[Federal Register Volume 89, Number 103 (Tuesday, May 28, 2024)]
[Notices]
[Pages 46210-46214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11584]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100204; File No. SR-FINRA-2024-008]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend 
FINRA Rule 12800 (Simplified Arbitration) To Clarify and Amend the 
Applicability of the Document Production Lists

May 21, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 13, 2024, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 FINRA Code of Arbitration Procedure 
for Customer Disputes (``Customer Code'') to clarify and, in some 
instances, amend the applicability of the Document Production Lists to 
simplified customer arbitrations administered under FINRA Rule 12800.
    The text of the proposed rule change is available on FINRA's 
website 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
I. Overview of the Document Production Lists and Simplified Customer 
Arbitrations
    FINRA Dispute Resolution Services (``DRS'') provides a Discovery 
Guide to supplement the discovery rules contained in the Customer Code 
and help guide the parties and arbitrators through the discovery 
process in customer arbitrations.\3\ The Document Production Lists, 
which are included in the Discovery Guide and described in FINRA Rule 
12506, outline presumptively discoverable documents that the parties 
should exchange, without arbitrator or DRS staff intervention. Document 
Production Lists 1 and 2 describe the documents that are presumed to be 
discoverable in all arbitrations between a customer and a member firm 
or associated person except in simplified customer arbitrations as 
explained below.\4\ List 1 outlines the documents that member firms and 
associated persons shall produce; List 2 outlines the documents that 
customers shall produce.\5\
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    \3\ See https://www.finra.org/sites/default/files/ArbMed/p394527.pdf. The FINRA Discovery Guide and Document Production Lists 
do not apply to arbitrations administered under the Code of 
Arbitration Procedure for Industry Disputes.
    \4\ See FINRA Rule 12506(a).
    \5\ See https://www.finra.org/sites/default/files/ArbMed/p394527.pdf.
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    The proposed rule change would affect the applicability of the 
Document Production Lists in simplified customer arbitrations. 
Simplified customer arbitrations are arbitrations in which the dispute 
between a customer and member firm or associated person involves 
$50,000 or less, exclusive of interest and expenses.\6\ There are three 
types of simplified customer arbitrations. If the customer does not 
request a hearing, the arbitrator will render an award based on the 
pleadings and other materials submitted by the parties (``paper 
cases'').\7\ If the customer requests a hearing, the customer must 
select between one of two hearing options.\8\ If the customer requests 
an Option One hearing under FINRA Rule 12800(c)(3)(A), the regular 
provisions of the Customer Code relating to prehearings and hearings, 
including all fee provisions, apply (``regular hearing''). The customer 
may also request an Option Two special proceeding, an abbreviated 
hearing, under FINRA Rule 12800(c)(3)(B) (``special proceeding'').
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    \6\ See FINRA Rule 12800(a).
    \7\ See FINRA Rule 12800(c)(2).
    \8\ See FINRA Rule 12800(c)(3).
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    Currently, the Document Production Lists do not apply in paper 
cases and special proceedings.\9\ However, under FINRA Rule 
12800(g)(1), the arbitrator may exercise discretion to choose to use 
relevant portions of the Document Production Lists in paper cases and 
special proceedings ``in a manner consistent with the expedited nature 
of simplified proceedings.'' Absent such an exercise of discretion by 
the arbitrator, to obtain discovery in paper cases and special 
proceedings, the parties must request documents and other information 
from each other, pursuant to FINRA Rule 12800(g)(2).\10\ Therefore, 
under the current Customer Code, no documents or information are 
presumptively discoverable in paper cases and special proceedings.
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    \9\ FINRA Rule 12800(g)(1) provides that the Document Production 
Lists ``do not apply to arbitrations subject to this rule'' (i.e., 
paper cases and special proceedings).
    \10\ FINRA Rule 12800(g)(2) provides that all production 
requests must be served on all other parties and filed with the 
Director within 30 days from the date that the last answer is due; 
any response or objection to a production request must be served on 
all other parties and filed with the Director within 10 days of the 
receipt of the request. The term ``Director'' means the Director of 
DRS and, unless the Customer Code provides that the Director may not 
delegate a specific function, the term includes FINRA staff to whom 
the Director has delegated authority. See FINRA Rule 12100(m).
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    By contrast, the Document Production Lists do apply in simplified 
customer arbitrations in which the customer requests a regular hearing. 
As noted above, if the customer requests a regular hearing during the 
simplified customer arbitration, FINRA Rule 12800(c)(3)(A) states that 
the ``regular provisions'' of the Customer Code ``relating to 
prehearings and hearings'' apply. DRS has issued guidance clarifying 
this language to mean that the Document Production Lists apply in 
simplified customer arbitrations in which the customer requests a 
regular hearing.\11\ Consistent with this guidance, the

[[Page 46211]]

current practice is to treat the Document Production Lists as applying 
in simplified customer arbitrations in which the customer requests a 
regular hearing.\12\
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    \11\ See FINRA DRS Party's Reference Guide, p. 31, https://www.finra.org/sites/default/files/Partys-Reference-Guide.pdf 
(explaining that ``[t]he Document Production Lists in the Discovery 
Guide as described in FINRA Rule 12506 do not apply to simplified 
[customer] arbitrations decided on the papers or decided by special 
proceeding. However, the Discovery Guide does apply to simplified 
cases in which a customer requests a regular hearing.''). See also 
https://www.finra.org/arbitration-mediation/simplified-arbitrations.
    \12\ For cases in which the Document Production Lists apply, 
FINRA Rule 12506(b)(1) provides that unless the parties agree 
otherwise, within 60 days of the date that the answer to the 
statement of claim is due, or, for parties added by amendment or 
third party claim, within 60 days of the date that their answer is 
due, parties must either: (1) produce to all other parties all 
documents in their possession or control that are described in 
Document Production Lists 1 and 2; (2) identify and explain the 
reason that specific documents described in Document Production 
Lists 1 and 2 cannot be produced within the required time, and state 
when the documents will be produced, and serve this response on all 
parties and file this response with the Director; or (3) object as 
provided in FINRA Rule 12508 and serve this response on all parties 
and file this response with the Director.
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II. The Proposed Rule Change
A. Proposed Amendments to the Applicability of the Document Production 
Lists in Paper Cases and Special Proceedings
    The proposed rule change would amend FINRA Rule 12800(g)(1) to give 
customers in paper cases and special proceedings the option to elect at 
the time that they initiate an arbitration or, if they are a 
respondent, no later than the answer due date, whether they want the 
Document Production Lists to apply to all parties. Specifically, under 
proposed Rule 12800(g)(1)(B), FINRA Rule 12506--which describes the 
Document Production Lists and sets forth the timeframes for responding 
to the Document Production Lists--would not apply in paper cases or 
special proceedings ``unless the customer requests that the Document 
Production Lists apply to all parties when initiating an arbitration 
pursuant to Rule 12302 or, if the customer is a respondent, no later 
than the answer due date pursuant to Rule 12303, regardless of the 
parties' agreement to extend any answer due date.'' \13\ If the 
customer elects to apply the Document Production Lists in their case, 
FINRA Rule 12506 would apply. As a result, all parties would be 
required to produce the documents on the Document Production Lists, 
explain why the documents cannot be produced, or object to the 
production of the documents within the timeframes set forth in FINRA 
Rule 12506.\14\
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    \13\ FINRA Rule 12303 provides that respondent(s) must serve 
each other party with an answer to the statement of claim within 45 
days of receipt of the statement of claim. FINRA Rule 12207(a) 
provides that the parties may agree in writing to extend or modify 
the deadline for serving an answer.
    \14\ A party must act in good faith when complying with FINRA 
Rule 12506(b)(1). ``Good faith'' means that a party must use its 
best efforts to produce all documents required or agreed to be 
produced. If a document cannot be produced in the required time, a 
party must establish a reasonable timeframe to produce the document. 
See FINRA Rule 12506(b)(2). If a party objects to producing any 
document described in Document Production Lists 1 or 2, FINRA Rule 
12508 provides that the party must specifically identify which 
document or requested information it is objecting to and why (e.g., 
a document is irrelevant to the particular dispute).
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    If the customer does not timely elect to apply the Document 
Production Lists to all parties when initiating an arbitration or, as 
applicable, no later than the answer due date, proposed Rule 
12800(g)(1)(B) would retain the current provision in the rule that the 
arbitrator has the discretion to use relevant portions of the Document 
Production Lists in a manner consistent with the expedited nature of 
simplified customer arbitrations. Additionally, proposed Rule 
12800(g)(2) would retain the current provision in the rule that would 
permit the parties to request documents and information from each 
other.
    Based on feedback from customer representatives, FINRA is concerned 
that pro se \15\ customers, who are the majority of customers in paper 
cases and special proceedings,\16\ may not know what documents to 
request from the opposing party. This lack of understanding creates the 
risk that parties may not obtain and, therefore, are unable to provide 
arbitrators with the relevant documents and information to decide paper 
cases and special proceedings. Providing customers in paper cases and 
special proceedings with the option to use the Document Production 
Lists could increase customer awareness and understanding of the 
discovery process and the likelihood that these parties are able to 
discover the documents and information that are relevant to their 
arbitration. If the customer elects to use the Document Production 
Lists in a paper case or special proceeding, parties should 
automatically (i.e., without the need to make production requests or 
engage in motion practice) receive those documents and information that 
are relevant, or likely to lead to relevant evidence, in such customer 
disputes, which could help expedite the discovery process.\17\ In 
addition, this increased access to relevant documents and other 
information could improve the efficiency of the DRS arbitration forum 
to bring about outcomes (i.e., awards and settlements) in paper cases 
or special proceedings that are more consistent with the merits of the 
case.\18\
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    \15\ For purposes of the Customer Code, the term ``pro se'' 
refers to a party that is not represented by an attorney or others 
during an arbitration or mediation. See FINRA Rule 12100(z).
    \16\ From 2018 to 2023, customers were a party in 1,038 paper 
cases and special proceedings that closed and appeared pro se in 623 
of the arbitrations (60 percent).
    \17\ See Securities Exchange Act Release No. 41833 (September 2, 
1999), 64 FR 49256, 49260-61 (September 10, 1999) (Order Approving 
File No. SR-NASD-1999-07) (stating that the Document Production 
Lists were created ``to provide parties with information that is 
reasonably calculated to lead to the discovery of admissible 
evidence in arbitrations'' and that ``[t]he Discovery Guide will 
streamline the discovery process. By creating lists of documents 
that should be produced in all customer arbitrations . . . the 
Discovery Guide will help expedite the discovery process and reduce 
the number of discovery disputes between parties, which in turn 
should help lower the cost of the arbitration discovery process.''). 
See also Securities Exchange Act Release No. 70419 (September 16, 
2013), 78 FR 57916, 57920 (September 20, 2013) (Order Approving File 
No. SR-FINRA-2013-024) (stating that FINRA amended the Discovery 
Guide to ``help reduce the number and limit the scope of disputes 
involving document production.'').
    \18\ See infra Item II.B. (discussing Economic Impact 
Assessment).
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    If the SEC approves the proposed rule change, FINRA will develop 
and publish guidance about discovery that will be available to all 
parties in simplified customer arbitrations. The guidance would, among 
other things, direct parties to the Discovery Guide. In addition to 
describing the Document Production Lists, the Discovery Guide includes 
information that could improve the parties' awareness and understanding 
of the discovery process such as information about the circumstances 
under which the parties may object to the production of documents on 
the Document Production Lists, the parties' ability to request 
additional documents other than those included on the Document 
Production Lists, the process for obtaining the production of documents 
from non-parties, the forms that the production of documents should 
take, and the parties' right to object to the production of documents 
based on confidentiality and privilege concerns.\19\
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    \19\ Nothing in the Discovery Guide precludes the parties from 
voluntarily agreeing to an exchange of documents in a manner 
different from that set forth in the Discovery Guide. FINRA 
encourages the parties to agree to the voluntary exchange of 
documents and to stipulate to various matters. See https://www.finra.org/sites/default/files/ArbMed/p394527.pdf.
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    As discussed above, proposed Rule 12800(g)(1)(B) would require that 
the customer decide whether to apply the Document Production Lists in a 
paper case or special proceeding ``when initiating an arbitration 
pursuant to Rule 12302'' or ``no later than the answer due date 
pursuant to Rule 12303, regardless of the parties' agreement to extend 
any answer due date.'' \20\ Thus, parties would know whether they will 
have to gather and eventually produce the documents on the Document 
Production

[[Page 46212]]

Lists in the early stages of an arbitration case, either after the 
arbitration has been initiated or no later than the answer due 
date.\21\ As noted above, if the SEC approves the proposed rule change, 
FINRA will develop and publish guidance about discovery that will be 
available for all parties in simplified customer arbitrations. This 
guidance would include information to assist customers in making an 
informed decision regarding whether to elect to use the Document 
Production Lists in their case.
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    \20\ See supra note 13 and accompanying text.
    \21\ As noted above, if the customer elects to have the Document 
Production Lists apply, all parties would be required to produce the 
documents on the Document Production Lists, explain why the 
documents cannot be produced, or object to the production of the 
documents within the timeframes set forth in FINRA Rule 12506.
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    Finally, the proposed rule change would give only customers the 
right to elect to have the Document Production Lists apply in paper 
cases and special proceedings because, as discussed above, a majority 
of the customers who appear in these types of cases are pro se and may 
not be familiar with the discovery process.\22\ On the other hand, few 
associated persons appear pro se in paper cases and special 
proceedings.\23\ FINRA understands, however, that some pro se 
associated persons may not be familiar with the discovery process; the 
guidance that FINRA plans to issue would be available to all parties, 
including parties who appear pro se.
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    \22\ See supra note 16 and accompanying text.
    \23\ From 2018 to 2023, where they were a party, associated 
persons appeared pro se in 88 of the 292 customer paper cases and 
special proceedings that closed.
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    Further, although only customers would have the option to choose 
whether the Document Production Lists would apply in their case, FINRA 
does not believe the proposed rule change would impose an unfair burden 
on industry parties or deprive them in any way of their right to obtain 
discoverable documents and information. If a customer elects to have 
the Document Production Lists apply in a paper case or special 
proceeding, that election would trigger production obligations for both 
customers and industry parties; as noted above, the documents on List 1 
would be presumptively discoverable by customers, and the documents on 
List 2 would be presumptively discoverable by member firms and 
associated persons.\24\ Moreover, even if a customer chooses not to 
apply the Document Production Lists in a particular case, industry 
parties still would have the same right that they currently have under 
FINRA Rule 12800(g)(2) to request the production of documents and 
information from the customer.
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    \24\ See FINRA Rule 12506. See also https://www.finra.org/sites/default/files/ArbMed/p394527.pdf.
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B. Proposed Amendments To Clarify the Applicability of the Document 
Production Lists in Simplified Customer Arbitrations When the Customer 
Requests a Regular Hearing

    Currently, FINRA Rule 12800(c)(3)(A) states that, when a customer 
requests a regular hearing, the ``regular provisions'' of the Customer 
Code relating to prehearings and hearings apply. As noted above, DRS 
has issued guidance clarifying this language to mean that the Document 
Production Lists apply in simplified customer arbitrations in which the 
customer requests a regular hearing.\25\ For additional clarity, the 
proposed rule change would codify that the Document Production Lists 
apply to simplified customer arbitrations in which the customer 
requests a regular hearing. Specifically, proposed Rule 12800(g)(1)(A) 
would provide that the ``Document Production Lists, described in Rule 
12506, apply to arbitrations in which the customer requests an Option 
One hearing.'' The proposed rule change would increase transparency and 
help ensure parties are aware and understand that the Document 
Production Lists apply in simplified customer arbitrations in which the 
customer requests a regular hearing.
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    \25\ See supra note 11 and accompanying text.
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    If the Commission approves the proposed rule change, FINRA will 
announce the effective date of the proposed rule change in a Regulatory 
Notice.\26\
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    \26\ FINRA notes that the proposed rule change would impact all 
members, including members that are funding portals or have elected 
to be treated as capital acquisition brokers (``CABs''), given that 
the funding portal and CAB rule sets incorporate the impacted FINRA 
rules by reference.
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\27\ 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.
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    \27\ 15 U.S.C. 78o-3(b)(6).
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    FINRA believes that the proposed rule change will protect investors 
and the public interest as it will provide customers in paper cases and 
special proceedings with the option to use the Document Production 
Lists, thereby increasing customer awareness and understanding of the 
discovery process and the likelihood that these parties are able to 
discover the documents and information that are relevant to their 
arbitration. If the customer elects to use the Document Production 
Lists in a paper case or special proceeding, parties should 
automatically (i.e., without the need to make production requests or 
engage in motion practice) receive those documents and information that 
are relevant, or likely to lead to relevant evidence, in such customer 
disputes, which could help expedite the discovery process. In addition, 
this increased access to relevant documents and other information could 
improve the efficiency of the DRS arbitration forum to bring about 
outcomes (i.e., awards and settlements) in paper cases or special 
proceedings that are more consistent with the merits of the case.\28\
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    \28\ See infra Item II.B. (discussing Economic Impact 
Assessment).
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    FINRA also believes that the proposed rule change will protect 
investors and the public interest by aligning the Customer Code with 
existing DRS practice and guidance that the Document Production Lists 
apply in simplified customer arbitrations in which the customer 
requests a regular hearing. Codifying this existing practice and 
guidance will improve transparency and enhance parties' awareness and 
understanding of the discovery process in simplified customer 
arbitrations.

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

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Economic Impact Assessment
    FINRA has undertaken an economic impact assessment to analyze the 
regulatory need for the proposed rule change, its potential economic 
impacts, including anticipated costs, benefits, and distributional and 
competitive effects, relative to the current baseline, and the 
alternatives FINRA considered in assessing how best to meet FINRA's 
regulatory objectives.
(a) Regulatory Need
    The proposed rule change addresses a concern that certain customers 
in simplified customer arbitrations may be at a disadvantage in 
obtaining relevant documents and other information useful to their 
cases, due to a lack of awareness and understanding of how to use the 
discovery process. The proposed rule change and additional guidance are 
anticipated to increase customer

[[Page 46213]]

awareness, understanding and utilization of the discovery process, 
reducing the risk that the resulting outcomes do not reflect the actual 
merits of the underlying dispute.
(b) Economic Baseline
    The economic baseline for the proposed rule change consists of the 
current provisions under the Customer Code and published guidance that 
address the discovery process in simplified customer arbitrations. 
FINRA anticipates the proposed rule change to affect the customers, 
industry parties, and arbitrators to simplified customer arbitrations.
    To better understand the potential impacts of the proposed rule 
change, FINRA examines the 1,717 simplified customer arbitrations that 
closed from 2018 to 2023.\29\ Simplified customer arbitrations 
represent 12 percent of all customer arbitrations which closed during 
the sample period.
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    \29\ Customers appeared as claimant in 1,650 simplified customer 
arbitrations, as respondent in 63 simplified customer arbitrations, 
and as both claimant and respondent in four cases.
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    As discussed above, customer representatives have provided feedback 
that the Customer Code provides inadequate guidance, particularly to 
pro se customers, regarding discovery in simplified customer 
arbitrations. They have reported to FINRA that customers may not know 
what documents to request from the opposing party. This raises concerns 
that parties are not obtaining and, therefore, not providing 
arbitrators the relevant documents and information to decide simplified 
customer arbitrations and that these arbitrations are not decided on a 
full record.
    To put these concerns in context, for the 1,717 simplified customer 
arbitrations that closed from 2018 to 2023, FINRA identifies the number 
where a customer appears pro se. A higher percentage of customers 
appear pro se in paper cases (517 of 792 cases, 65 percent) and special 
proceedings (106 of 246 cases, 43 percent) than in simplified customer 
arbitrations where they request a regular hearing (183 of 679 cases, 27 
percent).
    Data are not available to comprehensively describe the discovery 
process in the DRS arbitration forum. FINRA is therefore not able to 
determine the number of discovery requests in simplified customer 
arbitrations, the frequency of objections, and how discovery may differ 
by proceeding or representation type.\30\
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    \30\ Data are also not available describing, under Rule 
12800(g)(1), arbitrator discretion to choose relevant portions of 
the Document Production Lists in paper cases and special proceedings 
to obtain discovery. Arbitrator use of this discretion under the 
baseline may indicate the need for information by customers, and an 
impact of the proposed rule change may be to reduce reliance on this 
discretion.
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(c) Economic Impacts
    In paper cases and special proceedings, the proposed rule change 
would provide customers the option to apply the Document Production 
Lists. Along with the planned additional guidance, this proposed rule 
change may increase customer awareness and understanding of the 
discovery process and their access to relevant documents and other 
information through an established framework of presumptively 
discoverable documents. This increased access may improve the 
efficiency of the DRS arbitration forum to bring about outcomes (i.e., 
awards and settlements) in paper cases or special proceedings that are 
more consistent with the merits of the case which could decrease the 
potential benefits to member firms and associated persons from engaging 
in misconduct and increase customer protection.
    Paper cases and special proceedings may be decided on the merits of 
the case where customers appear pro se and avail themselves of 
discovery. The proposed rule change, together with the guidance that 
would accompany it, would increase customers' awareness and 
understanding of their option to apply the Document Production Lists, 
and more generally inform them of the documents or information that may 
be available through discovery. The value of the additional awareness 
and understanding is likely greater for those customers who appear pro 
se and have limited knowledge of discovery than for those customers who 
retain an attorney or representation by a law clinic. Customers who 
appear pro se, however, may still have difficulty understanding the 
discovery process, the types of documents or information that may 
support their claims, and whether to apply the Document Production 
Lists. For some customers who appear pro se, therefore, the proposed 
rule change may not have the full intended effect.
    When customers elect to apply the Document Production Lists in 
paper cases or special proceedings, parties may incur additional or 
fewer discovery-related costs. The additional costs customers may incur 
would be at their own expense. The overall impact on discovery-related 
costs would depend on how the number of production requests and 
discovery-related motions change relative to the baseline. Parties may 
need to produce additional documents or information described in the 
Document Production Lists, increasing costs relative to the baseline. 
On the other hand, parties may cease objecting to the production of 
documents that were requested in the baseline and that become 
presumptively discoverable. They may, however, incur additional costs 
objecting to the production of additional documents or information that 
were not requested under the baseline and which the proposed rule 
change makes presumptively discoverable.
    The costs parties incur may also relate to the time to resolution. 
The proposed 60 days for parties to respond to the Document Production 
Lists may lengthen the time to resolution.\31\ The time to resolution 
may further lengthen if parties object to the production of documents 
or information that were not requested under the baseline and which the 
proposed rule change makes presumptively discoverable. Longer times to 
resolution may create additional business uncertainty for industry 
parties and delay the availability of funds to customers who win 
awards. To the extent that the application of the Document Production 
Lists reduces the amount of disagreement between parties and precludes 
the need for production requests and discovery-related motions, 
however, then the time to resolution may decrease and parties may 
benefit from a shorter time to resolution.
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    \31\ As described above, under current FINRA Rule 12800(g)(2), 
when customers elect not to apply the Document Production Lists, all 
production requests must be served within 30 days from the date that 
the last answer is due. Any response or objection to a production 
request must be served within 10 days of its receipt.
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    The greater exchange of relevant documents or information when 
customers elect to apply the Document Production Lists may also 
increase the ability of parties to settle prior to an award. Relative 
to arbitrating the dispute, parties who settle may incur fewer costs 
(e.g., attorney fees, forum fees, time to resolution) to resolve the 
dispute.\32\
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    \32\ Half of the 1,717 simplified customer arbitrations that 
closed from 2018 to 2023 settled. A higher percentage of simplified 
customer arbitrations settled where customers requested a regular 
hearing (73 percent) than in paper cases (34 percent) or special 
proceedings (56 percent).
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    The codification of existing DRS guidance (as detailed above) that 
the Document Production Lists apply in simplified customer arbitrations 
in which the customer requests a regular hearing should not result in 
material economic effects. In the experience of FINRA staff, since DRS 
issued additional guidance, few questions have arisen regarding the 
application of

[[Page 46214]]

Document Production Lists in simplified customer arbitrations in which 
the customer requests a regular hearing. However, to the extent that 
parties are currently unaware of the DRS guidance and misunderstand the 
application of the Document Production Lists in simplified customer 
arbitrations, the codification of the DRS guidance could affect the 
discovery process.
(d) Alternatives Considered
    An alternative to the proposed rule change is to automatically 
apply the Document Production Lists in paper cases and special 
proceedings without the need for the customer to make an election. 
Relative to the proposed rule change, all parties in paper cases and 
special proceedings would obtain the relevant documents and other 
information and further decrease the risk that arbitration outcomes do 
not reflect the actual merits of the underlying dispute. As discussed 
above, most customers appear pro se in paper cases and special 
proceedings and may have difficulty understanding the discovery 
process. Parties, however, would incur the costs associated with the 
application of the Document Production Lists in all cases, even when 
the documents and other information described on the Document 
Production Lists are not relevant to the case and their production may 
not impact arbitration outcomes.
    Another alternative is to pare the Document Production Lists for 
paper cases and special proceedings, to the extent possible, to those 
documents and other information that are thought to be more relevant 
for these arbitrations. Relative to the proposed rule change, this 
alternative may decrease production costs. However, given that the 
Document Production Lists were designed to capture those documents that 
are most likely to lead to the discovery of relevant information in 
customer arbitrations, paring down the Document Production Lists may 
reduce the ability of customers to access relevant documents and other 
information. It is not known how these countervailing effects may 
impact the decision of customers to apply the Document Production Lists 
and case outcomes.
    Finally, an alternative to the proposed rule change is to decrease 
the number of days for a party to respond when customers elect to apply 
the Document Production Lists in paper cases and special proceedings 
(e.g., from 60 days to 30 days). This may reduce the extent to which 
the time to resolution may lengthen. Some parties, however, including 
customers who appear pro se, may incur additional costs to respond to 
the Document Production Lists within the shortened timeframe, such as 
by needing to obtain relevant documents on an expedited basis. Parties 
may also seek an extension, thereby lengthening the discovery process, 
nonetheless.

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-2024-008 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-FINRA-2024-008. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. Do not include personal 
identifiable information in submissions; you should submit only 
information that you wish to make available publicly. We may redact in 
part or withhold entirely from publication submitted material that is 
obscene or subject to copyright protection. All submissions should 
refer to file number SR-FINRA-2024-008 and should be submitted on or 
before June 18, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11584 Filed 5-24-24; 8:45 am]
BILLING CODE 8011-01-P