[Federal Register Volume 74, Number 229 (Tuesday, December 1, 2009)]
[Notices]
[Pages 62855-62857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28618]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61057; File No. SR-FINRA-2009-075]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend the 
Postponement Fee and Hearing Session Fee Rules of the Code of 
Arbitration Procedure for Customer and Industry Disputes

November 24, 2009.
    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 November 4, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by FINRA. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \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 Dispute Resolution is proposing to amend Rules 12601(b) and 
12902(a) of the Code of Arbitration Procedure for Customer Disputes 
(``Customer Code'') and Rules 13601(b) and 13902(a) of the Code of 
Arbitration Procedure for Industry Disputes (``Industry Code'') to 
clarify the applicability of the fee waiver provision of the 
postponement rule and to codify the hearing session fee for an 
unspecified damages claim heard by one arbitrator.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.
* * * * *

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

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

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

1. Purpose
    FINRA is proposing to amend the rules of the Customer Code and the 
Industry Code (collectively, the ``Codes'') that address the fee waiver 
provision of the postponement rule and the hearing session fee for one 
arbitrator in an unspecified damages claim. First, FINRA is proposing 
to amend Rules 12601(b)(3) and 13601(b)(3) of the Codes, hereinafter 
referred to as the fee waiver provision of the postponement rule, to 
clarify that the late postponement fee will not be waived if parties 
request a postponement within three business days before the scheduled 
hearing session. Second, the proposal would amend Rules 12902(a)(1) and 
13902(a)(1) of the Codes to codify FINRA's current practice of charging 
$450 per hearing session for an unspecified damages claim heard by one 
arbitrator. Each proposal is discussed separately below.\3\
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    \3\ To simplify the explanation, the discussion will focus on 
the proposed amendments to the Customer Code. However, the 
explanation and rationale apply to the same rules of the Industry 
Code, which, in this case, are identical to the rules of the 
Customer Code.
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Amendment to Fee Waiver Provision of Postponement Rule
    The Codes require arbitration hearings to be postponed if the 
parties agree.\4\ Hearings may also be postponed by the Director of 
FINRA Dispute Resolution (``Director''), by the panel in its own 
discretion, or by the panel on a motion of a party.\5\ If a hearing is 
postponed, the arbitration panel will assess a postponement fee against 
one or more of the parties, which is typically equivalent to the 
applicable hearing session fee that would have been assessed had the 
hearing been held.\6\
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    \4\ See Rules 12601(a)(1) and 13601(a)(1).
    \5\ See Rules 12601(a)(2) and 13601(a)(2).
    \6\ See Rules 12601(b)(1) and 13601(b)(1).
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    There are instances, however, in which a postponement fee is not 
assessed against the parties. Under Rule 12601(b)(3) of the Customer 
Code, for example, staff will not charge parties a postponement fee if 
they agree to submit the matter to mediation at FINRA.\7\ Thus, if the 
parties agree to mediation administered through FINRA, the Director 
will waive the postponement fee. This provision does not apply to late 
postponement fees.
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    \7\ See also Rule 13601(b)(3) of the Industry Code.
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    Nevertheless, FINRA has received complaints from arbitrators that 
parties are using the fee waiver provision in connection with an 
agreement to mediate through FINRA to avoid paying a late postponement 
fee. If parties request and are granted a hearing postponement within 
three business days of a scheduled hearing session (i.e., a late 
postponement request), the Director will assess a postponement fee of 
$100 per arbitrator.\8\ Parties who make this late postponement request 
contend that, if they agree to mediate their dispute through FINRA, 
they should not be assessed the $100 late postponement fee, because 
Rule 12601(b)(3) waives the postponement fee if the parties agree to 
mediate through FINRA.
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    \8\ See Rules 12601(b)(2) and 13601(b)(2).
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    FINRA did not intend Rule 12601(b)(3) to be applied this way.\9\ 
Parties who make late postponement requests should be charged the $100 
late postponement fee, regardless of their intent to mediate through 
FINRA. FINRA is therefore proposing to amend Rule 12601(b)(3) to state 
that no postponement fee will be charged if a hearing is postponed 
because the parties agree to submit the matter to mediation 
administered through FINRA, except that the parties shall pay the 
additional fees described in Rule 12601(b)(2) for late postponement 
requests.\10\
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    \9\ See supra note 6.
    \10\ The proposal would amend Rule 13601(b)(3) of the Industry 
Code with the same proposed language.
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    FINRA believes the proposed amendment will ensure that arbitrators 
continue to receive some compensation in the event a scheduled hearing 
is postponed because of a late postponement request, and will continue 
to serve as an incentive to parties to settle their disputes earlier to 
avoid additional fees.
Amendment to the Hearing Session Fee for One Arbitrator in Unspecified 
Damages Claim
    In FINRA's arbitration forum, if the parties and the arbitrator(s) 
meet to discuss the issues giving rise to the arbitration dispute, the 
meeting is called a ``hearing session.'' \11\ The Customer Code 
authorizes FINRA to assess hearing session fees against the parties for 
each hearing session.\12\ The total

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amount charged to the parties for each hearing session is based on the 
amount in dispute.\13\ For claims that do not request or specify money 
damages (i.e., an unspecified damages claim), however, Rule 12902(a)(2) 
gives the Director the discretion to determine the amount of the 
hearing session fee, except that the fee cannot exceed $1,200.\14\
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    \11\ A hearing session can either be an arbitration hearing or a 
prehearing conference. Rule 12100(n) of the Customer Code and Rule 
13100(n) of the Industry Code.
    \12\ See Rule 12902(a)(1). See also Rule 13902(a)(1) of the 
Industry Code.
    \13\ Id.
    \14\ See also Rule 13902(a)(2) of the Industry Code.
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    Currently, under the Customer Code, the hearing session fee charged 
for each hearing session in an unspecified damages claim heard by three 
arbitrators is $1,000.\15\ However, for an unspecified damages claim 
heard by one arbitrator, the rules list the hearing session fee as not 
applicable (``N/A'').\16\ Thus, FINRA is proposing to amend Rule 
12902(a)(1) to change the current amount for an unspecified damages 
claim heard by one arbitrator from ``N/A'' to $450.\17\
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    \15\ For hearing sessions involving three arbitrators in which 
parties request damages ranging from $25,000.01 to over $500,000, 
the amount for each hearing session can range from $600 to $1200. 
See supra note 11.
    \16\ Id.
    \17\ The proposal would amend Rule 13902(a)(1) of the Industry 
Code with the same proposed language.
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    FINRA's current practice is to charge parties $450 per hearing 
session for an unspecified damages claim heard by one arbitrator, even 
though the Code gives the Director the discretion to determine the 
amount of the hearing session fee for an unspecified damages claim. The 
Director charges this amount currently because it is the same amount 
assessed for hearing sessions heard by one arbitrator in which parties 
request damages ranging from $10,000.01 to over $500,000, and thus 
provides case administration with a uniform fee structure that is easy 
to apply. So, for example, under current practice and the proposed 
rule, if the parties agree to a single arbitrator in a case involving 
unspecified damages,\18\ the Director would assess the $450 hearing 
session fee.\19\ FINRA believes the proposal would benefit parties by 
notifying them of the potential costs at the outset of an unspecified 
damages case heard by one arbitrator, thereby providing more 
transparency in FINRA's fee structure. The proposal would also ensure 
consistent assessment of fees in its arbitration forum and would 
enhance the efficiency of the forum by making the rules easier to apply 
and understand.
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    \18\ See Rule 12401(c) of the Customer Code and Rule 13401(c) of 
the Industry Code.
    \19\ The proposed hearing session fee would also apply, for 
example, if the chairperson conducts a prehearing conference in a 
claim for unspecified damages.
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    Moreover, FINRA believes that codifying its current practice of 
charging $450 per hearing session for an unspecified damages claim 
heard by one arbitrator would not represent an increase in customer 
fees, because the proposed single arbitrator fee is the same as the 
current fee for any specific claim over $10,000. Further, FINRA notes 
that, even though the proposal would codify a fee for an unspecified 
damages claim heard by one arbitrator, the Code would continue to 
authorize the Director to determine whether the hearing session fee for 
an unspecified damages claim should be more or less than the amount 
specified in the fee schedule of the rule.\20\ Thus, the proposal would 
not change FINRA's practice of reducing or waiving its fees in 
documented cases of financial hardship.
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    \20\ See Rules 12902(a)(2) and 13902(a)(2).
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\21\ 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 the proposed rule change will preserve 
fairness in the arbitration process by ensuring that arbitrators 
receive some compensation in the event that a scheduled hearing session 
is postponed as a result of a late postponement request, and will 
enhance the efficiency of the forum by making the rules easier to apply 
and understand.
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    \21\ 15 U.S.C. 78o-3(b)(6).
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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, as amended.

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 35 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 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-FINRA-2009-075 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2009-075. This 
file number should be included on the subject line if e-mail 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 Web site (http://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 inspection 
and copying in the Commission's Public Reference Room. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to the File Number SR-FINRA-2009-075 and

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should be submitted on or before December 22, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-28618 Filed 11-30-09; 8:45 am]
BILLING CODE 8011-01-P