[Federal Register Volume 81, Number 159 (Wednesday, August 17, 2016)]
[Notices]
[Pages 54858-54867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19580]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78549; File No. SR-FINRA-2016-029]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change Amending 
the Code of Arbitration Procedure for Customer Disputes and the Code of 
Arbitration Procedure for Industry Disputes to Require All Parties 
Other Than Pro Se Customers To File and Serve Pleadings and Documents 
Through the FINRA Office of Dispute Resolution's Party Portal and To 
Permit Mediation Parties To Use the Portal

August 11, 2016.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on July 27, 2016, 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 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 the Code of Arbitration Procedure for 
Customer Disputes (``Customer Code'') and the Code of Arbitration 
Procedure for Industry Disputes (``Industry Code'' and, together with 
the Customer Code, ``Codes''), to require all parties, except customers 
who are not represented by an attorney or other person (``pro se 
customers''), to use the FINRA Office of Dispute Resolution's Party 
Portal (``Party Portal'') to file initial statements of claim and to 
file and serve pleadings and other documents on FINRA or any other 
party. Under the proposed rule change, FINRA would require parties to 
use the Party Portal to file and serve correspondence relating to 
discovery requests, but would not permit parties to file documents 
produced in response to discovery requests through the Party Portal. 
FINRA is also proposing to amend the Code of Mediation Procedure 
(``Mediation Code'') to permit mediation parties to agree to use the 
Party Portal to submit and retrieve all documents and other 
communications. In addition, FINRA is revising other provisions in the 
Codes to conform to existing practice.
    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
Background
    In 2004, FINRA implemented an online, web-based arbitration claim 
notification and filing system that allowed a claimant \3\ or 
claimant's counsel to file voluntarily an arbitration claim through 
that system (``online claim filing system'').\4\ Currently, the Codes 
allow a claimant to file a claim \5\ either in hard copy or by using 
the online claim filing system.\6\ The online claim filing system 
allows a claimant to complete forms, submit documents, and pay filing 
fees online. Some of the benefits of using the online claim filing 
system are that claims are filed and processed more quickly, and the 
burden of using hard-copy documents by parties and staff is 
significantly reduced.
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    \3\ See Rules 12100(e) and 13100(e). The term ``claimant'' means 
a party that files the statement of claim that initiates an 
arbitration proceeding.
    \4\ See Notice to Members 04-56.
    \5\ See Rules 12302(a) and 13302(a).
    \6\ See FINRA, Arbitration Online Claim Filing, available at 
http://www.finra.org/arbitration-and-mediation/online-claim-filing.
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    In June 2013, FINRA introduced a separate secure, online service 
called the Dispute Resolution Portal (``DR Portal'') to facilitate 
interactions among parties, arbitrators, mediators, and FINRA staff on 
arbitration case-related matters. As further discussed below, the DR 
Portal includes both a Party Portal and an Arbitrator and Mediator 
Portal. The Party Portal uses an invitation/registration process that 
provides a secure way to send and receive arbitration and mediation 
case documents. As soon as a party notifies FINRA of the name of the 
person who should be given access to the arbitration or mediation case 
file (typically the party's representative), FINRA sends an email to 
the named person with an invitation to register on the Party Portal via 
a personalized Web address link that provides complete access to the 
specified case. This invitation/registration process ensures that FINRA 
maintains a case specific level of security and access within the Party 
Portal. Once registered, the representative can provide other 
individuals (such as legal assistants and co-counsel) with access to 
appropriate cases on the Party Portal.
    FINRA initially opened the Party Portal to a small number of firms 
to gain experience with the technology and to incorporate user 
feedback. Over time, FINRA expanded access to the Party Portal, and as 
of July 20, 2015, FINRA allowed all parties to use the Party Portal 
voluntarily in all arbitration and mediation cases filed as of that 
date. Through the Party Portal, parties can, among other things, 
receive documents from and send documents to FINRA, receive service \7\ 
of a claim, submit an answer to a claim, submit additional case 
documents, view the status of a case, and select arbitrators.
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    \7\ Service is the process of delivering a pleading (e.g., the 
statement of claim or answer) or other documents to the opposing 
party.
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    FINRA staff solicited feedback and received suggestions from users 
on how to enhance the Party Portal's functionality. Through a series of 
quarterly releases, FINRA has upgraded the Party Portal to allow 
parties to, among other things, schedule hearings, receive automated 
messages when new documents are posted, see an indication of received 
documents not yet viewed, and send documents to other Party Portal case 
participants. FINRA received positive feedback on the Party Portal from 
parties who used the system voluntarily. In light of the positive user 
feedback and the various enhancements

[[Page 54859]]

that FINRA has made to the system since implementing the Party Portal, 
FINRA believes that it would be appropriate to require parties, with 
limited exceptions, to use the Party Portal on a mandatory basis.
    The Arbitrator and Mediator Portal is open to all FINRA arbitrators 
and mediators to use on a voluntary basis. In this Portal, arbitrators 
and mediators can view and update their profile and disclosure 
information, access information about their assigned cases, schedule 
hearing dates, and view case documents. FINRA has encouraged 
arbitrators and mediators to register to use the Arbitrator and 
Mediator Portal because it enhances efficiencies at the forum. 
Currently, 74 percent of arbitrators and 85 percent of mediators 
available to serve on cases have registered to use the Arbitrator and 
Mediator Portal.
Proposed Rule Change
    FINRA is proposing to require parties to use the Party Portal to 
submit documents and view their arbitration case information and 
documents in most instances. There would be an exception for pro se 
customers.\8\ FINRA would invite pro se customers to use the Party 
Portal, but would not require them to do so. However, if a pro se 
customer files a claim using the Party Portal, then FINRA would require 
the customer to use the Party Portal for the duration of the 
arbitration process.
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    \8\ FINRA would define pro se in the Customer Code as a party 
that is not represented by an attorney or others during an 
arbitration or mediation. FINRA would not define pro se in the 
Industry Code. Under the proposed rule change, FINRA would not 
exempt pro se parties from the requirement under the Industry Code 
to submit documents through the Party Portal.
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    FINRA would require parties to use the Party Portal to file and 
serve correspondence relating to discovery requests, but would not 
permit parties to file documents produced in response to discovery 
requests through the Party Portal. FINRA believes that maintaining the 
correspondence in the Party Portal makes sense because it is part of 
the case record. However, depending on the subject of a case, discovery 
production can be voluminous, and FINRA does not believe it would be 
efficient for the Party Portal to be used as the receptacle for 
parties' exchanged discovery. This approach is consistent with our 
current practice.
    Finally, under the proposed rule change, since mediation is 
voluntary in all instances, FINRA would permit parties to a mediation 
proceeding to use the Party Portal on a voluntary basis to submit and 
view their mediation case information and documents.
    FINRA is proposing to amend each of the rules in the Codes affected 
by required use of the Party Portal. The changes would update the rule 
language to reflect how parties comply with the Codes through use of 
the Party Portal. FINRA Rules 12300 and 13300 describe how parties file 
pleadings \9\ and documents with FINRA and serve pleadings and 
documents on other parties through the Party Portal. The terms ``file'' 
and ``serve''--terms associated with use of the Party Portal--are used 
throughout the Codes. Under the proposed rule change, when a party 
submits pleadings or documents through the Party Portal, the party has 
accomplished both filing with the Director \10\ and, in most instances, 
service on all other parties and the arbitrators.\11\ Therefore, in 
most of the proposed rule amendments, FINRA would delete references to 
parties filing pleadings and documents with the Director at the same 
time as on other parties, and providing copies for arbitrators.
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    \9\ FINRA Rule 12100 defines a pleading as ``a statement 
describing a party's causes of action or defense. Documents that are 
considered pleadings are: a statement of claim, an answer, a 
counterclaim, a cross claim, a third party claim, and any replies.''
    \10\ The Director refers to the FINRA Office of Dispute 
Resolution Director as described in FINRA Rule 12103 (Director of 
Dispute Resolution).
    \11\ For example, FINRA Rule 12304 (Answering Counterclaims) 
currently provides that a claimant must directly serve any answer to 
a counterclaim on each other party and at the same time must file 
the answer to the counterclaim with the Director with additional 
copies for the arbitrator. Under the proposed rule change, as 
described further in the discussion, once the claimant submits the 
answer through the Party Portal, the claimant has also filed the 
answer with the Director.
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    For reader convenience, the discussion below only details the 
proposed changes to the FINRA rules in the Customer Code. However, 
FINRA is proposing to make substantively similar amendments to the 
Industry Code. The primary difference between the proposed amendments 
to the Customer Code and the Industry Code is that the Customer Code 
provides an exemption from required use of the Party Portal for pro se 
customers. The Industry Code would not provide an exemption for any 
party.
    As a result of the proposed rule change, FINRA would need to update 
several cross-references in the Codes. The proposed updates are noted 
as applicable. In addition, forum users have indicated that for ease of 
citation, they would prefer that FINRA use numbers and letters instead 
of bullets. Therefore, FINRA is proposing to replace bullets with 
numbers or letters in each of the rules affected by the proposed rule 
change. The proposed replacements are noted where applicable.
    In addition to changes in the Codes, FINRA is proposing to amend 
the Mediation Code to permit parties to agree to use the Party Portal 
to submit and retrieve all documents and other communications and to 
view mediation case information. The proposed amendments are discussed 
below.
Customer Code
FINRA Rule 12100--Definitions
    FINRA is proposing to amend FINRA Rule 12100 to add new definitions 
and to amend several definitions in the Customer Code relating to the 
required use of the Party Portal.
    Arbitrator and Mediator Portal--FINRA is proposing to add a new 
definition to the rule to define ``Arbitrator and Mediator Portal'' as 
the web-based system that allows invited arbitrators and mediators to 
access a secure section of FINRA's Web site to submit documents and 
information and to view their arbitration and mediation case 
information and documents.\12\
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    \12\ See proposed FINRA Rule 12100(a).
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    Claim Notification Letter--FINRA is proposing to add a new 
definition to the rule to define ``Claim Notification Letter'' as the 
notice that FINRA would send respondents indicating that they have been 
named as a party in a statement of claim.\13\ The new definition would 
specify that the Claim Notification Letter will provide information 
about accessing the Party Portal to obtain a copy of the statement of 
claim filed by the claimants and information about the arbitration, 
including the hearing location selected by the Director and the 
deadline for filing a statement of answer.
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    \13\ See proposed FINRA Rule 12100(f).
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    Day--In the current rule, FINRA defines the term ``day'' as a 
calendar day.\14\ The definition provides that if a deadline specified 
in the Code falls on a Saturday, Sunday or any FINRA holiday, the 
deadline is extended until the next business day. Under the proposed 
rule change, other than the statement of claim, which FINRA serves upon 
all respondents, parties will be able to serve documents on each other 
through the Party Portal on any day and at any time. Service would 
occur immediately after FINRA receives a document, regardless of the 
day or time of receipt. If, for example, a party submits a document on 
a Saturday, the Party Portal will immediately transmit

[[Page 54860]]

the documents to the appropriate parties on that day. Certain deadlines 
in the Code are triggered by a party's receipt of a pleading.\15\ FINRA 
does not believe it would be appropriate to trigger a deadline based on 
an opposing party's weekend use of the Party Portal. Therefore, FINRA 
is proposing to amend the definition of ``day'' to clarify that if a 
party receives pleadings or other documents on a Saturday, Sunday or 
any FINRA holiday, the date of receipt shall be the next business day.
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    \14\ See FINRA Rule 12100(j).
    \15\ See FINRA Rules 12304 and 12305 for examples of deadlines 
triggered by receipt of a pleading.
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    Non-Public Arbitrator--FINRA is proposing to amend the definition 
of non-public arbitrator \16\ to update cross-references in the rule.
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    \16\ See proposed FINRA Rule 12100(r).
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    Party Portal--FINRA is proposing to add a new definition to the 
rule to define ``Party Portal'' as the web-based system that is 
accessible by arbitration and mediation parties and their 
representatives. The Party Portal allows invited participants to access 
a secure section of FINRA's Web site to submit documents and view their 
arbitration and mediation case information and documents.\17\
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    \17\ See proposed FINRA Rule 12100(t).
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    Pro Se--FINRA is proposing to add a new definition to the rule to 
define ``Pro Se'' to mean a party that is not represented by an 
attorney or others during an arbitration or mediation.\18\
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    \18\ See proposed FINRA Rule 12100(x). FINRA does not define pro 
se in the Industry Code since there would not be an exemption for 
any pro se parties in intra-industry disputes.
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    Public Arbitrator--FINRA is proposing to amend the definition of 
Public Arbitrator \19\ to update cross-references in the rule.
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    \19\ See proposed FINRA Rule 12100(y).
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    Finally, FINRA would reletter the definitions to reflect the 
addition of the new terms.
FINRA Rule 12211--Direct Communication Between Parties and Arbitrators
    Subject to specified limitations, FINRA allows parties that are 
represented by counsel to communicate directly with arbitrators during 
an arbitration proceeding. FINRA Rule 12211, which outlines the 
procedures that parties and arbitrators must follow when they agree to 
direct communication, currently indicates that parties may send items 
by regular mail, overnight courier, facsimile, or email. Under the 
proposed rule change, since parties would be required to use the Party 
Portal for transmitting documents to each other, and would continue to 
use other methods to send items to the arbitrators, FINRA is proposing 
to: (1) Amend FINRA Rule 12211(e) to specify that parties are allowed 
to send items to the arbitrators by first-class mail, overnight mail 
service, overnight delivery service, hand delivery, email, or facsimile 
as specified in an order issued by the arbitrators; (2) amend Rule 
12211(f) to delete the requirement that the parties send copies of the 
materials they sent to the arbitrators to each other and the Director 
at the same time and in the same manner, requiring instead that they 
serve the materials on each other and filed with the Director through 
the Party Portal; and (3) amend Rule 12211(g) to clarify that parties 
must file copies of arbitrator orders and decisions with the Director 
through the Party Portal.
    Rule 12211(b) provides that if at some point during an arbitration 
a party chooses to appear pro se, which the rule defines in a 
parenthetical as meaning ``without counsel,'' then the rule no longer 
applies. As stated above, FINRA is proposing to amend Rule 12100 to 
define pro se to mean a party that is not represented by an attorney or 
others during an arbitration or mediation. The new definition of pro se 
in Rule 12100 is inconsistent with the current definition in Rule 
12211. Therefore, FINRA is proposing to amend Rule 12211(b) to delete 
the reference to ``pro se.'' Instead, the rule would provide that if a 
party chooses to appear without counsel, then the rule would no longer 
apply.\20\
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    \20\ FINRA is proposing to amend FINRA Rule 13211 to remove the 
reference to pro se in the rule. Although FINRA is not proposing to 
define pro se in the Industry Code, FINRA believes the amendment 
would add clarity to the rule and avoid forum user confusion since 
FINRA is proposing to define pro se in the Customer Code.
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FINRA Rule 12300--Filing and Serving Documents
    FINRA is proposing to delete the content in FINRA Rule 12300 
(Filing and Serving Documents) in its entirety and replace it with new 
language which describes how filing and service, among other things, 
would operate when FINRA requires parties to use the Party Portal.
    Party Portal--New Rule 12300(a)(1) would provide that parties must 
use the Party Portal to file initial statements of claim and to file 
and serve pleadings and any other documents on the Director or any 
other party. The rule would also provide that the Director may exercise 
authority to permit the use of other means of filing or service in the 
case of an extended Party Portal outage or in other extraordinary 
circumstances.\21\
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    \21\ An example of an extraordinary circumstance would be a 
severe weather event that caused an extended power outage.
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    Rule 12300(a)(2) would provide an exemption for pro se customers 
and would outline the procedures for pro se customers who do not wish 
to use the Party Portal. While a pro se customer would not be required 
to take any affirmative steps to opt out of using the Party Portal, if 
a pro se customer files a claim using the Party Portal, then the pro se 
customer must use the Party Portal for the duration of the arbitration 
process. The Party Portal would include a warning to pro se customers 
that if they file their claim using the online filing facility, they 
will be required to use the Party Portal for the remainder of the 
arbitration proceeding.
    Concerning pro se customers who opt out of using the Party Portal, 
Rule 12300(a) would provide that they: (1) May file claims and serve 
documents by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email or facsimile; (2) must comply 
with the provisions relating to filing an initial statement of claim 
outlined in FINRA Rule 12302 (Filing an Initial Statement of Claim); 
and (3) must provide proof of service for any documents served outside 
of the Party Portal (except for the initial statement of claim because 
the Director will serve the Claim Notification Letter or initial 
statement of claim on the respondents).
    FINRA does not want parties to use the Party Portal to submit 
documents they produce during discovery. Therefore, FINRA is proposing 
to provide in Rule 12300(a)(3) that parties shall not file with FINRA 
or serve on any other party, through the Party Portal, documents 
produced during discovery pursuant to the Rule 12500 Series. Available 
service methods for such documents are first-class mail, overnight mail 
service, overnight delivery service, hand delivery, email, or 
facsimile. This approach is consistent with our current practice.
    Filing--New Rule 12300(b) would provide that with the exception of 
pro se customers who opt out of using the Party Portal, parties must 
file initial statements of claim and all pleadings and other documents 
with the Director through the Party Portal. This includes pleadings and 
documents served on pro se customers and other parties by other means. 
The rule would provide that parties must file with the Director any 
written responses relating to discovery requests under Rules 12506 and 
12507, but must not file any of the documents

[[Page 54861]]

produced in response to discovery requests as provided in Rule 
12300(a)(3).
    The rule would also provide that parties must file arbitrator 
ranking lists \22\ through the Party Portal, and that filing is 
accomplished on the day of submission through the Party Portal. Filing 
by first-class mail or overnight mail is accomplished on the date of 
mailing, and filing by any other means is accomplished on the date of 
delivery as is provided in the current rules.
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    \22\ See FINRA Rules 12402(d) and 12403(c).
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    Service--New Rule 12300(c) would provide that the Director will 
serve the Claim Notification Letter or initial statement of claim on 
the respondents. In practice, this means that as a first step FINRA 
would serve only the Claim Notification Letter on respondents that are 
not identified as customers. If a respondent does not access the Party 
Portal and view the statement of claim, FINRA would contact the 
respondent and ask if they received the Claim Notification Letter. If 
the respondent indicates that they did not receive the letter, FINRA 
staff would offer to serve the statement of claim in another manner 
such as by email or regular mail to afford the respondent an additional 
opportunity to receive the statement of claim and instructions on how 
to access the Party Portal.
    Concerning customers, upon receipt of an initial statement of 
claim, where a customer is a claimant, FINRA would know if the customer 
is represented by counsel or another person. However, where a customer 
is a respondent, FINRA would not know if the customer intends to be 
represented by counsel or any other individual. Therefore, FINRA would 
serve all customer respondents with the initial statement of claim 
along with the Claim Notification Letter explaining that parties other 
than pro se customers are required to use the Party Portal, and that 
pro se customers are invited to use the Party Portal.
    The Claim Notification Letter would specify that except for pro se 
customers who opt out of using the Party Portal, parties must serve all 
pleadings and other documents, except as provided in Rule 12300(a)(3) 
relating to documents produced in discovery, through the Party Portal. 
It would explain that parties serve pro se parties who opt out of using 
the Party Portal by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email or facsimile. Under the rule, 
service would be accomplished on the day of submission through the 
Party Portal, on the date of mailing by first-class mail or overnight 
mail service,\23\ and on the date of delivery by other means. Finally, 
for documents not served through the Party Portal, parties must provide 
proof of service to the Director through the Party Portal.
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    \23\ ``Overnight mail'' service includes, for example, overnight 
delivery by Federal Express. Common methods parties use at the forum 
for overnight mail delivery include Federal Express, United Parcel 
Service, and United States Postal Service. ``Other means'' includes, 
for example, hand delivery.
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    General Rules--FINRA is proposing to incorporate into proposed Rule 
12300(d)(1)(A), the current provision in Rule 12300(g)(1) concerning 
the redaction of personal confidential information. The current 
provision in Rule 12300(g)(2) specifying that the redaction 
requirements do not apply to documents that parties exchange with each 
other and do not file with the Director, or to documents parties submit 
to a panel at a hearing would be renumbered as Rule 12300(d)(1)(B). The 
current provision in Rule 12300(g)(3) providing that the redaction 
requirements do not apply to Simplified Arbitrations would be 
renumbered as Rule 12300(d)(1)(C).
    Finally, new Rule 12300(d)(2) would provide that a party must serve 
any change of email or mailing address during an arbitration on all 
other parties and file this information with the Director. The former 
rule referred only to ``address'' changes.
FINRA Rule 12301--Service on Associated Persons
    FINRA is proposing to amend FINRA Rule 12301 relating to service on 
associated persons to delete the reference to the Director serving the 
initial statement of claim on a respondent associated person. As 
explained above, under the proposed rule change, associated persons who 
are parties to an arbitration would be required to use the Party 
Portal. Therefore, FINRA would serve an associated person with a Claim 
Notification Letter instead of a statement of claim.
    In practice, FINRA staff will know if an associated person did not 
access the Party Portal to view the statement of claim. In such an 
instance, FINRA would contact the associated person and ask if he or 
she received the Claim Notification Letter. If the associated person 
indicates that he or she did not receive the letter, FINRA staff would 
offer to serve the statement of claim in another manner such as by 
email or regular mail to afford the respondent an additional 
opportunity to receive the statement of claim and instructions on how 
to access the Party Portal.
    If a member and an associated person who is currently associated 
with the member are named as respondents in the same arbitration, and 
the Director cannot complete service directly on the associated person 
as described above, then the proposed rule would provide that the 
Director may serve the member with the Claim Notification Letter on 
behalf of the associated person.
12302--Filing and Serving an Initial Statement of Claim
    FINRA is proposing to amend FINRA Rule 12302 to reflect how: (1) 
Parties would file an initial statement of claim; (2) parties would 
submit required fees; and (3) FINRA would serve the initial statement 
of claim through the Party Portal.
    Filing--Since most parties would be required to file an initial 
statement of claim through the Party Portal as provided in Rule 
12300(a), FINRA is proposing to amend Rule 12302(a) to delete the 
reference to filing documents in hard copy or electronically through 
the Online Arbitration Claim Filing system. FINRA is also proposing to 
amend Rule 12302(b) to delete the instruction to parties to file enough 
copies for the Director, each arbitrator and each other party. Once a 
party files the initial statement of claim through the Party Portal, 
FINRA staff would handle service through the Party Portal or Arbitrator 
and Mediator Portal as applicable. If FINRA needs to provide copies of 
the documents in another manner, e.g., because a pro se customer has 
opted out of using the Party Portal, or an arbitrator is not using the 
Arbitrator and Mediator Portal, then FINRA staff would handle 
reproduction and distribution of the documents.
    Fees--FINRA is proposing to amend Rule 12302(c) to require the 
claimant to pay all required filing fees by credit card or automated 
clearing house (``ACH'') through the Party Portal unless the party is a 
pro se customer who opts out of using the Party Portal. These payment 
options are currently available to forum users and requiring payment 
through the Party Portal would make case administration more efficient. 
FINRA staff would know immediately if a filing was deficient for lack 
of payment and would not have to ensure that checks that parties submit 
separately, by U.S. mail or other method, are correctly matched up to 
statements of claim submitted through the Party Portal.
    Service--Currently, Rule 12301(d) provides that unless the 
statement of claim is deficient, FINRA will send a copy of the 
Submission Agreement, the

[[Page 54862]]

statement of claim, and any additional materials the claimant submits, 
to the other parties and the arbitrators. FINRA is proposing to amend 
the rule to specify how staff would serve each subset of participants 
in the arbitration case. Specifically, FINRA would:
     Send the Claim Notification Letter to all non-customer 
respondent(s) pursuant to Rule 12302; and
     Send the Claim Notification Letter along with a copy of 
the Submission Agreement, the statement of claim, and any additional 
materials filed by the claimant, to each customer respondent. The 
Director would inform the customer that if the customer is pro se, the 
customer is not required to use the Party Portal; and
     Send a copy of the Submission Agreement, the statement of 
claim, and any additional materials filed by the claimant to each 
arbitrator by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email, facsimile or through the 
Arbitrator and Mediator Portal, once the panel has been appointed.
    Additional conforming changes--FINRA would amend the title of Rule 
12302 to add a reference to ``Service'' since the rule addresses both 
filing and service of the initial statement of claim. FINRA is 
proposing to reletter the rule and to replace the bullets in Rule 
12302(a) with numbers.
12303--Answering the Statement of Claim
    FINRA is proposing to amend FINRA Rule 12303 to reflect how 
respondents would answer a statement of claim using the Party Portal.
    Since most parties would be required to serve each other through 
the Party Portal, FINRA would eliminate the instruction in Rule 
12303(a) for parties to ``directly'' serve each other with the executed 
Submission Agreement and answer. FINRA would amend Rule 12303(b) to 
provide that if an answer contains a third party claim,\24\ a 
respondent must serve the third party with the answer containing the 
third party claim and all documents previously served by any party, or 
sent to the parties by the Director, by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email or 
facsimile, and must file proof of service with the Director through the 
Party Portal. The respondent must file the third party claim with the 
Director through the Party Portal except as provided in Rule 
12300(a)(2). In addition, since parties would file their Submission 
Agreement and answer through the Party Portal, FINRA would amend Rule 
12303(c) to delete the instruction for a party to file sufficient 
copies for the Director and arbitrators. Finally, FINRA is proposing to 
replace the bullets in Rule 12303(a) with numbers.
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    \24\ See current Rule 12100(y), which defines ``Third Party 
Claim'' to mean a claim asserted against a party not already named 
in the statement of claim or any other previous pleading.
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12304--Answering Counterclaims
    FINRA is proposing to amend FINRA Rule 12304(a) relating to 
answering counterclaims to eliminate the instruction for parties to 
``directly'' serve each other with the answer to a counterclaim, as 
well as the requirement to file sufficient copies for the Director and 
arbitrators.
12305--Answering Cross Claims
    As with answering counterclaims, FINRA is proposing to amend FINRA 
Rule 12305(a) relating to answering cross claims to eliminate the 
instruction for parties to ``directly'' serve each other with the 
answer to a cross claim, as well as the requirement to file sufficient 
copies for the Director and arbitrators because filing instructions 
would be covered by proposed Rule 12300.
12306--Answering Third Party Claims
    FINRA is proposing to amend FINRA Rule 12306 to reflect how FINRA 
would handle a third party claim in the Party Portal.
    As explained in the above discussion on Rule 12303, if a 
respondent's answer contains a third party claim, the respondent serves 
the third party with the claim and all documents previously served by 
the parties or filed with FINRA outside of the Party Portal. Once FINRA 
is notified of the third party claim, FINRA can invite the third party 
to use the Party Portal.
    Since most parties would be using the Party Portal, FINRA would 
eliminate the instruction in Rule 12306(a) for parties to ``directly'' 
serve each other with the executed Submission Agreement and answer. 
Similarly, FINRA would amend Rule 12306(b) to provide that if an answer 
to a third party claim also contains a third party claim, a respondent 
would be required serve the third party with the answer containing the 
third party claim and all documents previously served by any party, or 
sent to the parties by the Director, by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email or 
facsimile, and must file proof of service with the Director through the 
Party Portal. In addition, since parties would file their Submission 
Agreement and answer through the Party Portal, FINRA would amend Rule 
12306(c) to delete the instruction for a party to file sufficient 
copies for the Director and arbitrators. Finally, FINRA is proposing to 
replace the bullets in Rule 12306(a) with numbers.
12307--Deficient Claims
    The Customer Code provides that the Director will not serve any 
claim that is deficient. FINRA Rule 12307(a) sets forth various reasons 
that a claim might be deficient. FINRA is proposing to amend Rule 
12307(a) to delete a deficiency that would not be applicable in the 
Party Portal--that claimant did not file the correct number of copies 
of the Submission Agreement, statement of claim or supporting documents 
for service on respondents and for the arbitrators. FINRA is also 
proposing to amend the rule relating to the deficiency concerning a 
failure to specify the customer's home address at the time of the 
events giving rise to the dispute. FINRA would replace home address 
with ``city and state,'' to conform to the current practice.\25\
---------------------------------------------------------------------------

    \25\ Industry Code Rule 13307 differs from the Customer Code 
rule because there is no reference to a customer's home address.
---------------------------------------------------------------------------

    FINRA is also proposing to replace the bullets in Rule 12307(a) 
with numbers and to correct cross-references in the Rule.
12309--Amending Pleadings
    FINRA Rule 12309 specifies procedures for parties to amend 
pleadings. Rule 12309(a) applies to amendments made to a statement of 
claim or any other pleading before FINRA appoints a panel of 
arbitrators. Rule 12309(c) applies to amendments made to add a party to 
the case once the ranked arbitrator lists are due to the Director. In 
both sections, FINRA is proposing to amend the rule to reflect how 
amendments operate in the Party Portal.
    As stated above, Rule 12309(a) describes how parties amend 
pleadings before FINRA appoints a panel. FINRA is proposing to amend 
Rule 12309(a) to clarify that panel appointment occurs when the 
Director sends notice to the parties of the names of the arbitrators on 
the panel.
    FINRA would amend Rule 12309(a)(1) to eliminate the requirement for 
parties to file sufficient copies of an amended pleading for the 
arbitrators and other parties, and to provide that the Director will 
serve either the Claim Notification Letter, or the amended statement of 
claim, as applicable, under Rules 12300 and 12301. The rule would also 
provide

[[Page 54863]]

that if an amended pleading adds a party to the arbitration, the party 
amending the pleading must serve the new party with the amended 
pleading and all documents previously served by any party, or sent to 
the parties by the Director, by first-class mail, overnight mail 
service, overnight delivery service, hand delivery, email or facsimile, 
and must file proof of service with the Director through the Party 
Portal. The party amending the pleading must file the amended pleading 
with the Director through the Party Portal except as provided in Rule 
12300(a)(2).
    Rule 12309(c) explains that after ranked arbitrator lists are due 
to the Director, parties may not amend the pleadings to add new parties 
until FINRA appoints a panel and the panel grants a motion to add a new 
party. Motions to add a party after panel appointment must be served on 
all parties, including the party that is the subject of the motion. The 
process for serving the new party under Rule 12309(c) is the same as it 
is in Rule 12309(a). FINRA is proposing to amend Rule 12309(c) to 
provide that the party seeking to amend the pleading to add a party may 
serve the party to be added by first-class mail, overnight mail 
service, overnight delivery service, hand delivery, email or facsimile. 
Service by first-class mail or overnight mail service would be 
accomplished on the date of mailing. Service by any other means would 
be accomplished on the date of delivery. FINRA would permit the party 
to be added to file a response with the Director and serve the response 
on all other parties by first-class mail, overnight mail service, 
overnight delivery service, hand delivery, email or facsimile. Since 
the arbitrators may ultimately decline the motion to add a new party, 
FINRA believes it makes sense to allow service by methods other than 
the Party Portal while the arbitrators consider the motion.\26\
---------------------------------------------------------------------------

    \26\ FINRA Rule 13309(c) in the Industry Code contains an 
erroneous cross-reference to Rule 13404(c). FINRA is proposing to 
amend Rule 13309(c) to refer to Rule 13404(d) which relates to the 
time frame when ranked lists are due.
---------------------------------------------------------------------------

12310--Answering Amended Claims
    FINRA Rule 12310 describes how parties answer amended claims. Rule 
12310(b) provides that if a claim is amended after it has been 
answered, but before a panel has been appointed, the respondent has 20 
days from ``the time the amended claim is served'' to serve an amended 
answer. Since parties would be serving each other through the Party 
Portal, FINRA is proposing to amend Rule 12310(b) to delete the phrase 
``the time the amended claim is served'' to provide instead that the 
respondent has 20 days from ``receipt of the amended claim'' to serve 
an amended answer. FINRA uses time of receipt in the rules relating to 
parties' time to respond to answers, among other matters, and believes 
consistent language would add clarity to the rule.\27\
---------------------------------------------------------------------------

    \27\ See FINRA Rules 12303 (Answering the Statement of Claim), 
12304 (Answering Counterclaims), 12305 (Answering Cross Claims), and 
12306 (Answering Third Party Claims).
---------------------------------------------------------------------------

    FINRA is also proposing to amend Rule 12310(d) relating to serving 
an amended answer to delete the reference to ``directly'' serving each 
other party, and providing copies of the pleading for the arbitrators.
    Finally, FINRA is proposing to add clarity to Rule 12310(e) 
concerning when a new party's answer is due, by stating that the new 
party's ``time to'' answer is governed by Rules 12303 or Rule 12306 
(which include a 45 day period for answers).
12400--Neutral List Selection System and Arbitrator Rosters
    FINRA is proposing to amend FINRA Rule 12400(b) relating to its 
arbitrator rosters and Rule 12400(c) concerning eligibility for 
chairperson roster to update cross-references and replace bullets with 
numbers.
12402--Cases With One Arbitrator and 12403--Cases With Three 
Arbitrators
    FINRA is proposing to amend FINRA Rules 12402(d)(3) and 12403(c)(3) 
concerning striking and ranking arbitrators to provide that parties 
must complete arbitrator ranking through the Party Portal unless a 
party is a pro se customer who opted out of using the Party Portal. The 
rule would list the approved methods for pro se customers to return 
ranked lists. FINRA is also proposing to amend to Rule 12402(e) to 
replace bullets with numbers.\28\
---------------------------------------------------------------------------

    \28\ The Industry Code rules relating to arbitrator appointment, 
while substantially similar to the Customer Code rules, are not 
identical to the Customer Code and are numbered differently. FINRA 
is proposing to amend FINRA Rule 13404(d) concerning striking and 
ranking arbitrators, to provide that parties must complete 
arbitrator ranking through the Party Portal. FINRA is proposing to 
amend FINRA Rule 13406 relating to appointment of arbitrators to 
update a cross-reference and to replace bullets with letters. FINRA 
is also proposing to amend FINRA Rule 13411 concerning replacing 
arbitrators to update a cross-reference.
---------------------------------------------------------------------------

12404--Additional Parties
    FINRA Rule 12404 describes procedures for newly added parties to 
rank and strike arbitrators. FINRA is proposing to amend Rule 12404(a) 
to reflect that since parties would complete the ranking and striking 
process in the Party Portal, they would no longer ``return'' lists to 
the Director. FINRA would also amend this provision to correct a 
typographical error by adding ``(s)'' to the term ``list'' in the 
paragraph's last sentence because in cases with three arbitrators, 
parties return three lists of arbitrators, not just one.
    Rule 12404(b) explains that after ranked arbitrator lists are due 
to the Director, parties may not amend pleadings to add new parties 
until FINRA appoints a panel and the panel grants a motion to add a new 
party. Motions to add a party must be served on all parties. FINRA is 
proposing to amend Rule 12404(b) to provide that the party seeking to 
amend the pleading must serve the party to be added by first-class 
mail, overnight mail service, overnight delivery service, hand 
delivery, email or facsimile. Service by first-class mail or overnight 
mail service would be accomplished on the date of mailing. Service by 
any other means would be accomplished on the date of delivery. FINRA 
would permit the party to be added to file a response with the Director 
and serve the response on all other parties by first-class mail, 
overnight mail service, overnight delivery service, hand delivery, 
email or facsimile. Since the arbitrators may ultimately decline the 
motion to add a new party, FINRA believes it makes sense to allow 
service by methods other than the Party Portal while the arbitrators 
consider the motion.
12500--Initial Prehearing Conference
    FINRA Rule 12500(c) describes the subject matter of the initial 
prehearing conference and provides that parties may forgo the 
conference if they provide certain information (as described in 
accompanying bullets) in writing to the Director. FINRA is proposing to 
amend the rule to delete the requirement that parties provide copies of 
the written submission for the arbitrators. FINRA is also proposing to 
replace the bullets with numbers.
12502--Recording Prehearing Conferences and 12606--Record of 
Proceedings
    FINRA Rule 12502 provides that FINRA does not record prehearing 
conferences unless the panel orders a recording, and FINRA Rule 
12606(a) specifies that FINRA records hearings. Both rules provide that 
the Director will provide copies of a tape, digital, or other recording 
to parties for a nominal fee. FINRA is proposing to amend the rules to 
delete the reference to a fee because FINRA currently provides parties 
with copies of recordings free of charge. Rule

[[Page 54864]]

12606(a) also provides that the panel may order parties to provide a 
transcription of the recording. FINRA is proposing to amend Rule 
12606(a) to clarify that if the arbitrators order the parties to 
provide a transcript, the parties must provide copies for the 
arbitrators and must file the transcript with the Director and serve it 
on the other parties. Rule 12606(b) provides that parties may make 
stenographic records of a hearing. FINRA is proposing to amend Rule 
12606(b) to clarify that if the stenographic record is the official 
record of the proceeding, the parties must provide copies for the 
arbitrators and must file the transcript with the Director and serve it 
on the other parties.
    Some FINRA arbitrators have indicated that they prefer to review 
long documents in hard copy. Therefore, to ensure efficiency in case 
administration, FINRA would continue to require parties to provide 
copies of transcripts for the arbitrators.
12503--Motions
    FINRA Rule 12503 specifies how parties make motions at the forum. 
Under the proposed rule change, parties would be required to file 
motions with the Director and serve other parties through the Party 
Portal. Therefore, FINRA is proposing to amend Rule 12503(a)(2) to 
delete the requirement that parties serve motions on each other 
directly, at the same time and in the same manner, and provide FINRA 
with copies for each arbitrator. FINRA would make the same deletions to 
Rule 12503(b) relating to responding to motions and Rule 12503(c) 
concerning replying to responses to motions.
    FINRA is also proposing to amend Rule 12503(a)(4) to delete the 
text specifying how parties make motions to amend a pleading to add a 
party to a case, because these motions would be addressed in Rule 
12309(c) (discussed above). FINRA would add a cross-reference to Rule 
12309(c).
12506--Document Production Lists
    FINRA Rule 12506(a) provides that when the Director serves 
respondents with the statement of claim, the Director notifies parties 
of the location of the FINRA Discovery Guide and Document Production 
Lists on FINRA's Web site. In view of the Party Portal, FINRA is 
proposing to amend the rule to delete the reference to ``when the 
Director serves the statement of claim.'' The rule would continue to 
state that the Director will notify parties of the location of the 
FINRA Discovery Guide and Document Production Lists on FINRA's Web 
site.
    FINRA Rule 12506(b) specifies, among other matters, the time for 
parties to respond to the Document Production Lists. FINRA wants 
parties to file their explanations about why they are not timely 
producing documents and why they are objecting to production. FINRA 
believes that having this correspondence in the Party Portal would be 
efficient for FINRA staff and the parties. However, FINRA does not want 
the parties to file with the Director the documents and information 
that they produce during discovery. Therefore, FINRA is proposing to 
amend Rule 12506(b) to specify that parties must serve each other with 
documents produced pursuant to the rule by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email or 
facsimile as provided in Rule 12300(a)(3). The rule would also provide 
that parties are required to file any written responses relating to 
discovery, such as objections to producing items in the Document 
Production Lists, with the Director through the Party Portal.
    FINRA is also proposing to amend to Rule 12506(b) to replace 
bullets with letters.\29\
---------------------------------------------------------------------------

    \29\ The FINRA Discovery Guide and related Document Production 
Lists apply only to customer arbitrations. Therefore, the Industry 
Code does not contain Document Production Lists. The discovery rules 
in the Industry Code that are substantially similar to Rule 12507 in 
the Customer Code are Rule 13506 (Discovery Requests) and Rule 13507 
(Responding to Discovery Requests). The proposed amendments to Rules 
13506 and 13507 are substantively identical to those in Rule 12507.
---------------------------------------------------------------------------

12507--Other Discovery Requests
    FINRA Rule 12507(a) provides that parties may request additional 
documents from a party by serving the party directly with a written 
request. The rule requires the requesting party to serve copies of the 
request on all other parties at the same time. Since parties would be 
serving each other through the Party Portal, FINRA is proposing to 
amend the rule to delete the requirement for direct service in Rule 
12507(a)(1) and the requirement to serve all other parties at the same 
time in Rule 12507(a)(2).
    FINRA Rule 12507(b) specifies how parties may respond to an 
additional discovery request. The parties can: (1) Produce the 
documents or information (Rule 12507(b)(1)(A)); (2) identify specific 
documents that will not be produced within the required time and state 
when the documents will be produced (Rule 12507(b)(1)(B)); or (3) 
object to the request (Rule 12507(b)(1)(C)). As explained earlier, 
FINRA does not want parties to file with the Director the documents and 
information that they produce during discovery. Therefore, FINRA is 
proposing to amend Rule 12507(b)(1)(A) to specify that if a party 
produces documents or information pursuant to a request, the party must 
serve all other parties with copies of the requested documents or 
information by first-class mail, overnight mail service, overnight 
delivery service, hand delivery, email or facsimile.
    However, FINRA wants to receive party explanations about why they 
are not timely producing documents and why they are objecting to 
production. Therefore, FINRA would amend Rule 12507(b)(1)(B) concerning 
non-production to provide that a party must file a response with the 
Director and serve it on all other parties (through the Party Portal). 
FINRA would also amend Rule 12507(b)(1)(C) concerning objections to 
provide that a party must file the objection with the Director and 
serve it on all other parties (through the Party Portal).
    Finally, FINRA is proposing to replace the bullets in Rule 12507 
with numbers.
12508--Objecting to Discovery; Waiver of Objection
    FINRA Rule 12508 addresses party objections to producing documents 
and information during discovery. To reflect how parties will be 
serving each other through the Party Portal, FINRA is proposing to 
amend the rule to delete the requirement that parties serve their 
objections on each other at the same time and in the same manner. Since 
FINRA wants to receive party explanations about why they are objecting 
to production, FINRA is proposing to amend the rule to delete the 
statement that objections should not be filed with the Director.
12512--Subpoenas
    FINRA Rule 12512 specifies that arbitrators may issue subpoenas to 
parties and non-parties for the production of documents and evidence, 
and outlines how FINRA handles motions for subpoenas at the forum. To 
reflect how motion practice would operate through the Party Portal, 
FINRA is proposing to amend Rule 12512(b) to delete the requirements 
that parties provide copies of the subpoena for the arbitrator, and 
serve the motion on each other at the same time and in the same manner. 
FINRA would make the same amendment to Rule 12512(c) concerning party 
objections to subpoenas.
    Rule 12512(d) addresses service of an executed subpoena. FINRA is 
proposing to amend the rule to delete the requirement that parties 
serve the

[[Page 54865]]

subpoena on each other at the same time and in the same manner. In 
addition, since non-parties do not have access to the Party Portal, 
FINRA would amend the rule to specify that when an arbitrator issues a 
subpoena to a non-party, the party must serve the subpoena on the non-
party by first-class mail, overnight mail service, overnight delivery 
service, hand delivery, email or facsimile.
    Rule 12512(e) provides for a non-party's objection to a subpoena. 
If a non-party receiving a subpoena objects to the scope or propriety 
of the subpoena, FINRA permits the non-party to file written objections 
with the Director. Under the rule, the party that requested the 
subpoena may respond to the objection. FINRA is proposing to amend the 
rule to provide that the non-party may file the objection by first-
class mail, overnight mail service, overnight delivery service, hand 
delivery, email or facsimile, and that the party must serve the 
response on the non-party and file proof of service with the Director.
    Rule 12512(f) outlines procedures for parties to follow when they 
receive subpoenaed documents from non-parties. Specifically, the rule 
provides that any party that receives documents in response to a 
subpoena served on a non-party has five days to provide notice of the 
receipt to the other parties. Other parties to the case may request 
copies of the documents, and the party in receipt of the documents must 
provide them within 10 calendar days of receipt of the request. FINRA 
is proposing to amend the rule to specify that a party that receives 
documents from a non-party in response to a subpoena must serve the 
other parties with notice that the party received the documents. Other 
parties to the case may request copies of the subpoenaed documents. 
Since FINRA does not want the parties to submit the documents to the 
Director, FINRA would amend the rule to provide that the party must 
serve the documents on the other parties by first-class mail, overnight 
mail service, overnight delivery service, hand delivery, email or 
facsimile. The rule would also expressly prohibit parties from filing 
the documents with the Director.
12513--Authority To Direct Appearances of Associated Person Witnesses 
and Production of Documents Without Subpoenas
    FINRA Rule 12513 authorizes arbitrators to order the appearance of 
firm employees and associated persons, and the production of documents 
from firms and their employees and associated persons without issuing a 
subpoena. FINRA is proposing to amend several provisions in the rule to 
reflect how FINRA would handle a party's motion for an arbitrator order 
using the Party Portal.
    FINRA is proposing to amend Rule 12513(b) concerning filing the 
motion to delete the requirement that a party provide a copy for the 
arbitrator and that the party serve the motion on all other parties at 
the same time and in same manner as on the Director. FINRA is proposing 
to make the same changes to Rule 12513(c) relating to an opposing 
party's objection to the motion, and to Rule 12513(d) relating to party 
service of an order.
    In addition, since FINRA will not invite a non-party to use the 
Party Portal, FINRA is proposing to amend Rule 12513(d) to provide that 
if a party obtains an arbitrator's order for a non-party's production, 
then the party must serve the order on the non-party. FINRA would also 
amend Rule 12513(e) to provide that if the non-party files an objection 
to the arbitrator's order, and the party requesting the order wants to 
file a response to the objection, then the party must serve the 
response on the non-party and provide the Director with proof of 
service. Finally, FINRA is proposing to amend Rule 12513(f) to provide 
that any party receiving documents from a non-party must serve notice 
on all other parties. If any other party requests copies of the 
documents, the requesting party must serve them by first-class mail, 
overnight mail service, overnight delivery service, hand delivery, 
email or facsimile. The amendments would also specify that parties must 
not file with the Director the documents produced pursuant to the 
order.
12514--Prehearing Exchange of Documents and Witness Lists, and 
Explained Decision Requests
    FINRA Rule 12514 sets forth procedures for exchanging documents and 
witness lists prior to the first scheduled hearing date and for making 
joint party requests for an explained decision. FINRA is proposing to 
amend Rule 12514(b) to delete the requirement that parties file their 
witness lists with the Director at the same time as they notify other 
parties and provide the Director with enough copies for the 
arbitrators. Instead, Rule 12514(b) would require that all parties file 
their witness lists only with the Director. FINRA would also amend Rule 
12514(d) to provide that parties must file with the Director requests 
for an explained decision as opposed to submitting them to the 
arbitrators.
12701--Settlement
    FINRA Rule 12701 requires parties to notify the Director of 
settlements. FINRA is proposing to amend Rule 12701(a) to reflect use 
of the Party Portal by replacing ``notify'' with ``file notice with'' 
the Director.
12800--Simplified Arbitration
    FINRA Rule 12800 provides special procedures for the administration 
of disputes involving $50,000 or less, including procedures for parties 
to request documents and other information from each other. FINRA is 
proposing to amend Rule 12800(d) to provide that parties receiving the 
request must produce the requested documents or information to all 
other parties by serving the requested documents or information by 
first-class mail, overnight mail service, overnight delivery service, 
hand delivery, email or facsimile. The proposed rule would specify that 
parties must not file the documents with the Director.
12801--Default Proceedings
    FINRA Rule 12801 specifies procedures for initiating default 
proceedings against certain respondents (e.g., terminated members). 
Since parties would be using the Party Portal to file notice with the 
Director and serve other parties with their request to initiate a 
default proceeding, FINRA is proposing to amend Rule 12801(b) to delete 
the requirements for parties to notify the Director in writing, and 
send a copy of the notification to other parties at the same time and 
in the same manner. FINRA is also proposing to amend Rule 12801(a) to 
replace bullets with numbers.
12901--Member Surcharge
    FINRA Rule 12901 provides that FINRA will assess surcharges against 
members under specified circumstances. Rule 12901(a)(3) states that if 
the claim is filed by a member, the surcharge is due when the claim is 
filed. If the claim is filed against a member, or against an associated 
person employed by a member at the time of the events giving rise to 
the dispute, the surcharge is due when the claim is served. FINRA is 
proposing to amend the rule to provide that if a claim is filed against 
a member or associated person, the surcharge is due when the Director 
serves the Claim Notification Letter or the initial statement of claim. 
FINRA is also proposing to amend Rule 12901(a) and 12901(b) to replace 
bullets with letters.

[[Page 54866]]

12094--Awards
    FINRA Rule 12904 concerns arbitrator awards and includes, among 
other matters, procedures for the Director to serve awards on parties. 
The rule provides that the Director serves an award using any method 
available and convenient to the parties and the Director, and that is 
reasonably expected to cause the award to be delivered to all parties, 
or their representative, on the same day. Under the rule, the Director 
may serve an award by first class, registered or certified mail, hand 
delivery, and facsimile or other electronic transmission. Since the 
Director will serve the award through the Party Portal in most 
instances, FINRA is proposing to amend Rule 12904(c) to provide only 
that the Director will serve the award on each party, or their 
representative.
Industry Code Specific Amendments
    As explained earlier, while the discussion details the proposed 
amendments to the FINRA rules in the Customer Code, FINRA is also 
proposing to make substantively similar amendments to the Industry 
Code. In addition to the amendments discussed, FINRA is proposing to 
amend rules in the Industry Code that are unique to intra-industry 
disputes.
13802--Statutory Employment Discrimination Claims
    FINRA is proposing to amend FINRA Rule 13802(a) relating to 
statutory employment discrimination claims to update a cross-reference 
concerning the definition of statutory employment discrimination. FINRA 
would also amend Rule 13802(c) to replace bullets with numbers.
13804--Temporary Injunctive Orders; Requests for Permanent Injunctive 
Relief
    The Industry Code also has special procedures for handling 
temporary injunctions with respect to an industry or clearing dispute. 
FINRA is proposing to amend FINRA Rule 13804(a) to provide that parties 
seeking temporary injunctive relief from a court must file with the 
Director a statement of claim requesting permanent injunctive and all 
other relief with respect to the same dispute through the Party Portal, 
and must serve the statement of claim requesting permanent injunctive 
and all other relief on all other parties by overnight delivery 
service, hand delivery, email or facsimile. The rule would require 
parties to serve all parties at the same time and in the same manner, 
unless the parties agree otherwise.
    Cases involving injunctive relief operate on an accelerated time 
schedule. It takes FINRA staff some time to review an initial 
submission and invite respondent parties to use the Party Portal. In 
view of the need to expedite these matters, FINRA believes that parties 
should serve each other outside of the Party Portal until FINRA 
establishes the identities of all relevant parties and their 
representatives, and invites them to access the Party Portal.
Mediation Code
    Under the proposed rule change, FINRA would permit parties to a 
mediation proceeding to use the Party Portal on a voluntary basis. 
FINRA is proposing to amend the Mediation Code to reflect use of the 
Party Portal.
14100--Definitions
    FINRA is proposing to amend FINRA Rule 14100 to define ``Arbitrator 
and Mediator Portal'' and ``Party Portal.'' The definitions would be 
identical to the definitions in the Codes. FINRA would re-letter the 
definitions because of the new additions.
14109--Mediation Ground Rules
    FINRA also is proposing to amend FINRA Rule 14109 to provide that 
the parties may agree to use the Party Portal to submit all documents 
and other communications to each other, to retrieve all documents and 
other communications, and view mediation case information.
Effective Date of Proposed Rule Change
    As noted in Item 2 of the filing, if the Commission approves the 
proposed rule change, FINRA will announce the effective date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 60 days following Commission approval. The effective date will be 
no later than 90 days following publication of the Regulatory Notice 
announcing Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\30\ 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. The proposed rule change is consistent with section 
15A(b)(6) because it would enhance efficiencies for forum users and 
would expedite case administration by FINRA.
---------------------------------------------------------------------------

    \30\ 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. Most parties are currently 
using the Party Portal voluntarily to file claims and retrieve 
documents. Thus, under the proposal, the impact on forum users would be 
minimal.
    By requiring parties to file their claims online, the proposal 
would expedite the case intake process and would ensure better data 
accuracy. Prior to implementation of the proposal, however, FINRA would 
be required to: (1) Update staff procedures to ensure consistency with 
the new rules; (2) provide instructions for customers in plain English 
on how to access the Party Portal and use its features; and (3) make 
some technological changes to various computer systems to incorporate 
the functions under the proposal that are not currently available to 
parties.
Economic Impact Assessment
    The proposal is intended to introduce an enhanced technology 
platform into the dispute resolution process to create efficiencies in 
collecting, preserving and distributing documents, which would expedite 
case administration and add new features for parties. Parties that 
would be required to use the Party Portal would benefit from these 
efficiencies; pro se customers would be exempted (provided they opt out 
of using the Party Portal).
    When FINRA activated the Party Portal, FINRA initially limited the 
number of firms permitted to use the Party Portal to file and receive 
case documents, among other things, as a proof of concept. Customers 
initiating claims against one of the invited firms were given the 
option of using the Party Portal to administer their case. Soon after 
the parties began using the Party Portal, and learned of the benefits 
and cost savings realized through the technology, customers and firms 
indicated a desire to use the Party Portal. As of May 11, 2016, there 
are 18 firms that use the Party Portal to receive service of the 
statement of claim and to administer their cases electronically in 
every instance. In addition, in most of the remaining cases 
administered at the forum, firms and associated persons are opting to 
use the Party Portal for case administration after they receive the 
statement of claim. As of July 20, 2015, FINRA opened the Party Portal 
to accept

[[Page 54867]]

all parties in all new cases that wish to use it on a voluntary basis.
    As of May 11, 2016, FINRA has processed 4,932 cases through the 
Party Portal. FINRA has invited 13,562 parties (customers, and firms 
and associated persons) to register and use the Party Portal. Of the 
13,562 parties, 76 percent of customers, including pro se customers, 
have been using the Party Portal voluntarily and 82 percent of firms 
and associated persons, which includes firm representatives, have been 
using the Party Portal voluntarily (78 percent in total). FINRA has 
processed over 16,000 party documents through the Party Portal, 
including answers, motions, and correspondence. Over 83 percent of 
parties have used the Party Portal to view their case-related 
correspondence.
    Based on the parties' experience to date with the Party Portal, 
along with the feedback provided from current users of this platform, 
FINRA believes those parties required to use the Party Portal would 
realize the anticipated benefits of the proposal. Further, the adoption 
of the Party Portal by parties on a voluntary basis suggests that they 
see benefit from its availability and use.
    Under the proposal, most parties would no longer be required to 
send paper copies of pleadings or other documents to FINRA. Thus, these 
parties would experience cost savings related to the preparation and 
mailing of such submissions. Further, parties would be able to serve 
each other immediately through the Party Portal, rather than through 
other means, which, under current rules, may involve mailing hard 
copies to all parties at the same time. FINRA acknowledges that those 
customers or firms that have not used the Party Portal previously may 
incur some time and effort to learn the Party Portal system, but the 
technology requirements (i.e., a computer with Internet access) will be 
minimal, and, therefore, should not impede a party's access to the 
dispute resolution process.
    FINRA staff understands that requiring pro se customers to use the 
Party Portal might impose a higher burden on these individuals given 
their potentially limited access to and experience with the required 
technology. Thus, staff is proposing to allow pro se customers to opt 
out of using the Party Portal. However, pro se customers may choose to 
use the Party Portal, which would allow them to benefit equally from 
the efficiencies that the Party Portal is anticipated to create. Staff 
notes that, as of May 11, 2016, 3,599 pro se customers or customer 
representatives have been invited to register, with 4,711 agreeing to 
do so (a 76 percent registration rate).

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-2016-029 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-2016-029. 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 20549-1090, 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-2016-029 and should be 
submitted on or before September 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19580 Filed 8-16-16; 8:45 am]
 BILLING CODE 8011-01-P