[Federal Register Volume 81, Number 223 (Friday, November 18, 2016)]
[Notices]
[Pages 81844-81854]
[FR Doc No: 2016-27739]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79296; File No. SR-FINRA-2016-029]

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

November 14, 2016.

I. Introduction

    On July 27, 2016, 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 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the Code of Arbitration
Procedure for Customer Disputes (``Customer Code'') and the Code of
Arbitration Procedure for Industry Disputes (``Industry Code'' and,
together with the Customer Code, ``Codes''), to require all parties,
except customers who are not represented by an attorney or other person
(``pro se customers''), to use the FINRA Office of Dispute Resolution's
Party Portal (``Party Portal'') to file initial statements of claim and
to file and serve pleadings and other documents on FINRA or any other
party. Under the proposed rule change, FINRA would require parties to
use the Party Portal to file and serve correspondence relating to
discovery requests, but would not permit parties to file documents
produced in response to discovery requests through the Party Portal.
FINRA is also proposing to amend the Code of Mediation Procedure
(``Mediation Code'') to permit mediation parties to agree to use the
Party Portal to submit and retrieve all documents and other
communications. In addition, FINRA is revising other provisions in the
Codes to conform to existing practice.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal
Register on August 17, 2016.\3\ The public comment period closed on
September 7, 2016. On September 26, 2016, FINRA extended the time
period in which the Commission must approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to approve or disapprove the proposed rule change to
November 15, 2016.\4\ The Commission received five comment letters in
response to the Notice.\5\ On October 28, 2016, FINRA responded to the
comment letters received in response to the Notice.\6\ This order
grants approval of the proposed rule change.
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    \3\ See Exchange Act Release No. 78549 (Aug. 11, 2016), 81 FR
54858 (Aug. 17, 2016) (File No. SR-FINRA-2016-029) (``Notice'').
    \4\ See Letter from Margo A. Hassan, Associate Chief Counsel,
FINRA, to Lourdes Gonzalez, Assistant Chief Counsel--Sales
Practices, Division of Trading and Markets, Securities and Exchange
Commission, dated September 26, 2016.
    \5\ See Letters from Steven B. Caruso, Maddox Hargett & Caruso,
P.C., dated August 12, 2016 (``Caruso Letter''); David Lagziel, CEO,
Conflicteam, dated August 30, 2016 (``Conflicteam Letter''); David
T. Bellaire, Executive Vice President and General Counsel, Financial
Services Institute (``FSI''), dated September 7, 2016 (``FSI
Letter''); Nicole Iannarone, Assistant Clinical Professor, and
Michael F. Williford, Student Intern, Investor Advocacy Clinic
(``IAC''), Georgia State University College of Law, dated September
7, 2016 (``IAC Letter''); and Hugh Berkson, President, Public
Investors Arbitration Bar Association (``PIABA''), dated September
7, 2016 (``PIABA Letter''). The comment letters are available on
FINRA's Web site at http://www.finra.org, at the principal office of
FINRA, at the Commission's Web site at https://www.sec.gov/comments/sr-finra-2016-029/finra2016029.shtml, and at the Commission's Public
Reference Room.
    \6\ See Letter from Margo A. Hassan, Associate Chief Counsel,
FINRA, to Brent J. Fields, Secretary, Securities and Exchange
Commission, dated October 28, 2016 (``FINRA Letter''). The FINRA
Letter is available on FINRA's Web site at http://www.finra.org, at
the principal office of FINRA, at the Commission's Web site at
https://www.sec.gov/comments/sr-finra-2016-029/finra2016029.shtml,
and at the Commission's Public Reference Room.
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II. Description of the Proposed Rule Change \7\
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    \7\ The subsequent description of the proposed rule change is
substantially excerpted from FINRA's description in the Notice. See
Notice, 81 FR 54858-66.
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Background

    In 2004, FINRA implemented an online, web-based arbitration claim
notification and filing system that allowed a claimant \8\ or
claimant's counsel to file voluntarily an arbitration claim through
that system (``online claim filing system'').\9\ Currently, the Codes
allow a claimant to file a claim \10\ either in hard copy or by using
the online claim filing system.\11\ The online claim filing system
allows a claimant to complete forms, submit documents, and pay filing
fees online.
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    \8\ See Rules 12100(e) and 13100(e). The term ``claimant'' means
a party that files the statement of claim that initiates an
arbitration proceeding.
    \9\ See Notice to Members 04-56.
    \10\ See Rules 12302(a) and 13302(a).
    \11\ See FINRA, Arbitration Online Claim Filing, available at
http://www.finra.org/arbitration-and-mediation/online-claim-filing.
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    In June 2013, FINRA introduced a separate secure, online service
called the Dispute Resolution Portal (``DR Portal'') to facilitate
interactions among parties, arbitrators, mediators, and FINRA staff on
arbitration case-related matters. As further discussed below, the DR
Portal includes both a Party Portal and an Arbitrator and Mediator
Portal. The Party Portal uses an invitation/registration process that
provides a way to send and receive arbitration and mediation case
documents. For example, once a party notifies FINRA of the name of the
person who should be given access to the arbitration or mediation case
file (typically the party's representative), FINRA sends an email to
the named person with an invitation to register on the Party Portal via
a personalized web address link that provides complete access to the
specified case. Once registered, the representative can provide other
individuals (such as legal assistants and co-counsel) with access to
appropriate cases on the Party Portal.
    FINRA initially opened the Party Portal to a small number of firms
to gain experience with the technology and to incorporate user
feedback. Over time, FINRA expanded access to the Party Portal, and as
of July 20, 2015, FINRA allowed all parties to use the Party Portal
voluntarily in all arbitration and mediation cases filed as of that
date. Through the Party Portal, parties can, among other things,
receive documents from and send documents to FINRA, receive service
\12\ of a claim, submit an answer to a claim, submit additional case
documents, view the status of a case, and select arbitrators.
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    \12\ Service is the process of delivering a pleading (e.g., the
statement of claim or answer) or other documents to the opposing
party.
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    FINRA has periodically upgraded the Party Portal to allow parties
to, among other things, schedule hearings, receive automated messages
when new documents are posted, see an indication of received documents
not yet viewed, and send documents to other Party Portal case
participants. FINRA believes that using the online claim filing system
improves the forum by hastening the

processing of claims, and reducing the burden of using hard-copy
documents by parties and FINRA staff. Accordingly, FINRA believes that
it would be appropriate to require parties, with limited exceptions, to
use the Party Portal on a mandatory basis.
    The Arbitrator and Mediator Portal is open to all FINRA arbitrators
and mediators to use on a voluntary basis. In this portal, arbitrators
and mediators can view and update their profile and disclosure
information, access information about their assigned cases, schedule
hearing dates, and view case documents. FINRA believes that use of the
Arbitrator and Mediator Portal has enhanced efficiencies at the forum.

Proposed Rule Change

    FINRA is proposing to require parties to use the Party Portal to
submit documents and view their arbitration case information and
documents in most instances. There would be an exception for pro se
customers.\13\ FINRA would invite pro se customers to use the Party
Portal, but would not require them to do so. However, if a pro se
customer files a claim using the Party Portal, then FINRA would require
the customer to use the Party Portal for the duration of the
arbitration process.
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    \13\ FINRA would define pro se in the Customer Code as a party
that is not represented by an attorney or others during an
arbitration or mediation. FINRA would not define pro se in the
Industry Code. Under the proposed rule change, FINRA would not
exempt pro se parties from the requirement under the Industry Code
to submit documents through the Party Portal.
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    FINRA would require parties to use the Party Portal to file and
serve correspondence relating to discovery requests, but would not
permit parties to file documents produced in response to discovery
requests through the Party Portal. FINRA believes that maintaining the
correspondence in the Party Portal makes sense because it is part of
the case record. However, depending on the subject of a case, discovery
production can be voluminous, and FINRA does not believe it would be
efficient for the Party Portal to be used as the receptacle for
parties' exchanged discovery. FINRA states that this approach is
consistent with its current practice.
    Finally, under the proposed rule change, because mediation is
voluntary in all instances, FINRA would permit parties to a mediation
proceeding to use the Party Portal on a voluntary basis to submit and
view their mediation case information and documents.
    FINRA is proposing to amend each of the rules in the Codes affected
by required use of the Party Portal. The changes would update the rule
language to reflect how parties comply with the Codes through use of
the Party Portal. FINRA Rules 12300 and 13300 describe how parties file
pleadings \14\ and documents with FINRA and serve pleadings and
documents on other parties through the Party Portal. The terms ``file''
and ``serve''--terms associated with use of the Party Portal--are used
throughout the Codes. Under the proposed rule change, when a party
submits pleadings or documents through the Party Portal, the party
would accomplish both filing with the Director \15\ and, in most
instances, service on all other parties and the arbitrators.\16\
Therefore, in most of the proposed rule amendments, FINRA would delete
references to parties filing pleadings and documents with the Director
at the same time as on other parties, and providing copies for
arbitrators.
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    \14\ FINRA Rule 12100 defines a pleading as ``a statement
describing a party's causes of action or defense. Documents that are
considered pleadings are: A statement of claim, an answer, a
counterclaim, a cross claim, a third party claim, and any replies.''
    \15\ The Director refers to the FINRA Office of Dispute
Resolution Director as described in FINRA Rule 12103 (Director of
Dispute Resolution).
    \16\ For example, FINRA Rule 12304 (Answering Counterclaims)
currently provides that a claimant must directly serve any answer to
a counterclaim on each other party and at the same time must file
the answer to the counterclaim with the Director with additional
copies for the arbitrator. Under the proposed rule change, as
described further in the discussion, once the claimant submits the
answer through the Party Portal, the claimant has also filed the
answer with the Director.
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    For reader convenience, the discussion below only details the
proposed changes to the FINRA rules in the Customer Code. However,
FINRA is proposing to make substantively similar amendments to the
Industry Code. The primary difference between the proposed amendments
to the Customer Code and the Industry Code is that the Customer Code
provides an exemption from required use of the Party Portal for pro se
customers. The Industry Code would not provide an exemption for any
party.
    As a result of the proposed rule change, FINRA would need to update
several cross-references in the Codes. The proposed updates are noted
as applicable. In addition, FINRA states that its forum users have
indicated that for ease of citation, they would prefer that FINRA use
numbers and letters instead of bullets. Therefore, FINRA is proposing
to replace bullets with numbers or letters in each of the rules
affected by the proposed rule change. The proposed replacements are
noted where applicable.
    In addition to changes in the Codes, FINRA is proposing to amend
the Mediation Code to permit parties to agree to use the Party Portal
to submit and retrieve all documents and other communications and to
view mediation case information. The proposed amendments are discussed
below.

Customer Code

FINRA Rule 12100--Definitions
    FINRA is proposing to amend FINRA Rule 12100 to add new definitions
and to amend several definitions in the Customer Code relating to the
required use of the Party Portal.
    Arbitrator and Mediator Portal--FINRA is proposing to add a new
definition to the rule to define ``Arbitrator and Mediator Portal'' as
the web-based system that allows invited arbitrators and mediators to
access a secure section of FINRA's Web site to submit documents and
information and to view their arbitration and mediation case
information and documents.\17\
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    \17\ See proposed FINRA Rule 12100(a).
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    Claim Notification Letter--FINRA is proposing to add a new
definition to the rule to define ``Claim Notification Letter'' as the
notice that FINRA would send respondents indicating that they have been
named as a party in a statement of claim.\18\ The new definition would
specify that the Claim Notification Letter will provide information
about accessing the Party Portal to obtain a copy of the statement of
claim filed by the claimants and information about the arbitration,
including the hearing location selected by the Director and the
deadline for filing a statement of answer.
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    \18\ See proposed FINRA Rule 12100(f).
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    Day--In the current rule, FINRA defines the term ``day'' as a
calendar day.\19\ The definition provides that if a deadline specified
in the Code falls on a Saturday, Sunday or any FINRA holiday, the
deadline is extended until the next business day. Under the proposed
rule change, other than the statement of claim, which FINRA serves upon
all respondents, parties will be able to serve documents on each other
through the Party Portal on any day and at any time. Service would
occur immediately after FINRA receives a document, regardless of the
day or time of receipt. If, for example, a party submits a document on
a Saturday, the Party Portal will immediately transmit the documents to
the appropriate parties on that day. Certain deadlines in the Code are
triggered by a party's receipt of

a pleading.\20\ FINRA does not believe it would be appropriate to
trigger a deadline based on an opposing party's weekend use of the
Party Portal. Therefore, FINRA is proposing to amend the definition of
``day'' to clarify that if a party receives pleadings or other
documents on a Saturday, Sunday or any FINRA holiday, the date of
receipt shall be the next business day.
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    \19\ See FINRA Rule 12100(j).
    \20\ See FINRA Rules 12304 and 12305 for examples of deadlines
triggered by receipt of a pleading.
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    Non-Public Arbitrator--FINRA is proposing to amend the definition
of non-public arbitrator \21\ to update cross-references in the rule.
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    \21\ See proposed FINRA Rule 12100(r).
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    Party Portal--FINRA is proposing to add a new definition to the
rule to define ``Party Portal'' as the Web-based system that is
accessible by arbitration and mediation parties and their
representatives. The Party Portal allows invited participants to access
a secure section of FINRA's Web site to submit documents and view their
arbitration and mediation case information and documents.\22\
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    \22\ See proposed FINRA Rule 12100(t).
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    Pro Se--FINRA is proposing to add a new definition to the rule to
define ``Pro Se'' to mean a party that is not represented by an
attorney or others during an arbitration or mediation.\23\
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    \23\ See proposed FINRA Rule 12100(x). FINRA does not define pro
se in the Industry Code because there would not be an exemption for
any pro se parties in intra-industry disputes.
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    Public Arbitrator--FINRA is proposing to amend the definition of
Public Arbitrator \24\ to update cross-references in the rule.
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    \24\ See proposed FINRA Rule 12100(y).
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    In addition, FINRA would reletter the definitions to reflect the
addition of the new terms.
FINRA Rule 12211--Direct Communication Between Parties and Arbitrators
    Subject to specified limitations, FINRA allows parties that are
represented by counsel to communicate directly with arbitrators during
an arbitration proceeding. FINRA Rule 12211, which outlines the
procedures that parties and arbitrators must follow when they agree to
direct communication, currently indicates that parties may send items
by regular mail, overnight courier, facsimile, or email. Under the
proposed rule change, because parties would be required to use the
Party Portal for transmitting documents to each other, and would
continue to use other methods to send items to the arbitrators, FINRA
is proposing to: (1) Amend FINRA Rule 12211(e) to specify that parties
are allowed to send items to the arbitrators by first-class mail,
overnight mail service, overnight delivery service, hand delivery,
email, or facsimile as specified in an order issued by the arbitrators;
(2) amend Rule 12211(f) to delete the requirement that the parties send
copies of the materials they sent to the arbitrators to each other and
the Director at the same time and in the same manner, requiring instead
that they serve the materials on each other and filed with the Director
through the Party Portal; and (3) amend Rule 12211(g) to clarify that
parties must file copies of arbitrator orders and decisions with the
Director through the Party Portal.
    Rule 12211(b) provides that if at some point during an arbitration
a party chooses to appear pro se, which the rule defines in a
parenthetical as meaning ``without counsel,'' then the rule no longer
applies. As stated above, FINRA is proposing to amend Rule 12100 to
define pro se to mean a party that is not represented by an attorney or
others during an arbitration or mediation. FINRA believes that the new
definition of pro se in Rule 12100 is inconsistent with the current
definition in Rule 12211. Therefore, FINRA is proposing to amend Rule
12211(b) to delete the reference to ``pro se.'' Instead, the rule would
provide that if a party chooses to appear without counsel, then the
rule would no longer apply.\25\
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    \25\ FINRA is proposing to amend FINRA Rule 13211 to remove the
reference to pro se in the rule. Although FINRA is not proposing to
define pro se in the Industry Code, FINRA believes the amendment
would add clarity to the rule and avoid forum user confusion because
FINRA is proposing to define pro se in the Customer Code.
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FINRA Rule 12300--Filing and Serving Documents
    FINRA is proposing to delete the content in FINRA Rule 12300
(Filing and Serving Documents) in its entirety and replace it with new
language which describes how filing and service, among other things,
would operate when FINRA requires parties to use the Party Portal.
    Party Portal--New Rule 12300(a)(1) would provide that parties must
use the Party Portal to file initial statements of claim and to file
and serve pleadings and any other documents on the Director or any
other party. The rule would also provide that the Director may exercise
authority to permit the use of other means of filing or service in the
case of an extended Party Portal outage or in other extraordinary
circumstances.\26\
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    \26\ As an example of an extraordinary circumstance, FINRA
referenced a severe weather event causing an extended power outage.
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    Rule 12300(a)(2) would provide an exemption for pro se customers
and would outline the procedures for pro se customers who do not wish
to use the Party Portal. While a pro se customer would not be required
to take any affirmative steps to opt out of using the Party Portal, if
a pro se customer files a claim using the Party Portal, then the pro se
customer must use the Party Portal for the duration of the arbitration
process. The Party Portal would include a warning to pro se customers
that if they file their claim using the online filing facility, they
will be required to use the Party Portal for the remainder of the
arbitration proceeding.
    Concerning pro se customers who opt out of using the Party Portal,
Rule 12300(a) would provide that they: (1) May file claims and serve
documents by first-class mail, overnight mail service, overnight
delivery service, hand delivery, email or facsimile; (2) must comply
with the provisions relating to filing an initial statement of claim
outlined in FINRA Rule 12302 (Filing an Initial Statement of Claim);
and (3) must provide proof of service for any documents served outside
of the Party Portal (except for the initial statement of claim because
the Director will serve the Claim Notification Letter or initial
statement of claim on the respondents).
    FINRA stated that it does not want parties to use the Party Portal
to submit documents they produce during discovery because FINRA does
not believe that it would be efficient, particularly in cases where
discovery production is voluminous. Therefore, FINRA is proposing to
provide in Rule 12300(a)(3) that parties shall not file with FINRA or
serve on any other party, through the Party Portal, documents produced
during discovery pursuant to the Rule 12500 Series. Available service
methods for such documents are first-class mail, overnight mail
service, overnight delivery service, hand delivery, email, or
facsimile. FINRA states that this approach is consistent with its
current practice.
    Filing--New Rule 12300(b) would provide that with the exception of
pro se customers who opt out of using the Party Portal, parties must
file initial statements of claim and all pleadings and other documents
with the Director through the Party Portal. This includes pleadings and
documents served on pro se customers and other parties by other means.
The rule would provide that parties must file with the Director any
written responses relating to discovery requests under Rules 12506 and
12507, but must not file any of the documents produced in response to
discovery

requests as provided in Rule 12300(a)(3).
    The rule would also provide that parties must file arbitrator
ranking lists \27\ through the Party Portal, and that filing is
accomplished on the day of submission through the Party Portal. Filing
by first-class mail or overnight mail is accomplished on the date of
mailing, and filing by any other means is accomplished on the date of
delivery as is provided in the current rules.
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    \27\ See FINRA Rules 12402(d) and 12403(c).
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    Service--New Rule 12300(c) would provide that the Director will
serve the Claim Notification Letter or initial statement of claim on
the respondents. In practice, this means that as a first step FINRA
would serve only the Claim Notification Letter on respondents that are
not identified as customers. If a respondent does not access the Party
Portal and view the statement of claim, FINRA would contact the
respondent and ask if they received the Claim Notification Letter. If
the respondent indicates that they did not receive the letter, FINRA
staff would offer to serve the statement of claim in another manner
such as by email or regular mail to afford the respondent an additional
opportunity to receive the statement of claim and instructions on how
to access the Party Portal.
    Concerning customers, upon receipt of an initial statement of
claim, where a customer is a claimant, FINRA states that it would know
if the customer is represented by counsel or another person. However,
where a customer is a respondent, FINRA states that it would not know
if the customer intends to be represented by counsel or any other
individual. Therefore, FINRA would serve all customer respondents with
the initial statement of claim along with the Claim Notification Letter
explaining that parties other than pro se customers are required to use
the Party Portal, and that pro se customers are invited to use the
Party Portal.
    The Claim Notification Letter would specify that except for pro se
customers who opt out of using the Party Portal, parties must serve all
pleadings and other documents, except as provided in Rule 12300(a)(3)
relating to documents produced in discovery, through the Party Portal.
It would explain that parties serve pro se parties who opt out of using
the Party Portal by first-class mail, overnight mail service, overnight
delivery service, hand delivery, email or facsimile. Under the proposed
rule, service would be accomplished on the day of submission through
the Party Portal, on the date of mailing by first-class mail or
overnight mail service,\28\ and on the date of delivery by other means.
Finally, for documents not served through the Party Portal, parties
would have to provide proof of service to the Director through the
Party Portal.
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    \28\ FINRA states that ``overnight mail'' service includes, for
example, overnight delivery by Federal Express. FINRA also
identifies common methods parties use at the forum for overnight
mail delivery as Federal Express, United Parcel Service, and United
States Postal Service. FINRA also states that ``other means''
includes, for example, hand delivery.
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    General Rules--FINRA is proposing to incorporate into proposed Rule
12300(d)(1)(A), the current provision in Rule 12300(g)(1) concerning
the redaction of personal confidential information. The current
provision in Rule 12300(g)(2) specifying that the redaction
requirements do not apply to documents that parties exchange with each
other and do not file with the Director, or to documents parties submit
to a panel at a hearing would be renumbered as Rule 12300(d)(1)(B). The
current provision in Rule 12300(g)(3) providing that the redaction
requirements do not apply to Simplified Arbitrations would be
renumbered as Rule 12300(d)(1)(C).
    Proposed Rule 12300(d)(2) would provide that a party must serve any
change of email or mailing address during an arbitration on all other
parties and file this information with the Director. The former rule
referred only to ``address'' changes.
FINRA Rule 12301--Service on Associated Persons
    FINRA is proposing to amend FINRA Rule 12301 relating to service on
associated persons to delete the reference to the Director serving the
initial statement of claim on a respondent associated person. As
explained above, under the proposed rule change, associated persons who
are parties to an arbitration would be required to use the Party
Portal. Therefore, FINRA would serve an associated person with a Claim
Notification Letter instead of a statement of claim.
    FINRA states that in practice its staff will know if an associated
person did not access the Party Portal to view the statement of claim.
FINRA states that in such an instance it would contact the associated
person and ask if he or she received the Claim Notification Letter. If
the associated person indicates that he or she did not receive the
letter, FINRA states that its staff would offer to serve the statement
of claim in another manner such as by email or regular mail to afford
the respondent an additional opportunity to receive the statement of
claim and instructions on how to access the Party Portal.
    If a member and an associated person who is currently associated
with the member are named as respondents in the same arbitration, and
the Director cannot complete service directly on the associated person
as described above, then the proposed rule would provide that the
Director may serve the member with the Claim Notification Letter on
behalf of the associated person.
12302--Filing and Serving an Initial Statement of Claim
    FINRA is proposing to amend FINRA Rule 12302 to reflect how: (1)
Parties would file an initial statement of claim; (2) parties would
submit required fees; and (3) FINRA would serve the initial statement
of claim through the Party Portal.
    Filing--Because most parties would be required to file an initial
statement of claim through the Party Portal as provided in Rule
12300(a), FINRA is proposing to amend Rule 12302(a) to delete the
reference to filing documents in hard copy or electronically through
the Online Arbitration Claim Filing system. FINRA is also proposing to
amend Rule 12302(b) to delete the instruction to parties to file enough
copies for the Director, each arbitrator and each other party. Once a
party files the initial statement of claim through the Party Portal,
FINRA states that its staff would handle service through the Party
Portal or Arbitrator and Mediator Portal as applicable. FINRA states
that if it needs to provide copies of the documents in another manner,
e.g., because a pro se customer has opted out of using the Party
Portal, or an arbitrator is not using the Arbitrator and Mediator
Portal, then FINRA staff would handle reproduction and distribution of
the documents.
    Fees--FINRA is proposing to amend Rule 12302(c) to require the
claimant to pay all required filing fees by credit card or automated
clearing house (``ACH'') through the Party Portal unless the party is a
pro se customer who opts out of using the Party Portal. FINRA states
that these payment options are currently available to forum users and
requiring payment through the Party Portal would make case
administration more efficient. FINRA states that its staff would know
immediately if a filing was deficient for lack of payment and would not
have to ensure that checks that parties submit separately, by U.S. mail
or other method, are correctly matched up to statements of claim
submitted through the Party Portal.

    Service--Currently, Rule 12301(d) provides that unless the
statement of claim is deficient, FINRA will send a copy of the
Submission Agreement, the statement of claim, and any additional
materials the claimant submits, to the other parties and the
arbitrators. FINRA is proposing to amend the rule to specify how staff
would serve each subset of participants in the arbitration case.
Specifically, FINRA would:
     Send the Claim Notification Letter to all non-customer
respondent(s) pursuant to Rule 12302; and
     Send the Claim Notification Letter along with a copy of
the Submission Agreement, the statement of claim, and any additional
materials filed by the claimant, to each customer respondent. The
Director would inform the customer that if the customer is pro se, the
customer is not required to use the Party Portal; and
     Send a copy of the Submission Agreement, the statement of
claim, and any additional materials filed by the claimant to each
arbitrator by first-class mail, overnight mail service, overnight
delivery service, hand delivery, email, facsimile or through the
Arbitrator and Mediator Portal, once the panel has been appointed.
    Additional conforming changes--FINRA would amend the title of Rule
12302 to add a reference to ``Service'' because the rule addresses both
filing and service of the initial statement of claim. FINRA is
proposing to reletter the rule and to replace the bullets in Rule
12302(a) with numbers.
12303--Answering the Statement of Claim
    FINRA is proposing to amend FINRA Rule 12303 to reflect how
respondents would answer a statement of claim using the Party Portal.
    Because most parties would be required to serve each other through
the Party Portal, FINRA would eliminate the instruction in Rule
12303(a) for parties to ``directly'' serve each other with the executed
Submission Agreement and answer. FINRA would amend Rule 12303(b) to
provide that if an answer contains a third party claim,\29\ a
respondent must serve the third party with the answer containing the
third party claim and all documents previously served by any party, or
sent to the parties by the Director, by first-class mail, overnight
mail service, overnight delivery service, hand delivery, email or
facsimile, and must file proof of service with the Director through the
Party Portal. The respondent must file the third party claim with the
Director through the Party Portal except as provided in Rule
12300(a)(2). In addition, because parties would file their Submission
Agreement and answer through the Party Portal, FINRA would amend Rule
12303(c) to delete the instruction for a party to file sufficient
copies for the Director and arbitrators. Finally, FINRA is proposing to
replace the bullets in Rule 12303(a) with numbers.
---------------------------------------------------------------------------

    \29\ See current FINRA Rule 12100(y), which defines ``Third
Party Claim'' to mean a claim asserted against a party not already
named in the statement of claim or any other previous pleading.
---------------------------------------------------------------------------

12304--Answering Counterclaims
    FINRA is proposing to amend FINRA Rule 12304(a) relating to
answering counterclaims to eliminate the instruction for parties to
``directly'' serve each other with the answer to a counterclaim, as
well as the requirement to file sufficient copies for the Director and
arbitrators.
12305--Answering Cross Claims
    As with answering counterclaims, FINRA is proposing to amend FINRA
Rule 12305(a) relating to answering cross claims to eliminate the
instruction for parties to ``directly'' serve each other with the
answer to a cross claim, as well as the requirement to file sufficient
copies for the Director and arbitrators because filing instructions
would be covered by proposed Rule 12300.
12306--Answering Third Party Claims
    FINRA is proposing to amend FINRA Rule 12306 to reflect how FINRA
would handle a third party claim in the Party Portal.
    As explained in the above discussion on Rule 12303, if a
respondent's answer contains a third party claim, the respondent serves
the third party with the claim and all documents previously served by
the parties or filed with FINRA outside of the Party Portal. FINRA
states that once it is notified of the third party claim, it can invite
the third party to use the Party Portal.
    Because most parties would be using the Party Portal, FINRA would
eliminate the instruction in Rule 12306(a) for parties to ``directly''
serve each other with the executed Submission Agreement and answer.
Similarly, FINRA would amend Rule 12306(b) to provide that if an answer
to a third party claim also contains a third party claim, a respondent
would be required serve the third party with the answer containing the
third party claim and all documents previously served by any party, or
sent to the parties by the Director, by first-class mail, overnight
mail service, overnight delivery service, hand delivery, email or
facsimile, and must file proof of service with the Director through the
Party Portal. In addition, because parties would file their Submission
Agreement and answer through the Party Portal, FINRA would amend Rule
12306(c) to delete the instruction for a party to file sufficient
copies for the Director and arbitrators. Finally, FINRA is proposing to
replace the bullets in Rule 12306(a) with numbers.
12307--Deficient Claims
    The Customer Code provides that the Director will not serve any
claim that is deficient. Current FINRA Rule 12307(a) sets forth various
reasons that a claim might be deficient. FINRA is proposing to amend
Rule 12307(a) to delete a deficiency that would not be applicable in
the Party Portal--that the claimant did not file the correct number of
copies of the Submission Agreement, statement of claim or supporting
documents for service on respondents and for the arbitrators. FINRA is
also proposing to amend the rule relating to the deficiency concerning
a failure to specify the customer's home address at the time of the
events giving rise to the dispute. FINRA would replace home address
with ``city and state,'' to conform to its stated current practice.\30\
---------------------------------------------------------------------------

    \30\ Industry Code Rule 13307 differs from the Customer Code
rule because there is no reference to a customer's home address.
---------------------------------------------------------------------------

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

will serve either the Claim Notification Letter, or the amended
statement of claim, as applicable, under Rules 12300 and 12301. The
rule would also provide that if an amended pleading adds a party to the
arbitration, the party amending the pleading must serve the new party
with the amended pleading and all documents previously served by any
party, or sent to the parties by the Director, by first-class mail,
overnight mail service, overnight delivery service, hand delivery,
email or facsimile, and must file proof of service with the Director
through the Party Portal. The party amending the pleading must file the
amended pleading with the Director through the Party Portal except as
provided in Rule 12300(a)(2).
    Current Rule 12309(c) explains that after ranked arbitrator lists
are due to the Director, parties may not amend the pleadings to add new
parties until FINRA appoints a panel and the panel grants a motion to
add a new party. Motions to add a party after panel appointment must be
served on all parties, including the party that is the subject of the
motion. The process for serving the new party under Rule 12309(c) is
the same as it is in Rule 12309(a). FINRA is proposing to amend Rule
12309(c) to provide that the party seeking to amend the pleading to add
a party may serve the party to be added by first-class mail, overnight
mail service, overnight delivery service, hand delivery, email or
facsimile. Service by first-class mail or overnight mail service would
be accomplished on the date of mailing. Service by any other means
would be accomplished on the date of delivery. FINRA would permit the
party to be added to file a response with the Director and serve the
response on all other parties by first-class mail, overnight mail
service, overnight delivery service, hand delivery, email or facsimile.
Because the arbitrators may ultimately decline the motion to add a new
party, FINRA believes it makes sense to allow service by methods other
than the Party Portal while the arbitrators consider the motion.\31\
---------------------------------------------------------------------------

    \31\ FINRA Rule 13309(c) in the Industry Code contains an
erroneous cross-reference to Rule 13404(c). FINRA is proposing to
amend Rule 13309(c) to refer to Rule 13404(d) which relates to the
time frame when ranked lists are due.
---------------------------------------------------------------------------

12310--Answering Amended Claims
    Current FINRA Rule 12310 describes how parties answer amended
claims. Rule 12310(b) provides that if a claim is amended after it has
been answered, but before a panel has been appointed, the respondent
has 20 days from ``the time the amended claim is served'' to serve an
amended answer. Because parties would be serving each other through the
Party Portal, FINRA is proposing to amend Rule 12310(b) to delete the
phrase ``the time the amended claim is served'' to provide instead that
the respondent has 20 days from ``receipt of the amended claim'' to
serve an amended answer. FINRA uses time of receipt in the rules
relating to parties' time to respond to answers, among other matters,
and believes consistent language would add clarity to the rule.\32\
---------------------------------------------------------------------------

    \32\ See FINRA Rules 12303 (Answering the Statement of Claim),
12304 (Answering Counterclaims), 12305 (Answering Cross Claims), and
12306 (Answering Third Party Claims).
---------------------------------------------------------------------------

    FINRA is also proposing to amend Rule 12310(d) relating to serving
an amended answer to delete the reference to ``directly'' serving each
other party, and providing copies of the pleading for the arbitrators.
    Finally, FINRA is proposing to add clarity to Rule 12310(e)
concerning when a new party's answer is due, by stating that the new
party's ``time to'' answer is governed by Rules 12303 or Rule 12306
(which include a 45 day period for answers).
12400--Neutral List Selection System and Arbitrator Rosters
    FINRA is proposing to amend FINRA Rule 12400(b) relating to its
arbitrator rosters and Rule 12400(c) concerning eligibility for
chairperson roster to update cross-references and replace bullets with
numbers.
12402--Cases With One Arbitrator and 12403--Cases With Three
Arbitrators
    FINRA is proposing to amend FINRA Rules 12402(d)(3) and 12403(c)(3)
concerning striking and ranking arbitrators to provide that parties
must complete arbitrator ranking through the Party Portal unless a
party is a pro se customer who opted out of using the Party Portal. The
rule would list the approved methods for pro se customers to return
ranked lists. FINRA is also proposing to amend to Rule 12402(e) to
replace bullets with numbers.\33\
---------------------------------------------------------------------------

    \33\ The Industry Code rules relating to arbitrator appointment,
while substantially similar to the Customer Code rules, are not
identical to the Customer Code and are numbered differently. FINRA
is proposing to amend FINRA Rule 13404(d) concerning striking and
ranking arbitrators, to provide that parties must complete
arbitrator ranking through the Party Portal. FINRA is proposing to
amend FINRA Rule 13406 relating to appointment of arbitrators to
update a cross-reference and to replace bullets with letters. FINRA
is also proposing to amend FINRA Rule 13411 concerning replacing
arbitrators to update a cross-reference.
---------------------------------------------------------------------------

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

FINRA is proposing to amend the rules to delete the reference to a fee
because FINRA currently provides parties with copies of recordings free
of charge. Current Rule 12606(a) also provides that the panel may order
parties to provide a transcription of the recording. FINRA is proposing
to amend Rule 12606(a) to clarify that if the arbitrators order the
parties to provide a transcript, the parties must provide copies for
the arbitrators and must file the transcript with the Director and
serve it on the other parties. Current Rule 12606(b) provides that
parties may make stenographic records of a hearing. FINRA is proposing
to amend Rule 12606(b) to clarify that if the stenographic record is
the official record of the proceeding, the parties must provide copies
for the arbitrators and must file the transcript with the Director and
serve it on the other parties.
    FINRA states that some arbitrators have indicated a preference to
review long documents in hard copy. Therefore, FINRA would continue to
require parties to provide copies of transcripts for the arbitrators.
12503--Motions
    Current FINRA Rule 12503 specifies how parties make motions at the
forum. Under the proposed rule change, parties would be required to
file motions with the Director and serve other parties through the
Party Portal. Therefore, FINRA is proposing to amend Rule 12503(a)(2)
to delete the requirement that parties serve motions on each other
directly, at the same time and in the same manner, and provide FINRA
with copies for each arbitrator. FINRA would make the same deletions to
Rule 12503(b) relating to responding to motions and Rule 12503(c)
concerning replying to responses to motions.
    FINRA is also proposing to amend Rule 12503(a)(4) to delete the
text specifying how parties make motions to amend a pleading to add a
party to a case, because these motions would be addressed in Rule
12309(c) (discussed above). FINRA would add a cross-reference to Rule
12309(c).
12506--Document Production Lists
    Current FINRA Rule 12506(a) provides that when the Director serves
respondents with the statement of claim, the Director notifies parties
of the location of the FINRA Discovery Guide and Document Production
Lists on FINRA's Web site. In view of the Party Portal, FINRA is
proposing to amend the rule to delete the reference to ``when the
Director serves the statement of claim.'' The rule would continue to
state that the Director will notify parties of the location of the
FINRA Discovery Guide and Document Production Lists on FINRA's Web
site.
    Current FINRA Rule 12506(b) specifies, among other matters, the
time for parties to respond to the Document Production Lists. FINRA
wants parties to file through the Party Portal their explanations about
why they are not timely producing documents and why they are objecting
to production. FINRA believes that having this correspondence in the
Party Portal would be efficient for FINRA staff and the parties.
However, as stated above, FINRA does not want the parties to file with
the Director the documents and information that they produce during
discovery. Therefore, FINRA is proposing to amend Rule 12506(b) to
specify that parties must serve each other with documents produced
pursuant to the rule by first-class mail, overnight mail service,
overnight delivery service, hand delivery, email or facsimile as
provided in Rule 12300(a)(3). The proposed rule would also provide that
parties are required to file any written responses relating to
discovery, such as objections to producing items in the Document
Production Lists, with the Director through the Party Portal.
    FINRA is also proposing to amend to Rule 12506(b) to replace
bullets with letters.\34\
---------------------------------------------------------------------------

    \34\ The FINRA Discovery Guide and related Document Production
Lists apply only to customer arbitrations. Therefore, the Industry
Code does not contain Document Production Lists. The discovery rules
in the Industry Code that are substantially similar to Rule 12507 in
the Customer Code are Rule 13506 (Discovery Requests) and Rule 13507
(Responding to Discovery Requests). The proposed amendments to Rules
13506 and 13507 are substantively identical to those in Rule 12507.
---------------------------------------------------------------------------

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

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

the rule to provide that if a claim is filed against a member or
associated person, the surcharge is due when the Director serves the
Claim Notification Letter or the initial statement of claim. FINRA is
also proposing to amend Rule 12901(a) and 12901(b) to replace bullets
with letters.
12094--Awards
    Current FINRA Rule 12904 concerns arbitrator awards and includes,
among other matters, procedures for the Director to serve awards on
parties. The rule provides that the Director serves an award using any
method available and convenient to the parties and the Director, and
that is reasonably expected to cause the award to be delivered to all
parties, or their representative, on the same day. Under the rule, the
Director may serve an award by first class, registered or certified
mail, hand delivery, and facsimile or other electronic transmission.
Because the Director will serve the award through the Party Portal in
most instances, FINRA is proposing to amend Rule 12904(c) to provide
that only the Director will serve the award on each party, or their
representative through the Party Portal.

Industry Code Specific Amendments

    As explained earlier, while the discussion details the proposed
amendments to the FINRA rules in the Customer Code, FINRA is also
proposing to make substantively similar amendments to the Industry
Code. In addition to the amendments discussed, FINRA is proposing to
amend rules in the Industry Code that are unique to intra-industry
disputes.
13802--Statutory Employment Discrimination Claims
    FINRA is proposing to amend FINRA Rule 13802(a) relating to
statutory employment discrimination claims to update a cross-reference
concerning the definition of statutory employment discrimination. FINRA
would also amend Rule 13802(c) to replace bullets with numbers.
13804--Temporary Injunctive Orders; Requests for Permanent Injunctive
Relief
    The Industry Code has special procedures for handling temporary
injunctions with respect to an industry or clearing dispute. FINRA is
proposing to amend FINRA Rule 13804(a) to provide that parties seeking
temporary injunctive relief from a court must file with the Director a
statement of claim requesting permanent injunctive and all other relief
with respect to the same dispute through the Party Portal, and must
serve the statement of claim requesting permanent injunctive and all
other relief on all other parties by overnight delivery service, hand
delivery, email or facsimile. The proposed rule would require parties
to serve all parties at the same time and in the same manner, unless
the parties agree otherwise.
    FINRA states that cases involving injunctive relief operate on an
accelerated time schedule. FINRA also states, however, that it takes
FINRA staff some time to review an initial submission and invite
respondent parties to use the Party Portal. In view of the need to
expedite these matters, FINRA believes that parties should serve each
other outside of the Party Portal until FINRA establishes the
identities of all relevant parties and their representatives, and
invites them to access the Party Portal.

Mediation Code

    Under the proposed rule change, FINRA would permit parties to a
mediation proceeding to use the Party Portal on a voluntary basis.
FINRA is proposing to amend the Mediation Code to reflect use of the
Party Portal.
14100--Definitions
    FINRA is proposing to amend FINRA Rule 14100 to define ``Arbitrator
and Mediator Portal'' and ``Party Portal.'' The definitions would be
identical to the definitions in the Codes. FINRA would re-letter the
definitions because of the new additions.
14109--Mediation Ground Rules
    FINRA also is proposing to amend FINRA Rule 14109 to provide that
the parties may agree to use the Party Portal to submit all documents
and other communications to each other, to retrieve all documents and
other communications, and view mediation case information.

III. Comment Summary and FINRA's Response

    As noted above, the Commission received five comment letters on the
proposed rule change \35\ and a response letter from FINRA.\36\ As
discussed in more detail below, two strongly support the proposal; \37\
two generally support the proposal but recommend modifications; \38\
and one appears to be unrelated to substance of the proposal.\39\
---------------------------------------------------------------------------

    \35\ See supra note 5.
    \36\ See supra note 6.
    \37\ See Caruso Letter and FSI Letter.
    \38\ See IAC Letter and PIABA Letter.
    \39\ See Conflicteam Letter.
---------------------------------------------------------------------------

    Two commenters strongly supported the proposal, stating that the
proposal ``would facilitate interactions among parties, arbitrators,
mediators, and FINRA staff on arbitration case-related matters,'' \40\
``further promote the efficiency of the participant experience in the
FINRA arbitration forum,'' \41\ and would result in ``more efficient
and equitable arbitration proceedings.'' \42\ One of those commenters
noted that some of its members had been invited by FINRA to participate
in a beta test of the Party Portal, and stated that those members
``reported that the system was efficient, simplified responses to
communications, and allowed for easier tracking of progress in the
dispute.'' \43\
---------------------------------------------------------------------------

    \40\ See Caruso Letter; see also FSI Letter.
    \41\ See Caruso Letter.
    \42\ See FSI Letter at 2.
    \43\ See id.
---------------------------------------------------------------------------

    Two additional commenters generally supported the proposal, with
both commenters stating their belief that use of the Party Portal would
improve efficiency.\44\ One of those commenters noted that, in addition
to enhancing efficiency, use of the Party Portal would ``allow the
[arbitration] panel to be more actively engaged in the discovery
process[,]'' and ``provide[] FINRA with additional enforcement
capability concerning potential firm rule violations relating to
discovery.'' \45\ However, both commenters expressed concerns about the
effect of the proposed rule change on claimants with smaller claims,
specifically with respect to protection of personal confidential
information and payment of forum fees.\46\
---------------------------------------------------------------------------

    \44\ See IAC Letter at 1; see also PIABA Letter at 1.
    \45\ See IAC Letter at 1.
    \46\ See IAC Letter; see also PIABA Letter.
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    Personal confidential information. As stated in the Notice, current
FINRA Rule 12800 provides special procedures for ``simplified
arbitration,'' disputes where the amount at issue is $50,000 or
less.\47\ One commenter noted that under Rule 12800, ``simplified
proceedings are exempt from the redaction of Social Security, tax id,
and financial accounts numbers.'' \48\ One commenter additionally noted
that much of the personal confidential information ``involved in a
simplified proceeding is of the type that, according to the FBI, can be
used by criminals to engage in identity theft, including financial
account numbers, birth dates, addresses, and Social Security numbers.''
\49\ Consequently, these two commenters expressed concern that
exempting

simplified proceedings from FINRA's redaction requirements, while
requiring claimants to file documents electronically through the Party
Portal, puts claimants in simplified proceedings at greater risk of
identity theft and/or other information security breaches.\50\ For
these reasons, both commenters urged FINRA to extend the redaction
requirements for personal confidential information to all documents
submitted through the Party Portal.\51\
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    \47\ See Notice, 81 FR at 54865.
    \48\ See PIABA Letter at 1.
    \49\ See IAC Letter at 1 (citing FBI, Cyber Crime, available at
https://www.fbi.gov/investigate/cyber).
    \50\ See id. at 1-2; see IAC Letter at 2-3.
    \51\ See IAC Letter at 3; see also PIABA Letter at 2. One
commenter urged FINRA to go one step further and extend the
redaction requirements to pro se customers not using the Party
Portal, though the commenter acknowledged ``that the risk of misuse
may not be as significant (though not non-existent) if the
information is not sent, received, or stored electronically via the
Party Portal.'' See IAC Letter at 3.
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    In response to these comments, FINRA, although it declined to amend
the proposed rule change as suggested by the two commenters, stated
that it ``is concerned about identity theft'' and that it ``believes
that the Party Portal provides parties with enhanced security over
other methods of document transmittal.'' \52\ FINRA further noted that
the Party Portal is a ``secure, encrypted environment'' and that
parties in simplified arbitration are not prevented from redacting
their documents, but that they are simply not required to do so.\53\
Finally, FINRA noted that it ``has a dedicated Web page encouraging
parties to take steps to protect their [personal confidential
information] regardless of any exemptions in the Codes.'' \54\
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    \52\ See FINRA Letter at 3.
    \53\ See FINRA Letter at 3. Similarly, FINRA also notes that an
``exemption from the redaction requirements does not mean that pro
se parties . . . cannot redact [personal confidential information]
from their documents.''
    \54\ See FINRA Letter at 3.
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    Payment of forum fees. As stated in the Notice, FINRA is proposing
to amend Rule 12302(c) to require the claimant to pay all required
filing fees by credit card or automated clearing house (``ACH'')
through the Party Portal, unless the party is a pro se customer who
opts out of using the Party Portal.\55\ Two commenters expressed
concern about this portion of the proposal.\56\ One commenter urged
FINRA to allow payment of fees by personal check for all parties,
explaining that ``it is not uncommon for individual claimants, even
when represented, to pay their filing and other forum fees by personal
check,'' and noting that ``some law school securities arbitration
centers do not have the ability to pay by credit card or ACH.'' \57\
Another commenter urged FINRA to revise the proposal to allow parties
with damages under $100,000 to pay by personal check, expressing
concern that the proposal as drafted may adversely affect smaller
claimants and/or claimants that are only able to proceed if they obtain
fee waivers.\58\ In particular, this commenter expressed concern that
``[w]ithout an exception allowing payment of fees by check for these
small claims,'' the proposal will encourage parties to evade the Party
Portal requirement by initiating a pro se claim or discourage firms
from representing clients with smaller claims.\59\
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    \55\ See Notice, 81 FR at 54861.
    \56\ See IAC Letter at 2; see also PIABA Letter at 2.
    \57\ PIABA Letter at 2; see also IAC Letter (stating that as a
law school clinic it lacks the infrastructure to pay client filing
fees via credit card or ACH transfers, and that it further
understands that law firms representing claimants with smaller
claims ``require that their clients directly remit payment to FINRA
as these firms are unable to take on such a representation unless
the client pays the fees directly to FINRA via a personal check.'').
    \58\ See IAC Letter at 2.
    \59\ Id.
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    In its response, FINRA stated its belief that ``requiring payment
through the Party Portal would make case administration more
efficient.'' \60\ In particular, FINRA stated that the electronic
payment system would, among other benefits, immediately alert FINRA
staff if a filing was deficient for lack of payment.\61\ In addition,
FINRA stated that it ``designed the ACH feature in the Party Portal to
be self-contained and easy to use,'' and that a ``clinic or law firm
representing a party does not need any special facility to remit
payment via ACH.'' \62\ FINRA further explained that the ``Party Portal
User Guide contains detailed instructions, including screen shots from
the system, on how to pay by ACH'' and further noted that a ``party can
provide the [ABA routing number and bank account number that appear on
a personal check] to a representative over the phone, or a voided check
with the numbers, for entry into the Party Portal.'' \63\ Because of
``the efficiencies afforded by electronic payment, and that any Party
Portal user can remit fees, FINRA declines to amend the proposed rule
change as suggested by the commenters.'' \64\
---------------------------------------------------------------------------

    \60\ See FINRA Letter at 2.
    \61\ Id.
    \62\ Id.
    \63\ Id.
    \64\ Id.
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    Discovery correspondence. As stated in the Notice, FINRA is
proposing to require parties to file discovery correspondence through
the Party Portal.\65\ One commenter, although generally supportive of
this requirement, expressed concern that the ``proposal is unclear as
to how matters involving pro se parties who chose not to utilize the
Portal should be handled'' and suggested that those parties be required
to file discovery correspondence with FINRA outside the Party
Portal.\66\ The commenter ``believes that brokerage firms could be less
likely to engage in discovery abuse against pro se parties if they know
FINRA can still keep an eye on the discovery process.'' \67\
---------------------------------------------------------------------------

    \65\ See Notice, 81 FR at 54864.
    \66\ See PIABA Letter at 2.
    \67\ Id.
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    In its response, FINRA clarified that under the proposal, pro se
parties who opt out of the Party Portal would still be required to file
discovery correspondence using one of the methods enumerated in Rule
12300(a)(2)(C).\68\ FINRA stated that acceptable methods of service
include first-class mail, overnight mail service, overnight service,
hand delivery, email, or facsimile.\69\
---------------------------------------------------------------------------

    \68\ See FINRA Letter at 3.
    \69\ See FINRA Letter at 3 n.8; see also Notice at 81 FR 54864.
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    Service. Although not a specific concern or suggestion about the
proposal itself, one commenter noted that ``the service requirements
are spread through a number of different rules,'' and suggested that
FINRA consider issuing a Notice to Members ``setting forth a list of
the specific filings which must be made outside of the Party Portal
once the rule is implemented'' in order to ``allow practitioners an
opportunity to review all the exceptions to filing via the Portal in
one place.'' \70\
---------------------------------------------------------------------------

    \70\ PIABA Letter at 2.
---------------------------------------------------------------------------

    In its response, FINRA agreed that such a list would be helpful and
stated in its response that ``[i]f the Commission approves the proposed
rule change, FINRA will provide a list of such filings in a Regulatory
Notice announcing approval of the proposed rule change as well as in
guidance on the FINRA Web site.'' \71\
---------------------------------------------------------------------------

    \71\ See FINRA Letter at 3-4.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposal, the comments
received, and FINRA's response to the comments. Based on its review of
the record, the Commission finds that the proposal is consistent with
the requirements of the Exchange Act and the rules and regulations
thereunder that are applicable to a national

securities association.\72\ In particular, the Commission finds that
the proposed rule change is consistent with Section 15A(b)(6) of the
Exchange Act,\73\ 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.
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    \72\ In approving the proposed rule change, the Commission has
also considered its impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
    \73\ 15 U.S.C. 78o-3(b)(6).
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    The Commission notes that two commenters strongly supported the
proposal, two commenters generally supported the proposal but had some
recommended modifications, and one commenter did not appear to address
the substance of the proposed rule change. With respect to payment of
fees, the Commission recognizes the recommendations by two commenters
that FINRA allow payment by personal check, either for parties for
damages under $100,000 or for all parties.\74\ The Commission also
recognizes, however, FINRA's efforts to clarify and streamline the
electronic payment process for its users, including, among other
things, permitting Party Portal users to remit payment by phone if
needed by providing the ABA routing number and bank account number
found on the user's personal check.\75\ The Commission further
recognizes the ``efficiencies afforded by electronic payment,'' \76\
including the ability for FINRA staff to immediately discern whether a
filing is deficient for lack of payment.
---------------------------------------------------------------------------

    \74\ See IAC Letter at 2; PIABA Letter at 2.
    \75\ See FINRA Letter at 2.
    \76\ Id.
---------------------------------------------------------------------------

    With respect to the protection of personal confidential
information, the Commission recognizes the concerns expressed by two
commenters that, under the proposal, FINRA's exemption of the redaction
requirements in current Rule 12300 for parties in Simplified
Arbitrations--disputes where the amount at issue is $50,000 or less--
will remain unchanged.\77\ The Commission recognizes the commenters'
concerns that exempting Simplified Arbitrations from FINRA's redaction
requirements, while requiring claimants to file documents
electronically through the Party Portal, puts claimants in Simplified
Arbitrations at greater risk of identity theft and/or other information
security breaches.\78\ The Commission also recognizes, however, FINRA's
own concerns about identity theft, and its belief that ``the Party
Portal provides parties with enhanced security over other methods of
document transmittal.'' \79\ The Commission further recognizes, as
FINRA explained in its response to comments, that parties in Simplified
Arbitrations (as well as pro se parties not using the Party Portal) are
not restricted from redacting their documents should they choose to do
so.\80\ Finally, the Commission recognizes that ``FINRA has a dedicated
Web page encouraging parties to take steps to protect their [personal
confidential information] regardless of any exemptions in the Codes.''
\81\
---------------------------------------------------------------------------

    \77\ See PIABA Letter at 1; see also IAC Letter at 2-3.
    \78\ See PIABA Letter at 1-2; see also IAC Letter at 2-3.
    \79\ See FINRA Letter at 3.
    \80\ Id.
    \81\ Id.
---------------------------------------------------------------------------

    With respect to the proposal's requirement that parties file
discovery correspondence through the Party Portal, the Commission
recognizes one commenter's concern that the ``proposal is unclear as to
how matters involving pro se parties who chose not to utilize the
Portal should be handled.'' \82\ The Commission further recognizes
FINRA's clarification that, under the proposal, pro se parties would be
required to file discovery correspondence by an alternate method as
enumerated in Rule 12300(a)(2)(C).\83\
---------------------------------------------------------------------------

    \82\ PIABA Letter at 2.
    \83\ See FINRA Letter at 3.
---------------------------------------------------------------------------

    With respect to rules regarding service, the Commission recognizes
that one commenter's suggestion that FINRA issue a Notice to Members
``setting forth a list of the specific filings which must be made
outside of the Party Portal once the rule is implemented'' in order to
``allow practitioners an opportunity to review all the exceptions to
filing via the Portal in one place.'' \84\ The Commission further
recognizes FINRA's agreement with this suggestion and its intent to
``provide a list of such filings in a Regulatory Notice announcing
approval of the proposed rule change as well as in guidance on the
FINRA Web site.'' \85\
---------------------------------------------------------------------------

    \84\ PIABA Letter at 2.
    \85\ FINRA Letter at 3-4.
---------------------------------------------------------------------------

    Finally, the Commission recognizes FINRA's statement that of the
13,562 parties invited to use the portal as of May 11, 2016 (including
customers, firms, and associated persons), ``76 percent of customers,
including pro se customers, have been using the Party Portal
voluntarily and 82 percent of firms and associated persons, which
includes firm representatives, have been using the Party Portal
voluntarily (78 percent in total).'' \86\
---------------------------------------------------------------------------

    \86\ Notice, 81 FR at 54867.
---------------------------------------------------------------------------

    Taking into consideration the comments and FINRA's response, the
Commission believes that the proposal is consistent with the Exchange
Act. The Commission believes that the proposal will help protect
investors and the public interest by enhancing efficiencies for FINRA
arbitration forum users and expediting case administration by FINRA
staff by, among other things, improving the case intake process and
helping ensure better data accuracy.\87\ The Commission further
believes that FINRA's response, as discussed in more detail above,
appropriately addressed commenters' concerns and adequately explained
its reasons for declining to modify its proposal to allow for payment
by personal check or to extend FINRA's current redaction requirements
to simplified proceedings. The Commission believes that the approach
proposed by FINRA is appropriate and designed to protect investors and
the public interest, consistent with Section 15A(b)(6) of the Exchange
Act. For these reasons, the Commission finds that the proposed rule
change is consistent with the Exchange Act and the rules and
regulations thereunder.
---------------------------------------------------------------------------

    \87\ Notice, 81 FR at 54866.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\88\ that the proposed rule change (SR-FINRA-2016-029) be,
and hereby is, approved.
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    \88\ 15 U.S.C. 78s(b)(2).
    \89\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\89\
Brent J. Fields,
Secretary.
[FR Doc. 2016-27739 Filed 11-17-16; 8:45 am]
 BILLING CODE 8011-01-P