[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]
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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.
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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 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:
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\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).
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(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\
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\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).
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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\
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\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.
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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.
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\7\ 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.
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.
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\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