Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Codes of Arbitration Procedure To Make Clarifying, Technical, and Procedural Changes to the Arbitrator List Selection Process, 106635-106644 [2024-30907]

Download as PDF Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices A. by order approve or disapprove such proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NYSEARCA–2024–112 on the subject line. ddrumheller on DSK120RN23PROD with NOTICES1 Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–NYSEARCA–2024–112. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https:// www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSEARCA–2024–112 and should VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 be submitted on or before January 21, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Vanessa A. Countryman, Secretary. [FR Doc. 2024–30916 Filed 12–27–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101993; File No. SR– FINRA–2024–022] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Codes of Arbitration Procedure To Make Clarifying, Technical, and Procedural Changes to the Arbitrator List Selection Process December 19, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 19, 2024, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing 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 make changes to certain provisions relating to arbitrator list selection. The proposed rule change would amend FINRA Rules 12403 (Cases with Three Arbitrators) and 13403 (Generating and Sending Lists to the Parties) to increase the opportunity for public arbitrators who are not qualified to serve as chairpersons 3 to be selected by a computer algorithm, known as the ‘‘list selection algorithm,’’ for the list of arbitrators that is sent to the parties in 26 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See infra note 9 and accompanying text. PO 00000 Frm 00230 Fmt 4703 Sfmt 4703 106635 certain customer and industry disputes that have a three-arbitrator panel. In addition, the proposed rule change would make changes to the Codes that are consistent with FINRA’s focus on increasing the transparency of arbitrator list selection and with current practices that were developed to efficiently administer arbitrator list selection. Specifically, the proposed rule change would amend FINRA Rule 12402 (Cases with One Arbitrator), FINRA Rule 12403 (Cases with Three Arbitrators), FINRA Rule 13403 (Generating and Sending Lists to the Parties), FINRA Rules 12404 and 13407 (Additional Parties), FINRA Rule 13404 (Striking and Ranking Arbitrators), FINRA Rules 12407 and 13410 (Removal of Arbitrator by Director), and FINRA Rule 13804 (Temporary Injunctive Orders; Requests for Permanent Injunctive Relief). The proposed rule change also would make non-substantive, technical changes to FINRA Rules 13406 (Appointment of Arbitrators; Discretion to Appoint Arbitrators Not on List) and 13411 (Replacement of Arbitrators) to update cross-references in those rules. The text of the proposed rule change is available on FINRA’s website at https://www.finra.org, at the principal office of FINRA and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose I. Overview of FINRA’s Arbitrator List Selection Process Decisions in the FINRA Dispute Resolution Services (‘‘DRS’’) arbitration forum are made by independent arbitrators.4 To ensure fairness to all 4 As a neutral administrator of the arbitration forum, DRS does not participate in the decisionmaking process by arbitrators. DRS maintains a roster of over 8,300 arbitrators. See FINRA, Arbitration and Mediation, Dispute Resolution E:\FR\FM\30DEN1.SGM Continued 30DEN1 106636 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 parties during arbitrator list selection, FINRA uses a computer algorithm, known as the list selection algorithm, to generate lists of arbitrators on a random basis from its rosters of arbitrators for the selected hearing location.5 DRS maintains three rosters of arbitrators: public arbitrators, non-public arbitrators, and arbitrators who are eligible to serve as chairperson of a panel.6 In general, a public arbitrator is a person who is otherwise qualified to serve as an arbitrator and is not disqualified from service as a public arbitrator due to their current or past ties to the financial industry.7 A nonpublic arbitrator is a person who is otherwise qualified to serve as an arbitrator and is disqualified from service as a public arbitrator due to their current or previous association with the financial industry.8 An arbitrator is eligible to serve as a chairperson if they have completed FINRA’s chairperson training and (1) have a law degree and are a member of a bar of at least one jurisdiction and have served as an arbitrator through award on at least one arbitration administered by a selfregulatory organization (‘‘SRO’’) in which hearings were held; or (2) have served as an arbitrator through award on at least three arbitrations administered by an SRO in which hearings were held.9 The number and composition of the arbitrator lists that are generated using the list selection algorithm varies depending on the nature of the dispute and whether it will be heard by a panel of three arbitrators or by a single arbitrator. With respect to both customer disputes with three arbitrators and industry disputes involving associated persons with three arbitrators 10—the two types of disputes affected by the proposed amendments to the procedures for generating lists of public arbitrators—DRS uses the list selection algorithm to generate three lists: (1) a list of 10 public arbitrators from the Statistics, https://www.finra.org/arbitrationmediation/dispute-resolution-statistics; FINRA, Arbitration and Mediation, Become an Arbitrator, https://www.finra.org/arbitration-mediation/ become-arbitrator. 5 See FINRA Rules 12400(a) and 13400(a). 6 See FINRA Rules 12400(b) and 13400(b). 7 See FINRA Rules 12100(aa) and 13100(x). 8 See FINRA Rules 12100(t) and 13100(r). 9 See FINRA Rules 12400(c) and 13400(c). 10 The panel will consist of three arbitrators in both customer and industry disputes when (1) the amount of the claim is more than $50,000 but not more than $100,000, exclusive of interest and expenses, and the parties agree in writing to three arbitrators; or (2) the amount of the claim is more than $100,000, exclusive of interest and expenses, is unspecified, or the claim does not request money damages, unless the parties agree in writing to one arbitrator. See FINRA Rules 12401 and 13401. VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 FINRA chairperson roster (‘‘Chairperson List’’); (2) a list of 15 arbitrators (in customer disputes) or 10 arbitrators (in industry disputes involving associated persons) from the FINRA public arbitrator roster (‘‘Public List’’); and (3) a list of 10 arbitrators from the FINRA non-public arbitrator roster (‘‘NonPublic List’’).11 Once the lists of arbitrators are generated,12 the Director 13 sends the lists to the parties.14 The parties then select their arbitrators through a process that involves striking and ranking the arbitrators on the lists, which is described in more detail in Section III below in connection with the discussion of the proposed amendments to increase the transparency of the arbitrator selection process.15 II. Proposed Amendments to the Procedures for Generating Public Lists Currently, under the Codes, when generating the three lists of arbitrators to send to the parties in both customer disputes with three-person panels and industry disputes involving associated persons with three-person panels, the list selection algorithm will first generate a Chairperson List from FINRA’s roster of chair-qualified public arbitrators.16 When the list selection algorithm selects the chair-qualified public arbitrators for the Chairperson List for an arbitration, those chairqualified public arbitrators will not be eligible to be selected for a Public List for the arbitration and, therefore, will be automatically removed from the list selection algorithm before the Public 11 See FINRA Rules 12403(a)(1) and 13403(b)(2). list selection algorithm will automatically exclude arbitrators from the lists based upon current conflicts of interest identified within the list selection algorithm. See FINRA Rules 12402(b)(2), 12403(a)(3), 13403(a)(4), and 13403(b)(4). In addition, DRS conducts a review for other conflicts not identified within the list selection algorithm. See FINRA Rules 12402(b)(3), 12403(a)(4), 13403(a)(5), and 13403(b)(5). If any arbitrators are removed due to such conflicts, the list selection algorithm is used to generate replacement arbitrators. See FINRA Rules 12402(b)(3), 12403(a)(4), 13403(a)(5), and 13403(b)(5). 13 The term ‘‘Director’’ means the Director of DRS. Unless the Code provides that the Director may not delegate a specific function, the term includes FINRA staff to whom the Director has delegated authority. See FINRA Rules 12100 (m) and 13100(m). 14 See FINRA Rules 12403(b) and 13403(c). 15 See infra Section A.1.III. (‘‘Proposed Amendments to Increase the Transparency of the Arbitrator Selection Process’’); see also FINRA Rules 12400(a), 12403(c)-(e), 13400(a), 13404, 13405, and 13406. FINRA notes that the proposed rule change would impact all members, including members that are funding portals or have elected to be treated as capital acquisition brokers (‘‘CABs’’), given that the funding portal and CAB rule sets incorporate the impacted FINRA rules by reference. 16 See FINRA Rules 12403(a)(2) and 13403(b)(3). 12 The PO 00000 Frm 00231 Fmt 4703 Sfmt 4703 List is generated for the arbitration.17 However, the chair-qualified public arbitrators who are not selected by the list selection algorithm for the Chairperson List for an arbitration will be eligible to be selected for the Public List for the arbitration.18 Thus, chairqualified public arbitrators have two chances to be selected for lists for an arbitration: they may be selected for the Chairperson List, and if they are not selected for the Chairperson List, they may be selected for the Public List.19 Public arbitrators who are not chairqualified do not have the same opportunity. Rather, public arbitrators who are not chair-qualified can only be selected for a Public List and, therefore, have only one chance to be selected for a list of arbitrators. As a result, public arbitrators who are not chair-qualified are less likely to be selected for a list than chair-qualified public arbitrators, even though the number of public arbitrators who are not chair-qualified greatly exceeds the number of chairqualified public arbitrators.20 To address this imbalance and increase the opportunity for public arbitrators who are not chair-qualified to be selected for the Public List, the proposed rule change would amend FINRA Rules 12403(a)(3) and 13403(b)(4) to provide that, in preparing the Public List, the list selection algorithm will provide two chances for selection to public arbitrators who are not chair-qualified, and will continue to provide one chance for selection to chair-qualified public arbitrators.21 The procedures for generating the Public List would not otherwise be modified under the proposed rule change. FINRA believes it is appropriate to address this imbalance and increase the opportunity for public arbitrators who are not chair-qualified to be selected for Public Lists. By providing an additional 17 See FINRA Rules 12403(a)(2) and 13403(b)(3). FINRA Rules 12403(a)(2) and 13403(b)(3). 19 An individual arbitrator cannot be selected for both the Chairperson List and the Public List for the same case. See FINRA Rules 12403(a)(2) and 13403(b)(3). 20 See infra Section B.ii. (Economic Baseline). 21 See proposed FINRA Rules 12403(a)(3) and 13403(b)(4). The list selection algorithm would affect the proposed rule change by including the names of public arbitrators who are not chair qualified twice on the roster of available public arbitrators used to randomly generate a Public List. For more information on how the list selection algorithm currently generates a Public List, see https://www.finra.org/arbitration-mediation/about/ arbitration-process/arbitrator-selection. Although the proposed rule change would give public arbitrators who are not chair-qualified two chances to be selected for a Public List, proposed FINRA Rules 12403(a)(3) and 13403(b)(4) would provide that an individual arbitrator cannot appear more than once on the Public List selected for the same case. 18 See E:\FR\FM\30DEN1.SGM 30DEN1 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 opportunity to be selected for Public Lists, the proposed rule change may increase the likelihood for public arbitrators who are not chair-qualified to be selected by parties to serve as panelists, which could help FINRA retain these arbitrators on its roster. FINRA has observed that parties appear to prefer chair-qualified public arbitrators who have experience in the DRS arbitration forum and a record of previous arbitration award outcomes. If arbitrators who are new to the roster or have less experience in the forum are never selected by parties to serve as panelists, they may lose interest in serving as arbitrators in the DRS arbitration forum. The proposed rule change could help incent new or less experienced public arbitrators to remain on FINRA’s arbitrator roster by providing a higher likelihood of selection by the parties as a panelist than currently exists under the Codes.22 The proposed rule change also may help FINRA increase the roster of chairqualified public arbitrators. By increasing the opportunity for public arbitrators who are not chair-qualified to be selected by the parties to serve as panelists, the proposed rule change would help these arbitrators to gain the experience they need to become chairqualified. This, in turn, could help FINRA increase the number of local chairpersons across hearing locations.23 Parties generally prefer chair-qualified public arbitrators who live near their hearing location and who are more likely to be familiar with local laws and customs. However, 78 percent of hearing locations lack a sufficient number of local chairpersons to generate enough arbitrators for Chairperson Lists, which means that the list selection algorithm must often generate lists that include chair-qualified public arbitrators from other hearing locations.24 In over half of these hearing locations, the roster of local chairqualified public arbitrators could be filled by non-chair-qualified public arbitrators if they became chairqualified. By increasing the number of local chairpersons, the list selection algorithm would be able to generate Chairperson Lists that include more local chair-qualified public arbitrators to address parties’ preferences. III. Proposed Amendments To Increase the Transparency of the Arbitrator Selection Process FINRA is also proposing to codify certain practices that DRS has 22 See infra Section B.iii. (Economic Impact). infra Section B.iii. (Economic Impact). 24 See infra Section B.iii. (Economic Impact). 23 See VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 developed to efficiently administer arbitrator list selection, establish new timeframes for objecting to requests for additional information from arbitrators, withdrawing such requests for additional information, and filing motions to remove arbitrators after disclosures of causal challenges, and align provisions of the Codes related to the expungement of customer dispute information. These proposed amendments are explained in detail below. A. Shortening the Time for Sending Arbitrator Lists to Parties FINRA Rules 12402(c)(1), 12403(b)(1), and 13403(c)(1) currently provide that the Director will send lists of arbitrators generated by the list selection algorithm to all parties at the same time, within approximately 30 days after the last answer is due, regardless of the parties’ agreement to extend any answer due date. In practice, however, DRS sends lists of arbitrators to the parties well within the 30-day timeframe provided by the rules. To align FINRA Rules 12402(c)(1), 12403(b)(1), and 13403(c)(1) with current practice, which, in turn, would increase transparency and efficiency in arbitrator list selection, FINRA is proposing to decrease the number of days within which the Director sends the lists to the parties from 30 days to 20 days. Specifically, under the proposed rule change, FINRA Rules 12402(c)(1), 12403(b)(1), and 13403(c)(1) would be amended to provide that the Director will send the lists generated by the list selection algorithm to all parties at the same time, within approximately 20 days after the last answer is due, regardless of the parties’ agreement to extend any answer due date. B. Providing Arbitrator Disclosure Reports to Parties FINRA Rules 12402(c)(1), 12403(b)(1), 12404(a), 13403(c)(1), 13407(a), and 13804(b)(3)(A)(i) and (B)(i) currently provide that when the Director sends lists of arbitrators to the parties, the parties will also receive employment history for the past 10 years and other background information for each arbitrator listed. In practice, however, DRS requests from arbitrators their full employment history after the completion of their education, and it sends this employment history and other background information to the parties in a document that DRS refers to as a ‘‘disclosure report.’’ To align FINRA Rules 12402(c)(1), 12403(b)(1), 12404(a), 13403(c)(1), 13407(a), and 13804(b)(3)(A)(i) and (B)(i) with current practice and increase PO 00000 Frm 00232 Fmt 4703 Sfmt 4703 106637 transparency, the proposed rule change would remove the language stating that the parties will be provided with each arbitrator’s employment history only ‘‘for the past 10 years.’’ These same rules would be amended to clarify that an arbitrator’s employment history and other background information will be provided to the parties in a document called a ‘‘disclosure report.’’ C. Requesting Additional Information About Arbitrators FINRA Rules 12405(a) and 13408(a) impose upon each arbitrator an obligation to make a reasonable effort to learn of, and disclose to DRS, any circumstances that might preclude the arbitrator from rendering an objective and impartial determination in a proceeding. This obligation to disclose interests, relationships, or circumstances that might preclude an arbitrator from rendering an objective and impartial determination is continuous, requiring an arbitrator who accepts appointment to an arbitration proceeding to disclose to DRS and the parties, at any stage of the proceeding, any such interests, relationships or circumstances that arise, or that the arbitrator recalls or discovers.25 In addition to imposing these affirmative disclosure obligations on arbitrators, paragraph (c)(2) of FINRA Rules 12402 and 13403 and paragraph (b)(2) of FINRA Rule 12403 provide that if a party requests additional information about an arbitrator, the Director will request the additional information from the arbitrator, and will send any response to all of the parties at the same time.26 Because these provisions appear in parts of the Codes that focus on the appointment of arbitrators, however, FINRA is concerned that they could be misinterpreted as only allowing parties to request additional information about arbitrators prior to panel appointment. In practice, DRS permits the parties to request additional information about an arbitrator at any point during the arbitration proceeding. If an opposing 25 See FINRA Rules 12405(b) and 13408(b). is proposing to move this language to new paragraphs (c)(2)(D) of FINRA Rule 12402, (b)(2)(D) of FINRA Rule 12403, and (c)(2)(D) of FINRA Rule 13403, without any substantive changes. FINRA Rules 12402(c)(2), 12403(b)(2), and 13403(c)(2) also currently provide that when a party requests additional information, the Director may, but is not required to, toll the time for parties to return the ranked lists. FINRA is proposing to move this language to new paragraphs (c)(2)(E) of FINRA Rule 12402, (b)(2)(E) of FINRA Rule 12403, and (c)(2)(E) of FINRA Rule 13403, without any substantive changes. These technical changes would result from the proposed rule changes discussed below, which would create new subparagraphs under these rules. 26 FINRA E:\FR\FM\30DEN1.SGM 30DEN1 ddrumheller on DSK120RN23PROD with NOTICES1 106638 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices party does not object to the request for additional information, DRS will permit the request for additional information to be submitted to the arbitrator anonymously. If there is an objection, however, DRS will disclose to the arbitrator the identity of the party submitting the request and forward any requests and objections to the arbitrator who is the subject of the request. The proposed rule change would align the Codes to DRS’s current practice of allowing requests for additional information about an arbitrator at any stage of the proceeding. Specifically, the proposed rule change would amend FINRA Rules 12402, 12403, and 13403 to add new paragraphs (c)(2)(A), (b)(2)(A), and (c)(2)(A), respectively, to provide that a party may request additional information about an arbitrator ‘‘at any stage of the proceeding’’ by filing with the Director and serving all other parties with a written request. FINRA believes it is appropriate to permit parties to request additional information about arbitrators at any stage of the proceeding because such requests could uncover circumstances that might preclude an arbitrator from rendering an objective and impartial decision. Although, as explained above, arbitrators have a continuing duty to disclose potential conflicts,27 allowing the parties to request additional information at any stage of the proceeding complements arbitrators’ continuing duty to disclose, further ensures the integrity of final awards, and helps to minimize the number of requests for vacatur based on an arbitrator’s failure to disclose. Additionally, because DRS currently allows parties as a matter of practice to make requests for additional information at any stage of the proceeding, the proposed rule change would align the Codes to increase transparency and ensure that all parties are aware of their ability to request additional information about arbitrators at any stage of the proceeding. The proposed rule change also would align the Codes to DRS’s current practice of preserving the anonymity of parties who request additional information about arbitrators, unless an opposing party objects to the request for additional information within the specified timeframe. Specifically, the proposed rule change would provide in new paragraphs (c)(2)(A), (b)(2)(A), and (c)(2)(A) of FINRA Rules 12402, 12403, and 13403, respectively, that a written request for additional information about an arbitrator may omit any information 27 See FINRA Rules 12405(b) and 13408(b). VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 that would reveal the identity of the party making the request. The proposed rule change would further amend FINRA Rules 12402, 12403, and 13403 to add new paragraphs (c)(2)(C), (b)(2)(C), and (c)(2)(C), respectively, to provide that, if no opposing party objects to the request for additional information, the Director and the parties shall not disclose the identity of the requesting party to the arbitrator. FINRA believes it is appropriate to preserve the confidentiality of the requesting parties’ identities to minimize any potential bias. However, when any opposing parties object to requests, FINRA believes it is then appropriate to disclose the requesting parties’ identities to minimize the risk of any potential bias shifting to the opposing parties. Opposing parties have expressed concerns that an arbitrator or panel may erroneously attribute requests for additional information to opposing parties and make negative inferences against the opposing parties based on the request. Moreover, in cases involving only two parties, opposing parties may choose to file objections to requests that disclose their identities, which would result in the arbitrator or panel being able to identify the requesting party by process of elimination. Finally, to increase efficiency in arbitrator list selection, the proposed rule change would establish new timeframes for an opposing party to object to a party’s request for additional information, and for the Director to forward the request together with any objections to the arbitrator who is the subject of the request. In addition, the proposed rule change would make clear that the requesting party may withdraw their request for additional information prior to the Director forwarding the request and any objections to the arbitrator. Specifically, paragraphs (c)(2)(B), (b)(2)(B), and (c)(2)(B) of FINRA Rules 12402, 12403, and 13403, respectively, would be amended to provide that: (i) within ten days of receipt of the request for additional information, an opposing party may object to the request by filing objections with the Director and serving the objections on all other parties; and (ii) after five days have elapsed from the service of any objections and provided that the request for additional information has not been withdrawn, the Director will forward the request together with any objections to the arbitrator who is the subject of the request. FINRA believes it is important for the proposed rules to establish timeframes for objecting to requests for additional PO 00000 Frm 00233 Fmt 4703 Sfmt 4703 information and for withdrawing requests for additional information, so that the parties are aware of their ability to object to or to withdraw a request and the timeframes for doing so. Further, FINRA believes that the proposed ten days for an opposing party to object to a request for additional information, and the five days for a requesting party to withdraw a request for additional information following an objection, would help ensure that the arbitrator list selection process and the arbitration proceedings are efficient. D. Allowing Parties to Strike Arbitrators From Lists for Any Reason Once the parties receive the lists of arbitrators generated by the list selection algorithm, they have the opportunity to strike a certain number of arbitrators, as set forth in FINRA Rules 12402(d)(1), 12403(c)(1)(A), 12403(c)(2)(A), and 13404(a) and (b).28 In describing the striking process, FINRA Rules 12402(d)(1), 12403(c)(2)(A), and 13404(a) and (b) provide that each separately represented party may strike arbitrators from lists ‘‘for any reason.’’ Although Rule 12403(c)(1)(A) also describes the arbitrator striking process, unlike the other rules related to the striking process, it does not expressly provide that each separately represented party may strike arbitrators from the list ‘‘for any reason,’’ even though there are no limitations on the reasons a party may strike an arbitrator. To make the provisions describing the striking process consistent, the proposed rule change would amend FINRA Rule 12403(c)(1)(A) to expressly provide that each separately represented party may strike any or all of the arbitrators from the Non-Public List for any reason. E. Conducting List Selection Electronically FINRA Rules 12402(d)(1), 12403(c)(1)(A) and (c)(2)(A), and 28 See FINRA Rule 12402(d)(1) (allowing each separately represented party in a customer dispute with one arbitrator to strike up to four of the arbitrators from the list); FINRA Rule 12403(c)(1)(A) (allowing each separately represented party in a customer dispute with three arbitrators to strike any or all of the arbitrators from a Non-Public List); FINRA Rule 12403(c)(2)(A) (allowing each separately represented party in a customer dispute with three arbitrators to strike up to four of the arbitrators from a Chairperson List and up to six of the arbitrators from a Public List); FINRA Rule 13404(a) (allowing each separately represented party in an industry dispute to strike up to four of the arbitrators from each list, except for lists generated, pursuant to FINRA Rule 13403(a)(2), in disputes between members with a panel of three non-public arbitrators); and FINRA Rule 13404(b) (allowing each separately represented party in a dispute between members with a panel of three non-public arbitrators to strike up to eight of the arbitrators from a Non-Public List and up to four of the arbitrators from a non-public Chairperson List). E:\FR\FM\30DEN1.SGM 30DEN1 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices 13404(a) and (b) currently provide that each separately represented party may strike arbitrators from the list or lists of arbitrators ‘‘by crossing through the names of the arbitrators.’’ In practice, however, parties generally use the Party Portal, the web-based system that is accessible by arbitration and mediation parties and their representatives, to complete arbitrator list selection electronically.29 To update the Codes and align them with the method by which parties generally select arbitrators, the proposed rule change would amend FINRA Rules 12402(d)(1), 12403(c)(1)(A) and (c)(2)(A), and 13404(a) and (b) to remove the phrase ‘‘by crossing through the names of the arbitrators.’’ FINRA is aware that FINRA Rule 12300(a)(2) permits pro se customers to opt out of using the Party Portal. As a result, these parties may receive hard copy lists of arbitrators that would require them to manually strike names. However, FINRA believes that, even as amended to remove the phrase ‘‘by crossing through the names of the arbitrators,’’ FINRA Rules 12402(d)(1), 12403(c)(1)(A), and 12403(c)(2)(A) are broad enough to appropriately instruct pro se customers on how to strike arbitrators manually from hard copy lists.30 F. Extensions of Time To Complete Ranked Lists FINRA Rules 12402(d)(3), 12403(c)(3), 12404(a), 13404(d), and 13407(a) currently provide that, after striking arbitrators and ranking the remaining arbitrators according to preference, each separately represented party must complete and return their ranked lists to the Director (generally via the Party Portal) 31 either within 20 days or no more than 20 days after the date upon which the Director sent the lists to the parties.32 If the Director does not receive 29 See FINRA Rules 12100(v) and 13100(t). proposed FINRA Rule 12402(d)(1) (providing that ‘‘[e]ach separately represented party may strike up to four of the arbitrators from the list for any reason’’); proposed FINRA Rule 12403(c)(1)(A) (providing that ‘‘[e]ach separately represented party may strike any or all of the arbitrators from the non-public arbitrator list for any reason’’); proposed FINRA Rule 12403(c)(2)(A) (providing that ‘‘[e]ach separately represented party may strike up to four of the arbitrators from the chairperson list and up to six of the arbitrators from the public arbitrator list for any reason’’). 31 If a party is a pro se customer who opted out of using the Party Portal, pursuant to FINRA Rule 12300(a), the party may return their ranked list to the Director by first-class mail, overnight mail service, overnight delivery service, hand delivery, email, or facsimile. See FINRA Rules 12402(d)(3) and 12403(c)(3). 32 FINRA Rules 12404(a) and 13407(a) provide that the parties must return their ranked lists ‘‘within 20 days’’ after the date upon which the ddrumheller on DSK120RN23PROD with NOTICES1 30 See VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 a party’s ranked list within that time, the Director will proceed as though the party did not want to strike any arbitrator or have any preferences among the listed arbitrators. However, FINRA has observed that parties frequently file requests with the Director to extend the 20-day deadline only after it has elapsed. Though FINRA Rules 12207(c) and 13207(c) provide that the Director may extend or modify any deadline or time period set by the Code for good cause, in practice, the Director typically declines a party’s request for an extension of time to complete the ranked list(s) when such request is filed after the 20-day deadline has elapsed, absent a showing of extraordinary circumstances. In its cover letters to parties that accompany the lists of arbitrators, DRS currently advises parties of the due date for the ranked lists. In addition, the language in these cover letters provides that if the Director does not receive the party’s ranked lists on or before the due date, the party will be deemed to have accepted all arbitrators on the lists. FINRA is proposing to align FINRA Rules 12402(d)(3), 12403(c)(3), 12404(a), 13404(d), and 13407(a) with current practice, to expressly provide, that absent extraordinary circumstances, the Director will not grant a party’s request for an extension to complete the ranked lists that is filed after the deadline has elapsed. FINRA believes it is appropriate for the Director to require a showing of extraordinary circumstances before granting parties’ requests to extend the time to complete ranked list(s) when such requests are filed after the deadline has elapsed. FINRA is concerned that allowing the Director to grant parties’ requests to extend the deadline for completing arbitrator list selection only by a showing of good cause, especially when such requests are filed after the deadline has elapsed, could lead to unnecessary delays in the appointment of arbitration panels and arbitration proceedings. By requiring a showing of extraordinary circumstances, the proposed rule change would help ensure that the arbitrator list selection process and proceedings are efficient. FINRA believes it is appropriate to align the Codes with this practice, so that parties may be made aware of the deadline and encouraged to complete and return their ranked lists to the Director within the 20-day timeframe, or so that parties may be encouraged to file Director sent the lists to the parties. FINRA Rules 12402(d)(3), 12403(c)(3) and 13404(d) provide that the parties must return their ranked lists ‘‘no more than 20 days’’ after the date upon which the Director sent the lists to the parties. PO 00000 Frm 00234 Fmt 4703 Sfmt 4703 106639 requests with the Director for extensions of the deadline before it has elapsed. G. Allowing Parties To Agree To Remove an Arbitrator DRS makes clear in its training materials for arbitrators that, pursuant to the requirements of the ABA’s Code of Ethics for Arbitrators in Commercial Disputes, an arbitrator must withdraw from a panel if all of the parties request that the arbitrator do so.33 This requirement is also supported by Notice to Members 01–13, which announced approval of amendments to the Director’s authority to remove arbitrators for cause and described how arbitrators could be removed when ‘‘all the parties agree that the arbitrator should be removed.’’ 34 To help ensure that parties are aware of the ability to remove an arbitrator upon party agreement, the proposed rule change would codify the current guidance by amending FINRA Rules 12407 and 13410 to add new paragraph (d)(1) to provide that, at any stage of the arbitration proceeding, the Director may remove an arbitrator if all of the named parties agree in writing to the arbitrator’s removal.35 The proposed rule change would also add new paragraph (d)(2) to FINRA Rules 12407 and 13410 that would provide that the parties may not agree to remove an arbitrator who is considering a request to expunge customer dispute information, except that a party shall be permitted to challenge any arbitrator selected for cause pursuant to FINRA Rule 12407(a)(1) or (b) or FINRA Rule 13410(a)(1) or (b). FINRA rules specify a narrow set of circumstances in which expungement of customer dispute information from the Central Registration Depository (CRD®) is appropriate.36 In addition, FINRA recently amended its rules to make a number of significant enhancements to address concerns with the expungement 33 See FINRA, Basic Arbitrator Training, https:// www.finra.org/arbitration-mediation/rules-caseresources/arbitrator-training#basic; ABA Code of Ethics for Arbitrators in Commercial Disputes, Canon II(G) (requiring that ‘‘[i]f an arbitrator is requested by all parties to withdraw, the arbitrator must do so.’’), https://www.adr.org/sites/default/ files/document_repository/Commercial_Code_of_ Ethics_for_Arbitrators_2010_10_14.pdf. 34 See Notice to Members 01–13 (March 2001), https://www.finra.org/rules-guidance/notices/01-13; see also Securities Exchange Act Release No. 43291 (September 14, 2000), 65 FR 57413 (September 22, 2000) (Notice of Filing of File No. SR–NASD–00– 34). 35 Requests to remove an arbitrator may not be granted when there are extraordinary circumstances which make removal inappropriate (e.g., requests based on discriminatory grounds). 36 See FINRA Rules 12805(c)(8) and 13805(c)(9); see also FINRA Rule 2080(b)(1). E:\FR\FM\30DEN1.SGM 30DEN1 106640 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 process and to provide additional safeguards for ensuring that the information in CRD is accurate and complete.37 FINRA believes that the proposed rule change is consistent with these changes related to enhancing the expungement process. For example, proposed paragraph (d)(2) of FINRA Rule 12407 would align with FINRA Rule 12800(d) by prohibiting the parties from agreeing to remove an arbitrator if there is a request to expunge customer dispute information during a simplified investment-related, customer-initiated arbitration (‘‘simplified arbitration’’) under FINRA Rule 12800.38 Accordingly, as required by FINRA Rule 12800(d), the arbitrator who has considered the merits of the customer dispute in the simplified arbitration would also decide the expungement request. As noted above, however, the proposed rule change would permit a party to challenge any arbitrator selected for cause pursuant to FINRA Rule 12407(a)(1) or (b). In addition, proposed paragraph (d)(2) of FINRA Rule 13410 would align with FINRA Rule 13806, which limits parties’ ability to have input into the arbitrators who decide straight-in requests.39 Specifically, FINRA Rule 13806 provides that the list selection algorithm will select randomly the three public arbitrators from a roster of experienced public arbitrators with enhanced expungement training to decide a straight-in request. The parties are not permitted to strike any arbitrators selected by the list selection algorithm or stipulate to their removal. In addition, the parties are not permitted to agree to fewer than three arbitrators or stipulate to the use of pre-selected arbitrators. The parties are permitted, however, to challenge an arbitrator 37 See Securities Exchange Act Release No. 95455 (August 9, 2022), 87 FR 50170 (August 15, 2022) (Notice of Filing of File No. SR–FINRA–2022–024); Securities Exchange Act Release No. 97294 (April 12, 2023), 88 FR 24282 (April 19, 2023) (Order Approving File No. SR–FINRA–2022–024); see also Regulatory Notice 23–12 (August 2023). 38 FINRA Rule 12800(d)(1)(B)(ii) provides that, if an associated person requests expungement during a simplified arbitration, the arbitrator from the simplified arbitration must consider and decide the expungement request regardless of how the simplified arbitration closes. 39 A ‘‘straight-in request’’ refers to arbitration proceedings in which an associated person requests expungement of customer dispute information separate from a customer arbitration. Straight-in requests must be filed against the member firm at which the person was associated at the time the customer dispute arose. See FINRA Rule 13805(a)(1). These requests are less likely to be opposed or adversarial in nature because they generally involve two parties—associated persons and member firms—whose interests may be aligned. Like the associated person, the member firm may also have an interest in removing information from the associated person’s CRD record. VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 selected for cause pursuant to FINRA Rule 13410(a)(1) or (b). FINRA believes the proposed rule change would help ensure that the expungement process operates efficiently and as intended by aligning FINRA Rules to make clear that parties may not agree to remove an arbitrator who is considering a request to expunge customer dispute information. However, a party could challenge an arbitrator selected for cause. H. Prohibiting Disclosure of PartyInitiated Challenges To Remove Arbitrators FINRA Rules 12407 and 13410 permit the parties to challenge arbitrators for cause. If the challenge occurs after the Director sends the lists(s) generated by the list selection algorithm to the parties, but before the first hearing session begins, the Director will grant a party’s request to remove an arbitrator if it is reasonable to infer, based on information known at the time of the request, that the arbitrator is biased, lacks impartiality, or has a direct or indirect interest in the outcome of the arbitration.40 If the challenge occurs after the first hearing session begins, the Director may remove an arbitrator based only on information required to be disclosed by an arbitrator that was not previously known by the parties.41 In two separate letters—one that accompanies the lists of arbitrators and another that advises the parties of the panel composition—DRS currently advises parties during arbitrator list selection that they may not inform an arbitrator or panel of an opposing party’s request to remove an arbitrator for cause. The language in both letters reads, ‘‘Parties are advised that they may not inform the panel of an opposing party’s causal challenge.’’ The proposed rule change would align FINRA Rules 12407 and 13410 with the guidance provided by DRS, by adding a new paragraph (e)(1) to each rule, to expressly provide that a party may not inform the panel or arbitrator of another party’s request to remove an arbitrator for cause. The proposed rule change also would establish a remedy if a party discloses to the arbitrator or panel an opposing party’s request to remove an arbitrator for cause. Specifically, the proposed rule change would amend FINRA Rules 12407 and 13410 to add a new paragraph (e)(2), which would give the party that requested removal of an arbitrator the option to file a written motion with the Director for removal of 40 See 41 See PO 00000 FINRA Rules 12407(a)(1) and 13410(a)(1). FINRA Rules 12407(b) and 13410(b). Frm 00235 Fmt 4703 Sfmt 4703 the arbitrator within five days of being made aware of the disclosure. The requesting party may be made aware of the disclosure in several different ways, including in a pleading or other document filed with the Director, or during a prehearing conference or hearing. If the requesting party does not make a motion for removal of the arbitrator within five days of being made aware of the disclosure, then the requesting party would forfeit the opportunity to request removal of the arbitrator because of the disclosure.42 Finally, if the party that made the request to remove the arbitrator timely files a motion for removal of the arbitrator based on the disclosure, the proposed rule change would provide that, absent extraordinary circumstances, the Director shall grant the motion.43 Disclosure of a party’s request to remove an arbitrator could prejudice the arbitrator or create the appearance of bias against the requesting party. FINRA recognizes the importance to the fairness and credibility of the DRS arbitration forum of having processes that are—and that are perceived to be— operated in a fair and neutral manner. As a result, FINRA believes it is appropriate to prohibit a party from disclosing an opposing party’s request to remove an arbitrator. Although DRS currently advises the parties by letter that they may not inform the panel of an opposing party’s causal challenge, FINRA believes that aligning the Codes with DRS’s guidance would more effectively curb the disclosure of a party’s request to remove an arbitrator because parties will be incented to comply with the Codes. Furthermore, FINRA believes that, in the event a party improperly discloses an opposing party’s causal challenge, it is appropriate to require that the requesting party either make a motion for removal of the arbitrator within five days of being made aware of the disclosure or forfeit the opportunity to request removal of the arbitrator. By requiring that any motion to remove an arbitrator be made within five days, the proposed rule change would strike the right balance between providing an opportunity for any aggrieved party to seek a remedy while, at the same time, allowing for the efficient processing of the proceeding. 42 See proposed FINRA Rules 12407(e)(2) and 13410(e)(2). 43 See proposed FINRA Rules 12407(e)(2) and 13410(e)(2). E:\FR\FM\30DEN1.SGM 30DEN1 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices I. Updating Cross-References to the NonPublic Arbitrator Definition in the Industry Code FINRA Rules 13406(c) and 13411(d) cross-reference to FINRA Rule 13100(r), which provides the definition of ‘‘nonpublic arbitrator.’’ Prior to 2017, paragraphs (r)(1), (r)(2), (r)(3), and (r)(4) of FINRA Rule 13100 listed the specific criteria for inclusion on FINRA’s nonpublic arbitrator roster. However, in 2017, FINRA amended the non-public arbitrator definition to eliminate paragraphs (r)(1) through (r)(4).44 As a result of this amendment, FINRA Rule 13100(r) currently defines a ‘‘non-public arbitrator’’ as a person who is otherwise qualified to serve as an arbitrator, and is disqualified from service as a public arbitrator under FINRA Rule 13100(x).45 FINRA Rule 13100(x), in turn, lists the criteria for exclusion from FINRA’s public arbitrator roster for a person who is otherwise qualified to serve as an arbitrator.46 The proposed rule change would update FINRA Rules 13406(c) and 13411(d) with the correct crossreferences to FINRA Rule 13100(x)(2) through (11) to provide the necessary clarification in light of the amended definition of a ‘‘non-public arbitrator.’’ If the Commission approves the proposed rule change, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice. ddrumheller on DSK120RN23PROD with NOTICES1 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,47 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. FINRA believes that the proposed rule change will protect investors and the public interest by enhancing arbitrator list selection in the DRS arbitration forum. By increasing the opportunity for public arbitrators who are not chairqualified to be selected for Public Lists, the proposed rule change will increase the likelihood that these arbitrators, who are often new to the arbitrator roster or less experienced arbitrators, may be selected to serve as panelists. As 44 See Securities Exchange Act Release No. 81572 (September 11, 2017), 82 FR 43436 (September 15, 2017) (Order Approving File No. SR–FINRA–2017– 025). 45 See FINRA Rule 13100(r). 46 See Securities Exchange Act Release No. 74383 (February 26, 2015), 80 FR 11695 (March 4, 2015) (Order Approving File No. SR–FINRA–2014–028). 47 15 U.S.C. 78o–3(b)(6). VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 a result, the proposed rule change will help DRS retain new or less experienced arbitrators on its arbitrator roster and expand the number of local public arbitrators who are chair-qualified to address shortages in local hearing locations. The proposed rule change also will protect investors and the public interest by codifying certain practices that DRS has developed to efficiently administer arbitrator list selection, establishing new timeframes for objecting to requests for additional information from arbitrators, withdrawing such requests for additional information, and filing motions to remove arbitrators after disclosures of causal challenges, and aligning provisions of the Codes related to the expungement of customer dispute information. Together, these proposed changes will increase the transparency and efficiency of the arbitration process for forum users. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Economic Impact Assessment FINRA has undertaken an economic impact assessment to analyze the regulatory need for the proposed rule change, its potential economic impacts, including anticipated costs, benefits, and distributional and competitive effects, relative to the current baseline, and the alternatives FINRA considered in assessing how best to meet FINRA’s regulatory objectives. FINRA does not expect that the proposed rule change would affect the advantages and costs of the DRS arbitration forum relative to other arbitration fora. i. Regulatory Need FINRA is concerned that non-chairqualified public arbitrators have disproportionately fewer opportunities than chair-qualified public arbitrators to be selected for arbitrator lists. The proposed rule change is anticipated to address this imbalance by increasing the number of opportunities for non-chairqualified public arbitrators to be selected for Public Lists. Also, FINRA is concerned that some parties are not familiar with the current practices and published guidance for arbitrator list selection. The proposed rule change would increase the transparency and efficiency of the arbitrator list selection process by codifying certain practices that DRS has developed to efficiently administer arbitrator list selection, PO 00000 Frm 00236 Fmt 4703 Sfmt 4703 106641 establishing new timeframes for objecting to requests for additional information from arbitrators, withdrawing such requests for additional information, and filing motions to remove arbitrators after disclosures of causal challenges, and aligning provisions of the Codes related to the expungement of customer dispute information. ii. Economic Baseline In general, the economic baseline for the proposed rule change consists of the current provisions under the Codes, current practices, and published guidance that address arbitrator list selection. Relevant features of the economic baseline are described below. The proposed rule change is expected to affect the parties to cases in the DRS arbitration forum and the arbitrators on the FINRA public arbitrator roster. As of January 2024, there were 4,072 arbitrators on the FINRA public arbitrator roster. The public arbitrator roster consists of 1,104 public arbitrators who are chair-qualified (27 percent = (1,104/4,072)) and 2,968 public arbitrators who are non-chairqualified (73 percent = (2,968/4,072)).48 Chair-qualified public arbitrators appeared relatively more frequently on Chairperson Lists and Public Lists combined. Between January 2018 and December 2023 (‘‘sample period’’), 17,544 arbitrations were filed and closed. Chairperson Lists and Public Lists were generated in 9,598 of the 17,544 arbitrations that involved customer disputes with three arbitrators or industry disputes involving associated persons with three arbitrators. Chair-qualified public arbitrators appeared 143,381 times (99,773 appearances on Chairperson Lists and 43,608 appearances on Public Lists) and non-chair-qualified public arbitrators appeared 92,356 times on Public Lists only. Thus, with their additional opportunity to appear on Public Lists, chair-qualified public arbitrators made 61 percent (= 143,381/ (143,381 + 92,356)) of appearances but make up just 27 percent of all public arbitrators.49 48 Among the 1,104 public arbitrators who are chair-qualified, 187 public arbitrators are chairqualified but currently unwilling to serve as chairpersons. Similar to public arbitrators who are not chair-qualified, chair-qualified public arbitrators who are unwilling to serve as chairperson would have only one chance to be selected for Public Lists. 49 Due to data limitations, the number of chairqualified public arbitrators that we identify as appearing on Public Lists would include public arbitrators who were previously qualified and willing to serve as chairpersons but subsequently E:\FR\FM\30DEN1.SGM Continued 30DEN1 106642 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Relative to non-chair-qualified public arbitrators, a higher percentage of chairqualified public arbitrators are selected by parties from Public Lists.50 Chairqualified public arbitrators were selected by parties in 16 percent of the times they made appearances on Public Lists (6,860 of 43,608 appearances) and non-chair-qualified public arbitrators were selected by parties in 10 percent of the times they made appearances on Public Lists (9,411 of 92,356 appearances). Selection by parties may encourage arbitrators to remain on the FINRA public arbitrator roster. For example, of all the non-chair-qualified public arbitrators who left the roster during the sample period, the median time in the forum for those who were never appointed was five years while the median time for those who were appointed at least once was 10 years. Using appearances during the sample period as an estimate, the proposed rule change may increase the percentage of non-chair-qualified public arbitrators who appear on affected Public Lists from 68 percent to 81 percent.51 On a Public List with 15 arbitrators, this translates to two additional appearances by non-chair-qualified public arbitrators; and on a Public List with 10 arbitrators, this translates to one additional appearance by non-chairqualified public arbitrators. The economic baseline for the proposed rule change also consists of the current practices and published guidance that address arbitrator selection. Relative to other parties, parties who are less familiar with current practices or published guidance may have greater difficulty understanding their options when selecting arbitrators. As a result, ceased being qualified or willing to serve as chairpersons when the Public Lists were generated. These arbitrators would have only one chance to be selected for Public Lists. See supra note 48. The 61 percent of appearances made by chair-qualified public arbitrators, therefore, overstates the actual percentage and represents an upper bound for the estimate. 50 See, e.g., supra Section II. (Proposed Amendments to the Procedures for Generating Public Lists) (discussing FINRA’s observations as to why parties may prefer chair-qualified public arbitrators). 51 To calculate the percentage increase in the appearances by non-chair-qualified public arbitrators, FINRA assumes that the number of appearances is proportional to the pools of public arbitrators available to appear on a Public List. FINRA calculates the 68 percent as the number of appearances by non-chair-qualified public arbitrators divided by the total number of appearances of non-chair-qualified and chairqualified public arbitrators (= 92,356/(92,356 + 43,608)). FINRA estimates the 81 percent by doubling the number of appearances by non-chairqualified public arbitrators (from 92,356 to 184,712) and recalculating (81 percent = 184,712/(184,712 + 43,608)). VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 arbitrator panels may reflect the preferences of these parties less closely than would occur otherwise. iii. Economic Impact FINRA anticipates that, over time, the proposed rule change would increase the likelihood for non-chair-qualified public arbitrators to be selected by parties to serve as panelists. The benefits to arbitrators from selection include the experience, networking opportunities, and supplemental income. The benefits also include an increased likelihood of being selected in future arbitrations if, over time, parties become confident in the quality of arbitrators’ decision-making or are better able to predict how arbitrators may react to a specific fact pattern. Future selections may incent non-chairqualified public arbitrators to take necessary steps to remain on FINRA’s roster of arbitrators. For some non-chairqualified public arbitrators, the benefits from the additional selections may include obtaining the experience necessary to become chair-qualified.52 A larger pool of chair-qualified public arbitrators also may increase the availability of chair-qualified public arbitrators in the same general geographic area as parties (and who may be familiar with local laws and practices), help facilitate scheduling, and reduce arbitrator travel expenses incurred by the DRS arbitration forum. Currently, 78 percent of the 69 hearing locations have fewer than the requisite number of local chair-qualified public arbitrators to complete Chairperson Lists. In over half of these hearing locations, the roster of local chairqualified public arbitrators could be filled by non-chair-qualified public arbitrators if they became chairqualified. In general, an increase in the selection of non-chair-qualified public arbitrators would tend to reduce the average level of experience of arbitration panels. This could lessen the ability of some parties to anticipate awards. With a shorter award history, some parties may be less able to predict how an arbitrator might react to a specific fact pattern. Parties with preferences for more experienced public arbitrators may feel constrained by having fewer chair-qualified public arbitrators from which to choose. In addition, chair-qualified public arbitrators may not experience the same level of benefits over time from remaining active in the forum as the likelihood of their selection from Public Lists decreases. 52 See PO 00000 supra note 9 and accompanying text. Frm 00237 Fmt 4703 Sfmt 4703 The magnitude of the economic impact, including the eventual impact on the combined forum experience of arbitrators who are selected for panels, is dependent on the preferences of parties for chair-qualified public arbitrators. For example, although fewer chair-qualified public arbitrators would appear on Public Lists, stronger preferences among parties for chairqualified public arbitrators and their continued selection from Public Lists would result in the proposed rule change having little impact relative to the baseline. As noted above, parties with preferences for more experienced public arbitrators may feel constrained by having fewer chair-qualified public arbitrators from which to choose. Parties’ selection of arbitrators, however, is dependent on multiple factors, including the lists that parties receive and their preferences for certain arbitrator characteristics. For this reason, FINRA does not believe that the proposed change to the Public List generation process would materially affect their decision to file a claim in the DRS arbitration forum (and not, for example, directly settling the dispute if the situation allows) or the number of claims filed in the forum. The proposed rule change would establish new timeframes for objecting to requests for additional information from arbitrators, withdrawing such requests for additional information, and filing motions to remove arbitrators after disclosures of causal challenges. The new timeframes would help the efficiency of the arbitration proceedings by ensuring that issues relating to arbitrator selection do not delay or disrupt the proceedings. As discussed above, the timeframes are consistent with those relating to similar motions and should therefore not impose an undue burden. The proposed rule change would align FINRA Rules to current guidance providing that at any stage of the arbitration proceeding, the Director may remove an arbitrator if all of the named parties agree in writing to the arbitrator’s removal.53 The proposed rule change would also add that parties may not agree to remove an arbitrator who is considering a request to expunge customer dispute information.54 The proposed rule change may help further ensure that arbitrators issue awards containing expungement relief only when appropriate and that the customer dispute information in CRD reflects the 53 See proposed FINRA Rules 12407(d)(1) and 13410(d)(1). 54 See proposed FINRA Rules 12407(d)(2) and 13410(d)(2). E:\FR\FM\30DEN1.SGM 30DEN1 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 conduct of associated persons.55 The inability to agree to remove an arbitrator may result in some associated persons choosing to forego requesting expungement in the DRS arbitration forum, though requesting expungement in the DRS arbitration forum may continue to be the preferred option. Associated persons who decide not to request expungement in the DRS arbitration forum may incur additional costs or delays in requesting expungement of the customer dispute information other than through the DRS arbitration forum. Associated persons who are delayed in requesting expungement may experience a loss of business and professional opportunities. Finally, the proposed rule change would codify current practices and DRS guidance relating to arbitrator selection. The codification may increase the efficient administration of the arbitrator selection process if it results in an increase in the transparency of the process and proves to be informative for parties who are unfamiliar with current practices or unaware of the DRS guidance. These parties may be more likely to resolve the dispute by filing a claim in the DRS arbitration forum. As best FINRA can determine, in the vast majority of sample cases, few cases would have been affected by the proposed rule change to align the Codes with current practices.56 For example, in the vast majority of sample cases, data suggests that the forum sends lists of arbitrators to the parties within 20 days of when the last answer is due. FINRA can also identify 63 requests for additional information about a listed arbitrator in 38 cases (less than one percent of the 17,544 sample cases) and 54 requests for additional information about an appointed arbitrator in 45 cases. FINRA can also identify nine challenges to remove a listed arbitrator in nine cases, and 165 challenges to remove an appointed arbitrator in 132 cases (one percent). Information 55 The proposed rule change would primarily affect expungement requests in non-simplified customer arbitrations. See supra notes 38 and 39 and accompanying text (discussing existing requirements under the Codes for simplified arbitrations and straight-in requests). There were 2,195 non-simplified customer arbitrations filed and closed between January 2018 and December 2023 where parties requested expungement. Information is not available describing party agreements to remove arbitrators where parties requested expungement. 56 Other information describing the potential impact of the proposed amendments that address arbitrator selection under the baseline is not available. This information includes requests for additional time to complete ranked lists and grants or denials of these requests, objections to requests for additional information and withdrawals of these requests, and disclosures of challenges to remove arbitrators. VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 describing the basis for challenges to remove a listed or appointed arbitrator (e.g., due to the disclosure of a causal challenge) is not available.57 While it is not known how many parties are unfamiliar with current practices or DRS guidance, FINRA believes that the small number of instances likely reflects informed decisions by most parties, and so the proposed rule change is therefore not likely to cause a large increase in the number of these instances. iv. Alternatives Considered FINRA developed the proposed amendments over a multi-year process during which FINRA considered and modified proposals based on feedback from forum users, including investors, securities industry professionals, and FINRA arbitrators. In evaluating proposals, FINRA considered numerous factors including efficiency, cost, fairness and transparency, and certain tradeoffs among these factors. The proposed amendments that relate to the generation of Public Lists strike an appropriate balance between leveling the opportunities for selection and minimizing the disruption to the selection process and its associated costs. As an alternative, FINRA considered amending the Codes to provide that, in preparing the Public List, the list selection algorithm would generate a list that includes a fixed number of non-chair-qualified public arbitrators. This would ensure that nonchair-qualified public arbitrators have a designated opportunity to appear on the Public List for selection. However, depending on list size, there is an insufficient number in approximately one-quarter to two-fifths of hearing locations of non-chair-qualified public arbitrators to fill Public Lists. Thus, for selected hearing locations with few arbitrators, the alternative may require generating Public Lists that include nonchair-qualified public arbitrators who live outside of the local hearing location to fill Public Lists. FINRA believes that the proposed rule change would increase the opportunity for non-chairqualified public arbitrators to be selected for the Public List, and will monitor the impact of the proposed rule change if approved by the Commission and continue to consider if additional changes are warranted. 57 This estimate does not account for any potential changes in the behaviors of associated persons with respect to requesting expungement during a customer case in response to recently amended rules. See supra note 37 and accompanying text. PO 00000 Frm 00238 Fmt 4703 Sfmt 4703 106643 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) by order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– FINRA–2024–022 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–FINRA–2024–022. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the E:\FR\FM\30DEN1.SGM 30DEN1 106644 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Notices provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–FINRA–2024–022 and should be submitted on or before January 21, 2025. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.58 J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2024–30907 Filed 12–27–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 35425; File No. 812–15543] Morgan Stanley Direct Lending Fund, et al. December 19, 2024. Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’). ACTION: Notice. ddrumheller on DSK120RN23PROD with NOTICES1 AGENCY: Notice of application for an order under sections 17(d) and 57(i) of the Investment Company Act of 1940 (the ‘‘Act’’) and rule 17d–1 under the Act to permit certain joint transactions otherwise prohibited by sections 17(d) and 57(a)(4) of the Act and rule 17d–1 under the Act. SUMMARY OF APPLICATION: Applicants request an order to permit certain business development companies (‘‘BDCs’’) and closed-end management investment companies to co-invest in portfolio companies with each other and with certain affiliated investment entities. APPLICANTS: Morgan Stanley Direct Lending Fund, MS Capital Partners Adviser Inc., NH Credit Partners III Holdings L.P., NH Expansion Credit Fund Holdings LP, North Haven Credit Partners II L.P., North Haven Credit Partners III L.P., North Haven Senior Loan Fund (ALMA) Designated Activity 58 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 23:58 Dec 27, 2024 Jkt 265001 Company, North Haven Senior Loan Fund L.P., North Haven Senior Loan Fund Offshore L.P., North Haven Senior Loan Fund Unleveraged Offshore L.P., North Haven Tactical Value Fund (AIV) LP, North Haven Tactical Value Fund LP, North Haven Unleveraged Senior Loan Fund (Yen) L.P., NH Senior Loan Fund Offshore Holdings L.P., NH Senior Loan Fund Onshore Holdings LLC, DLF CA SPV LLC, DLF Equity Holdings LLC, DLF SPV LLC, DLF Financing SPV LLC, SL Investment Fund II LLC, SLIF II CA SPV LLC, SLIC CA SPV LLC, SLIC Equity Holdings LLC, SLIC Financing SPV LLC, T Series Middle Market Loan Fund LLC, T Series CA SPV LLC, T Series Equity Holdings LLC, T Series Financing SPV LLC, T Series Financing II SPV LLC, T Series Financing III SPV LLC, North Haven Private Income Fund LLC, North Haven Private Income Fund A LLC, LGAM Private Credit LLC, PIF CA SPV LLC, NHPIF Equity Holdings SPV LLC, Broadway Funding Holdings LLC, PIF Financing SPV LLC, PIF Financing II SPV LLC, PIF A CA SPV LLC, Broadway Funding Holdings II LLC, PIF A Financing SPV LLC, PIF A Equity Holdings LLC, 1585 Koala Holdings LLC, LGAM CA SPV LLC, LGAM Financing SPV LLC, LGAM Equity Holdings LLC, Credit Opportunities (Series M) LP, NH–G 2022 SCSp, North Haven Senior Loan Fund (ALMA) II Designated Activity Company, North Haven Expansion Credit II L.P., North Haven Direct Lending Fund Aggregator L.P., NHDL I SPV LLC, North Haven Credit Partners IV Holdings A L.P., North Haven Credit Partners IV Holdings B L.P., North Haven Tactical Value Fund II Lux AIV– B SCSp, North Haven Tactical Value Fund II Lux AIV–C SCSp, NHTV II Onshore Aggregator LP, North Haven Structured Solutions Fund LP and Morgan Stanley Senior Funding, Inc. FILING DATES: The application was filed on January 29, 2024 and amended on August 20, 2024. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing on any application by emailing the SEC’s Secretary at Secretarys-Office@sec.gov and serving the Applicants with a copy of the request by email, if an email address is listed for the relevant Applicant below, or personally or by mail, if a physical address is listed for the relevant Applicant below. Hearing requests should be received by the Commission by 5:30 p.m. on January 13, 2025 and should be accompanied by proof of service on the Applicants, in the form PO 00000 Frm 00239 Fmt 4703 Sfmt 4703 of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0– 5 under the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by emailing the Commission’s Secretary at Secretarys-Office@sec.gov. ADDRESSES: The Commission: Secretarys-Office@sec.gov. Applicants: Orit Mizrachi, 1585 Broadway, 23rd floor, New York, NY 10036, with a copy to: Thomas Friedmann, Dechert LLP, One International Place, 100 Oliver St., 40th Floor, Boston, MA 02110. FOR FURTHER INFORMATION CONTACT: Adam Lovell, Senior Counsel, or Terri Jordan, Branch Chief, at (202) 551–6825 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: For Applicants’ representations, legal analysis, and conditions, please refer to Applicants’ amended and restated application, dated August 20, 2024, which may be obtained via the Commission’s website by searching for the file number at the top of this document, or for an Applicant using the Company name search field, on the SEC’s EDGAR system. The SEC’s EDGAR system may be searched at, https://www.sec.gov/edgar/searchedgar/ legacy/companysearch.html. You may also call the SEC’s Public Reference Room at (202) 551–8090. For the Commission, by the Division of Investment Management, under delegated authority. J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2024–30857 Filed 12–27–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–101999; File No. SR– CboeBYX–2024–049] Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule Related to Physical Port Fees December 19, 2024. 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 1 15 2 17 E:\FR\FM\30DEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 30DEN1

Agencies

[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106635-106644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30907]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101993; File No. SR-FINRA-2024-022]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
the Codes of Arbitration Procedure To Make Clarifying, Technical, and 
Procedural Changes to the Arbitrator List Selection Process

December 19, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on December 19, 2024, the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by FINRA. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing 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 make changes to certain provisions relating to arbitrator 
list selection.
    The proposed rule change would amend FINRA Rules 12403 (Cases with 
Three Arbitrators) and 13403 (Generating and Sending Lists to the 
Parties) to increase the opportunity for public arbitrators who are not 
qualified to serve as chairpersons \3\ to be selected by a computer 
algorithm, known as the ``list selection algorithm,'' for the list of 
arbitrators that is sent to the parties in certain customer and 
industry disputes that have a three-arbitrator panel.
---------------------------------------------------------------------------

    \3\ See infra note 9 and accompanying text.
---------------------------------------------------------------------------

    In addition, the proposed rule change would make changes to the 
Codes that are consistent with FINRA's focus on increasing the 
transparency of arbitrator list selection and with current practices 
that were developed to efficiently administer arbitrator list 
selection. Specifically, the proposed rule change would amend FINRA 
Rule 12402 (Cases with One Arbitrator), FINRA Rule 12403 (Cases with 
Three Arbitrators), FINRA Rule 13403 (Generating and Sending Lists to 
the Parties), FINRA Rules 12404 and 13407 (Additional Parties), FINRA 
Rule 13404 (Striking and Ranking Arbitrators), FINRA Rules 12407 and 
13410 (Removal of Arbitrator by Director), and FINRA Rule 13804 
(Temporary Injunctive Orders; Requests for Permanent Injunctive 
Relief). The proposed rule change also would make non-substantive, 
technical changes to FINRA Rules 13406 (Appointment of Arbitrators; 
Discretion to Appoint Arbitrators Not on List) and 13411 (Replacement 
of Arbitrators) to update cross-references in those rules.
    The text of the proposed rule change is available on FINRA's 
website at https://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

 1. Purpose
I. Overview of FINRA's Arbitrator List Selection Process
    Decisions in the FINRA Dispute Resolution Services (``DRS'') 
arbitration forum are made by independent arbitrators.\4\ To ensure 
fairness to all

[[Page 106636]]

parties during arbitrator list selection, FINRA uses a computer 
algorithm, known as the list selection algorithm, to generate lists of 
arbitrators on a random basis from its rosters of arbitrators for the 
selected hearing location.\5\ DRS maintains three rosters of 
arbitrators: public arbitrators, non-public arbitrators, and 
arbitrators who are eligible to serve as chairperson of a panel.\6\ In 
general, a public arbitrator is a person who is otherwise qualified to 
serve as an arbitrator and is not disqualified from service as a public 
arbitrator due to their current or past ties to the financial 
industry.\7\ A non-public arbitrator is a person who is otherwise 
qualified to serve as an arbitrator and is disqualified from service as 
a public arbitrator due to their current or previous association with 
the financial industry.\8\ An arbitrator is eligible to serve as a 
chairperson if they have completed FINRA's chairperson training and (1) 
have a law degree and are a member of a bar of at least one 
jurisdiction and have served as an arbitrator through award on at least 
one arbitration administered by a self-regulatory organization 
(``SRO'') in which hearings were held; or (2) have served as an 
arbitrator through award on at least three arbitrations administered by 
an SRO in which hearings were held.\9\
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    \4\ As a neutral administrator of the arbitration forum, DRS 
does not participate in the decision-making process by arbitrators. 
DRS maintains a roster of over 8,300 arbitrators. See FINRA, 
Arbitration and Mediation, Dispute Resolution Statistics, https://www.finra.org/arbitration-mediation/dispute-resolution-statistics; 
FINRA, Arbitration and Mediation, Become an Arbitrator, https://www.finra.org/arbitration-mediation/become-arbitrator.
    \5\ See FINRA Rules 12400(a) and 13400(a).
    \6\ See FINRA Rules 12400(b) and 13400(b).
    \7\ See FINRA Rules 12100(aa) and 13100(x).
    \8\ See FINRA Rules 12100(t) and 13100(r).
    \9\ See FINRA Rules 12400(c) and 13400(c).
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    The number and composition of the arbitrator lists that are 
generated using the list selection algorithm varies depending on the 
nature of the dispute and whether it will be heard by a panel of three 
arbitrators or by a single arbitrator. With respect to both customer 
disputes with three arbitrators and industry disputes involving 
associated persons with three arbitrators \10\--the two types of 
disputes affected by the proposed amendments to the procedures for 
generating lists of public arbitrators--DRS uses the list selection 
algorithm to generate three lists: (1) a list of 10 public arbitrators 
from the FINRA chairperson roster (``Chairperson List''); (2) a list of 
15 arbitrators (in customer disputes) or 10 arbitrators (in industry 
disputes involving associated persons) from the FINRA public arbitrator 
roster (``Public List''); and (3) a list of 10 arbitrators from the 
FINRA non-public arbitrator roster (``Non-Public List'').\11\
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    \10\ The panel will consist of three arbitrators in both 
customer and industry disputes when (1) the amount of the claim is 
more than $50,000 but not more than $100,000, exclusive of interest 
and expenses, and the parties agree in writing to three arbitrators; 
or (2) the amount of the claim is more than $100,000, exclusive of 
interest and expenses, is unspecified, or the claim does not request 
money damages, unless the parties agree in writing to one 
arbitrator. See FINRA Rules 12401 and 13401.
    \11\ See FINRA Rules 12403(a)(1) and 13403(b)(2).
---------------------------------------------------------------------------

    Once the lists of arbitrators are generated,\12\ the Director \13\ 
sends the lists to the parties.\14\ The parties then select their 
arbitrators through a process that involves striking and ranking the 
arbitrators on the lists, which is described in more detail in Section 
III below in connection with the discussion of the proposed amendments 
to increase the transparency of the arbitrator selection process.\15\
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    \12\ The list selection algorithm will automatically exclude 
arbitrators from the lists based upon current conflicts of interest 
identified within the list selection algorithm. See FINRA Rules 
12402(b)(2), 12403(a)(3), 13403(a)(4), and 13403(b)(4). In addition, 
DRS conducts a review for other conflicts not identified within the 
list selection algorithm. See FINRA Rules 12402(b)(3), 12403(a)(4), 
13403(a)(5), and 13403(b)(5). If any arbitrators are removed due to 
such conflicts, the list selection algorithm is used to generate 
replacement arbitrators. See FINRA Rules 12402(b)(3), 12403(a)(4), 
13403(a)(5), and 13403(b)(5).
    \13\ The term ``Director'' means the Director of DRS. Unless the 
Code provides that the Director may not delegate a specific 
function, the term includes FINRA staff to whom the Director has 
delegated authority. See FINRA Rules 12100 (m) and 13100(m).
    \14\ See FINRA Rules 12403(b) and 13403(c).
    \15\ See infra Section A.1.III. (``Proposed Amendments to 
Increase the Transparency of the Arbitrator Selection Process''); 
see also FINRA Rules 12400(a), 12403(c)-(e), 13400(a), 13404, 13405, 
and 13406. FINRA notes that the proposed rule change would impact 
all members, including members that are funding portals or have 
elected to be treated as capital acquisition brokers (``CABs''), 
given that the funding portal and CAB rule sets incorporate the 
impacted FINRA rules by reference.
---------------------------------------------------------------------------

II. Proposed Amendments to the Procedures for Generating Public Lists
    Currently, under the Codes, when generating the three lists of 
arbitrators to send to the parties in both customer disputes with 
three-person panels and industry disputes involving associated persons 
with three-person panels, the list selection algorithm will first 
generate a Chairperson List from FINRA's roster of chair-qualified 
public arbitrators.\16\ When the list selection algorithm selects the 
chair-qualified public arbitrators for the Chairperson List for an 
arbitration, those chair-qualified public arbitrators will not be 
eligible to be selected for a Public List for the arbitration and, 
therefore, will be automatically removed from the list selection 
algorithm before the Public List is generated for the arbitration.\17\ 
However, the chair-qualified public arbitrators who are not selected by 
the list selection algorithm for the Chairperson List for an 
arbitration will be eligible to be selected for the Public List for the 
arbitration.\18\ Thus, chair-qualified public arbitrators have two 
chances to be selected for lists for an arbitration: they may be 
selected for the Chairperson List, and if they are not selected for the 
Chairperson List, they may be selected for the Public List.\19\
---------------------------------------------------------------------------

    \16\ See FINRA Rules 12403(a)(2) and 13403(b)(3).
    \17\ See FINRA Rules 12403(a)(2) and 13403(b)(3).
    \18\ See FINRA Rules 12403(a)(2) and 13403(b)(3).
    \19\ An individual arbitrator cannot be selected for both the 
Chairperson List and the Public List for the same case. See FINRA 
Rules 12403(a)(2) and 13403(b)(3).
---------------------------------------------------------------------------

    Public arbitrators who are not chair-qualified do not have the same 
opportunity. Rather, public arbitrators who are not chair-qualified can 
only be selected for a Public List and, therefore, have only one chance 
to be selected for a list of arbitrators. As a result, public 
arbitrators who are not chair-qualified are less likely to be selected 
for a list than chair-qualified public arbitrators, even though the 
number of public arbitrators who are not chair-qualified greatly 
exceeds the number of chair-qualified public arbitrators.\20\
---------------------------------------------------------------------------

    \20\ See infra Section B.ii. (Economic Baseline).
---------------------------------------------------------------------------

    To address this imbalance and increase the opportunity for public 
arbitrators who are not chair-qualified to be selected for the Public 
List, the proposed rule change would amend FINRA Rules 12403(a)(3) and 
13403(b)(4) to provide that, in preparing the Public List, the list 
selection algorithm will provide two chances for selection to public 
arbitrators who are not chair-qualified, and will continue to provide 
one chance for selection to chair-qualified public arbitrators.\21\ The 
procedures for generating the Public List would not otherwise be 
modified under the proposed rule change.
---------------------------------------------------------------------------

    \21\ See proposed FINRA Rules 12403(a)(3) and 13403(b)(4). The 
list selection algorithm would affect the proposed rule change by 
including the names of public arbitrators who are not chair 
qualified twice on the roster of available public arbitrators used 
to randomly generate a Public List. For more information on how the 
list selection algorithm currently generates a Public List, see 
https://www.finra.org/arbitration-mediation/about/arbitration-process/arbitrator-selection. Although the proposed rule change 
would give public arbitrators who are not chair-qualified two 
chances to be selected for a Public List, proposed FINRA Rules 
12403(a)(3) and 13403(b)(4) would provide that an individual 
arbitrator cannot appear more than once on the Public List selected 
for the same case.
---------------------------------------------------------------------------

    FINRA believes it is appropriate to address this imbalance and 
increase the opportunity for public arbitrators who are not chair-
qualified to be selected for Public Lists. By providing an additional

[[Page 106637]]

opportunity to be selected for Public Lists, the proposed rule change 
may increase the likelihood for public arbitrators who are not chair-
qualified to be selected by parties to serve as panelists, which could 
help FINRA retain these arbitrators on its roster. FINRA has observed 
that parties appear to prefer chair-qualified public arbitrators who 
have experience in the DRS arbitration forum and a record of previous 
arbitration award outcomes. If arbitrators who are new to the roster or 
have less experience in the forum are never selected by parties to 
serve as panelists, they may lose interest in serving as arbitrators in 
the DRS arbitration forum. The proposed rule change could help incent 
new or less experienced public arbitrators to remain on FINRA's 
arbitrator roster by providing a higher likelihood of selection by the 
parties as a panelist than currently exists under the Codes.\22\
---------------------------------------------------------------------------

    \22\ See infra Section B.iii. (Economic Impact).
---------------------------------------------------------------------------

    The proposed rule change also may help FINRA increase the roster of 
chair-qualified public arbitrators. By increasing the opportunity for 
public arbitrators who are not chair-qualified to be selected by the 
parties to serve as panelists, the proposed rule change would help 
these arbitrators to gain the experience they need to become chair-
qualified. This, in turn, could help FINRA increase the number of local 
chairpersons across hearing locations.\23\ Parties generally prefer 
chair-qualified public arbitrators who live near their hearing location 
and who are more likely to be familiar with local laws and customs. 
However, 78 percent of hearing locations lack a sufficient number of 
local chairpersons to generate enough arbitrators for Chairperson 
Lists, which means that the list selection algorithm must often 
generate lists that include chair-qualified public arbitrators from 
other hearing locations.\24\ In over half of these hearing locations, 
the roster of local chair-qualified public arbitrators could be filled 
by non-chair-qualified public arbitrators if they became chair-
qualified. By increasing the number of local chairpersons, the list 
selection algorithm would be able to generate Chairperson Lists that 
include more local chair-qualified public arbitrators to address 
parties' preferences.
---------------------------------------------------------------------------

    \23\ See infra Section B.iii. (Economic Impact).
    \24\ See infra Section B.iii. (Economic Impact).
---------------------------------------------------------------------------

III. Proposed Amendments To Increase the Transparency of the Arbitrator 
Selection Process
    FINRA is also proposing to codify certain practices that DRS has 
developed to efficiently administer arbitrator list selection, 
establish new timeframes for objecting to requests for additional 
information from arbitrators, withdrawing such requests for additional 
information, and filing motions to remove arbitrators after disclosures 
of causal challenges, and align provisions of the Codes related to the 
expungement of customer dispute information. These proposed amendments 
are explained in detail below.

A. Shortening the Time for Sending Arbitrator Lists to Parties

    FINRA Rules 12402(c)(1), 12403(b)(1), and 13403(c)(1) currently 
provide that the Director will send lists of arbitrators generated by 
the list selection algorithm to all parties at the same time, within 
approximately 30 days after the last answer is due, regardless of the 
parties' agreement to extend any answer due date. In practice, however, 
DRS sends lists of arbitrators to the parties well within the 30-day 
timeframe provided by the rules.
    To align FINRA Rules 12402(c)(1), 12403(b)(1), and 13403(c)(1) with 
current practice, which, in turn, would increase transparency and 
efficiency in arbitrator list selection, FINRA is proposing to decrease 
the number of days within which the Director sends the lists to the 
parties from 30 days to 20 days. Specifically, under the proposed rule 
change, FINRA Rules 12402(c)(1), 12403(b)(1), and 13403(c)(1) would be 
amended to provide that the Director will send the lists generated by 
the list selection algorithm to all parties at the same time, within 
approximately 20 days after the last answer is due, regardless of the 
parties' agreement to extend any answer due date.

B. Providing Arbitrator Disclosure Reports to Parties

    FINRA Rules 12402(c)(1), 12403(b)(1), 12404(a), 13403(c)(1), 
13407(a), and 13804(b)(3)(A)(i) and (B)(i) currently provide that when 
the Director sends lists of arbitrators to the parties, the parties 
will also receive employment history for the past 10 years and other 
background information for each arbitrator listed. In practice, 
however, DRS requests from arbitrators their full employment history 
after the completion of their education, and it sends this employment 
history and other background information to the parties in a document 
that DRS refers to as a ``disclosure report.''
    To align FINRA Rules 12402(c)(1), 12403(b)(1), 12404(a), 
13403(c)(1), 13407(a), and 13804(b)(3)(A)(i) and (B)(i) with current 
practice and increase transparency, the proposed rule change would 
remove the language stating that the parties will be provided with each 
arbitrator's employment history only ``for the past 10 years.'' These 
same rules would be amended to clarify that an arbitrator's employment 
history and other background information will be provided to the 
parties in a document called a ``disclosure report.''

C. Requesting Additional Information About Arbitrators

    FINRA Rules 12405(a) and 13408(a) impose upon each arbitrator an 
obligation to make a reasonable effort to learn of, and disclose to 
DRS, any circumstances that might preclude the arbitrator from 
rendering an objective and impartial determination in a proceeding. 
This obligation to disclose interests, relationships, or circumstances 
that might preclude an arbitrator from rendering an objective and 
impartial determination is continuous, requiring an arbitrator who 
accepts appointment to an arbitration proceeding to disclose to DRS and 
the parties, at any stage of the proceeding, any such interests, 
relationships or circumstances that arise, or that the arbitrator 
recalls or discovers.\25\
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    \25\ See FINRA Rules 12405(b) and 13408(b).
---------------------------------------------------------------------------

    In addition to imposing these affirmative disclosure obligations on 
arbitrators, paragraph (c)(2) of FINRA Rules 12402 and 13403 and 
paragraph (b)(2) of FINRA Rule 12403 provide that if a party requests 
additional information about an arbitrator, the Director will request 
the additional information from the arbitrator, and will send any 
response to all of the parties at the same time.\26\ Because these 
provisions appear in parts of the Codes that focus on the appointment 
of arbitrators, however, FINRA is concerned that they could be 
misinterpreted as only allowing parties to request additional 
information about arbitrators prior to panel appointment. In practice, 
DRS permits the parties to request additional information about an 
arbitrator at any point during the arbitration proceeding. If an 
opposing

[[Page 106638]]

party does not object to the request for additional information, DRS 
will permit the request for additional information to be submitted to 
the arbitrator anonymously. If there is an objection, however, DRS will 
disclose to the arbitrator the identity of the party submitting the 
request and forward any requests and objections to the arbitrator who 
is the subject of the request.
---------------------------------------------------------------------------

    \26\ FINRA is proposing to move this language to new paragraphs 
(c)(2)(D) of FINRA Rule 12402, (b)(2)(D) of FINRA Rule 12403, and 
(c)(2)(D) of FINRA Rule 13403, without any substantive changes. 
FINRA Rules 12402(c)(2), 12403(b)(2), and 13403(c)(2) also currently 
provide that when a party requests additional information, the 
Director may, but is not required to, toll the time for parties to 
return the ranked lists. FINRA is proposing to move this language to 
new paragraphs (c)(2)(E) of FINRA Rule 12402, (b)(2)(E) of FINRA 
Rule 12403, and (c)(2)(E) of FINRA Rule 13403, without any 
substantive changes. These technical changes would result from the 
proposed rule changes discussed below, which would create new 
subparagraphs under these rules.
---------------------------------------------------------------------------

    The proposed rule change would align the Codes to DRS's current 
practice of allowing requests for additional information about an 
arbitrator at any stage of the proceeding. Specifically, the proposed 
rule change would amend FINRA Rules 12402, 12403, and 13403 to add new 
paragraphs (c)(2)(A), (b)(2)(A), and (c)(2)(A), respectively, to 
provide that a party may request additional information about an 
arbitrator ``at any stage of the proceeding'' by filing with the 
Director and serving all other parties with a written request.
    FINRA believes it is appropriate to permit parties to request 
additional information about arbitrators at any stage of the proceeding 
because such requests could uncover circumstances that might preclude 
an arbitrator from rendering an objective and impartial decision. 
Although, as explained above, arbitrators have a continuing duty to 
disclose potential conflicts,\27\ allowing the parties to request 
additional information at any stage of the proceeding complements 
arbitrators' continuing duty to disclose, further ensures the integrity 
of final awards, and helps to minimize the number of requests for 
vacatur based on an arbitrator's failure to disclose. Additionally, 
because DRS currently allows parties as a matter of practice to make 
requests for additional information at any stage of the proceeding, the 
proposed rule change would align the Codes to increase transparency and 
ensure that all parties are aware of their ability to request 
additional information about arbitrators at any stage of the 
proceeding.
---------------------------------------------------------------------------

    \27\ See FINRA Rules 12405(b) and 13408(b).
---------------------------------------------------------------------------

    The proposed rule change also would align the Codes to DRS's 
current practice of preserving the anonymity of parties who request 
additional information about arbitrators, unless an opposing party 
objects to the request for additional information within the specified 
timeframe. Specifically, the proposed rule change would provide in new 
paragraphs (c)(2)(A), (b)(2)(A), and (c)(2)(A) of FINRA Rules 12402, 
12403, and 13403, respectively, that a written request for additional 
information about an arbitrator may omit any information that would 
reveal the identity of the party making the request. The proposed rule 
change would further amend FINRA Rules 12402, 12403, and 13403 to add 
new paragraphs (c)(2)(C), (b)(2)(C), and (c)(2)(C), respectively, to 
provide that, if no opposing party objects to the request for 
additional information, the Director and the parties shall not disclose 
the identity of the requesting party to the arbitrator. FINRA believes 
it is appropriate to preserve the confidentiality of the requesting 
parties' identities to minimize any potential bias. However, when any 
opposing parties object to requests, FINRA believes it is then 
appropriate to disclose the requesting parties' identities to minimize 
the risk of any potential bias shifting to the opposing parties. 
Opposing parties have expressed concerns that an arbitrator or panel 
may erroneously attribute requests for additional information to 
opposing parties and make negative inferences against the opposing 
parties based on the request. Moreover, in cases involving only two 
parties, opposing parties may choose to file objections to requests 
that disclose their identities, which would result in the arbitrator or 
panel being able to identify the requesting party by process of 
elimination.
    Finally, to increase efficiency in arbitrator list selection, the 
proposed rule change would establish new timeframes for an opposing 
party to object to a party's request for additional information, and 
for the Director to forward the request together with any objections to 
the arbitrator who is the subject of the request. In addition, the 
proposed rule change would make clear that the requesting party may 
withdraw their request for additional information prior to the Director 
forwarding the request and any objections to the arbitrator. 
Specifically, paragraphs (c)(2)(B), (b)(2)(B), and (c)(2)(B) of FINRA 
Rules 12402, 12403, and 13403, respectively, would be amended to 
provide that: (i) within ten days of receipt of the request for 
additional information, an opposing party may object to the request by 
filing objections with the Director and serving the objections on all 
other parties; and (ii) after five days have elapsed from the service 
of any objections and provided that the request for additional 
information has not been withdrawn, the Director will forward the 
request together with any objections to the arbitrator who is the 
subject of the request.
    FINRA believes it is important for the proposed rules to establish 
timeframes for objecting to requests for additional information and for 
withdrawing requests for additional information, so that the parties 
are aware of their ability to object to or to withdraw a request and 
the timeframes for doing so. Further, FINRA believes that the proposed 
ten days for an opposing party to object to a request for additional 
information, and the five days for a requesting party to withdraw a 
request for additional information following an objection, would help 
ensure that the arbitrator list selection process and the arbitration 
proceedings are efficient.

D. Allowing Parties to Strike Arbitrators From Lists for Any Reason

    Once the parties receive the lists of arbitrators generated by the 
list selection algorithm, they have the opportunity to strike a certain 
number of arbitrators, as set forth in FINRA Rules 12402(d)(1), 
12403(c)(1)(A), 12403(c)(2)(A), and 13404(a) and (b).\28\ In describing 
the striking process, FINRA Rules 12402(d)(1), 12403(c)(2)(A), and 
13404(a) and (b) provide that each separately represented party may 
strike arbitrators from lists ``for any reason.'' Although Rule 
12403(c)(1)(A) also describes the arbitrator striking process, unlike 
the other rules related to the striking process, it does not expressly 
provide that each separately represented party may strike arbitrators 
from the list ``for any reason,'' even though there are no limitations 
on the reasons a party may strike an arbitrator. To make the provisions 
describing the striking process consistent, the proposed rule change 
would amend FINRA Rule 12403(c)(1)(A) to expressly provide that each 
separately represented party may strike any or all of the arbitrators 
from the Non-Public List for any reason.
---------------------------------------------------------------------------

    \28\ See FINRA Rule 12402(d)(1) (allowing each separately 
represented party in a customer dispute with one arbitrator to 
strike up to four of the arbitrators from the list); FINRA Rule 
12403(c)(1)(A) (allowing each separately represented party in a 
customer dispute with three arbitrators to strike any or all of the 
arbitrators from a Non-Public List); FINRA Rule 12403(c)(2)(A) 
(allowing each separately represented party in a customer dispute 
with three arbitrators to strike up to four of the arbitrators from 
a Chairperson List and up to six of the arbitrators from a Public 
List); FINRA Rule 13404(a) (allowing each separately represented 
party in an industry dispute to strike up to four of the arbitrators 
from each list, except for lists generated, pursuant to FINRA Rule 
13403(a)(2), in disputes between members with a panel of three non-
public arbitrators); and FINRA Rule 13404(b) (allowing each 
separately represented party in a dispute between members with a 
panel of three non-public arbitrators to strike up to eight of the 
arbitrators from a Non-Public List and up to four of the arbitrators 
from a non-public Chairperson List).
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E. Conducting List Selection Electronically

    FINRA Rules 12402(d)(1), 12403(c)(1)(A) and (c)(2)(A), and

[[Page 106639]]

13404(a) and (b) currently provide that each separately represented 
party may strike arbitrators from the list or lists of arbitrators ``by 
crossing through the names of the arbitrators.'' In practice, however, 
parties generally use the Party Portal, the web-based system that is 
accessible by arbitration and mediation parties and their 
representatives, to complete arbitrator list selection 
electronically.\29\ To update the Codes and align them with the method 
by which parties generally select arbitrators, the proposed rule change 
would amend FINRA Rules 12402(d)(1), 12403(c)(1)(A) and (c)(2)(A), and 
13404(a) and (b) to remove the phrase ``by crossing through the names 
of the arbitrators.''
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    \29\ See FINRA Rules 12100(v) and 13100(t).
---------------------------------------------------------------------------

    FINRA is aware that FINRA Rule 12300(a)(2) permits pro se customers 
to opt out of using the Party Portal. As a result, these parties may 
receive hard copy lists of arbitrators that would require them to 
manually strike names. However, FINRA believes that, even as amended to 
remove the phrase ``by crossing through the names of the arbitrators,'' 
FINRA Rules 12402(d)(1), 12403(c)(1)(A), and 12403(c)(2)(A) are broad 
enough to appropriately instruct pro se customers on how to strike 
arbitrators manually from hard copy lists.\30\
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    \30\ See proposed FINRA Rule 12402(d)(1) (providing that 
``[e]ach separately represented party may strike up to four of the 
arbitrators from the list for any reason''); proposed FINRA Rule 
12403(c)(1)(A) (providing that ``[e]ach separately represented party 
may strike any or all of the arbitrators from the non-public 
arbitrator list for any reason''); proposed FINRA Rule 
12403(c)(2)(A) (providing that ``[e]ach separately represented party 
may strike up to four of the arbitrators from the chairperson list 
and up to six of the arbitrators from the public arbitrator list for 
any reason'').
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F. Extensions of Time To Complete Ranked Lists

    FINRA Rules 12402(d)(3), 12403(c)(3), 12404(a), 13404(d), and 
13407(a) currently provide that, after striking arbitrators and ranking 
the remaining arbitrators according to preference, each separately 
represented party must complete and return their ranked lists to the 
Director (generally via the Party Portal) \31\ either within 20 days or 
no more than 20 days after the date upon which the Director sent the 
lists to the parties.\32\ If the Director does not receive a party's 
ranked list within that time, the Director will proceed as though the 
party did not want to strike any arbitrator or have any preferences 
among the listed arbitrators. However, FINRA has observed that parties 
frequently file requests with the Director to extend the 20-day 
deadline only after it has elapsed. Though FINRA Rules 12207(c) and 
13207(c) provide that the Director may extend or modify any deadline or 
time period set by the Code for good cause, in practice, the Director 
typically declines a party's request for an extension of time to 
complete the ranked list(s) when such request is filed after the 20-day 
deadline has elapsed, absent a showing of extraordinary circumstances.
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    \31\ If a party is a pro se customer who opted out of using the 
Party Portal, pursuant to FINRA Rule 12300(a), the party may return 
their ranked list to the Director by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email, or 
facsimile. See FINRA Rules 12402(d)(3) and 12403(c)(3).
    \32\ FINRA Rules 12404(a) and 13407(a) provide that the parties 
must return their ranked lists ``within 20 days'' after the date 
upon which the Director sent the lists to the parties. FINRA Rules 
12402(d)(3), 12403(c)(3) and 13404(d) provide that the parties must 
return their ranked lists ``no more than 20 days'' after the date 
upon which the Director sent the lists to the parties.
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    In its cover letters to parties that accompany the lists of 
arbitrators, DRS currently advises parties of the due date for the 
ranked lists. In addition, the language in these cover letters provides 
that if the Director does not receive the party's ranked lists on or 
before the due date, the party will be deemed to have accepted all 
arbitrators on the lists.
    FINRA is proposing to align FINRA Rules 12402(d)(3), 12403(c)(3), 
12404(a), 13404(d), and 13407(a) with current practice, to expressly 
provide, that absent extraordinary circumstances, the Director will not 
grant a party's request for an extension to complete the ranked lists 
that is filed after the deadline has elapsed. FINRA believes it is 
appropriate for the Director to require a showing of extraordinary 
circumstances before granting parties' requests to extend the time to 
complete ranked list(s) when such requests are filed after the deadline 
has elapsed. FINRA is concerned that allowing the Director to grant 
parties' requests to extend the deadline for completing arbitrator list 
selection only by a showing of good cause, especially when such 
requests are filed after the deadline has elapsed, could lead to 
unnecessary delays in the appointment of arbitration panels and 
arbitration proceedings.
    By requiring a showing of extraordinary circumstances, the proposed 
rule change would help ensure that the arbitrator list selection 
process and proceedings are efficient. FINRA believes it is appropriate 
to align the Codes with this practice, so that parties may be made 
aware of the deadline and encouraged to complete and return their 
ranked lists to the Director within the 20-day timeframe, or so that 
parties may be encouraged to file requests with the Director for 
extensions of the deadline before it has elapsed.

G. Allowing Parties To Agree To Remove an Arbitrator

    DRS makes clear in its training materials for arbitrators that, 
pursuant to the requirements of the ABA's Code of Ethics for 
Arbitrators in Commercial Disputes, an arbitrator must withdraw from a 
panel if all of the parties request that the arbitrator do so.\33\ This 
requirement is also supported by Notice to Members 01-13, which 
announced approval of amendments to the Director's authority to remove 
arbitrators for cause and described how arbitrators could be removed 
when ``all the parties agree that the arbitrator should be removed.'' 
\34\ To help ensure that parties are aware of the ability to remove an 
arbitrator upon party agreement, the proposed rule change would codify 
the current guidance by amending FINRA Rules 12407 and 13410 to add new 
paragraph (d)(1) to provide that, at any stage of the arbitration 
proceeding, the Director may remove an arbitrator if all of the named 
parties agree in writing to the arbitrator's removal.\35\
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    \33\ See FINRA, Basic Arbitrator Training, https://www.finra.org/arbitration-mediation/rules-case-resources/arbitrator-training#basic; ABA Code of Ethics for Arbitrators in Commercial 
Disputes, Canon II(G) (requiring that ``[i]f an arbitrator is 
requested by all parties to withdraw, the arbitrator must do so.''), 
https://www.adr.org/sites/default/files/document_repository/Commercial_Code_of_Ethics_for_Arbitrators_2010_10_14.pdf.
    \34\ See Notice to Members 01-13 (March 2001), https://www.finra.org/rules-guidance/notices/01-13; see also Securities 
Exchange Act Release No. 43291 (September 14, 2000), 65 FR 57413 
(September 22, 2000) (Notice of Filing of File No. SR-NASD-00-34).
    \35\ Requests to remove an arbitrator may not be granted when 
there are extraordinary circumstances which make removal 
inappropriate (e.g., requests based on discriminatory grounds).
---------------------------------------------------------------------------

    The proposed rule change would also add new paragraph (d)(2) to 
FINRA Rules 12407 and 13410 that would provide that the parties may not 
agree to remove an arbitrator who is considering a request to expunge 
customer dispute information, except that a party shall be permitted to 
challenge any arbitrator selected for cause pursuant to FINRA Rule 
12407(a)(1) or (b) or FINRA Rule 13410(a)(1) or (b).
    FINRA rules specify a narrow set of circumstances in which 
expungement of customer dispute information from the Central 
Registration Depository (CRD[supreg]) is appropriate.\36\ In addition, 
FINRA recently amended its rules to make a number of significant 
enhancements to address concerns with the expungement

[[Page 106640]]

process and to provide additional safeguards for ensuring that the 
information in CRD is accurate and complete.\37\ FINRA believes that 
the proposed rule change is consistent with these changes related to 
enhancing the expungement process. For example, proposed paragraph 
(d)(2) of FINRA Rule 12407 would align with FINRA Rule 12800(d) by 
prohibiting the parties from agreeing to remove an arbitrator if there 
is a request to expunge customer dispute information during a 
simplified investment-related, customer-initiated arbitration 
(``simplified arbitration'') under FINRA Rule 12800.\38\ Accordingly, 
as required by FINRA Rule 12800(d), the arbitrator who has considered 
the merits of the customer dispute in the simplified arbitration would 
also decide the expungement request. As noted above, however, the 
proposed rule change would permit a party to challenge any arbitrator 
selected for cause pursuant to FINRA Rule 12407(a)(1) or (b).
---------------------------------------------------------------------------

    \36\ See FINRA Rules 12805(c)(8) and 13805(c)(9); see also FINRA 
Rule 2080(b)(1).
    \37\ See Securities Exchange Act Release No. 95455 (August 9, 
2022), 87 FR 50170 (August 15, 2022) (Notice of Filing of File No. 
SR-FINRA-2022-024); Securities Exchange Act Release No. 97294 (April 
12, 2023), 88 FR 24282 (April 19, 2023) (Order Approving File No. 
SR-FINRA-2022-024); see also Regulatory Notice 23-12 (August 2023).
    \38\ FINRA Rule 12800(d)(1)(B)(ii) provides that, if an 
associated person requests expungement during a simplified 
arbitration, the arbitrator from the simplified arbitration must 
consider and decide the expungement request regardless of how the 
simplified arbitration closes.
---------------------------------------------------------------------------

    In addition, proposed paragraph (d)(2) of FINRA Rule 13410 would 
align with FINRA Rule 13806, which limits parties' ability to have 
input into the arbitrators who decide straight-in requests.\39\ 
Specifically, FINRA Rule 13806 provides that the list selection 
algorithm will select randomly the three public arbitrators from a 
roster of experienced public arbitrators with enhanced expungement 
training to decide a straight-in request. The parties are not permitted 
to strike any arbitrators selected by the list selection algorithm or 
stipulate to their removal. In addition, the parties are not permitted 
to agree to fewer than three arbitrators or stipulate to the use of 
pre-selected arbitrators. The parties are permitted, however, to 
challenge an arbitrator selected for cause pursuant to FINRA Rule 
13410(a)(1) or (b).
---------------------------------------------------------------------------

    \39\ A ``straight-in request'' refers to arbitration proceedings 
in which an associated person requests expungement of customer 
dispute information separate from a customer arbitration. Straight-
in requests must be filed against the member firm at which the 
person was associated at the time the customer dispute arose. See 
FINRA Rule 13805(a)(1). These requests are less likely to be opposed 
or adversarial in nature because they generally involve two 
parties--associated persons and member firms--whose interests may be 
aligned. Like the associated person, the member firm may also have 
an interest in removing information from the associated person's CRD 
record.
---------------------------------------------------------------------------

    FINRA believes the proposed rule change would help ensure that the 
expungement process operates efficiently and as intended by aligning 
FINRA Rules to make clear that parties may not agree to remove an 
arbitrator who is considering a request to expunge customer dispute 
information. However, a party could challenge an arbitrator selected 
for cause.

H. Prohibiting Disclosure of Party-Initiated Challenges To Remove 
Arbitrators

    FINRA Rules 12407 and 13410 permit the parties to challenge 
arbitrators for cause. If the challenge occurs after the Director sends 
the lists(s) generated by the list selection algorithm to the parties, 
but before the first hearing session begins, the Director will grant a 
party's request to remove an arbitrator if it is reasonable to infer, 
based on information known at the time of the request, that the 
arbitrator is biased, lacks impartiality, or has a direct or indirect 
interest in the outcome of the arbitration.\40\ If the challenge occurs 
after the first hearing session begins, the Director may remove an 
arbitrator based only on information required to be disclosed by an 
arbitrator that was not previously known by the parties.\41\
---------------------------------------------------------------------------

    \40\ See FINRA Rules 12407(a)(1) and 13410(a)(1).
    \41\ See FINRA Rules 12407(b) and 13410(b).
---------------------------------------------------------------------------

    In two separate letters--one that accompanies the lists of 
arbitrators and another that advises the parties of the panel 
composition--DRS currently advises parties during arbitrator list 
selection that they may not inform an arbitrator or panel of an 
opposing party's request to remove an arbitrator for cause. The 
language in both letters reads, ``Parties are advised that they may not 
inform the panel of an opposing party's causal challenge.''
    The proposed rule change would align FINRA Rules 12407 and 13410 
with the guidance provided by DRS, by adding a new paragraph (e)(1) to 
each rule, to expressly provide that a party may not inform the panel 
or arbitrator of another party's request to remove an arbitrator for 
cause.
    The proposed rule change also would establish a remedy if a party 
discloses to the arbitrator or panel an opposing party's request to 
remove an arbitrator for cause. Specifically, the proposed rule change 
would amend FINRA Rules 12407 and 13410 to add a new paragraph (e)(2), 
which would give the party that requested removal of an arbitrator the 
option to file a written motion with the Director for removal of the 
arbitrator within five days of being made aware of the disclosure. The 
requesting party may be made aware of the disclosure in several 
different ways, including in a pleading or other document filed with 
the Director, or during a prehearing conference or hearing. If the 
requesting party does not make a motion for removal of the arbitrator 
within five days of being made aware of the disclosure, then the 
requesting party would forfeit the opportunity to request removal of 
the arbitrator because of the disclosure.\42\ Finally, if the party 
that made the request to remove the arbitrator timely files a motion 
for removal of the arbitrator based on the disclosure, the proposed 
rule change would provide that, absent extraordinary circumstances, the 
Director shall grant the motion.\43\
---------------------------------------------------------------------------

    \42\ See proposed FINRA Rules 12407(e)(2) and 13410(e)(2).
    \43\ See proposed FINRA Rules 12407(e)(2) and 13410(e)(2).
---------------------------------------------------------------------------

    Disclosure of a party's request to remove an arbitrator could 
prejudice the arbitrator or create the appearance of bias against the 
requesting party. FINRA recognizes the importance to the fairness and 
credibility of the DRS arbitration forum of having processes that are--
and that are perceived to be--operated in a fair and neutral manner. As 
a result, FINRA believes it is appropriate to prohibit a party from 
disclosing an opposing party's request to remove an arbitrator. 
Although DRS currently advises the parties by letter that they may not 
inform the panel of an opposing party's causal challenge, FINRA 
believes that aligning the Codes with DRS's guidance would more 
effectively curb the disclosure of a party's request to remove an 
arbitrator because parties will be incented to comply with the Codes.
    Furthermore, FINRA believes that, in the event a party improperly 
discloses an opposing party's causal challenge, it is appropriate to 
require that the requesting party either make a motion for removal of 
the arbitrator within five days of being made aware of the disclosure 
or forfeit the opportunity to request removal of the arbitrator. By 
requiring that any motion to remove an arbitrator be made within five 
days, the proposed rule change would strike the right balance between 
providing an opportunity for any aggrieved party to seek a remedy 
while, at the same time, allowing for the efficient processing of the 
proceeding.

[[Page 106641]]

I. Updating Cross-References to the Non-Public Arbitrator Definition in 
the Industry Code
    FINRA Rules 13406(c) and 13411(d) cross-reference to FINRA Rule 
13100(r), which provides the definition of ``non-public arbitrator.'' 
Prior to 2017, paragraphs (r)(1), (r)(2), (r)(3), and (r)(4) of FINRA 
Rule 13100 listed the specific criteria for inclusion on FINRA's non-
public arbitrator roster. However, in 2017, FINRA amended the non-
public arbitrator definition to eliminate paragraphs (r)(1) through 
(r)(4).\44\ As a result of this amendment, FINRA Rule 13100(r) 
currently defines a ``non-public arbitrator'' as a person who is 
otherwise qualified to serve as an arbitrator, and is disqualified from 
service as a public arbitrator under FINRA Rule 13100(x).\45\ FINRA 
Rule 13100(x), in turn, lists the criteria for exclusion from FINRA's 
public arbitrator roster for a person who is otherwise qualified to 
serve as an arbitrator.\46\ The proposed rule change would update FINRA 
Rules 13406(c) and 13411(d) with the correct cross-references to FINRA 
Rule 13100(x)(2) through (11) to provide the necessary clarification in 
light of the amended definition of a ``non-public arbitrator.''
---------------------------------------------------------------------------

    \44\ See Securities Exchange Act Release No. 81572 (September 
11, 2017), 82 FR 43436 (September 15, 2017) (Order Approving File 
No. SR-FINRA-2017-025).
    \45\ See FINRA Rule 13100(r).
    \46\ See Securities Exchange Act Release No. 74383 (February 26, 
2015), 80 FR 11695 (March 4, 2015) (Order Approving File No. SR-
FINRA-2014-028).
---------------------------------------------------------------------------

    If the Commission approves the proposed rule change, FINRA will 
announce the effective date of the proposed rule change in a Regulatory 
Notice.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\47\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    FINRA believes that the proposed rule change will protect investors 
and the public interest by enhancing arbitrator list selection in the 
DRS arbitration forum. By increasing the opportunity for public 
arbitrators who are not chair-qualified to be selected for Public 
Lists, the proposed rule change will increase the likelihood that these 
arbitrators, who are often new to the arbitrator roster or less 
experienced arbitrators, may be selected to serve as panelists. As a 
result, the proposed rule change will help DRS retain new or less 
experienced arbitrators on its arbitrator roster and expand the number 
of local public arbitrators who are chair-qualified to address 
shortages in local hearing locations.
    The proposed rule change also will protect investors and the public 
interest by codifying certain practices that DRS has developed to 
efficiently administer arbitrator list selection, establishing new 
timeframes for objecting to requests for additional information from 
arbitrators, withdrawing such requests for additional information, and 
filing motions to remove arbitrators after disclosures of causal 
challenges, and aligning provisions of the Codes related to the 
expungement of customer dispute information. Together, these proposed 
changes will increase the transparency and efficiency of the 
arbitration process for forum users.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Economic Impact Assessment
    FINRA has undertaken an economic impact assessment to analyze the 
regulatory need for the proposed rule change, its potential economic 
impacts, including anticipated costs, benefits, and distributional and 
competitive effects, relative to the current baseline, and the 
alternatives FINRA considered in assessing how best to meet FINRA's 
regulatory objectives. FINRA does not expect that the proposed rule 
change would affect the advantages and costs of the DRS arbitration 
forum relative to other arbitration fora.
i. Regulatory Need
    FINRA is concerned that non-chair-qualified public arbitrators have 
disproportionately fewer opportunities than chair-qualified public 
arbitrators to be selected for arbitrator lists. The proposed rule 
change is anticipated to address this imbalance by increasing the 
number of opportunities for non-chair-qualified public arbitrators to 
be selected for Public Lists. Also, FINRA is concerned that some 
parties are not familiar with the current practices and published 
guidance for arbitrator list selection. The proposed rule change would 
increase the transparency and efficiency of the arbitrator list 
selection process by codifying certain practices that DRS has developed 
to efficiently administer arbitrator list selection, establishing new 
timeframes for objecting to requests for additional information from 
arbitrators, withdrawing such requests for additional information, and 
filing motions to remove arbitrators after disclosures of causal 
challenges, and aligning provisions of the Codes related to the 
expungement of customer dispute information.
ii. Economic Baseline
    In general, the economic baseline for the proposed rule change 
consists of the current provisions under the Codes, current practices, 
and published guidance that address arbitrator list selection. Relevant 
features of the economic baseline are described below. The proposed 
rule change is expected to affect the parties to cases in the DRS 
arbitration forum and the arbitrators on the FINRA public arbitrator 
roster.
    As of January 2024, there were 4,072 arbitrators on the FINRA 
public arbitrator roster. The public arbitrator roster consists of 
1,104 public arbitrators who are chair-qualified (27 percent = (1,104/
4,072)) and 2,968 public arbitrators who are non-chair-qualified (73 
percent = (2,968/4,072)).\48\
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    \48\ Among the 1,104 public arbitrators who are chair-qualified, 
187 public arbitrators are chair-qualified but currently unwilling 
to serve as chairpersons. Similar to public arbitrators who are not 
chair-qualified, chair-qualified public arbitrators who are 
unwilling to serve as chairperson would have only one chance to be 
selected for Public Lists.
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    Chair-qualified public arbitrators appeared relatively more 
frequently on Chairperson Lists and Public Lists combined. Between 
January 2018 and December 2023 (``sample period''), 17,544 arbitrations 
were filed and closed. Chairperson Lists and Public Lists were 
generated in 9,598 of the 17,544 arbitrations that involved customer 
disputes with three arbitrators or industry disputes involving 
associated persons with three arbitrators. Chair-qualified public 
arbitrators appeared 143,381 times (99,773 appearances on Chairperson 
Lists and 43,608 appearances on Public Lists) and non-chair-qualified 
public arbitrators appeared 92,356 times on Public Lists only. Thus, 
with their additional opportunity to appear on Public Lists, chair-
qualified public arbitrators made 61 percent (= 143,381/(143,381 + 
92,356)) of appearances but make up just 27 percent of all public 
arbitrators.\49\
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    \49\ Due to data limitations, the number of chair-qualified 
public arbitrators that we identify as appearing on Public Lists 
would include public arbitrators who were previously qualified and 
willing to serve as chairpersons but subsequently ceased being 
qualified or willing to serve as chairpersons when the Public Lists 
were generated. These arbitrators would have only one chance to be 
selected for Public Lists. See supra note 48. The 61 percent of 
appearances made by chair-qualified public arbitrators, therefore, 
overstates the actual percentage and represents an upper bound for 
the estimate.

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[[Page 106642]]

    Relative to non-chair-qualified public arbitrators, a higher 
percentage of chair-qualified public arbitrators are selected by 
parties from Public Lists.\50\ Chair-qualified public arbitrators were 
selected by parties in 16 percent of the times they made appearances on 
Public Lists (6,860 of 43,608 appearances) and non-chair-qualified 
public arbitrators were selected by parties in 10 percent of the times 
they made appearances on Public Lists (9,411 of 92,356 appearances). 
Selection by parties may encourage arbitrators to remain on the FINRA 
public arbitrator roster. For example, of all the non-chair-qualified 
public arbitrators who left the roster during the sample period, the 
median time in the forum for those who were never appointed was five 
years while the median time for those who were appointed at least once 
was 10 years.
---------------------------------------------------------------------------

    \50\ See, e.g., supra Section II. (Proposed Amendments to the 
Procedures for Generating Public Lists) (discussing FINRA's 
observations as to why parties may prefer chair-qualified public 
arbitrators).
---------------------------------------------------------------------------

    Using appearances during the sample period as an estimate, the 
proposed rule change may increase the percentage of non-chair-qualified 
public arbitrators who appear on affected Public Lists from 68 percent 
to 81 percent.\51\ On a Public List with 15 arbitrators, this 
translates to two additional appearances by non-chair-qualified public 
arbitrators; and on a Public List with 10 arbitrators, this translates 
to one additional appearance by non-chair-qualified public arbitrators.
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    \51\ To calculate the percentage increase in the appearances by 
non-chair-qualified public arbitrators, FINRA assumes that the 
number of appearances is proportional to the pools of public 
arbitrators available to appear on a Public List. FINRA calculates 
the 68 percent as the number of appearances by non-chair-qualified 
public arbitrators divided by the total number of appearances of 
non-chair-qualified and chair-qualified public arbitrators (= 
92,356/(92,356 + 43,608)). FINRA estimates the 81 percent by 
doubling the number of appearances by non-chair-qualified public 
arbitrators (from 92,356 to 184,712) and recalculating (81 percent = 
184,712/(184,712 + 43,608)).
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    The economic baseline for the proposed rule change also consists of 
the current practices and published guidance that address arbitrator 
selection. Relative to other parties, parties who are less familiar 
with current practices or published guidance may have greater 
difficulty understanding their options when selecting arbitrators. As a 
result, arbitrator panels may reflect the preferences of these parties 
less closely than would occur otherwise.
iii. Economic Impact
    FINRA anticipates that, over time, the proposed rule change would 
increase the likelihood for non-chair-qualified public arbitrators to 
be selected by parties to serve as panelists. The benefits to 
arbitrators from selection include the experience, networking 
opportunities, and supplemental income. The benefits also include an 
increased likelihood of being selected in future arbitrations if, over 
time, parties become confident in the quality of arbitrators' decision-
making or are better able to predict how arbitrators may react to a 
specific fact pattern. Future selections may incent non-chair-qualified 
public arbitrators to take necessary steps to remain on FINRA's roster 
of arbitrators. For some non-chair-qualified public arbitrators, the 
benefits from the additional selections may include obtaining the 
experience necessary to become chair-qualified.\52\
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    \52\ See supra note 9 and accompanying text.
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    A larger pool of chair-qualified public arbitrators also may 
increase the availability of chair-qualified public arbitrators in the 
same general geographic area as parties (and who may be familiar with 
local laws and practices), help facilitate scheduling, and reduce 
arbitrator travel expenses incurred by the DRS arbitration forum. 
Currently, 78 percent of the 69 hearing locations have fewer than the 
requisite number of local chair-qualified public arbitrators to 
complete Chairperson Lists. In over half of these hearing locations, 
the roster of local chair-qualified public arbitrators could be filled 
by non-chair-qualified public arbitrators if they became chair-
qualified.
    In general, an increase in the selection of non-chair-qualified 
public arbitrators would tend to reduce the average level of experience 
of arbitration panels. This could lessen the ability of some parties to 
anticipate awards. With a shorter award history, some parties may be 
less able to predict how an arbitrator might react to a specific fact 
pattern. Parties with preferences for more experienced public 
arbitrators may feel constrained by having fewer chair-qualified public 
arbitrators from which to choose. In addition, chair-qualified public 
arbitrators may not experience the same level of benefits over time 
from remaining active in the forum as the likelihood of their selection 
from Public Lists decreases.
    The magnitude of the economic impact, including the eventual impact 
on the combined forum experience of arbitrators who are selected for 
panels, is dependent on the preferences of parties for chair-qualified 
public arbitrators. For example, although fewer chair-qualified public 
arbitrators would appear on Public Lists, stronger preferences among 
parties for chair-qualified public arbitrators and their continued 
selection from Public Lists would result in the proposed rule change 
having little impact relative to the baseline. As noted above, parties 
with preferences for more experienced public arbitrators may feel 
constrained by having fewer chair-qualified public arbitrators from 
which to choose. Parties' selection of arbitrators, however, is 
dependent on multiple factors, including the lists that parties receive 
and their preferences for certain arbitrator characteristics. For this 
reason, FINRA does not believe that the proposed change to the Public 
List generation process would materially affect their decision to file 
a claim in the DRS arbitration forum (and not, for example, directly 
settling the dispute if the situation allows) or the number of claims 
filed in the forum.
    The proposed rule change would establish new timeframes for 
objecting to requests for additional information from arbitrators, 
withdrawing such requests for additional information, and filing 
motions to remove arbitrators after disclosures of causal challenges. 
The new timeframes would help the efficiency of the arbitration 
proceedings by ensuring that issues relating to arbitrator selection do 
not delay or disrupt the proceedings. As discussed above, the 
timeframes are consistent with those relating to similar motions and 
should therefore not impose an undue burden.
    The proposed rule change would align FINRA Rules to current 
guidance providing that at any stage of the arbitration proceeding, the 
Director may remove an arbitrator if all of the named parties agree in 
writing to the arbitrator's removal.\53\ The proposed rule change would 
also add that parties may not agree to remove an arbitrator who is 
considering a request to expunge customer dispute information.\54\ The 
proposed rule change may help further ensure that arbitrators issue 
awards containing expungement relief only when appropriate and that the 
customer dispute information in CRD reflects the

[[Page 106643]]

conduct of associated persons.\55\ The inability to agree to remove an 
arbitrator may result in some associated persons choosing to forego 
requesting expungement in the DRS arbitration forum, though requesting 
expungement in the DRS arbitration forum may continue to be the 
preferred option. Associated persons who decide not to request 
expungement in the DRS arbitration forum may incur additional costs or 
delays in requesting expungement of the customer dispute information 
other than through the DRS arbitration forum. Associated persons who 
are delayed in requesting expungement may experience a loss of business 
and professional opportunities.
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    \53\ See proposed FINRA Rules 12407(d)(1) and 13410(d)(1).
    \54\ See proposed FINRA Rules 12407(d)(2) and 13410(d)(2).
    \55\ The proposed rule change would primarily affect expungement 
requests in non-simplified customer arbitrations. See supra notes 38 
and 39 and accompanying text (discussing existing requirements under 
the Codes for simplified arbitrations and straight-in requests). 
There were 2,195 non-simplified customer arbitrations filed and 
closed between January 2018 and December 2023 where parties 
requested expungement. Information is not available describing party 
agreements to remove arbitrators where parties requested 
expungement.
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    Finally, the proposed rule change would codify current practices 
and DRS guidance relating to arbitrator selection. The codification may 
increase the efficient administration of the arbitrator selection 
process if it results in an increase in the transparency of the process 
and proves to be informative for parties who are unfamiliar with 
current practices or unaware of the DRS guidance. These parties may be 
more likely to resolve the dispute by filing a claim in the DRS 
arbitration forum.
    As best FINRA can determine, in the vast majority of sample cases, 
few cases would have been affected by the proposed rule change to align 
the Codes with current practices.\56\ For example, in the vast majority 
of sample cases, data suggests that the forum sends lists of 
arbitrators to the parties within 20 days of when the last answer is 
due. FINRA can also identify 63 requests for additional information 
about a listed arbitrator in 38 cases (less than one percent of the 
17,544 sample cases) and 54 requests for additional information about 
an appointed arbitrator in 45 cases. FINRA can also identify nine 
challenges to remove a listed arbitrator in nine cases, and 165 
challenges to remove an appointed arbitrator in 132 cases (one 
percent). Information describing the basis for challenges to remove a 
listed or appointed arbitrator (e.g., due to the disclosure of a causal 
challenge) is not available.\57\
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    \56\ Other information describing the potential impact of the 
proposed amendments that address arbitrator selection under the 
baseline is not available. This information includes requests for 
additional time to complete ranked lists and grants or denials of 
these requests, objections to requests for additional information 
and withdrawals of these requests, and disclosures of challenges to 
remove arbitrators.
    \57\ This estimate does not account for any potential changes in 
the behaviors of associated persons with respect to requesting 
expungement during a customer case in response to recently amended 
rules. See supra note 37 and accompanying text.
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    While it is not known how many parties are unfamiliar with current 
practices or DRS guidance, FINRA believes that the small number of 
instances likely reflects informed decisions by most parties, and so 
the proposed rule change is therefore not likely to cause a large 
increase in the number of these instances.
iv. Alternatives Considered
    FINRA developed the proposed amendments over a multi-year process 
during which FINRA considered and modified proposals based on feedback 
from forum users, including investors, securities industry 
professionals, and FINRA arbitrators. In evaluating proposals, FINRA 
considered numerous factors including efficiency, cost, fairness and 
transparency, and certain tradeoffs among these factors.
    The proposed amendments that relate to the generation of Public 
Lists strike an appropriate balance between leveling the opportunities 
for selection and minimizing the disruption to the selection process 
and its associated costs. As an alternative, FINRA considered amending 
the Codes to provide that, in preparing the Public List, the list 
selection algorithm would generate a list that includes a fixed number 
of non-chair-qualified public arbitrators. This would ensure that non-
chair-qualified public arbitrators have a designated opportunity to 
appear on the Public List for selection. However, depending on list 
size, there is an insufficient number in approximately one-quarter to 
two-fifths of hearing locations of non-chair-qualified public 
arbitrators to fill Public Lists. Thus, for selected hearing locations 
with few arbitrators, the alternative may require generating Public 
Lists that include non-chair-qualified public arbitrators who live 
outside of the local hearing location to fill Public Lists. FINRA 
believes that the proposed rule change would increase the opportunity 
for non-chair-qualified public arbitrators to be selected for the 
Public List, and will monitor the impact of the proposed rule change if 
approved by the Commission and continue to consider if additional 
changes are warranted.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-FINRA-2024-022 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-FINRA-2024-022. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the

[[Page 106644]]

provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to file number SR-FINRA-2024-022 and should be submitted 
on or before January 21, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
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    \58\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-30907 Filed 12-27-24; 8:45 am]
BILLING CODE 8011-01-P
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