing Arbitrator Training, https://
www.finra.org/arbitration-mediation/rules-caseresources/arbitrator-training (discussing how an
arbitrator candidate must complete the
comprehensive Basic Arbitrator Training Program
to become eligible to serve on arbitration cases)).
55 Id. (citing FINRA DRS Basic Arbitrator Training
Program Transcript, p. 21, https://www.finra.org/
sites/default/files/2024-05/FINRA-Basic-Arbitratorand-Expungement-Training-Full-CourseTranscript.pdf). The training includes, among other
things: (1) understanding the discovery process and
timelines; (2) ruling on discovery requests based on
the papers; and (3) imposing discovery sanctions
when a party fails to provide sufficient information
or documents. See id.
56 Id. at 6.
57 See id. (citing FINRA DRS Chairperson
Training Transcript, pp. 4–6, 9–15, 17–21, https://
www.finra.org/sites/default/files/2024-05/FINRA_
Chair-Training-Full-Transcript.pdf).
54 Id.
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
respective duties of arbitrators and
parties in the discovery process.58
Further, FINRA stated that it also
provides updates and reminders to
arbitrators regarding discovery
procedures via its Neutral Workshops
and a quarterly newsletter,59 as well as
the DRS Arbitrator’s Guide, which
dedicates two sections to discovery and
motions.60 FINRA stated that in light of
these available resources, it ‘‘does not
anticipate providing additional
arbitrator training on the discovery
process at this time.’’ 61
Giving customers in paper cases and
special proceedings the option to elect
whether they want the Document
Production Lists to apply to all parties
at the time that they initiate an
arbitration or, if they are a respondent,
no later than the answer due date,
should increase the efficiency of
simplified arbitration proceedings while
maintaining their expedited nature. By
opting to use the Document Production
Lists, parties should receive those
documents and information that are
relevant to the dispute without the need
to make production requests or engage
in motion practice, which should help
expedite the discovery process.
Furthermore, increased access to
relevant documents and other
information should result in outcomes
(i.e., awards and settlements) in paper
cases or special proceedings that are
more consistent with the merits of the
case.
In addition, the proposed rule change
should help facilitate the discovery
process in arbitration cases. Because
many of the customers who appear in
simplified arbitration cases are pro se,
they are more likely than customers in
regular arbitration cases to lack
familiarity with the discovery process.
Giving customers in paper cases and
special proceedings the option to elect
whether they want the Document
Production Lists to apply to all parties
is, therefore, a reasonable approach to
facilitating the discovery process for
customers. FINRA also reasonably
determined to decline giving customer
respondents more time to request
58 See id. at 6–7 (citing Arbitrator Training,
https://www.finra.org/arbitration-mediation/rulescase-resources/arbitrator-training (discussing the
Discovery, Abuses and Sanctions advanced training
course for arbitrators)). FINRA stated that this
course: (1) explains the Discovery Guide; (2)
discusses the need for orders of confidentiality; (3)
helps arbitrators recognize and address discovery
abuses; and (4) reviews possible sanctions if they
become necessary. See id. at 7.
59 See id. at 7.
60 See id. at 7–8 (citing FINRA DRS Arbitrator’s
Guide, https://www.finra.org/sites/default/files/
arbitrators-ref-guide.pdf).
61 FINRA Response Letter at 8.
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application of the Document
Productions Lists. By requiring that a
customer respondent request that the
Document Production Lists apply no
later than the answer due date pursuant
to Rule 12303, rather than any extended
answer due date agreed to by the
parties, the proposed rule change
reasonably balances providing
respondent customers with time to
determine whether to apply the
Document Production Lists with the
expeditious nature of simplified
proceedings.
Further, in addition to the proposed
rule change, FINRA has taken, and has
stated that it will continue to take,
measures that should further enhance
awareness and transparency of the
discovery process, as well as help
customers evaluate whether to request
application of the Document Production
Lists. Specifically, FINRA updated its
website to provide more direct access to
FINRA guidance and rules related to
simplified arbitration and the discovery
process, including the Document
Production Lists. In addition, FINRA
stated that it will publish guidance
about discovery that would assist
customers in making informed decisions
regarding whether to elect to use the
Document Production Lists in their
case. Moreover, the educational
resources currently available to
arbitrators should help ensure that
arbitrators are well trained on the
discovery process, including use of the
Discovery Production Lists, so that they
can foster simplified arbitration
proceedings that are less susceptible to
unsupported procedural objections
regarding document production and that
operate in a fair and expeditious
manner. For these reasons, the proposed
rule change is reasonably designed to
protect investors and the public interest.
IV. Conclusion
The proposed rule change would
provide customers in paper cases and
special proceedings the option to elect
whether they want the Document
Production Lists to apply to all parties.
In this way, the proposed rule change
would facilitate discovery of the
documents and information that are
relevant to a customer’s arbitration, and
thereby enhance the arbitration process.
The proposed rule change would also
codify existing guidance stating that the
Document Production Lists are
applicable in simplified customer
arbitrations in which the customer
requests a regular hearing. Codifying
this guidance would enhance parties’
awareness and understanding of the
discovery process in certain simplified
customer arbitrations.
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16:47 Oct 31, 2024
Jkt 265001
For the reasons set forth above, the
Commission finds that the proposed
rule change, as modified by Partial
Amendment No. 1, is consistent with
Section 15A(b)(6) of the Exchange Act,
which requires, among other things, that
FINRA rules be designed to prevent
fraudulent and manipulative acts and
practices, promote just and equitable
principles of trade, and, in general,
protect investors and the public
interest.62
It is therefore ordered pursuant to
Section 19(b)(2) of the Exchange Act 63
that the proposed rule change (SR–
FINRA–2024–008), 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.64
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–25425 Filed 10–31–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101453; File No. SR–
CboeBZX–2024–103]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Amend Its
Fee Schedule
October 28, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
18, 2024, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. 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 BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) proposes to
amend its Fee Schedule. The text of the
proposed rule change is provided in
Exhibit 5.
62 15
U.S.C. 78o–3(b)(6).
U.S.C. 78s(b)(2).
64 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
63 15
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Frm 00116
Fmt 4703
Sfmt 4703
87439
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/BZX/),
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
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 update its
Fee Schedule to provide a temporary
discount on fees assessed to BZX
Members (‘‘Members’’) 3 and nonMembers that purchase $20,000 or more
of ad hoc purchases of BZX Historical
Depth Data (‘‘Historical Depth
Reports’’), effective October 18, 2024
through December 31, 2024.
By way of background, the Exchange
currently makes available for purchase
Depth Data, which is a daily archive of
the Exchange’s depth of book real-time
feed, which provides depth-of-book
quotations and execution information
based on equity orders entered into the
System. The Exchange also offers
Historical Depth Data, which offers such
data on a historical basis, i.e., T+1 or
later. The Historical Depth Report is a
completely voluntary product, in that
the Exchange is not required by any rule
or regulation to make this data available
and that potential customers may
purchase it on an ad-hoc basis only if
they voluntarily choose to do so.
Cboe LiveVol, LLC (‘‘LiveVol’’), a
wholly owned subsidiary of the
3 See Rule 1.5(n) (‘‘Member’’). The term
‘‘Member’’ shall mean any registered broker or
dealer that has been admitted to membership in the
Exchange. A Member will have the status of a
‘‘member’’ of the Exchange as that term is defined
in Section 3(a)(3) of the Act. Membership may be
granted to a sole proprietor, partnership,
corporation, limited liability company or other
organization which is a registered broker or dealer
pursuant to Section 15 of the Act, and which has
been approved by the Exchange.
E:\FR\FM\01NON1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 212 (Friday, November 1, 2024)]
[Notices]
[Pages 87435-87439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25425]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101449; File No. SR-FINRA-2024-008]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by
Partial Amendment No. 1, To Amend FINRA Rule 12800 (Simplified
Arbitration) To Clarify and Amend the Applicability of the Document
Production Lists
October 28, 2024.
I. Introduction
On May 13, 2024, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``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 (SR-FINRA-2024-008) to amend
FINRA Rule 12800 (Simplified Arbitration) of the FINRA Code of
Arbitration Procedure for Customer Disputes (``Customer Code''). The
proposed rule change, as subsequently modified by a partial amendment
(``Partial Amendment No. 1''), would address the applicability of the
lists of documents that are presumed to be discoverable in regular
arbitrations between a customer and a member or associated person
(``Document Production Lists'') \3\ to simplified customer arbitrations
administered under FINRA Rule 12800.\4\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ FINRA Rule 12506 (Document Production Lists) describes the
documents that are presumed to be discoverable in all arbitrations
between a customer and a member firm or associated person.
\4\ Simplified customer arbitrations are arbitrations in which
the dispute between a customer and member firm or associated person
involves $50,000 or less, exclusive of interest and expenses. See
FINRA Rule 12800(a).
---------------------------------------------------------------------------
The proposed rule change was published for public comment in the
Federal Register on May 28, 2024.\5\ The public comment period closed
on June 18, 2024. The Commission received comment letters related to
this filing.\6\ On July 8, 2024, 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
[[Page 87436]]
approve or disapprove the proposed rule change to August 26, 2024.\7\
On August 7, 2024, FINRA responded to the comment letters received in
response to the Notice and filed Partial Amendment No. 1 to modify the
proposed rule change.\8\
---------------------------------------------------------------------------
\5\ See Exchange Act Release No. 100204 (May 21, 2024), 89 FR
46210 (May 28, 2024) (File No. SR-FINRA2024-008) (``Notice'').
\6\ The comment letters are available at https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008.htm.
\7\ See letter from Carissa Laughlin, Principal Counsel, Office
of General Counsel, FINRA, to Lourdes Gonzalez, Assistant Chief
Counsel, Division of Trading and Markets, Commission, dated July 8,
2024, https://www.finra.org/sites/default/files/2024-07/SR-FINRA-2024-008-extension1.pdf.
\8\ See letter from Carissa Laughlin, Principal Counsel, Office
of General Counsel, FINRA, to Vanessa Countryman, Secretary,
Commission, dated August 7, 2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-503775-1470022.pdf (``FINRA Response
Letter''); see also Partial Amendment No. 1, https://www.finra.org/sites/default/files/2024-08/SR-FINRA-2024-008-Partial-A-1.pdf.
---------------------------------------------------------------------------
On August 27, 2024, the Commission published a notice of filing of
Partial Amendment No. 1 and an order instituting proceedings to
determine whether to approve or disapprove the proposed rule change, as
modified by Partial Amendment No. 1.\9\ The Commission received
additional comment letters in response to the OIP.\10\ This order
approves the proposed rule change, as modified by Partial Amendment No.
1 (hereinafter referred to as the ``proposed rule change'' unless
otherwise specified).
---------------------------------------------------------------------------
\9\ See Exchange Act Release No. 34-100787 (Aug. 21, 2024), 89
FR 68686, (Aug. 27, 2024), File No. SR-FINRA-2024-008 (``OIP'').
\10\ The comment letters received in response to the OIP are
available at https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008.htm.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
A. Background
FINRA Dispute Resolution Services (``DRS'') provides a Discovery
Guide \11\ to help guide the parties and arbitrators through the
discovery process in customer arbitrations.\12\ The Document Production
Lists, which are included in the Discovery Guide, outline presumptively
discoverable documents that the parties should exchange, without
arbitrator or DRS staff intervention.\13\
---------------------------------------------------------------------------
\11\ https://www.finra.org/sites/default/files/ArbMed/p394527.pdf.
\12\ See Notice at 46210. In addition to describing the Document
Production Lists, the Discovery Guide includes information about the
circumstances under which the parties may object to the production
of documents on the Document Production Lists, the parties' ability
to request additional documents other than those included on the
Document Production Lists, the process for obtaining the production
of documents from non-parties, the forms that the production of
documents should take, and the parties' right to object to the
production of documents based on confidentiality and privilege
concerns. See Notice at 46211. The FINRA Discovery Guide and
Document Production Lists do not apply to arbitrations administered
under the Code of Arbitration Procedure for Industry Disputes. See
Notice at 46210 n.3.
\13\ See Notice at 46210; see also FINRA Rule 12506.
---------------------------------------------------------------------------
Document Production Lists 1 and 2 describe the documents that are
presumed to be discoverable in all arbitrations between a customer and
a member firm or associated person, except in simplified customer
arbitrations as explained below.\14\ List 1 outlines the documents that
member firms and associated persons shall produce; List 2 outlines the
documents that customers shall produce.\15\ The proposed rule change
would affect the applicability of the Document Production Lists in
simplified customer arbitrations.
---------------------------------------------------------------------------
\14\ Id.; see also FINRA Rule 12506(a).
\15\ See Notice at 46210; see also https://www.finra.org/sites/default/files/ArbMed/p394527.pdf.
---------------------------------------------------------------------------
There are three types of simplified customer arbitrations. If the
customer does not request a hearing, the arbitrator will render an
award based on the pleadings and other materials submitted by the
parties (``paper cases'').\16\ If the customer requests a hearing, the
customer must select between one of two hearing options, known as an
Option One hearing and an Option Two hearing.\17\ If the customer
requests an Option One hearing, the regular provisions of the Customer
Code relating to prehearings and hearings apply (``regular hearing''),
including the Document Production Lists.\18\ Alternatively, the
customer may request an Option Two special proceeding, which is an
abbreviated hearing (``special proceeding'').\19\
---------------------------------------------------------------------------
\16\ See Notice at 46210; see also FINRA Rule 12800(c)(2).
\17\ See Notice at 46210; see also FINRA Rule 12800(c)(3).
\18\ See Notice at 46210; see also FINRA Rule 12800(c)(3)(A);
see also FINRA DRS Party's Reference Guide, p. 31, https://www.finra.org/sites/default/files/Partys-Reference-Guide.pdf
(explaining that ``[t]he Document Production Lists in the Discovery
Guide as described in FINRA Rule 12506 do not apply to simplified
[customer] arbitrations decided on the papers or decided by special
proceeding. However, the Discovery Guide does apply to simplified
cases in which a customer requests a regular hearing.''); see also
https://www.finra.org/arbitration-mediation/simplified-arbitrations.
See Notice at 46210 n.11 and accompanying text; see also infra note
24.
\19\ See Notice at 46210; see also FINRA Rule 12800(c)(3)(B).
---------------------------------------------------------------------------
Currently, the Document Production Lists do not apply in paper
cases and special proceedings.\20\ Accordingly, the parties in such
proceedings must request documents and other information from each
other, pursuant to FINRA Rule 12800(g)(2). However, an arbitrator may
exercise discretion to use relevant portions of the Document Production
Lists in paper cases and special proceedings ``in a manner consistent
with the expedited nature of simplified proceedings.'' \21\ Absent such
an exercise of discretion by the arbitrator, in order to obtain
discovery in these proceedings, the parties must request documents and
other information from each other without the benefit of the Document
Production Lists.\22\ As a result, no documents or information are
presumptively discoverable in paper cases and special proceedings, but
they are presumptively discoverable in simplified customer arbitrations
in which the customer requests a regular hearing as noted above.\23\
---------------------------------------------------------------------------
\20\ See Notice at 46210. FINRA Rule 12800(g)(1) provides that
the Document Production Lists ``do not apply to arbitrations subject
to this rule'' (i.e., paper cases and special proceedings). Notice
at 46210.
\21\ Notice at 46210; see FINRA Rule 12800(g)(1).
\22\ See Notice at 46210; see also FINRA Rule 12800(g)(2)
(providing that all production requests must be served on all other
parties and filed with the Director within 30 days from the date
that the last answer is due; any response or objection to a
production request must be served on all other parties and filed
with the Director within 10 days of the receipt of the request).
\23\ See Notice at 46210.
---------------------------------------------------------------------------
B. Proposed Rule Change
The proposed rule change would amend FINRA Rule 12800(g)(1) to give
customers in paper cases and special proceedings the option to elect
whether they want the Document Production Lists to apply to all
parties.\24\
---------------------------------------------------------------------------
\24\ See id. at 46211. The proposed rule change also would make
technical changes to Rule 12800. Currently, FINRA Rule
12800(c)(3)(A) states that, when a customer requests a regular
hearing, the ``regular provisions'' of the Customer Code relating to
prehearings and hearings apply. As noted above, DRS has issued
guidance clarifying this language to mean that the Document
Production Lists apply in simplified customer arbitrations in which
the customer requests a regular hearing. See Notice at 46212; see
also supra note 18. The proposed rule change would codify this
guidance. See Notice at 46212. Specifically, proposed Rule
12800(g)(1)(A) would provide that ``[t]he Document Production Lists,
described in Rule 12506, apply to arbitrations in which the customer
requests an Option One hearing.''
---------------------------------------------------------------------------
Proposed Rule 12800(g)(1)(B) states that the Document Production
Lists described in FINRA Rule 12506 would not apply in paper cases or
special proceedings unless: (1) the customer requests that they apply
at the time he or she initiates an arbitration pursuant to Rule 12302
(Filing and Serving an Initial Statement of Claim) or, (2) if the
customer is a respondent, he or she requests that they apply no later
than the answer due date pursuant to Rule 12303 (Answering the
Statement of Claim), regardless of the parties'
[[Page 87437]]
agreement to extend any answer due date.\25\
---------------------------------------------------------------------------
\25\ Id. FINRA Rule 12303 provides that ``respondent(s) must
serve each other party with an answer to the statement of claim
within 45 days of receipt of the statement of claim. FINRA Rule
12207(a) provides that the parties may agree in writing to extend or
modify the deadline for serving an answer.'' See Notice at 46211
n.13.
---------------------------------------------------------------------------
If the customer does not timely elect to apply the Document
Production Lists to all parties as provided, proposed Rule
12800(g)(1)(B) would continue to permit an arbitrator to exercise
discretion to use relevant portions of the Document Production Lists in
a manner consistent with the expedited nature of simplified customer
arbitrations. Additionally, proposed Rule 12800(g)(2) would continue to
permit the parties to request documents and information from each
other.\26\
---------------------------------------------------------------------------
\26\ Nothing in the Discovery Guide precludes the parties from
voluntarily agreeing to an exchange of documents in a manner
different from that set forth in the Discovery Guide. FINRA stated
that it encourages parties to agree to the voluntary exchange of
documents and to stipulate to various matters. See Notice at 46211
n.19; see also https://www.finra.org/sites/default/files/ArbMed/p394527.pdf.
---------------------------------------------------------------------------
III. Discussion of Commission Findings
After careful review of the proposed rule change, the comment
letters, and FINRA's response to the comments, 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.\27\ Specifically, as
explained in more detail below, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Exchange Act,
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.\28\ The Commission addresses the
proposed rule change's specific provisions, and any related comments,
in turn.
---------------------------------------------------------------------------
\27\ 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).
\28\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
Currently, the Document Production Lists do not apply in paper
cases or in special proceedings. Accordingly, the parties in such
proceedings must request documents and other information from each
other, pursuant to FINRA Rule 12800(g)(2).\29\ The proposed rule change
would amend FINRA Rule 12800(g)(1) to give customers in paper cases and
special proceedings the option to elect at the time that they initiate
an arbitration or, if they are a respondent, no later than the answer
due date, whether they want the Document Production Lists to apply to
all parties.\30\ If such an election is made, all parties would be
required to produce the documents on the Document Production Lists,
explain why the documents cannot be produced, or object to the
production of the documents within the timeframes set forth in FINRA
Rule 12506.\31\
---------------------------------------------------------------------------
\29\ See supra note 22.
\30\ A commenter suggested a technical amendment to proposed
Rule 12800(g)(1)(B) to make clear that the Document Production Lists
are found in Rule 12506 so that a pro se investor is not confused
about the applicability of the Document Production Lists when
pursuing a paper case or special proceeding. See letter from Nikki
Junda, Student Intern, Elissa Germaine, Supervising Attorney, and
Christine Lazaro, Supervising Attorney, Securities Arbitration
Clinic of St. John's University School of Law, dated June 17, 2024,
https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-477251-1366154.html (``St. John's Letter I'') at 2. FINRA agreed by
filing Partial Amendment No. 1 to modify proposed Rule
12800(g)(1)(B) to mirror the language in proposed Rule
12800(g)(1)(A) such that both provisions begin with ``The Document
Production Lists, described in Rule 12506 . . .''. See Partial
Amendment No. 1 and FINRA Response Letter at 2-3.
\31\ See FINRA Rule 12506(b)(1).
---------------------------------------------------------------------------
Commenters supported the proposed rule change.\32\ For example,
commenters stated that applying the Document Production Lists to paper
cases and special proceedings would generally protect investors,\33\
enhance the fairness of the proceedings and arbitration process,\34\
balance the need for efficiency and fairness,\35\ and enhance fairness
without unduly raising costs.\36\ In addition, multiple commenters
stated that the proposed changes would enhance pro se customers'
awareness and understanding of the discovery process and support them
in seeking material evidence necessary to their claims.\37\ Some
commenters also suggested additional changes.
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\32\ See letter from Elissa Germaine, Supervising Attorney, and
Christine Lazaro, Supervising Attorney, Securities Arbitration
Clinic of St. John's University School of Law, dated September 17,
2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-521575-1498402.pdf (``St. John's Letter II''); letter from Jenice
Malecki, Jacqueline Candella, Adam G. Schreck, and Claire Sterin,
Intern, Malecki Law, dated September 17, 2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-521595-1498462.pdf
(``Malecki Letter''); letter from Joseph C. Peiffer, President,
Public Investor Advocate Bar Association, dated September 17, 2024,
https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-521555-1498322.pdf (``PIABA Letter II''); letter from William A.
Jacobson, Clinical Professor of Law, Director of the Cornell
Securities Law Clinic, Noah Moreano, Cornell Law Student, Cornell
Securities Law Clinic, Cornell Law School, dated September 16, 2024,
https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-520935-1497242.pdf (``Cornell Letter''); letter from Nicole G.
Iannarone, Associate Professor of Law, Drexel University School of
Law, dated June 18, 2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-483631-1383094.pdf (``Iannarone Letter'');
letter from Clare M. Farrelly, MBA, Student Intern, Fairbridge
Investor Rights Clinic, Elisabeth Haub School of Law, Pace
University, dated June 18, 2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-483651-1383114.pdf (``Pace Letter'');
letter from Jill I. Gross, Vice Dean for Academic Affairs and
Professor of Law, Elisabeth Haub School of Law, Pace University,
dated June 18, 2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-1382774.htm (``Gross Letter''); letter from Scott
Eichhorn, Director, and Melanie S. Cherdack, Associate Director,
Investor Rights Clinic, University of Miami School of Law, dated
June 18, 2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-483571-1382814.pdf (``Miami Letter''); letter from
Joseph C. Peiffer, President, Public Investor Advocate Bar
Association, dated June 18, 2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-483331-1382594.pdf (``PIABA Letter
I''); St. John's Letter I; and letter from Steven B. Caruso, dated
May 24, 2024, https://www.sec.gov/comments/sr-finra-2024-008/srfinra2024008-477251-1366154.html (``Caruso Letter'').
\33\ See PIABA Letter I at 1.
\34\ See Gross Letter at 1.
\35\ See Pace Letter at 1.
\36\ Id. at 2.
\37\ See Caruso Letter at 1; PIABA Letter I at 1-2; Pace Letter
at 3; St. John's Letter I at 1-2; Cornell Letter at 2, St. John's
Letter II at 1; and Malecki Letter at 2-3.
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One commenter suggested changes to proposed Rule 12800(g)(1)(B) to
give a customer who is a respondent more time to request application of
the Document Productions Lists. As proposed, if the customer is a
respondent, he or she must request that the Document Production Lists
apply no later than the date he or she must answer a statement of claim
pursuant to Rule 12303, regardless of the parties' agreement to extend
any answer due date. The commenter suggested that when a customer
respondent obtains an extension of time to answer, the customer should
be allowed to opt in to the Document Production Lists when the customer
files the answer pursuant to an agreed deadline extension, rather than
on the original due date for the answer.\38\
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\38\ See Pace Letter at 3-4.
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In response, FINRA stated that the proposed rule change ``balances
the expedited nature of simplified customer arbitrations and the
ability of customer respondents to make an informed decision regarding
whether to use the Document Production Lists.'' \39\ For example, if a
customer could request that the Document Production Lists apply when
the customer respondent files the answer and the answer is not filed
until just before the special proceeding hearing date, then ``this
would require the arbitrator and parties to reschedule the hearing date
to a date
[[Page 87438]]
at least two months later than originally scheduled to allow parties
adequate time to respond to the Document Production Lists.'' \40\
Similarly, allowing customer respondents to request that the Document
Production Lists apply when filing the answer in a papers case rather
than by the answer due date could significantly delay the conclusion of
such cases, which are generally the most expedited form of arbitration
case.\41\ Furthermore, FINRA stated that to the extent a customer
respondent does not timely elect to apply the Document Production Lists
to all parties, proposed Rule 12800(g)(1)(B) continues to allow the
arbitrator discretion to use relevant portions of the Document
Production Lists in a manner consistent with the expedited nature of
simplified customer arbitrations.\42\ In addition, the parties can
still request documents and information from each other pursuant to
FINRA Rule 12800(g)(2).\43\ For these reasons, FINRA did not accept the
suggested change.
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\39\ FINRA Response Letter at 3.
\40\ Id. at 3-4.
\41\ See FINRA Response Letter at 4.
\42\ Id.; see also Notice at 46211.
\43\ See FINRA Response Letter at 4; see also Notice at 46211.
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Another commenter suggested that FINRA add a hyperlink or cross
reference to the Discovery Guide within the rules whenever the Document
Production Lists are mentioned to help investors locate and use FINRA
guidance.\44\ This commenter also suggested that FINRA make guidance on
its website easier to locate for parties in simplified
arbitrations.\45\ Another commenter recommended that FINRA provide
parties a ``plain language explanation of the discovery process and how
it will differ with use of the Discovery Guide.'' \46\
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\44\ See St. John's Letter I at 2.
\45\ Id.
\46\ Miami Letter at 3.
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In response to the commenters' suggestions, FINRA: (1) updated the
``Related Links'' section of the web pages for FINRA Rules 12506,
12507, 12508, and 12800 to include a hyperlink to the Discovery Guide
web page; \47\ (2) updated the FINRA Rule 12800 web page by adding
hyperlinks to any cross-referenced FINRA Rules; \48\ and (3) updated
its ``Overview of Arbitration & Mediation'' web page by adding a
hyperlink to cross-reference its ``Simplified Arbitrations'' web
page.\49\ In addition, FINRA stated that it would develop and publish
guidance about discovery that will be available to all parties in
simplified arbitration and would, among other things, direct parties to
the Discovery Guide.\50\
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\47\ See FINRA Response Letter at 5-6.
\48\ Id. at 6.
\49\ See FINRA Response Letter at 5.
\50\ Id.; see also Notice at 46211.
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Finally, one commenter recommended providing and requiring more
arbitrator training, including providing arbitrators greater discretion
to award sanctions for discovery violations.\51\ Specifically, this
commenter stated that enhanced training should provide arbitrators with
sufficient detail on: (1) the requirements of parties when asserting
objections; (2) the adequate bases for objections to overcome the
presumption of discoverability; (3) how objections may lead to the risk
that arbitrators do not have relevant documents and information to
decide the case; and (4) the circumstances under which an arbitrator
may award sanctions against parties who assert boilerplate
objection.\52\
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\51\ See Miami Letter at 3-4.
\52\ Id.
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In response, FINRA stated that it currently provides mandatory
training and various other resources to arbitrators regarding the
discovery process.\53\ For example, arbitrators must pass FINRA's Basic
Arbitrator Training Program in order to serve on FINRA arbitration
cases.\54\ The Basic Arbitrator Training Program includes a module
dedicated to the discovery process.\55\ FINRA stated that this module
also reminds arbitrators that pro se parties ``may need more procedural
direction and specific deadlines for discovery requests and
responses.'' \56\ Moreover, in order to qualify as a chairperson,
arbitrators must complete training containing three modules with
information about the discovery process and issues, including motions
to compel discovery.\57\ In addition, DRS also offers voluntary,
subject-specific training modules, including an online course titled
``Discovery, Abuses and Sanctions'' that focuses on the respective
duties of arbitrators and parties in the discovery process.\58\
Further, FINRA stated that it also provides updates and reminders to
arbitrators regarding discovery procedures via its Neutral Workshops
and a quarterly newsletter,\59\ as well as the DRS Arbitrator's Guide,
which dedicates two sections to discovery and motions.\60\ FINRA stated
that in light of these available resources, it ``does not anticipate
providing additional arbitrator training on the discovery process at
this time.'' \61\
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\53\ See FINRA Response Letter at 6.
\54\ Id. (citing Arbitrator Training, https://www.finra.org/arbitration-mediation/rules-case-resources/arbitrator-training
(discussing how an arbitrator candidate must complete the
comprehensive Basic Arbitrator Training Program to become eligible
to serve on arbitration cases)).
\55\ Id. (citing FINRA DRS Basic Arbitrator Training Program
Transcript, p. 21, https://www.finra.org/sites/default/files/2024-05/FINRA-Basic-Arbitrator-and-Expungement-Training-Full-Course-Transcript.pdf). The training includes, among other things: (1)
understanding the discovery process and timelines; (2) ruling on
discovery requests based on the papers; and (3) imposing discovery
sanctions when a party fails to provide sufficient information or
documents. See id.
\56\ Id. at 6.
\57\ See id. (citing FINRA DRS Chairperson Training Transcript,
pp. 4-6, 9-15, 17-21, https://www.finra.org/sites/default/files/2024-05/FINRA_Chair-Training-Full-Transcript.pdf).
\58\ See id. at 6-7 (citing Arbitrator Training, https://www.finra.org/arbitration-mediation/rules-case-resources/arbitrator-training (discussing the Discovery, Abuses and Sanctions advanced
training course for arbitrators)). FINRA stated that this course:
(1) explains the Discovery Guide; (2) discusses the need for orders
of confidentiality; (3) helps arbitrators recognize and address
discovery abuses; and (4) reviews possible sanctions if they become
necessary. See id. at 7.
\59\ See id. at 7.
\60\ See id. at 7-8 (citing FINRA DRS Arbitrator's Guide,
https://www.finra.org/sites/default/files/arbitrators-ref-guide.pdf).
\61\ FINRA Response Letter at 8.
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Giving customers in paper cases and special proceedings the option
to elect whether they want the Document Production Lists to apply to
all parties at the time that they initiate an arbitration or, if they
are a respondent, no later than the answer due date, should increase
the efficiency of simplified arbitration proceedings while maintaining
their expedited nature. By opting to use the Document Production Lists,
parties should receive those documents and information that are
relevant to the dispute without the need to make production requests or
engage in motion practice, which should help expedite the discovery
process. Furthermore, increased access to relevant documents and other
information should result in outcomes (i.e., awards and settlements) in
paper cases or special proceedings that are more consistent with the
merits of the case.
In addition, the proposed rule change should help facilitate the
discovery process in arbitration cases. Because many of the customers
who appear in simplified arbitration cases are pro se, they are more
likely than customers in regular arbitration cases to lack familiarity
with the discovery process. Giving customers in paper cases and special
proceedings the option to elect whether they want the Document
Production Lists to apply to all parties is, therefore, a reasonable
approach to facilitating the discovery process for customers. FINRA
also reasonably determined to decline giving customer respondents more
time to request
[[Page 87439]]
application of the Document Productions Lists. By requiring that a
customer respondent request that the Document Production Lists apply no
later than the answer due date pursuant to Rule 12303, rather than any
extended answer due date agreed to by the parties, the proposed rule
change reasonably balances providing respondent customers with time to
determine whether to apply the Document Production Lists with the
expeditious nature of simplified proceedings.
Further, in addition to the proposed rule change, FINRA has taken,
and has stated that it will continue to take, measures that should
further enhance awareness and transparency of the discovery process, as
well as help customers evaluate whether to request application of the
Document Production Lists. Specifically, FINRA updated its website to
provide more direct access to FINRA guidance and rules related to
simplified arbitration and the discovery process, including the
Document Production Lists. In addition, FINRA stated that it will
publish guidance about discovery that would assist customers in making
informed decisions regarding whether to elect to use the Document
Production Lists in their case. Moreover, the educational resources
currently available to arbitrators should help ensure that arbitrators
are well trained on the discovery process, including use of the
Discovery Production Lists, so that they can foster simplified
arbitration proceedings that are less susceptible to unsupported
procedural objections regarding document production and that operate in
a fair and expeditious manner. For these reasons, the proposed rule
change is reasonably designed to protect investors and the public
interest.
IV. Conclusion
The proposed rule change would provide customers in paper cases and
special proceedings the option to elect whether they want the Document
Production Lists to apply to all parties. In this way, the proposed
rule change would facilitate discovery of the documents and information
that are relevant to a customer's arbitration, and thereby enhance the
arbitration process. The proposed rule change would also codify
existing guidance stating that the Document Production Lists are
applicable in simplified customer arbitrations in which the customer
requests a regular hearing. Codifying this guidance would enhance
parties' awareness and understanding of the discovery process in
certain simplified customer arbitrations.
For the reasons set forth above, the Commission finds that the
proposed rule change, as modified by Partial Amendment No. 1, is
consistent with Section 15A(b)(6) of the Exchange Act, which requires,
among other things, that FINRA rules be designed to prevent fraudulent
and manipulative acts and practices, promote just and equitable
principles of trade, and, in general, protect investors and the public
interest.\62\
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\62\ 15 U.S.C. 78o-3(b)(6).
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It is therefore ordered pursuant to Section 19(b)(2) of the
Exchange Act \63\ that the proposed rule change (SR-FINRA-2024-008), as
modified by Partial Amendment No. 1, be, and hereby is, approved.
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\63\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\64\
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\64\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-25425 Filed 10-31-24; 8:45 am]
BILLING CODE 8011-01-P
