[Federal Register Volume 83, Number 105 (Thursday, May 31, 2018)]
[Notices]
[Pages 25062-25066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11728]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83332; File No. SR-FINRA-2018-021]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to District Committee Structure and 
Governance

May 25, 2018.
    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 18, 2018, 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. FINRA has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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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 By-Laws of FINRA Regulation, Inc. 
(``FINRA Regulation By-Laws'' or ``By-Laws''), FINRA's regulatory 
subsidiary, with regard to the District Committee structure and 
governance by, among other things, reorganizing the District Committees 
into Regional Committees that mirror the regions in which FINRA's 
districts are administratively grouped and managed by FINRA and 
revising candidate and member voting eligibility standards in a manner 
designed to result in committees that better reflect the industry and 
members within each region. The proposed rule change also makes 
conforming amendments to the FINRA Regulation By-Laws and FINRA rules 
to replace, where appropriate, District Committee references with 
Regional Committee references.\4\
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    \4\ The current FINRA rulebook consists of: (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from New York Stock Exchange 
LLC (``NYSE'') (``Incorporated NYSE Rules'') (together, the NASD 
Rules and Incorporated NYSE Rules are referred to as the 
``Transitional Rulebook''). While the NASD Rules generally apply to 
all FINRA members, the Incorporated NYSE Rules apply only to those 
members of FINRA that are also members of the NYSE (``Dual 
Members''). The FINRA Rules apply to all FINRA members, unless such 
rules have a more limited application by their terms. For more 
information about the rulebook consolidation process, see 
Information Notice, March 12, 2008 (Rulebook Consolidation Process).
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    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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
a. Background
    In March 2017, FINRA issued a Special Notice \5\ on engagement 
soliciting comment regarding its engagement programs, including FINRA's 
District Committees generally. Several commenters to the Special Notice 
provided observations and suggestions regarding the District 
Committees.\6\ Some commenters commended the District Committees,\7\ 
noting among other things, that they provide an opportunity to interact 
with FINRA senior staff,\8\ serve as an important means of receiving 
constructive feedback,\9\ and provide important service on disciplinary 
panels.\10\ One commenter also stated that the committee meetings offer 
FINRA the opportunity to obtain more field-based feedback from 
financial advisors that directly serve investors and that the financial 
advisors benefit from open dialogue on timely, relevant topics.\11\ 
Another commenter, however, questioned the committees' usefulness, 
referring to the committee meetings as ``one-way information 
session[s]'' about soon-to-be-introduced rules.\12\ In a different 
vein, one commenter suggested increasing committee ``diversity'' by 
including non-industry representatives.\13\
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    \5\ Special Notice--Engagement Initiative (March 21, 2017), 
available at http://www.finra.org/industry/special-notice-032117. 
The comment period closed on June 19, 2017. FINRA received 46 
comment letters in response to the Special Notice.
    \6\ Richard Wallace (``Wallace''), Wells Fargo Advisors (``Wells 
Fargo''), National Society of Compliance Professionals (``NSCP''), 
Commonwealth Financial Network (``Commonwealth''), Richard K. Bryant 
(``Bryant''), Midwest Region Committees, Elmcore Securities, LLC, 
Better Markets, Inc., Financial Services Institute (``FSI'') and 
Lara, May & Associates, LLC (``Lara, May'').
    \7\ Wallace, Commonwealth, NSCP, Wells Fargo, and FSI.
    \8\ Commonwealth.
    \9\ FSI.
    \10\ Wallace.
    \11\ Wells Fargo. The commenter also recommended adding two 
quarterly teleconference District Committee meetings in addition to 
the District Committees' bi-annual in-person meetings.
    \12\ Bryant.
    \13\ Better Markets, Inc.
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    In addition to the Special Notice feedback, FINRA has noted the 
membership's general lack of interest in District Committee service. 
The number of District Committee seat vacancies is the primary 
indicator of the membership's declining interest in District Committee 
service. For the past six years, there has been an average of 29 vacant 
District Committee seats per year. Of this 29-seat average, 13 
(approximately 45%) have been contested seats (two or more candidates), 
eight (approximately 28%) have been seats with only one candidate, and 
eight (approximately 28%) have been seats without any candidates, thus 
requiring FINRA to find an eligible person to appoint to the seat.\14\
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    \14\ See FINRA Regulation By-Laws, Article VIII, Section 8.8(b) 
(in the event there is no candidate designated for a vacant seat, 
FINRA's Chief Executive Officer or his or her designee shall appoint 
a qualified individual to fill the vacancy for a full term). A 
number of reasons may contribute to individuals' failure to pursue a 
District Committee seat, such as a lack of awareness by some members 
of the opportunity and benefits of serving on a District Committee, 
a perceived lack of time to devote to the position or an 
individual's belief that he or she lacks sufficient industry 
experience to carry out a District Committee member's 
responsibilities. In addition, based on the Special Notice 
commenters' feedback outlined above, some people may not consider 
the District Committees to be useful or performing a meaningful 
role.

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[[Page 25063]]

b. Proposed Rule Change
    FINRA is proposing to amend the FINRA Regulation By-Laws to 
reorganize the District Committees as Regional Committees and to modify 
the committees' size, structure, and governance to respond to Special 
Notice feedback and address decreasing interest in District Committee 
service.
Reorganizing District Committees as Regional Committees
    The By-Laws require the FINRA Regulation Board of Directors 
(``FINRA Regulation Board'') \15\ to establish districts to assist with 
the administration of its affairs and provide that the FINRA Regulation 
Board may organize the districts into regions to promote efficiency and 
sound administration.\16\ The By-Laws further provide that the FINRA 
Regulation Board may make changes from time to time in the number or 
boundaries of the districts or regions as it deems necessary or 
appropriate.\17\ The FINRA Regulation Board has established 11 
districts, overseen by FINRA District Offices, and has organized them 
into five regions:
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    \15\ FINRA Regulation, Inc. (``FINRA Regulation'') is a 
subsidiary of FINRA that operates according to the Plan of 
Allocation and Delegation of Functions by FINRA to FINRA Regulation, 
Inc.
    \16\ See FINRA Regulation By-Laws, Article VIII, Section 8.1 
(Establishment of Districts and Regions).
    \17\ See supra note 16.
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     West (Districts 1 (San Francisco), 2 (Los Angeles) and 3 
(Denver));
     Midwest (Districts 4 (Kansas City) and 8 (Chicago));
     South (Districts 5 (New Orleans), 6 (Dallas) and 7 
(Atlanta and Boca Raton));
     North (Districts 9 (Philadelphia and New Jersey) and 11 
(Boston)); and
     New York (District 10 (Long Island and New York)).\18\
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    \18\ See Schedule A to FINRA Regulation By-Laws and http://www.finra.org/industry/finra-district-offices.
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    Pursuant to the By-Laws, each district elects a District 
Committee.\19\ FINRA currently manages the 11 District Committees as 
region-wide committees based on the administrative groupings outlined 
above, including having them meet bi-annually on a regional basis.\20\
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    \19\ See FINRA Regulation By-Laws, Article VIII, Section 8.2(a).
    \20\ See Securities Exchange Act Release No. 64363 (April 28, 
2011), 76 FR 25397 (May 4, 2011) (Order Approving File No. SR-FINRA-
2011-011) (``2011 Rule Filing Approval Order'') (amending the By-
Laws to, among other things, codify the practice of having the 
District Committees meet on a regional basis).
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    FINRA proposes to formally restructure the District Committees as 
Regional Committees. The proposed change will align the committee 
structure with FINRA's practice of managing the District Committees as 
region-wide committees.
Regional Committee Composition and Size
    FINRA proposes amending Section 8.2(a) of the FINRA Regulation By-
Laws to require that each Regional Committee have six elected members 
from each district within that committee's region. Regional Committees 
representing three districts (i.e., the South and West) will have 18 
members, and Regional Committees representing two districts (i.e., 
Midwest, North, and New York) will have 12 members. Currently, District 
Committees are generally composed of seven to 14 elected members, with 
each committee reflecting a configuration of three small, one mid-size 
and three large firm representatives.\21\ The three-one-three 
composition is intended to align District Committee representation more 
closely with the industry representation on the FINRA Board.\22\ 
However, that configuration does not necessarily reflect the industry 
composition within the regions as each region differs regarding firm 
number, size and business lines. For instance, while the vast majority 
of branch offices within each region are large firm branch offices, 
most of the firms headquartered in each region are small firms.\23\ In 
addition, when vacancies arise, the three-one-three District Committee 
configuration can make it more challenging to find eligible individuals 
within the districts who can be appointed to serve as committee 
members. Although large firms have many branches per district, FINRA 
staff has found it more difficult to find large-firm individuals to 
serve in districts where the firm is not headquartered. Conversely, 
FINRA staff has found that small-firm individuals are interested in 
committee service, but otherwise eligible individuals cannot be 
appointed if the prescribed small-firm committee positions are already 
filled. Thus, FINRA is not proposing to retain the three-one-three 
configuration.
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    \21\ See FINRA Regulation By-Laws, Article VIII, Section 8.2(a); 
see also FINRA Regulation By-Laws, Article I, paragraph (jj) 
(definition of ``Small Firm''), FINRA Regulation By-Laws, Article I, 
paragraph (aa) (definition of ``Mid-Size Firm''), and FINRA 
Regulation By-Laws, Article I, paragraph (y) (definition of ``Large 
Firm'').
    \22\ See supra note 20 (2011 Rule Filing Approval Order amending 
the FINRA Regulation By-Laws to, among other things, adjust the size 
and composition of the District Committees to require three-sevenths 
of the District Committee members to be associated with Small Firms 
(up to 150 registered persons), one-seventh with Mid-Size Firms (151 
to 499 registered persons), and three-sevenths with Large Firms (500 
or more registered persons), thereby aligning District Committee 
representation more closely with the industry representation on the 
FINRA Board).
    \23\ Based on data from the Central Registration Depository 
(``Web CRD''[supreg]), the West Region has 31,075 large-firm, 2,198 
mid-size-firm, and 2,292 small-firm branch offices and 24 large 
firms, 24 mid-size firms, and 592 small firms headquartered in the 
region. The Midwest Region has 34,661 large-firm, 3,071 mid-size-
firm, and 2,269 small-firm branch offices and 48 large firms, 50 
mid-size firms, and 486 small firms headquartered in the region. The 
South Region has 36,290 large-firm, 2,680 mid-size-firm, and 2,560 
small-firm branch offices and 26 large firms, 33 mid-size firms, and 
606 small firms headquartered in the region. The North Region has 
28,663 large-firm, 1,899 mid-size-firm, and 2,392 small-firm branch 
offices and 39 large firms, 47 mid-size firms, and 726 small firms 
headquartered in the region. The New York Region has 4,022 large-
firm, 463 mid-size-firm, and 1,590 small-firm branch offices and 40 
large firms, 42 mid-size firms, and 936 small firms headquartered in 
the region.
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    The proposed amendments would reduce the number of committee 
members in the West and South regions from 21 to 18 and in the Midwest, 
North, and New York regions from 14 to 12. This size recalibration is 
intended to align the number of committee seats with the declining 
membership interest in committee service while still maintaining 
adequate district-level representation on the Regional Committees.\24\
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    \24\ The proposed amendments to Section 8.2(a) retain the 
current committee size parameters that a committee consist of no 
fewer than five and no more than 20 members, unless otherwise 
provided by resolution of the FINRA Regulation Board and the 
provision that any reduction in the authorized number of such 
members shall not shorten any existing member's term. See proposed 
FINRA Regulation By-Laws, Article VIII, Section 8.2(a).
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Regional Committee Member Eligibility and Member Voting Standards
    FINRA also proposes amending FINRA Regulation By-Laws Section 
8.2(a) to require that each Regional Committee member be associated 
with a FINRA member eligible to vote in the district-level elections 
and work for a FINRA member headquartered within the district the 
member will be representing on the committee. For purposes of the 
provision, a firm is headquartered where it designates its main address 
on the firm's Form BD. A firm can only have one main address on its 
Form BD, and FINRA's member firms are assigned to one of the 11 
districts outlined above based on the location of their main office.
    The proposed eligibility requirement differs from the current 
requirement that

[[Page 25064]]

District Committee members must be associated with a FINRA member firm 
eligible to vote in the district and work primarily from the member's 
principal office or a branch office that is located within the district 
where the member would serve on a District Committee.\25\ FINRA 
believes that requiring committee member candidates to work for a firm 
that is headquartered in the district being represented rather than 
working from a firm's office in a particular district will result in 
committee member candidates that better reflect the type of firms 
within the respective regions, while ensuring that all districts have 
adequate representation within their respective Regional Committees. 
Committee member candidates from firms headquartered in a district also 
often bring regional and product expertise pertinent to that area.
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    \25\ See FINRA Regulation By-Laws, Article VIII, Section 
8.2(a)(1)-(2).
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    FINRA proposes retaining the requirement that a committee member be 
registered in the capacity of a branch manager or principal or denoted 
as a corporate officer of the FINRA member.\26\ This requirement is 
designed to ensure that committee members have requisite experience for 
purposes of participating in meetings.\27\
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    \26\ See proposed FINRA Regulation By-Laws, Article VIII, 
Section 8.2(a)(1).
    \27\ See Securities Exchange Act Release No. 64002 (March 2, 
2011), 76 FR 12390 (March 7, 2011) (Notice of Filing of File No. SR-
FINRA-2011-011).
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    In addition, the proposed amendments retain district-level 
elections for Regional Committee members. As noted above, each district 
within its respective region will elect six Regional Committee 
members.\28\ Each firm headquartered in the district shall be eligible 
to cast one vote for each position to be filled on a district's 
election ballot with the candidate receiving the largest number of 
votes cast by FINRA members eligible to vote in the district filling 
the vacant seat.\29\ The proposed amendments do not retain the current 
requirement that member firms are only eligible to vote for committee 
members based on the applicable classification of the firm with which 
the committee member candidates are associated (e.g., only large firms 
are currently eligible to vote for one of the three large-firm 
committee member candidates).\30\ Also, as noted previously, firms with 
a branch office located in the district will no longer be eligible to 
vote in the district-level elections (unless a firm with a branch 
office in a particular district is also headquartered in that 
district). However, the proposed change will expand the voting 
opportunities for eligible member firms headquartered within a district 
by providing them the opportunity to cast a vote for every open seat 
rather than requiring that each firm vote only for seats representing 
that firm's size classification (small, mid-size or large). In 
addition, as with the other proposed composition and eligibility 
changes, FINRA believes that the revised voting eligibility 
requirements and election process will reduce potential impediments 
that could hinder Regional Committee composition from reflecting the 
industry within that region. FINRA intends to monitor Regional 
Committee composition and will consider other changes, as appropriate, 
if the proposed changes do not achieve the intended goal. The proposed 
amendments retain the direct candidate self-nomination and vacancy 
appointment process currently used for District Committee 
elections.\31\
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    \28\ See proposed FINRA Regulation By-Laws, Article VIII, 
Section 8.2(a).
    \29\ See proposed FINRA Regulation By-Laws, Article VIII, 
Section 8.9 and Section 8.17.
    \30\ See FINRA Regulation By-Laws, Article VIII, Section 8.9 and 
Section 8.17.
    \31\ See proposed FINRA Regulation By-Laws, Article VIII, 
Section 8.8.
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    As a transitional measure, and to ensure that the Regional 
Committees begin with a full complement of members, upon the proposed 
rule change becoming effective, FINRA would appoint all current 
District Committee members to serve on the Regional Committees. As a 
result, the Regional Committee members initially would include: (1) Any 
current District Committee members from within each region who meet the 
proposed eligibility requirement that the member be associated with a 
firm headquartered in the district the member is representing; and (2) 
the six current District Committee members who do not meet the proposed 
eligibility requirement that they be associated with a member firm 
headquartered within the district they are representing. This 
transitional measure will allow all current committee members to serve 
their full terms, consistent with the By-Laws,\32\ and prevent them 
from being disenfranchised as a result of the proposed rule change.\33\ 
If the number of District Committee members is insufficient to fulfill 
all the Regional Committee seats, FINRA will appoint eligible 
individuals who are willing to serve on the Regional Committees.\34\
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    \32\ See FINRA Regulation By-Laws, Article VIII, Section 8.2(a) 
(providing that no decrease in the authorized number of members of a 
District Committee shall shorten the term of office of any member).
    \33\ Four of the committee members have one year remaining on 
their terms, while the other two committee members have two years 
remaining on their terms.
    \34\ FINRA would appoint the initial Regional Committee members 
using its power to appoint qualified persons to fill Regional 
Committee vacancies where there is no designated candidate. See 
proposed FINRA Regulation By-Laws, Article VIII, Section 8.8(b).
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    The initial 12 or 18 members for each Regional Committee would be 
appointed for rolling terms, with four or six members appointed for 
three years, four or six members appointed for two years, and four or 
six members appointed for one year. As noted previously, the majority 
of the initial Regional Committee members will be current District 
Committee members. FINRA intends to appoint the District Committee 
members for terms concurrent with the expiration of their current 
terms. Thus, the District Committee members elected or appointed in 
2017 for full terms will serve three-year terms, the District Committee 
members elected or appointed in 2016 for full terms will serve two-year 
terms, and the District Committee members elected or appointed in 2015 
for full terms will serve one-year terms. The purpose of the rolling 
terms is to preserve the current practice described below of providing 
that one-third of the committees' positions will be available for 
election each year.
Regional Committee Term of Office and Meeting Location and Frequency
    The proposed amendments retain for Regional Committee members the 
District Committees' three-year ``full term'' limit.\35\ Also, 
consistent with the District Committees' term of office provisions, the 
proposed rule change does not impose a limit on the number of total 
terms that may be served, with the exception that a committee member 
may serve no more than two full terms consecutively.\36\ The proposed 
rule change differs from the current provision that District Committee 
members may not serve two consecutive full terms. The proposed change 
is based, in part, on a Special Notice commenter's suggestion that 
FINRA eliminate the prohibition against District Committee members 
serving two consecutive full terms.\37\ In

[[Page 25065]]

addition, as noted above, the proposed amendments continue the current 
District Committee practice of staggering the three-year committee 
membership terms to provide that one-third of each Regional Committee's 
positions be available for election each year.
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    \35\ See proposed FINRA Regulation By-Laws, Article VIII, 
Section 8.3.
    \36\ See supra note 35. The proposed rule change would not 
prohibit someone appointed or elected to the committee to serve a 
partial term from serving two consecutive terms in addition to the 
partial term.
    \37\ Commonwealth. One Special Notice commenter suggested 
limiting District Committee members to one term. See Elmcore 
Securities, LLC. (noting also that she did not have enough input 
regarding the District Committees' activities to answer the Special 
Notice question asking about the District Committees' usefulness). 
Another commenter approved the current prohibition against serving 
two consecutive full terms. See Midwest Region Committees; see also 
Lara, May (indicating, without further detail, support for the 
current three-year term and term limits). Both commenters supported 
their suggestions as a means of providing more opportunities for 
interested individuals to become committee members and provide 
input. However, as noted above, there has been a general lack of 
interest in committee service. In addition, FINRA does not have any 
evidence supporting the supposition that interest in committee 
service will increase by imposing term limitations.
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    FINRA also proposes that the Regional Committees retain the current 
requirement to meet on a regional basis.\38\ In addition, the Regional 
Committees will meet in-person two times a year, consistent with the 
general practice for District Committee meeting frequency.
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    \38\ See proposed FINRA Regulation By-Laws, Article VIII, 
Section 8.5.
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Regional Committee Regulatory Role and Purpose
    FINRA proposes that the Regional Committees assume the District 
Committees' regulatory roles outlined in the FINRA Regulation By-Laws 
to:
     Serve as panelists in disciplinary proceedings in 
accordance with FINRA rules;
     consider and recommend policies and rule changes to the 
Board; and
     endeavor to educate FINRA members and others as to the 
objects, purposes and work of FINRA and FINRA Regulation.\39\
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    \39\ See proposed FINRA Regulation By-Laws, Article VIII, 
Section 8.2(a).
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    In addition, FINRA intends to have Regional Committee members be 
responsible for communicating high-level information regarding meeting 
discussions to their constituents. This responsibility would be 
consistent with the role noted above that the Regional Committees 
educate FINRA members and others regarding FINRA and its work. The 
added responsibility also is consistent with a Special Notice 
commenter's suggestion that District Committees be used to greater 
effect by helping educate FINRA about district developments.\40\
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    \40\ NSCP.
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Regional Committee Administration and Procedures
    The staff proposes retaining without significant changes (other 
than conforming changes to reflect the proposed elimination of firm-
size classifications and the committee member candidate and member 
voting eligibility criteria that a firm have a principal or branch 
office within a district) the administrative and procedural provisions 
relating to meetings, vacancies, committee support, expenses and 
compensation, self-nomination, ballots, candidate solicitation, voter 
qualification list, extensions of time, and definitions.\41\
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    \41\ See generally proposed FINRA Regulation By-Laws, Article 
VIII, Sections 8.2(b)-(d), 8.4 (Filling of Vacancies on Regional 
Committees), 8.5 (Meetings of Regional Committees), 8.6 (Expenses of 
Regional Committees), 8.7 (Solicitation of Candidates and 
Secretary's Notice to FINRA Members), 8.8 (Self-Nomination of 
Candidates and Vacancy Appointments), 8.10 (Administrative Support), 
8.11 (Ballots), 8.12 (Vote Qualification List), 8.13 (Ballots 
Returned as Undelivered), 8.14 (General Procedures for Qualification 
and Accounting of Ballots), 8.15 (Ballots Set Aside), 8.16 (Invalid 
Ballots), 8.17 (Election Results), 8.18 (Extensions of Time and 
Additional Procedures), 8.19 (Definitions) and 9.1 (Compensation of 
Board, Council, and Committee Members).
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Proposed Conforming Amendments
    FINRA is proposing to amend Article I (Definitions) of the FINRA 
Regulation By-Laws to delete the term ``District Committee'' and add 
the term ``Regional Committee'' \42\ and make conforming amendments to 
the FINRA Regulation By-Laws to replace District Committee references 
with Regional Committee references. FINRA also proposes amending the 
FINRA 9000 Rule Series (Code of Procedure) to replace, where 
appropriate, the term ``District Committee'' with ``Regional 
Committee.'' In addition, FINRA proposes amending FINRA Rule 9120 
(Definitions) to clarify that the ``District Committee'' definition is 
referring to the District Committees that will be replaced by the 
proposed Regional Committees, replace the term ``Primary District 
Committee'' with ``Primary Regional Committee,'' and add the term 
``Regional Committee.'' \43\
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    \42\ See proposed FINRA Regulation By-Laws, Article I(hh) 
(definition of ``Regional Committee'').
    \43\ See proposed amendments to FINRA Rule 9120(g) (adding the 
term ``former'' to the District Committee definition) and FINRA Rule 
9120(y) (replacing the term ``District'' with ``Regional'' in the 
``Primary District Committee'' definition) and proposed FINRA Rule 
9120(z) (``Regional Committee'').
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    FINRA also is proposing amendments to FINRA Rule 9231 (Appointment 
by the Chief Hearing Officer of Hearing Panel or Extended Hearing Panel 
or Replacement Hearing Officer) and FINRA Rule 9820 (Appointment of 
Hearing Officer and Hearing Panel) to clarify that former District 
Committee members and current and former Regional Committee members are 
eligible to serve as disciplinary hearing panelists.\44\ FINRA also is 
exploring options to enlarge the pool of panelists and better educate 
the Regional Committees about the critical function of serving on 
hearing panels in FINRA disciplinary proceedings.
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    \44\ The proposed rule change also updates the cross-reference 
to FINRA Rule 9231 in FINRA Rule 9232(d) (Criteria for Appointment 
of a Panelist).
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing so FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(4) of the Act,\45\ which requires, among 
other things, that FINRA rules must be designed to assure a fair 
representation of its members in the selection of its directors and 
administration of its affairs, and with Section 15A(b)(6) of the 
Act,\46\ which requires, among other things, that FINRA rules must be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. FINRA believes that the 
proposed rule change will result in a more effective Regional Committee 
structure that aligns with how FINRA administratively groups and 
manages the current District Committees. The proposed rule change also 
will continue to provide members with the opportunity to elect and 
serve as committee members. More specifically, the proposed rule change 
will expand the voting opportunities for members headquartered within a 
district by providing them the opportunity to cast a vote for every 
open seat rather than requiring each member to vote only for seats 
representing that member's size classification (small, mid-size or 
large). However, pursuant to the proposed rule change, members with a 
branch office located in the district will no longer be eligible to 
vote in the district-level elections (unless a firm with a branch 
office in a particular district is also headquartered in that 
district). As further detailed above, the representation of Regional 
Committee members will more closely reflect the membership and industry 
configuration within the respective regions.
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    \45\ 15 U.S.C. 78o-3(b)(4).
    \46\ 15 U.S.C. 78o-3(b)(6).

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[[Page 25066]]

    FINRA further believes that the proposed rule change is consistent 
with Section 15A(b)(8) of the Act,\47\ which requires, among other 
things, that FINRA rules must be designed to provide a fair procedure 
for the disciplining of members and persons associated with members. 
The proposed rule change maintains the necessary eligibility 
requirements to ensure that the pool of potential panelists is composed 
of qualified members. In addition, by reducing the number of committee 
members in the West and South Regions from 21 to 18 and in the Midwest, 
North, and New York Regions from 14 to 12, the proposed rule change 
only reduces by 12 the maximum number of eligible panelists who would 
be current committee members. FINRA is exploring options to enlarge the 
pool of panelists and better educate the Regional Committees about the 
critical function of serving on hearing panels in FINRA disciplinary 
proceedings.
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    \47\ 15 U.S.C. 78o-3(b)(8).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change will 
not impose any direct costs or additional regulatory obligations on 
members. FINRA will continue its practice of covering committee meeting 
costs and expenses committee members incur by attending meetings in 
person.
    The proposed rule change will reduce representation within each 
Regional Committee from seven seats to six seats per district. However, 
FINRA does not believe that it reduces overall opportunities for 
members to interact with FINRA staff or serve on committees. As noted 
in Special Notice, FINRA has over 30 advisory and ad hoc committees 
that include member representatives who routinely provide input and 
feedback on regulatory initiatives, proposed rule changes, and emerging 
regulatory issues. FINRA regularly engages with the industry through 
its public comment process on proposed rule changes. In addition, FINRA 
conducts member outreach through a number of regularly scheduled 
events, including member meetings, round tables, district compliance 
meetings, and conferences.

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 on the 
proposed rule change. As noted above, in March 2017, FINRA issued a 
Special Notice on engagement, which solicited comment regarding FINRA's 
engagement programs, including the District Committees generally, and, 
in response, several commenters discussed the District Committees.\48\
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    \48\ See supra notes 5 and 6.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \49\ and Rule 19b-
4(f)(6) thereunder.\50\
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    \49\ 15 U.S.C. 78s(b)(3)(A).
    \50\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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-2018-021 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-2018-021. 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 10:00 a.m. and 
3:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FINRA-2018-021, and should be submitted 
on or before June 21, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
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    \51\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11728 Filed 5-30-18; 8:45 am]
 BILLING CODE 8011-01-P


