
[Federal Register Volume 77, Number 6 (Tuesday, January 10, 2012)]
[Notices]
[Pages 1524-1526]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-183]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66096; File No. SR-FINRA-2011-044]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change Relating to 
FINRA's Code of Procedure

January 4, 2012.

I. Introduction

    On November 8, 2011, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change relating to FINRA's Code of Procedure (``Code''). 
The proposed rule change was published for comment in the Federal 
Register on November 23, 2011.\3\ The Commission received no comments 
on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 65787 (November 18, 
2011), 76 FR 72463 (``Notice'').
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II. Description of the Proposal

    FINRA's Code contains detailed provisions for initiating and 
adjudicating various types of actions, including disciplinary, 
eligibility, expedited, and cease and desist proceedings. As described 
further below, FINRA is proposing a number of changes to its Code. 
According to FINRA, the changes are procedural in nature and will not 
affect any party's substantive rights.

Service of Complaint

    Currently, FINRA Rule 9131(a) requires a complaint to be served on 
each party by the Department of Enforcement or the Department of Market 
Regulation. The rule does not explicitly permit FINRA staff to serve 
the complaint on a party's counsel. The proposed rule change would 
amend FINRA Rule 9131(a) to clarify that only the Department of 
Enforcement or the Department of Market Regulation can serve a 
complaint and to allow for service on counsel or another person 
authorized to represent others when the representative agrees to accept 
service of the complaint on behalf of the respondent. The proposed rule 
change also would amend FINRA Rules 9551(b), 9552(b), 9553(b), 9554(b), 
9555(b) and 9556(b) to allow for service on counsel or another person 
authorized to represent others when the representative agrees to accept 
service of a notice.
    FINRA Rule 9131(a) also provides that a party initiating a 
proceeding shall serve a document initiating a proceeding on the other 
party. The proposed rule change deletes this provision because, 
according to FINRA, it has been superseded by other FINRA rules and no 
longer plays a role in expedited proceedings. Further, the Code no 
longer allows a party other than FINRA to initiate a proceeding.

Filing of Papers With Adjudicator

    FINRA Rule 9135(a) prescribes the timing for the filing of papers 
with an adjudicator. Currently, complaints are deemed timely filed upon 
mailing or delivery to the Office of Hearing Officers. Other papers 
required to be filed are deemed timely if, on the day the papers are 
served, they are also hand-delivered, mailed via U.S. Postal service 
first class mail or sent by courier to FINRA. In recognition of the 
increased use of electronic mail, the proposed rule change would allow 
the use of electronic mail as another delivery method for complaints 
and other papers required to be filed with an adjudicator.
    FINRA Rule 9136 establishes the form for papers filed in connection 
with a disciplinary proceeding or a review of a disciplinary 
proceeding. The proposed change to FINRA Rule 9136 would require 
single-spaced footnotes, as well as decrease the number of copies 
required to be filed with the adjudicator from three to one, unless 
otherwise ordered. The proposed rule change also would amend FINRA Rule 
9313 by giving counsel to the National Adjudicatory Council (``NAC'') 
the authority to set the number of copies of all papers to be filed 
with the NAC.

Motion To Withdraw by Attorney

    FINRA Rule 9142 requires an attorney for a party (or person 
authorized to represent others) who is seeking to withdraw to give 
notice setting forth good cause for the withdrawal at least 30 days 
prior to withdrawal, unless circumstances do not permit. According to 
FINRA, there have been occasions when an attorney, believing that his 
withdrawal was effective upon filing with FINRA, did not provide any 
contact information for the party the attorney no longer represents. 
The proposed rule change would require an attorney (or person 
authorized to represent others) seeking to withdraw his appearance to 
file a motion setting forth good cause for the withdrawal, as well as 
contact information for the party the attorney will no longer 
represent.

Subjects Discussed at Pre-Hearing Conference

    FINRA Rule 9241(c) delineates the subjects that the Hearing 
Officer, in a pre-hearing conference, may consider and act upon. The 
proposed rule change would amend FINRA Rule 9241 by adding a permissive 
subject for a pre-hearing conference: Designation of relevant portions 
of transcripts from investigative testimony or other proceedings and 
the inclusion of an index for the testimony.

Fees for Copying Costs During Discovery

    FINRA Rule 9251(f) allows a respondent to obtain a photocopy of all 
documents made available for inspection by the Department of 
Enforcement or the Department of Market Regulation at a rate 
established by the Board of FINRA or FINRA Regulation. The proposed 
rule change would transfer the authority to establish the rate for 
copies to FINRA staff.\4\
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    \4\ FINRA stated in its filing that copying costs would be based 
on rates charged by local copying vendors in the area where FINRA 
maintains the documents. Id.
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Submission of Evidence

    FINRA Rule 9261(a) addresses pre-hearing disclosures and requires 
each party to submit to all other parties and to the Hearing Officer 
copies of documentary exhibits the parties intend to introduce and the 
names of the witnesses each party intends to present at a hearing. 
Currently, pre-hearing, proposed documentary evidence submitted to the 
Hearing Officer becomes part of the record. At the hearing, all of the 
documents that are admitted into evidence also become part

[[Page 1525]]

of the record.\5\ According to FINRA, this results in the record 
containing a duplicate of nearly every document that was admitted into 
evidence.
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    \5\ See FINRA Rule 9267(a)(3).
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    The proposed rule change would amend FINRA Rule 9261(a) to 
establish that documentary evidence submitted prior to a hearing shall 
not become part of the record, unless ordered by a Hearing Officer, 
Hearing Panel, or Extended Hearing Panel. Furthermore, the Hearing 
Officer may order each party--who will continue to exchange proposed 
documentary evidence with other parties--to refrain from submitting its 
proposed documentary evidence to the Hearing Officer.

Hearing Panel and NAC Decisions

    FINRA Rules 9268(b)(1) and 9349(b)(1) require that a statement 
describing the investigative or other origin of the disciplinary 
proceeding be included in the contents of a decision of the Hearing 
Panel or the NAC, respectively. The proposed rule change would amend 
this provision to require such a statement only if it is not otherwise 
contained in the record.

Review Proceedings

    FINRA Rule 9312(a)(2) requires that if a default decision issued 
pursuant to FINRA Rule 9269 is called for review by the General Counsel 
within 25 days after the date of service of the decision, the decision 
must be reviewed by the NAC. The proposed rule change would provide 
that the Review Subcommittee also may review the decision.

Oral Argument in Review of Proceedings

    FINRA Rule 9341(a) establishes the procedure for a party requesting 
an oral argument before the Subcommittee or, if applicable, the 
Extended Proceeding Committee. Currently, once oral argument is 
requested, there is no mechanism to cancel oral argument if a 
respondent abandons his or her request for oral argument subsequent to 
filing a brief but prior to the date set for oral argument. The 
proposed rule change would allow the Subcommittee or, if applicable, 
the Extended Proceeding Committee, to cancel in writing a previously 
scheduled oral argument, and decide the matter based on the briefs and 
the record without oral argument, if the adjudicator finds good cause 
due to a respondent abandoning his or her prior request, or similar 
unreasonable lack of availability.\6\ If the adjudicator cancels an 
oral argument but a respondent believes this action was taken in error, 
a respondent may file a motion seeking to reschedule oral argument.
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    \6\ According to FINRA, a respondent may be viewed as abandoning 
a previously scheduled oral argument if the adjudicator has not 
received a response after attempting to confirm the attendance of 
the respondent. See Notice supra note 3.
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Failure To Participate in Disciplinary Proceeding

    FINRA Rule 9344(a) gives the NAC or the Review Subcommittee 
discretion on how to proceed when an appealing party did not 
participate in the disciplinary proceeding before a Hearing Officer, a 
Hearing Panel or, if applicable, an Extended Hearing Panel. The 
proposed rule change would specify that the NAC or the Review 
Subcommittee will remand the disciplinary proceeding with instructions 
when a party shows good cause for failing to participate below. If, on 
the other hand, a party does not show good cause, the Subcommittee or 
other adjudicator will decide the case based on the briefs and the 
record and without oral argument.

Filing of Papers in Eligibility Proceedings

    FINRA Rule 9524(a)(5) gives a Hearing Panel in an eligibility 
proceeding the ability, after obtaining the consent of all the parties, 
to extend or shorten any time limits prescribed by the Code for the 
filing of any papers. The proposed rule change would remove the consent 
requirement for any extension of the time limits.

Procedural Motions in Eligibility or Expedited Proceedings

    FINRA Rule 9146(j)(3) requires that in the FINRA Rule 9500 Series, 
a motion shall be decided by an adjudicator. The proposed rule change 
would allow Counsel to the NAC to decide a procedural motion made 
pursuant to an eligibility proceeding or an expedited proceeding. 
Counsel would not be authorized to rule on dispositive motions.

Additional Information

    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 30 days 
following publication of the Regulatory Notice announcing Commission 
approval. Once effective, the proposed rules would apply immediately to 
all new and pending matters governed by the Code.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act.\7\ Specifically, 
the Commission finds that the proposal is consistent with Section 
15A(b)(6) of the Act,\8\ which requires, among other things, that FINRA 
rules 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, and Section 
15A(b)(8) of the Act,\9\ which requires, among other things, that FINRA 
rules provide a fair procedure for the disciplining of members and 
persons associated with members, as the changes should make for a more 
efficient process under the Code while still preserving the substantive 
rights of the parties.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78o-3(b)(6).
    \9\ 15 U.S.C. 78o-3(b)(8).
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    The Commission believes that allowing Hearing Officers to manage 
the parties' pre-hearing submissions to reduce and eliminate 
duplicative filings, as well as designating relevant portions of 
transcripts, should make the process more efficient for all of the 
parties involved. The proposed rule change should eliminate the 
unnecessary duplication of pre-hearing exhibits and the introduction of 
voluminous testimonial transcripts into evidence because the Hearing 
Officer at the pre-hearing conference may designate the relevant 
portions of such documents. Further, the proposed rule change should 
allow for a faster, more efficient review process by allowing the 
Review Subcommittee, in addition to the NAC, to review certain default 
decisions; delegating certain procedural and technical decisions to the 
counsel to the NAC; giving Hearing Panels and the NAC additional 
flexibility as to required statements in decisions; and allowing a 
Hearing Panel in an eligibility proceeding to extend time limits for 
the filing of any papers without the consent of all the parties.
    The Commission also believes that it is appropriate to allow the 
Subcommittee or Extended Proceeding Committee to cancel a previously 
scheduled oral argument when it can be shown that the party requesting 
the oral argument has abandoned his prior request or for similar 
unreasonable lack of availability. The Commission notes that a 
respondent may file a motion seeking to reschedule an oral argument 
that he believes was cancelled in error. The Commission believes that 
this should allow FINRA to avoid unnecessary travel expenses, while 
still

[[Page 1526]]

preserving the right of the party to an oral argument in the event the 
original oral argument was cancelled in error.
    The Commission also notes that several of the changes would make it 
easier for the parties to satisfy the procedural requirements under the 
Code by allowing them to file papers electronically, authorizing their 
attorney or representative to accept service of a complaint and notices 
of certain expedited proceedings, and decreasing the number of copies 
required to be filed with an adjudicator. Moreover, the Commission 
believes that FINRA's proposed change requiring an attorney or 
representative to file a motion to withdraw, along with the contact 
information of the party no longer being represented, should help to 
ensure fair procedures by reducing any uncertainty as to whether a 
party is represented by an attorney and ensuring that FINRA has all 
necessary information to contact the party.
    Further, the Commission believes that the change to require the NAC 
or Review Subcommittee to remand a disciplinary proceeding, if the 
respondent has shown good cause for his failure to participate, is 
appropriate. Finally, the Commission believes that it is appropriate 
for FINRA staff to set the rate for copies.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-FINRA-2011-044) be, and it 
hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-183 Filed 1-9-12; 8:45 am]
BILLING CODE 8011-01-P


