[Federal Register Volume 76, Number 238 (Monday, December 12, 2011)]
[Notices]
[Pages 77283-77284]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31761]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65896; File No. SR-FINRA-2011-067]


 Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Whistleblower Claims in Arbitration

December 6, 2011.
    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 21, 2011, 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.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 13201 of the Code of 
Arbitration Procedure for Industry Disputes (``Industry Code'') to 
align the rule with statutes that invalidate predispute arbitration 
agreements for whistleblower claims. The proposed rule change also 
would make a conforming amendment to FINRA Rule 2263.
    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
    The proposed rule change would amend FINRA Rule 13201 (Statutory 
Employment Discrimination Claims) of the Industry Code, and FINRA Rule 
2263 (Arbitration Disclosure to Associated Persons Signing or 
Acknowledging Form U4), to align the rules with statutes that 
invalidate predispute arbitration agreements for whistleblower claims.
    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act'') \3\ amended the Sarbanes-Oxley Act of 2002 
(``SOX'') by adding a new paragraph (e) to 18 U.S.C. 1514A \4\ to 
provide that:
---------------------------------------------------------------------------

    \3\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, Sec.  919 (2010).
    \4\ See Dodd-Frank Section 922(c)(2), adding 18 U.S.C. 1514A(e) 
(Nonenforceability of Certain Provisions Waiving Rights and Remedies 
or Requiring Arbitration of Disputes).
---------------------------------------------------------------------------

    (1) WAIVER OF RIGHTS AND REMEDIES--The rights and remedies provided 
for in this section may not be waived by any agreement, policy form, or 
condition of employment, including by a predispute arbitration 
agreement.
    (2) PREDISPUTE ARBITRATION AGREEMENTS--No predispute arbitration 
agreement shall be valid or enforceable, if the agreement requires 
arbitration of a dispute arising under this section.
    Prior to the Dodd-Frank Act, it was FINRA staff's articulated 
position that parties were required to arbitrate SOX whistleblower 
claims under the Industry Code.\5\
---------------------------------------------------------------------------

    \5\ See Arbitrability of Sarbanes-Oxley Whistleblower Claims by 
Laurence S. Moy, Pearl Zuchlewski, Linda A. Neilan and Katherine 
Blostein, The Neutral Corner (Volume 1--2008).
---------------------------------------------------------------------------

    In light of the changes set forth in the Dodd-Frank Act that 
invalidate predispute arbitration agreements in the case of SOX 
whistleblower claims, the proposed rule change would amend FINRA Rule 
13201 of the Industry Code to make clear that parties are not required 
to arbitrate SOX whistleblower claims, superseding the existing 
guidance to the contrary. While the main impetus for the proposed rule 
change is the need to update FINRA staff's stated position on SOX 
whistleblower claims, FINRA proposes to make the rule text broad enough 
to cover any statutes that prohibit predispute arbitration agreements 
for whistleblower claims.\6\
---------------------------------------------------------------------------

    \6\ The Dodd-Frank Act also invalidated predispute arbitration 
agreements in other whistleblower statutes, including, for example, 
7 USCA Sec.  26(n) relating to Commodity Exchange Whistleblower 
Incentives and Protections.
---------------------------------------------------------------------------

    Rule 13201 of the Industry Code currently provides that a claim 
alleging employment discrimination, including sexual harassment, in 
violation of a statute, is not required to be arbitrated under the 
Industry Code. Such a claim may be arbitrated only if the parties have 
agreed to arbitrate it, either before or after the dispute arose. The 
proposed rule change would amend Rule 13201 to add a new provision to 
provide that a dispute arising under a whistleblower statute that 
prohibits the use of predispute arbitration agreements is not required 
to be arbitrated under the Industry Code. The rule would state that 
such a dispute may be arbitrated only if the parties have agreed to 
arbitrate it after the dispute arose.
    FINRA also would amend the title of Rule 13201 to reflect the 
addition of the new provision relating to whistleblower claims. FINRA 
structured the proposed rule change to separate the provision relating 
to statutory employment discrimination claims from the provision 
relating to whistleblower claims. While parties may agree to arbitrate 
a statutory employment discrimination claim either before or after a 
dispute arises, the Dodd-Frank Act invalidates predispute agreements to 
arbitrate certain whistleblower claims.
    The proposed rule change also would make a conforming amendment to 
FINRA Rule 2263, which requires firms

[[Page 77284]]

to provide each associated person with certain written disclosures 
regarding the nature and process of arbitration proceedings whenever 
the firm asks an associated person, pursuant to FINRA Rule 1010 
(Electronic Filing Requirements for Uniform Forms), to manually sign a 
new or amended Form U4, or to otherwise provide written acknowledgment 
of an amendment to the form. The proposed rule change would amend FINRA 
Rule 2263 to add a disclosure provision stating that a dispute arising 
under a whistleblower statute that prohibits the use of predispute 
arbitration agreements is not required to be arbitrated under FINRA 
rules, and that such a dispute may be arbitrated at FINRA only if the 
parties have agreed to arbitrate it after the dispute arose.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ 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 amendments are 
consistent with the provisions of the Act noted above because they 
serve to align FINRA rules with those provisions in the Dodd-Frank Act 
that invalidate predispute arbitration agreements in the context of 
certain whistleblower claims.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-FINRA-2011-067 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-2011-067. 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 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; 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 File Number SR-FINRA-2011-067 and 
should be submitted on or before January 3, 2012.
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31761 Filed 12-9-11; 8:45 a.m.]
BILLING CODE 8011-01-P