[Federal Register Volume 80, Number 192 (Monday, October 5, 2015)]
[Proposed Rules]
[Pages 60091-60107]
[FR Doc No: 2015-24707]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release No. 34-75976; File No. S7-18-15]
RIN 3235-AL87

Amendments to the Commission's Rules of Practice

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing for public comment amendments to update its Rules of Practice
to, among other things, adjust the timing of hearings in administrative
proceedings; allow for discovery depositions; clarify the rules for
admitting hearsay and assertion of affirmative defenses; and make
certain related amendments.

DATES: Comments should be received on or before December 4, 2015.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-18-15 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

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

All submissions should refer to File Number S7-18-15. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method of submission. The Commission will post all comments on the
Commission's Internet Web site (http://www.sec/gov/rules/proposed.shtml). Comments are also available for Web site 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. All comments received will be posted without
change; we do not edit personal identifying information in submissions.
You should submit only information that you wish to make available
publicly.

FOR FURTHER INFORMATION CONTACT: Adela Choi, Senior Counsel, and Laura
Jarsulic, Associate General Counsel, Office of the General Counsel,
(202) 551-5150, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission proposes to amend its Rules
of Practice. The amendments are being proposed to update its existing
rules.

I. Introduction

    As it has done from time to time, the Commission proposes to amend
its Rules of Practice.\1\ The Commission proposes amendments to update
the Rules of Practice to adjust the timing of hearings and other
deadlines in administrative proceedings and to provide parties in
administrative proceedings with the ability to use depositions and
other discovery tools. The Commission proposes additional amendments to
implement the newly available discovery tools. These proposed Rules are
intended to introduce additional flexibility into administrative
proceedings, while still providing for the timely and efficient
disposition of proceedings. The Commission also proposes amendments to
clarify certain other Rules, including the assertion of affirmative
defenses in answers and the admissibility of hearsay.
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    \1\ See, e.g., Rules of Practice, Exchange Act Release No.
35833, 60 FR 32738 (June 9, 1995); Rules of Practice, Exchange Act
Release No. 40636, 63 FR 63404 (Nov. 4, 1998); Rules of Practice,
Exchange Act Release No. 48018, 68 FR 35787 (June 11, 2003);
Adoption of Amendments to the Rules of Practice and Delegations of
Authority of the Commission, Exchange Act Release No. 49412, 69 FR
13166 (Mar. 12, 2004); Adoption of Amendments to the Rules of
Practice and Related Provisions and Delegations of Authority of the
Commission, Exchange Act Release No. 52846, 70 FR 72566 (Dec. 5,
2005); Rules of Practice, Exchange Act Release No. 63723, 76 FR 4066
(Jan. 24, 2011).
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II. Discussion of Proposed Amendments

    The proposed amendments are as follows:

A. Proposed Amendments to Rule 360

    Rule 360 \2\ sets forth timing for certain stages of an
administrative proceeding. These stages include a prehearing period, a
hearing, a period during which parties review hearing transcripts and

submit briefs, and then a deadline by which the hearing officer must
file an initial decision with the Office of the Secretary. Under
current Rule 360, the deadlines for these stages are calculated from
the date of service of an order instituting proceedings. Initial
decisions must be filed within the number of days prescribed in the
order instituting proceedings--120, 210, or 300 days from the date of
service of the order instituting proceedings. Broadly speaking,
administrative proceedings instituted pursuant to Section 12(j) of the
Exchange Act \3\ are designated as 120-day cases, administrative
proceedings seeking sanctions as a result of an injunction or
conviction \4\ are designated as 210-day cases, and administrative
proceedings alleging violations of the securities laws are designated
as 300-day cases. Because deadlines are calculated from the date of
service of the order instituting proceedings, if there are delays early
on in the proceeding, the hearing occurs later and the hearing officer
then has less time to prepare an initial decision in advance of the
Rule 360 deadline.
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    \2\ 17 CFR 201.360.
    \3\ 15 U.S.C. 78l(j).
    \4\ See, e.g., 15 U.S.C. 78o(b)(6); 15 U.S.C. 80b-3(f).
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    The amount of time for parties to prepare during the prehearing
period may vary from case to case with the number of factual and legal
allegations, the complexity of the claims and defenses, and the size of
the record. Parties in 300-day cases, for example, have increasingly
requested extensions of time to review investigative records and
prepare for hearing, citing the volume and time it takes to load and
then review electronic productions. Parties in such cases frequently
file motions before the hearing officer or the Commission to resolve
complicated issues prior to the hearing. In addition, the Chief
Administrative Law Judge has sought several extensions of time for
hearing officers to file initial decisions in more complicated 300-day
cases.\5\
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    \5\ See, e.g., Natural Blue Resources, Inc., et al., Exchange
Act Release No. 74891 (May 6, 2015) (order granting extension);
Lawrence M. Labine, Exchange Act Release No. 74883 (May 6, 2015)
(same); Total Wealth Management, Inc., et al., Exchange Act Release
No. 74353 (Feb. 23, 2015) (same); Donald J. Anthony, Jr., et al.,
Exchange Act Release No. 74139 (Jan. 26, 2015) (order granting
second motion for extension).
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    As amended, Rule 360 would include three modifications to address
the timing of a proceeding. First, the deadline for filing the initial
decision would run from the time that the post-hearing briefing or
briefing of dispositive motions or defaults has been completed, rather
than the date of service of the order instituting proceedings. This
modification would divorce the deadline for the completion of an
initial decision from other stages of the proceeding. Under the
proposed amendment, the deadlines for initial decisions that would be
designated in orders instituting proceedings would be 30, 75, and 120
days from the completion of post-hearing or dispositive briefing. The
proposed length of time afforded for the preparation of an initial
decision in each type of proceeding would be the same as the amount of
time hearing officers are afforded under current Rule 360, if a
proceeding actually progresses according to the timeline set out in the
current rule.
    Second, amended Rule 360 would provide a range of time during which
the hearing must begin. For example, in 300-day cases, current Rule 360
states that a hearing should occur within approximately four months.
The amended rule would provide that the hearing must be scheduled to
begin approximately four months after service of the order instituting
proceedings, but not later than eight months after service of the
order.\6\ Significantly, the amendment doubles the maximum length of
the current rule's prehearing period. This is intended to provide
additional flexibility during the prehearing phase of a proceeding and
afford parties sufficient time to conduct deposition discovery pursuant
to new proposed rules, while retaining an outer time limit to ensure
the timely and efficient resolution of the proceeding. It also would
allow respondents more time to review electronic documents in cases
involving an electronic production from the Division.
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    \6\ As amended, Rule 360 would retain the same amount of time as
current Rule 360 for parties to obtain the transcript of the hearing
and submit post-hearing briefs--approximately two months.
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    Third, amended Rule 360 would create a procedure for extending the
initial decision deadline by up to thirty days. This extension is
intended to complement the Chief Law Judge's ability under current Rule
360 to request extensions of time from the Commission. Under amended
Rule 360, the hearing officer may certify to the Commission in writing
the need to extend the initial decision deadline by up to thirty days
for case management purposes. This certification would need to be
issued at least thirty days before the expiration of the initial
decision deadline and the proposed extension would take effect if the
Commission does not issue an order to the contrary within fourteen days
after receiving the certification.
    This procedure for extending the initial decision deadline by a
thirty-day period is intended to promote effective case management by
the hearing officers. For example, for a hearing officer faced with
several initial decision deadlines in the same week, a thirty-day
extension would provide flexibility to stagger the deadlines. The
amended rule would retain the provision allowing the Chief Law Judge to
request an extension of any length from the Commission, without regard
to whether a hearing officer has already sought to extend the deadline.
    We seek comments about the amount of time proposed for each phase
of the proceeding, including the eight-month cap on the prehearing
period for cases with the longest initial decision deadlines, the time
allotted for post-hearing briefing, and the time provided for the
hearing officer to prepare an initial decision.

B. Proposed Amendments to Rule 233

    Rule 233 \7\ currently permits parties to take depositions by oral
examination only if a witness will be unable to attend or testify at a
hearing. The proposed amendment would allow respondents and the
Division to file notices to take depositions. If a proceeding involves
a single respondent, the proposed amendment would allow the respondent
and the Division to each file notices to depose three persons (i.e., a
maximum of three depositions per side) in proceedings designated in the
proposal as 120-day cases (known as 300-day cases under current Rule
360). If a proceeding involves multiple respondents, the proposed
amendment would allow respondents to collectively file notices to
depose five persons and the Division to file notices to depose five
persons in proceedings designated in the proposal as 120-day cases
(i.e., a maximum of five depositions per side).\8\ Under the amendment,
parties also could request that the hearing officer issue a subpoena
for documents in conjunction with the deposition.
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    \7\ 17 CFR 201.233.
    \8\ The provision in current Rule 233 that allows for
depositions when a witness is unable to attend or testify at a
hearing has been preserved under the amended rule as Rule 233(b).
Depositions requested under new Rule 233(b) would not count against
the per-side limit on discovery depositions under new Rule 233(a).
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    The proposed amendment is intended to provide parties with an
opportunity to develop arguments and defenses through deposition
discovery, which may narrow the facts and issues to be explored during
the hearing. Allowing depositions should facilitate the

development of the case during the prehearing stage, which may
ultimately result in more focused prehearing preparations, with issues
distilled for the hearing and post-hearing briefing.
    We recognize that additional time during the prehearing stage of
the proceeding would facilitate the effective use of depositions for
discovery. As a result, we have proposed amendments to Rule 360,
discussed above, that provide additional flexibility over deadlines
during the prehearing discovery period of a proceeding, permitting the
hearing to begin up to eight months after service of the order
instituting proceedings. We anticipate that four to eight months would
be a sufficient amount of time for parties to prepare for the hearing,
review documents, and take up to three depositions per side in a
single-respondent proceeding, and up to five depositions per side in a
multiple-respondent proceeding. In selecting this increased amount of
time and number of depositions permitted, we intend to provide parties
with the potential benefits of this discovery tool, without sacrificing
the public interest in resolving administrative proceedings promptly
and efficiently.
    We propose additional amendments to Rule 233 to guide the use of
depositions for discovery purposes. The amendments would allow the
issuance of subpoenas to order a witness to attend a deposition noticed
by a party pursuant to Rule 233, and would not preclude the deposition
of a witness if the witness testified during an investigation. Notices
of depositions also would be served on each party pursuant to Rule 150
and would need to be consistent with the prehearing conference and the
hearing officer's scheduling order.
    Other proposed amendments to Rule 233 would outline procedures for
deposition practice that are consistent with the Federal Rules of Civil
Procedure.\9\ For example, the amendments would be consistent with
federal rules on the location of the depositions; the method of
recording; the deposition officer's duties; examination and cross-
examination of the witness; forms of objections and waiver of
objections; motions to terminate or limit depositions; review of the
transcript or recording by the witness; certification and delivery of
the deposition; attachment of documents and tangible things; and copies
of the transcript or recording. We would retain current Rule 233's
explicit statement that a witness being deposed may have counsel during
the deposition.
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    \9\ See generally Federal Rules of Civil Procedure 45(c), 30(b),
(d), (e), and (f); but see Federal Rule of Civil Procedure 30(c)
(limiting depositions to seven hours instead of the six hours
proposed in the amendment to Rule 233). While the Federal Rules of
Civil Procedure are tailored for use in the federal court system,
they represent a well-settled body of procedural rules familiar to
practitioners. We have borrowed from those rules, but we have also
made changes or declined to follow the Federal Rules of Civil
Procedure where appropriate to tailor those rules to our own
administrative forum.
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    We seek comments about the proposed structure of the amendments
that provide for depositions, including the number of depositions
allowed in single-respondent and multiple-respondent proceedings.

C. Proposed Amendments To Support Amended Rule 233

    We also propose amendments to Rules 180,\10\ 221,\11\ 232,\12\ and
234 \13\ to support the purpose and intent of the proposed amendments
to Rule 233. These amendments are based on the expectation that
depositions would play an increased role in the prehearing stage of
administrative proceedings, and adjust other rules accordingly.
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    \10\ 17 CFR 201.180.
    \11\ 17 CFR 201.221.
    \12\ 17 CFR 201.232.
    \13\ 17 CFR 201.234.
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    Rule 180 allows the Commission or a hearing officer to exclude a
person from a hearing or conference, or summarily suspend a person from
representing others in a proceeding, if the person engages in
contemptuous conduct before either the Commission or a hearing officer.
The exclusion or summary suspension can last for the duration or any
portion of a proceeding, and the person may seek review of the
exclusion or suspension by filing a motion to vacate with the
Commission. We propose to amend Rule 180 to allow the Commission or a
hearing officer to exclude or summarily suspend a person for any
portion of a deposition, as well as the proceeding, a conference, or a
hearing for contemptuous conduct. The person would have the same right
to review of the exclusion or suspension by filing a motion to vacate
with the Commission.
    Rule 221 sets forth the purposes of a prehearing conference and
includes a list of the subjects to be discussed. We propose amendments
to Rule 221 to add depositions and expert witness disclosures or
reports to the list of subjects to be discussed at the prehearing
conference. Under the current rule, the list of subjects for discussion
at the prehearing conference covers most other significant aspects of
the prehearing period. By adding depositions and the timing of expert
witness disclosure to that list, the proposed amendment recognizes the
impact that depositions and other discovery tools may have on the
development of a schedule that makes efficient use of time during the
prehearing period and the proceeding more broadly. It also conforms to
the proposed amendment to Rule 233, which would require notices of
depositions to be consistent with the prehearing conference and the
hearing officer's scheduling order.
    Rule 232 sets forth standards for the issuance of subpoenas and
motions to quash. With the proposed amendments, Rule 232(a) would make
clear that parties may request the issuance of a subpoena in connection
with a deposition permitted under Rule 233, and Rule 233(e) would allow
any person to whom a notice of deposition is directed to request that
the notice of deposition be quashed. This proposed amendment is
intended to promote efficiency in the discovery process because it
would allow persons who are noticed for depositions to move to quash at
the notice stage, rather than waiting for a party to request the
issuance of a subpoena to order attendance.
    We also propose to amend the standards governing applications to
quash or modify subpoenas. Rule 232(e)(2) provides that the hearing
officer or the Commission shall quash or modify a subpoena, or order
return upon specified conditions, if compliance with the subpoena would
be unreasonable, oppressive or unduly burdensome. As amended, Rule
232(e)(2) would provide that the hearing officer or Commission shall
quash or modify a subpoena or notice of deposition, or order return
upon specified conditions, if compliance with the subpoena would be
unreasonable, oppressive, unduly burdensome, or would unduly delay the
hearing. This amendment would require the hearing officer or Commission
to consider the delaying effect of compliance with a subpoena or notice
of deposition as part of the motion to quash standard and is intended
to promote the efficient use of time for discovery during the
prehearing period.
    Finally, we propose to amend Rule 232(e) to add a new provision
that specifies an additional standard governing motions to quash
depositions noticed or subpoenaed pursuant to Rule 233(a), as amended.
Under new Rule 232(e)(3), the hearing officer or Commission would quash
or modify a deposition notice or subpoena filed or issued under Rule
233(a) unless the requesting party demonstrates that the

deposition notice or subpoena satisfies the requirements under Rule
233(a). This is intended to ensure that parties notice the correct
number of depositions pursuant to Rule 233(a) and follow other
requirements of that rule.
    Rule 232(e)(3) also would require the party requesting the
deposition to demonstrate that the proposed deponent is a fact
witness,\14\ a designated expert witness under Rule 222(b), or a
document custodian.\15\ This provision is intended to foster use of
depositions where appropriate and encourage meaningful discovery,
within the limits of the number of depositions provided per side
pursuant to Rule 233(a). This provision should encourage parties to
focus any requested depositions on those persons who are most likely to
yield relevant information and thereby make efficient use of time
during the prehearing stage of the proceeding.
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    \14\ Under proposed Rule 232(e)(3), this type of proposed
deponent must have witnessed or participated in ``any event,
transaction, occurrence, act, or omission that forms the basis for
any claim asserted by the Division, or any defense asserted by any
respondent in the proceeding (this excludes a proposed deponent
whose only knowledge of relevant facts about claims or defenses of
any party arises from the Division's investigation or litigation).''
    \15\ This excludes Division of Enforcement or other Commission
officers or personnel who have custody of documents or data that was
produced from the Division to the respondent. In that circumstance,
the Division or Commission officers or personnel were not the
original custodian of the documents.
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    Rule 232(f) provides for the payment of witness fees and mileage.
We propose to add a provision to Rule 232(f) stating that each party is
responsible for paying any fees and expenses incurred as a result of
deposition or testimony by the expert witness whom that party has
designated under Rule 222(b).
    Rule 234 contains procedures for taking depositions through the use
of written questions. Under Rule 234, a party may make a motion to take
a deposition on written questions by filing the questions with the
motion. We propose to amend the rule to provide that the moving party
may take a deposition on written questions either by stipulation of the
parties or by filing a motion demonstrating good cause. This proposed
amendment is intended to provide a clear standard under which the
hearing officer or Commission would review such a motion, and is
consistent with standards for other types of motions articulated under
other Rules of Practice.\16\ The amendment would replace the standard
under the current rule, which references current Rule 233(b)'s limit on
depositions to witnesses unable to appear or testify at a hearing.
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    \16\ See, e.g., 17 CFR 201.155(b) (good cause showing to set
aside a default); 17 CFR 201.161 (good cause showing for extending
or shortening time limits for filings); 17 CFR 201.201(b) (good
cause showing for severing a proceeding).
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    We seek comments about the proposed amendments to the standards for
motions to quash subpoenas and notices for depositions, including the
consideration of whether compliance with the subpoena would unduly
delay the hearing and the requirement that a proposed deponent must be
a fact witness, expert witness under Rule 222(b), or document
custodian.

D. Proposed Amendment to Rule 222

    Rule 222 \17\ provides that a party who intends to call an expert
witness shall submit a variety of information. The proposed amendment
to the rule provides for two exceptions: (1) Drafts of any material
that is otherwise required to be submitted in final form; and (2)
communications between a party's attorney and the party's expert
witness who would be required to submit a report under the rules,
except under limited circumstances.
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    \17\ 17 CFR 201.222.
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    The proposed amendment also would require disclosure of a written
report for a witness retained or specially employed to provide expert
testimony in the case, or an employee of a party whose duties regularly
involve giving expert testimony. The proposed amendment would outline
the elements that must be contained in that written report, including a
complete statement of all opinions the witness will express and the
basis and reasons for them, the facts or data considered by the witness
in forming them, any exhibits that will be used to summarize or support
them, and a statement of the compensation to be paid for the expert's
study and testimony in the case. These proposed amendments are
consistent with the requirements for expert witness disclosures and
expert reports in the Federal Rules of Civil Procedure and we believe
they would promote efficiency in both prehearing discovery and the
hearing.\18\ Moreover, the administrative law judges already have
required such expert reports in proceedings before them.\19\
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    \18\ See Federal Rule of Civil Procedure 26(b)(4), (a)(2),
respectively.
    \19\ See, e.g., ZPR Investment Management, Inc., Admin Proc.
Ruling Rel. No. 775 (Aug. 6, 2013), available at http://www.sec.gov/alj/aljorders/2013/ap-775.pdf. (general prehearing order stating
that ``expert reports should be as specific and detailed as those
presented in federal district court pursuant to Federal Rule of
Civil Procedure 26'').
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    We propose amendments to current Rule 222(b)'s requirement that
parties submit a list of other proceedings in which their expert
witness has given expert testimony and a list of publications authored
or co-authored by their expert witness. As amended, Rule 222(b) would
limit the list of proceedings to the previous four years, and would
limit the list of publications to the previous ten years.

E. Proposed Amendment to Rule 141

    Rule 141(a)(2)(iv) \20\ specifies the requirements for serving an
order instituting proceedings on a person in a foreign country. The
proposed amendment would incorporate additional methods of service. The
current rule allows for service of an order instituting proceedings on
persons in foreign countries by any method specified in the rule, or
``by any other method reasonably calculated to give notice, provided
that the method of service used is not prohibited by the law of the
foreign country.''
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    \20\ 17 CFR 201.141(a)(2)(iv).
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    We propose to amend this rule to state that service reasonably
calculated to give notice includes any method authorized by the Hague
Convention on the Service Abroad of Judicial and Extrajudicial
Documents; methods prescribed by the foreign country's law for service
in that country in an action in its courts of general jurisdiction; or
as the foreign authority directs in response to a letter rogatory or
letter of request. In addition, under the proposed rules, unless
prohibited by the foreign country's law, service may be made by
delivering a copy of the order instituting proceedings to the
individual personally, or using any form of mail that the Secretary or
the interested division addresses and sends to the individual and that
requires a signed receipt.
    The proposed rule would also allow service by any other means not
prohibited by international agreement, as the Commission or hearing
officer orders. Like the similar provision in the Federal Rules of
Civil Procedure, this provision would cover situations where existing
agreements do not apply, or efforts to serve under such agreements are
or would not be successful.
    In addition to providing clarification that proper service on
persons in foreign countries may be made by any of the above methods,
the amended rule would provide some certainty regarding whether service
of an order instituting proceedings has been effected properly and
would allow the Commission to rely on international agreements in which
foreign countries have agreed to accept certain forms of service as
valid.

    We also propose to amend Rule 141(a)(3), \21\ which requires the
Secretary to maintain a record of service on parties. In instances
where a division of the Commission, rather than the Secretary, serves
an order instituting proceedings, the Secretary does not always receive
a copy of the service. The proposed amendment would make it clear that
a division that serves an order instituting proceedings must file with
the Secretary either an acknowledgement of service by the person served
or proof of service.
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    \21\ 17 CFR 201.141(a)(3).
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F. Proposed Amendment to Rule 161

    Rule 161 \22\ governs extensions of time, postponements, and
adjournments requested by parties. Under the current Rule 161(c)(2), a
hearing officer may stay a proceeding pending the Commission's
consideration of offers of settlement under certain limited
circumstances, but that stay does not affect any of the deadlines in
Rule 360. We propose to amend Rule 161(c)(2) to allow a stay pending
Commission consideration of settlement offers to also stay the
timelines set forth in Rule 360.\23\ All the other requirements for
granting a stay that are in the current rule would remain unchanged.
This proposed amendment recognizes the important role of settlement in
administrative proceedings.
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    \22\ 17 CFR 201.161.
    \23\ We also propose a conforming amendment to Rule
360(a)(2)(iii) to include a cross-reference to amended Rule
161(c)(2).
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G. Proposed Amendment to Rule 230

    Rule 230(a) \24\ requires the Division to make available to
respondents certain documents obtained by the Division in connection
with an investigation prior to the institution of proceedings. Rule
230(b) \25\ provides a list of documents that may be withheld from this
production. We propose amending Rule 230(b) to provide that the
Division may redact certain sensitive personal information from
documents that will be made available to respondents, unless the
information concerns the person to whom the documents are being
produced. Under the amendment, the Division would be able to redact an
individual's social-security number, an individual's birth date, the
name of an individual known to be a minor, or a financial account
number, taxpayer-identification number, credit card or debit card
number, passport number, driver's license number, or state-issued
identification number other than the last four digits of the number.
This proposed amendment is intended to enhance the protection afforded
to sensitive personal information.
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    \24\ 17 CFR 201.230(a).
    \25\ 17 CFR 201.230(b).
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    We also propose to amend Rule 230(b) to clarify that the Division
may withhold or redact documents that reflect settlement negotiations
with persons or entities who are not respondents in the proceeding at
issue. This proposed amendment is intended to preserve the
confidentiality of settlement discussions and safeguard the privacy of
potential respondents with whom the Division has negotiated and is
consistent with case law that favors the important public policy
interest in candid settlement negotiations.\26\
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    \26\ See, e.g., Goodyear Tire & Rubber Co. v. Chiles Power
Supply, Inc., 332 F.3d 976, 980-81 (6th Cir. 2003) (``The public
policy favoring secret negotiations, combined with the inherent
questionability of the truthfulness of any statements made therein,
leads us to conclude that a settlement privilege should exist, and
that the district court did not abuse its discretion in refusing to
allow discovery.'').
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H. Proposed Clarifying Amendments to Rules 220, 235, and 320

    Rule 220 \27\ sets forth the requirements for filing answers to
allegations in an order instituting proceedings. Currently, Rule 220
states that a defense of res judicata, statute of limitations, or any
other matter constituting an affirmative defense shall be asserted in
the answer. We propose amendments to Rule 220 to emphasize that a
respondent must affirmatively state in an answer whether the respondent
is asserting any avoidance or affirmative defense, including but not
limited to res judicata, statute of limitations, or reliance. This
proposed amendment would not change the substantive requirement under
the current rule to include affirmative defenses in the answer.
Instead, it is intended to clarify that any theories for avoidance of
liability or remedies, even if not technically considered affirmative
defenses, must be stated in the answer as well.\28\ Timely assertion of
affirmative defenses or theories of avoidance would focus the use of
prehearing discovery, foster early identification of key issues and, as
a result, make the discovery process more effective and efficient.
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    \27\ 17 CFR 201.220.
    \28\ For example, some might argue that ``reliance on counsel''
is not a formal affirmative defense, but a basis for negating
liability.
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    Rule 235 \29\ provides the standard for granting a motion to
introduce a prior sworn statement of a witness who is not a party.
Although current Rule 235(a) states that the standard applies to ``a
witness, not a party,'' we propose adding new Rule 235(b) to make clear
that sworn statements or declarations of a party or agent may be used
by an adverse party for any purpose. Further, new Rule 235(b) would
clarify that ``sworn statements'' include a deposition taken pursuant
to Rules 233 or 234 or investigative testimony, and allows for the use
of declarations pursuant to 28 U.S.C. Section 1746.
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    \29\ 17 CFR 201.235.
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    Rule 320 \30\ provides the standard for admissibility of evidence.
Under the current rule, the Commission or hearing officer may receive
relevant evidence and shall exclude all evidence that is irrelevant,
immaterial, or unduly repetitious. We propose to amend the rule to add
``unreliable'' to the list of evidence that shall be excluded. This
amended admissibility standard is consistent with the Administrative
Procedure Act.\31\ We also propose to add new Rule 320(b) to clarify
that hearsay may be admitted if it is relevant, material, and bears
satisfactory indicia of reliability so that its use is fair. Admitting
hearsay evidence if it meets a threshold showing of relevance,
materiality, and reliability also is consistent with the Administrative
Procedure Act.\32\
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    \30\ 17 CFR 201.320.
    \31\ 5 U.S.C. 556(c)(3) (allowing hearing officers to receive
relevant evidence); 5 U.S.C. 556(d) (stating that a sanction may not
be imposed or rule or order issued except on consideration of the
whole record or of those parts thereof cited by a party and
supported by and in accordance with the reliable, probative, and
substantial evidence).
    \32\ See 5 U.S.C. 556(d) (stating that any oral or documentary
evidence may be received, but the agency as a matter of policy shall
provide for the exclusion of irrelevant, immaterial or unduly
repetitious evidence); see, e.g., J.A.M. Builders, Inc. v. Herman,
233 F.3d 1350, 1354 (11th Cir. 2000) (hearsay admissible in
administrative proceedings if ``reliable and credible''); Calhoun v.
Bailar, 626 F.2d 145, 148 (9th Cir. 1980) (hearsay admissible if
``it bear[s] satisfactory indicia of reliability'' and is
``probative and its use fundamentally fair''). Courts also have held
that hearsay can constitute substantial evidence that satisfies the
APA requirement. See, e.g., Echostar Communications Corp. v. FCC,
292 F.3d 749, 753 (D.C. Cir. 2002) (hearsay evidence is admissible
in administrative proceedings if it ``bear[s] satisfactory indicia
of reliability'' and ``can constitute substantial evidence if it is
reliable and trustworthy''); see generally Richardson v. Perales,
402 U.S. 389, 407-08 (1971) (holding that a medical report, though
hearsay, could constitute substantial evidence in social security
disability claim hearing); cf. Federal Rule of Evidence 403 (stating
that relevant, material, and reliable evidence shall be admitted).
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I. Proposed Amendments to Appellate Procedure in Rules 410, 411, 420,
440, and 450

    We propose amendments to certain procedures that govern appeals to
the Commission. Rule 410(b) \33\ outlines the procedure for filing a
petition for review of an initial decision and directs a party

to set forth in the petition the specific findings and conclusions of
the initial decision as to which exception is taken, together with
supporting reasons for each exception. Rule 410(b) also states that an
exception may be deemed to have been waived by the petitioner if the
petitioner does not include the exception in the petition for review or
a previously filed proposed finding made pursuant to Rule 340.
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    \33\ 17 CFR 201.410(b).
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    We propose to amend Rule 410(b) to eliminate both the requirement
that a petitioner set forth all the specific findings and conclusions
of the initial decision to which exception is taken, and the provision
stating that if an exception is not stated, it may be deemed to have
been waived by the petitioner. Instead, under amended Rule 410(b), a
petitioner would be required to set forth only a summary statement of
the issues presented for review. We also propose to add new Rule 410(c)
to limit the length of petitions for review to three pages.
Incorporation of pleadings or filings by reference would not be
permitted.
    This proposed amendment is intended to address timing issues and
potential inequities in the number of briefs each party is permitted to
submit to the Commission. The timing issues arise out of the
requirement under Rule 410 that a party must file its petition for
review within 21 days after service of the initial decision or 21 days
from the date of the hearing officer's order resolving a motion to
correct manifest error in an initial decision. This means that during
the three-week period immediately following the issuance of the initial
decision, a party must decide whether to file a motion to correct
manifest error and, if not, whether to appeal. If the party decides to
file a petition to appeal, then the petitioner is required under the
current rule to quickly determine every exception the petitioner takes
with the findings and conclusions in the initial decision, along with
supporting reasons. Requiring the petitioner to submit a petition that
includes all exceptions and supporting reasons, which may be deemed
waived if not raised in the petition, encourages petitioners to file
lengthy petitions that provide lists of exceptions with little
refinement of the arguments or narrowing of issues to those most
significant to the Commission's review. As a result, petitions for
review often have exceeded the length of opening briefs later filed in
support of a petition for review. In addition, petitions often list
exceptions that are later abandoned or unsupported in the opening
brief.
    The proposed amendment would address these issues by allowing a
party to file a petition for review that provides only a brief summary
of the issues presented for review under Rule 411(b), which refers to
prejudicial errors, findings or conclusions of material fact that are
clearly erroneous, conclusions of law that are erroneous, or exercises
of discretion or decisions of law or policy that the Commission should
review.\34\ After filing a petition for review that gives the
Commission summary notice of the issues presented by the case, the
petitioner would then be able to focus on the brief that develops the
reasoned arguments in support of the petition. This practice is
consistent with the Commission's routine grant of appeals, without
allowing parties to file oppositions to petitions.\35\ Providing for a
summary petition would also be consistent with the Federal Rules of
Appellate Procedure, which requires only notice filing if a petitioner
may appeal as of right.\36\
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    \34\ This is consistent with the Commission's current rules
governing appeals to the Commission from determinations by self-
regulatory organizations pursuant to Rule 420. Under Rule 420, an
application for review of a determination of a self-regulatory
organization must set forth in summary form a brief statement of the
alleged errors in the determination and supporting reasons, and must
not exceed two pages. Rule 420 does not contain a waiver provision.
    \35\ Proposed Amendments to the Rules of Practice and Related
Provisions, Exchange Act Release No. 48832, 68 FR 68185, 68191 (Dec.
5, 2003) (``In the Commission's experience, the utility of such
oppositions has been quite limited, given that the Commission has
long had a policy of granting petitions for review, believing that
there is a benefit to Commission review when a party takes exception
to a decision.''); Adoption of Amendments to the Rules of Practice
and Delegations of Authority of the Commission, Exchange Act Release
No. 49412, 69 FR 13166, 13167 (Mar. 12, 2004) (deleting the
provision for oppositions to petitions for review). The Commission
issues a scheduling order within approximately three weeks of
granting a petition for review. Pursuant to Rule 450, the scheduling
order generally provides the petitioner with thirty days to submit a
brief in support of the petition of no more than 14,000 words.
    \36\ Federal Rule of Appellate Procedure 3(c) (stating that a
notice of appeal when there is an appeal as of right must specify
the parties taking appeal, designate the judgment, order, or part
thereof being appeals, and name the court to which the appeal is
taken); cf. Federal Rule of Appellate Procedure 5 (stating that a
petition for appeal when an appeal is within the court's discretion
must include the facts necessary to understand the question
presented, the question itself, the relief sought, the reasons why
the appeal should be allowed and is authorized by statute or rule,
and a copy of the order, decree, or judgment complained of and any
related opinion or memorandum, and any order stating the district
court's permission to appeal or finding that the necessary
conditions are met).
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    Allowing parties to file only a summary statement of the issues on
appeal also would address potential briefing inequities in the current
rule. As described above, a petitioner often files a lengthy petition
for review that is followed, in the typical case, by an opening brief
limited to 14,000 words. Essentially, petitioners are afforded two
opportunities under the current rule to brief the issues in the case,
while under current Rule 450, the opposing party typically may submit
only a brief in opposition that is limited to 14,000 words. As a
practical matter, that brief in opposition must address not only the
arguments explained in the petitioner's opening brief, but also each
exception listed in the petition for review. This has the potential to
place opposing parties at a disadvantage. The proposed amendment to
Rule 410(b) would correct this apparent inequity by requiring a
petitioner to make arguments in its opening brief rather than in the
petition for review. This also has the benefit of encouraging a
petitioner to narrow the issues and explain supporting arguments, while
allowing opposing parties to address only those arguments asserted in
the petitioner's opening brief.
    We propose an amendment to Rule 411(d) \37\ to effect the
amendments to Rule 410(b). Rule 411(b) states that Commission review of
an initial decision is limited to the issues specified in the petition
for review and any issues specified in the order scheduling briefs.\38\
We propose to amend Rule 411(b) to state that Commission review of an
initial decision is limited to the issues specified in an opening brief
and that any exception to an initial decision not supported in an
opening brief may be deemed to have been waived by the petitioner.
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    \37\ 17 CFR 201.411(d).
    \38\ Rule 411(d) also states that on notice to all parties, the
Commission may, at any time prior to issuance of its decision, raise
and determine any other matters that it deems material, with
opportunity for oral or written argument thereon by the parties.
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    We propose amendments to Rule 450 \39\ to provide additional
support for a structure in which opening briefs are the primary
vehicles for arguments on appeal. Rule 450(b) states that reply briefs
are confined to matters in opposition briefs of other parties. We
propose amendments to Rule 450(b) to make clear that any argument
raised for the first time in a reply brief shall be deemed to have been
waived by the petitioner.
---------------------------------------------------------------------------

    \39\ 17 CFR 201.450.
---------------------------------------------------------------------------

    We also propose amendments to Rule 450(c) to prohibit parties from
incorporating pleadings or filings by reference. Under current Rule
450(c), parties are permitted to incorporate pleadings or filings by
reference,

although the number of words in documents incorporated by reference
count against Rule 450(c)'s word limit for briefs. As a practical
matter, it is difficult to enforce a word count that allows for
incorporation by reference, and the rule has encouraged parties to rely
on pleadings or filings from the hearing below, which already are in
the record, rather than addressing the relevant evidence or developing
the arguments central to the appeal before the Commission. Prohibiting
incorporation by reference is intended to sharpen the arguments and
require parties to provide specific support for each assertion, rather
than non-specific support through incorporation of other briefs or
filings.
    We propose amendments to Rule 450(d) to conform to the proposed
amendments to Rule 450(c). Rule 450(d) requires parties to certify
compliance with the length limitations set forth in Rule 450(c). As
amended, Rule 450(d) would no longer refer to pleadings incorporated by
reference, and would require parties to certify compliance with the
requirements set forth in Rule 450(c), instead of certifying only
compliance with the length limitations in Rule 450(c).
    Finally, we propose amendments to Rules 420(c) \40\ and 440(b) \41\
to make them consistent with the proposed amendments to Rules 410(b)
and 450(b). Rule 420 governs appeals of determinations by self-
regulatory organizations and Rule 440 governs appeals of determinations
by the Public Company Accounting Oversight Board. Current Rule 420(c)
is similar to proposed amended Rule 410(b) in that it limits the length
of an application for review and requires that applicants set forth in
summary form only a brief statement of alleged errors in the
determination and supporting reasons. We propose to amend Rule 420(c)
to include a provision stating that any exception to a determination
that is not supported in an opening brief may be deemed to have been
waived by the applicant. Likewise, current Rule 440(b) is similar to
proposed amendments to Rule 410(b) because it requires that an
applicant set forth in summary form only a brief statement of alleged
errors in the determination and supporting reasons. We propose to amend
Rule 440(b) to include a page limit for the application (two pages,
which is consistent with current Rule 420(c)) and a provision stating
that any exception to a determination that is not supported in an
opening brief may be deemed to have been waived by the applicant. These
proposed amendments would align appeals from determinations by the
Public Company Accounting Oversight Board with appeals from
determinations by self-regulatory organizations and appeals from
initial decisions issued by hearing officers.
---------------------------------------------------------------------------

    \40\ 17 CFR 201.420(c).
    \41\ 17 CFR 201.440(b).
---------------------------------------------------------------------------

J. Proposed Amendments to Rule 900 Guidelines

    We propose amendments to Rule 900,\42\ which sets forth guidelines
for the timely completion of proceedings, provides for confidential
status reports to the Commission on pending cases, and directs the
publication of summary information concerning the pending case docket.
Rule 900(a) states that the guidelines will be examined periodically
and, if necessary, readjusted in light of changes in the pending
caseload and the available level of staff resources. Consistent with
that provision, we propose to amend Rule 900(a) to state that a
decision by the Commission with respect to an appeal from the initial
decision of a hearing officer, a review of a determination by a self-
regulatory organization or the Public Company Accounting Oversight
Board, or a remand of a prior Commission decision by a court of appeals
ordinarily will be issued within eight months from the completion of
briefing on the petition for review, application for review, or remand
order, and, if the Commission determines that the complexity of the
issues presented in an appeal warrant additional time, the decision of
the Commission may be issued within ten months of the completion of
briefing. We also propose to amend Rule 900(a) to provide that if the
Commission determines that a decision by the Commission cannot be
issued within the eight or ten-month periods, the Commission may extend
that period by orders as it deems appropriate in its discretion.
Finally, we propose to amend Rule 900(c) to include additional
information in the published report concerning the pending case docket.
Specifically, we propose to amend the rule to include, in addition to
what is already included, the median number of days from the completion
of briefing of an appeal to the time of the Commission's decision for
the cases completed in the given time period.
---------------------------------------------------------------------------

    \42\ 17 CFR 201.900.
---------------------------------------------------------------------------

K. Effective Date and Transition

    We are proposing that the amended Rules govern any proceeding
commenced after the effective date of the amended Rules. We seek
comments about whether the amended Rules should be applied, in whole or
in part, to proceedings that are pending or have been docketed before
or on the effective date, and, if so, the standard for applying any
amended Rules to such pending proceedings.

III. Request for Public Comment

    We request and encourage any interested person to submit comments
regarding: (1) The time periods for each stage of the proceeding under
proposed amendments to Rule 360, (2) the structure and number of
depositions provided under proposed amendments to Rule 233, (3) the
standards governing an application to quash deposition notices or
subpoenas under proposed amendments to Rule 232, (4) the standards
governing the admission of evidence, including hearsay, under Rule 320,
(5) the assertion of affirmative defenses under Rule 220, (6) the
effective date and whether and how any amended rules should apply to
proceedings pending on the effective date, (7) the other proposed
changes that are the subject of this release, (8) additional or
different changes, or (9) other matters that may have an effect on the
proposals contained in this release.

IV. Administrative Procedure Act, Regulatory Flexibility Act, and
Paperwork Reduction Act

    The Commission finds, in accordance with Section 553(b)(3)(A) of
the Administrative Procedure Act,\43\ that these revisions relate
solely to agency organization, procedure, or practice. They are
therefore not subject to the provisions of the Administrative Procedure
Act requiring notice, opportunity for public comment, and publication.
The Regulatory Flexibility Act \44\ therefore does not apply.\45\
Nonetheless, we have determined that it would be useful to publish
these proposed rules for notice and comment before adoption. Because
these rules relate to ``agency organization, procedure or practice that
does not substantially affect the rights or obligations of non-agency
parties,'' they are not subject to the Small Business Regulatory
Enforcement Fairness Act.\46\ To the extent these rules relate to
agency information collections during the conduct of administrative
proceedings, they are exempt from

review under the Paperwork Reduction Act.\47\
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    \43\ 5 U.S.C. 553(b)(3)(A).
    \44\ 5 U.S.C. 601-612.
    \45\ See 5 U.S.C. 603.
    \46\ 5 U.S.C. 804(3)(C).
    \47\ See 44 U.S.C. 3518(c)(1)(B)(ii); 5 CFR 1320.4 (exempting
collections during the conduct of administrative proceedings or
investigations).
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V. Economic Analysis

    We are mindful of the costs and benefits of our rules. In proposing
these amendments, we seek to enhance flexibility in the conduct of
administrative proceedings while maintaining the facility to
efficiently resolve individual matters.
    The current rules governing administrative proceedings serve as the
baseline against which we assess the economic impacts of these proposed
amendments. At present, Commission rules set the prehearing period of a
proceeding at approximately four months for a 300-day proceeding and do
not permit parties to take depositions solely for the purpose of
discovery. Rules governing the testimony of expert witnesses have not
been formalized, but the administrative law judges already have
required expert reports in proceedings before them.
    The scope of the benefits and costs of the proposed rules depends
on the expected volume of administrative proceedings. In fiscal year
2014, 230 new administrative proceedings were initiated and not settled
immediately. New proceedings initiated and not immediately settled in
fiscal years 2013 and 2012 totaled 202 and 207 respectively.\48\
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    \48\ The total number of administrative proceedings initiated
and not immediately settled each fiscal year encompasses a variety
of types of proceedings, including proceedings instituted pursuant
to Section 12(j) of the Securities Exchange Act of 1934 seeking to
determine whether it is necessary and appropriate for the protection
of investors to suspend or revoke the registration of an issuer's
securities and proceedings instituted under Section 15(b) of the
Exchange Act or Section 203(f) of the Investment Advisers Act of
1940 seeking to determine what, if any, remedial action is
appropriate in the public interest.
---------------------------------------------------------------------------

    The amendments to Rule 233 and Rule 360, as well as the supporting
amendments, may benefit respondents and the Division of Enforcement by
providing them with additional time and tools to discover relevant
facts and information. The proposed amendment to Rule 233 and
supporting amendments would permit respondents and the Division of
Enforcement to take depositions by oral examination, permitting a more
efficient discovery period. We preliminarily believe that the proposed
amendments regarding depositions will provide parties with an
opportunity to further develop arguments and defenses, which may narrow
the facts and issues to be explored during the hearing. The proposed
amendments to Rule 360 would alter the timeline to allow for expanded
discovery. We anticipate that the potential for a longer discovery
period would allow respondents additional time to review investigative
records and to load and then review electronic productions. Together,
allowing depositions and providing time for additional discovery should
facilitate the information acquisition during the prehearing stage, and
may ultimately result in more focused hearings. Furthermore, we
preliminarily believe that more information acquisition at the
prehearing stage may lead to cost savings to respondents and the
Division of Enforcement stemming from the earlier resolution of cases
through settlement or shorter, more focused, hearings. We are unable to
quantify these benefits, however, as the potential savings would depend
on multiple factors, including the complexity of actions brought to
administrative proceedings and the impact that the change to discovery
may have on settlement terms, which are unknown.
    We preliminarily believe that the costs of the proposed amendments
will be borne by the Commission as well as respondents in
administrative proceedings and witnesses who provide deposition
testimony. These costs will primarily stem from the cost of depositions
and the additional length of administrative proceedings.
    Costs stemming from depositions depend on whether respondents and
the Division of Enforcement take depositions for the purpose of
discovery and how they choose to participate in these depositions.
Costs of depositions include the expenses of travel, attorney's fees,
and reporter and transcription expenses. Based on staff experience, we
preliminarily estimate the cost to a respondent of conducting one
deposition could be approximately $36,840.\49\ However, we recognize
that respondents and the Division of Enforcement play a large role in
managing their own costs by determining whether to take or attend
depositions, managing attorney costs, including the number of attorneys
attending each deposition, contracting with a competitively-priced
reporter, arranging for less expensive travel, and choosing the
location of depositions. We note that determinations regarding the
approach to depositions will likely reflect parties' beliefs regarding
the potential benefits they expect to realize from participation in
depositions. However we recognize that although respondents and the
Division of Enforcement can choose the extent and manner in which they
request depositions, the costs of depositions are borne not only by the
party choosing to conduct a deposition, but also by other parties who
choose to attend the deposition, the witness, and other entities in
time, travel, preparation, and attorney costs.\50\
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    \49\ This estimate is comprised of the following expenses: (i)
travel expenses: $4,000; (ii) reporter/videographer: $7,000; and
(iii) professional costs for two attorneys (including reasonable
preparation for the deposition): 34 hours x $460/hr and 34 hours x
$300/hr = $25,840. The hourly rates for the attorneys are based on
the 2014-2015 Laffey Matrix. The Laffey Matrix is a matrix of hourly
rates for attorneys of varying experience levels that is prepared
annually by the Civil Division of the United States Attorney's
Office for the District of Columbia. See Laffey Matrix--2014-2015,
available at http://www.justice.gov/sites/default/files/usao-dc/legacy/2014/07/14/Laffey%20Matrix_2014-2015.pdf (last visited Sept.
10, 2015) (the ``Laffey Matrix''); see Save Our Cumberland Mountains
v. Hodel, 857 F.2d 1516, 1525 (D.C. Cir. 1988) (en banc); Covington
v. District of Columbia, 57 F.3d 1101, 1105 & n.14, 1109 (D.C. Cir.
1995). We have applied different estimates of the outside legal
costs in connection with public company reporting, but believe that
the Laffey Matrix is an appropriate measure for calculating
reasonable attorneys fees in litigation. Compare Pay Ratio
Disclosure, Exchange Act Release No. 75610, 80 FR 50103 (Aug. 5,
2015) (applying a $400 per hour estimate of professional costs for
Paperwork Reduction Act calculations).
    \50\ Some witnesses who are deposed might bear little if any
out-of-pocket cost if, for example, the deposition is conducted in
the city in which they live or work, and they choose not be
represented by counsel at the deposition. Moreover, the party
seeking the deposition might under the rules reimburse the witness
for mileage or other travel costs. On the other hand, if the witness
is required to pay for his or own travel to the deposition, and
chooses to retain counsel to represent him or her at the deposition,
we preliminary estimate that the deposition cost to the witness
could be approximately $19,640 ($4000 in travel expenses for the
witness and an attorney, and attorney time of 34 hours (preparation
and attendance at the deposition) x $460 per hour). The hourly rate
for the attorney is based on the Laffey Matrix.
---------------------------------------------------------------------------

    The longer potential discovery period permitted by the proposed
amendment to Rule 360, while intended to provide sufficient time for
parties to engage in discovery, may impose costs on respondents and the
Commission. We preliminarily estimate that potentially lengthening the
overall administrative proceedings timeline by up to four months to
allow more time for discovery may result in additional costs to
respondents in a single matter of up to $462,400.\51\ Again, however,
we recognize that while parties are likely to incur these costs only to
the extent that they expect to receive benefits from engaging in
depositions and additional

discovery, the costs imposed by the additional time for discovery may
be incurred by all parties, not just the party advocating for
additional time for discovery. Further, to the extent that the proposed
rules may result in the earlier resolution of cases through settlement
or shorter, more focused, hearings, some of these costs may potentially
be offset.
---------------------------------------------------------------------------

    \51\ This estimate is comprised of the following expenses: (i) 1
senior attorney x 40 hours per week x 16 weeks x $460/hr = $294,400;
(ii) 1 mid-level attorney x 20 hours per week x 16 weeks x $300/hr =
$96,000; (iii) 1 paralegal x 30 hours per week x 16 weeks x $150/hr
= $72,000. The hourly rates for the attorneys and paralegal are
based on the Laffey Matrix.
---------------------------------------------------------------------------

    The proposed amendments related to discovery may also affect
efficiency in certain cases. To the extent that the proposed amendments
facilitate the discovery of relevant facts and information through
depositions and extending the time for discovery, they may lead to more
expeditious resolution of administrative proceedings, which could
enhance the overall efficiency of the Commission's processes. For
example, for complex cases that may benefit significantly from the
additional information there could be efficiency gains from the
proposed rules if the costs associated with the use of depositions are
smaller than the value of the information gained from depositions.
However, we note that because parties may not take into account the
costs that depositions may impose on other entities, a potential
consequence of the proposed amendments to Rule 233 and Rule 360 is that
parties may engage in more discovery than is efficient. For example,
for simple cases which may not benefit significantly from the
additional information gained from a deposition, requesting depositions
may result in inefficiency by imposing costs on all parties and
witnesses involved without any significant informational benefit.
However, we preliminarily believe that the supporting proposed
amendments to Rule 232 and 233 may mitigate the risk of this efficiency
loss by setting forth standards for the issuance of subpoenas and
motions to quash depositions and setting a limit on the maximum number
of depositions each side may request.
    As an alternative to the proposed rules, we could continue to
permit depositions only when a witness is unable to testify at a
hearing, or propose other limited discovery tools, such as the use of
interrogatories or requests for admissions in lieu of depositions.
Although alternatives such as interrogatories or admissions may reduce
some of the costs of the discovery process (i.e., the cost of
depositions), they might increase other costs (resulting from the time
attorneys and parties need to prepare responses) and also may yield
less useful information for the administrative proceeding given the
limited nature of questioning these forms permit. Relative to these
alternatives, we believe that the proposed amendments would achieve the
benefits of discovery in a cost-efficient manner.
    The proposed amendments to Rule 222 specify the requirements for
parties requesting to call expert witnesses. To the extent that the
requirements specified in Rule 222 are identical to the current
practices of administrative law judges, we do not anticipate any
significant economic effects. However, the proposed amendments to Rule
222 may impose costs on parties involved in proceedings before
administrative law judges whose current practices differ in any way
from the requirements specified in Rule 222.
    We preliminarily do not expect any significant economic
consequences to stem from proposed amendments to Rules 141, 161, 220,
230, 235, 320, 410, 411, 420, 440, 450, and 900. For Rule 233 and its
supporting amendments and Rule 360, we expect that these proposed
amendments will have an impact on the efficiency of administrative
proceedings but do not expect them to significantly affect the
efficiency, competition, or capital formation of securities markets. We
also do not expect the proposed amendments to impose a significant
burden on competition.\52\
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    \52\ See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    We request comment on all aspects of the economic effects of the
proposal, including any anticipated impacts that are not mentioned
here. We are particularly interested in comments regarding the expected
benefits and costs of the proposed rules, including the specific
benefits and costs parties expect to result from the proposed
amendments. We are also interested in comments regarding how the
amendments may affect the overall length and outcomes of administrative
proceedings, and how parties approach administrative proceedings.
Additionally, we request quantitative estimates of the benefits and
costs on respondents in administrative proceedings and witnesses who
provide deposition testimony, in general or for particular types of
proceedings. We also request comment on reasonable alternatives to the
proposed rules and on any effect the proposed rules may have on
efficiency, competition, and capital formation.

VI. Statutory Basis and Text of Proposed Amendments

    These amendments to the Rules of Practice are being proposed
pursuant to statutory authority granted to the Commission, including
section 3 of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7202; section 19
of the Securities Act, 15 U.S.C. 77s; sections 4A, 19, and 23 of the
Exchange Act, 15 U.S.C. 78d-1, 78s, and 78w; section 319 of the Trust
Indenture Act of 1939, 15 U.S.C. 77sss; sections 38 and 40 of the
Investment Company Act, 15 U.S.C. 80a-37 and 80a-39; and section 211 of
the Investment Advisers Act, 15 U.S.C. 80b-11.

List of Subjects in 17 CFR Part 201

    Administrative practice and procedure.

Text of the Amendments

    For the reasons set out in the preamble, 17 CFR part 201 is
proposed to be amended as follows:

PART 201--RULES OF PRACTICE

0
1. The authority citation for part 201, subpart D, continues to read as
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u, 77sss,
77ttt, 78c(b), 78d-1, 78d-2, 78l, 78m, 78n, 78o(d), 78o-3, 78s, 78u-
2, 78u-3, 78v, 78w, 80a-8, 80a-9, 80a-37, 80a-38, 80a-39, 80a-40,
80a-41, 80a-44, 80b-3, 80b-9, 80b-11, 80b-12, 7202, 7215, and 7217.

0
2. Section 201.141 is amended by revising paragraphs (a)(2)(iv) and (v)
and (a)(3) to read as follows:

Sec.  201.141  Orders and decisions: Service of orders instituting
proceedings and other orders and decisions.

    (a) * * *
    (2) * * *
    (iv) Upon persons in a foreign country. Notice of a proceeding to a
person in a foreign country may be made by any of the following
methods:
    (A) Any method specified in paragraph (a)(2) of this section that
is not prohibited by the law of the foreign country; or
    (B) By any internationally agreed means of service that is
reasonably calculated to give notice, such as those authorized by the
Hague Convention on the Service Abroad of Judicial and Extrajudicial
Documents; or
    (C) Any method that is reasonably calculated to give notice
    (1) As prescribed by the foreign country's law for service in that
country in an action in its courts of general jurisdiction; or
    (2) As the foreign authority directs in response to a letter
rogatory or letter of request; or
    (3) Unless prohibited by the foreign country's law, by delivering a
copy of the order instituting proceedings to the individual personally,
or using any form of mail that the Secretary or the interested division
addresses and sends to the individual and that requires a signed
receipt; or

    (D) By any other means not prohibited by international agreement,
as the Commission or hearing officer orders.
    (v) In stop order proceedings. Notwithstanding any other provision
of paragraph (a)(2) of this section, in proceedings pursuant to
Sections 8 or 10 of the Securities Act of 1933, 15 U.S.C. 77h or 77j,
or Sections 305 or 307 of the Trust Indenture Act of 1939, 15 U.S.C.
77eee or 77ggg, notice of the institution of proceedings shall be made
by personal service or confirmed telegraphic notice, or a waiver
obtained pursuant to paragraph (a)(4) of this section.
* * * * *
    (3) Record of service. The Secretary shall maintain a record of
service on parties (in hard copy or computerized format), identifying
the party given notice, the method of service, the date of service, the
address to which service was made, and the person who made service. If
a division serves a copy of an order instituting proceedings, the
division shall file with the Secretary either an acknowledgement of
service by the person served or proof of service consisting of a
statement by the person who made service certifying the date and manner
of service; the names of the persons served; and their mail or
electronic addresses, facsimile numbers, or the addresses of the places
of delivery, as appropriate for the manner of service. If service is
made in person, the certificate of service shall state, if available,
the name of the individual to whom the order was given. If service is
made by U.S. Postal Service certified or Express Mail, the Secretary
shall maintain the confirmation of receipt or of attempted delivery,
and tracking number. If service is made to an agent authorized by
appointment to receive service, the certificate of service shall be
accompanied by evidence of the appointment.
* * * * *
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3. Section 201.161 is amended by revising paragraph (c)(2)(iii) to read
as follows:

Sec.  201.161  Extensions of time, postponements and adjournments.

* * * * *
    (c) * * *
    (2) * * *
    (iii) The granting of any stay pursuant to this paragraph (c) shall
stay the timeline pursuant to Sec.  201.360(a).
0
4. Section 210.180 is amended by revising paragraphs (a)(1)
introductory text, (a)(1)(i), and (a)(2) to read as follows:

Sec.  201.180  Sanctions.

    (a) * * *
    (1) Subject to exclusion or suspension. Contemptuous conduct by any
person before the Commission or a hearing officer during any
proceeding, including at or in connection with any conference,
deposition or hearing, shall be grounds for the Commission or the
hearing officer to:
    (i) Exclude that person from such deposition, hearing or
conference, or any portion thereof; and/or
* * * * *
    (2) Review procedure. A person excluded from a deposition, hearing
or conference, or a counsel summarily suspended from practice for the
duration or any portion of a proceeding, may seek review of the
exclusion or suspension by filing with the Commission, within three
days of the exclusion or suspension order, a motion to vacate the
order. The Commission shall consider such motion on an expedited basis
as provided in Sec.  201.500.
* * * * *
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5. Revise Sec.  201.220 to read as follows:

Sec.  201.220  Answer to allegations.

    (a) When required. In its order instituting proceedings, the
Commission may require any respondent to file an answer to each of the
allegations contained therein. Even if not so ordered, any respondent
in any proceeding may elect to file an answer. Any other person granted
leave by the Commission or the hearing officer to participate on a
limited basis in such proceedings pursuant to Sec.  201.210(c) may be
required to file an answer.
    (b) When to file. Except where a different period is provided by
rule or by order, a respondent shall do so within 20 days after service
upon the respondent of the order instituting proceedings. Persons
granted leave to participate on a limited basis in the proceeding
pursuant to Sec.  201.210(c) may file an answer within a reasonable
time, as determined by the Commission or the hearing officer. If the
order instituting proceedings is amended, the Commission or the hearing
officer may require that an amended answer be filed and, if such an
answer is required, shall specify a date for the filing thereof.
    (c) Contents; effect of failure to deny. Unless otherwise directed
by the hearing officer or the Commission, an answer shall specifically
admit, deny, or state that the party does not have, and is unable to
obtain, sufficient information to admit or deny each allegation in the
order instituting proceedings. When a party intends in good faith to
deny only a part of an allegation, the party shall specify so much of
it as is true and shall deny only the remainder. A statement of a lack
of information shall have the effect of a denial. A respondent must
affirmatively state in the answer any avoidance or affirmative defense,
including but not limited to res judicata, statute of limitations or
reliance. Any allegation not denied shall be deemed admitted.
    (d) Motion for more definite statement. A respondent may file with
an answer a motion for a more definite statement of specified matters
of fact or law to be considered or determined. Such motion shall state
the respects in which, and the reasons why, each such matter of fact or
law should be required to be made more definite. If the motion is
granted, the order granting such motion shall set the periods for
filing such a statement and any answer thereto.
    (e) Amendments. A respondent may amend its answer at any time by
written consent of each adverse party or with leave of the Commission
or the hearing officer. Leave shall be freely granted when justice so
requires.
    (f) Failure to file answer: default. If a respondent fails to file
an answer required by this section within the time provided, such
respondent may be deemed in default pursuant to Sec.  201.155(a). A
party may make a motion to set aside a default pursuant to Sec.
201.155(b).
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6. Section 201.221 is amended by revising paragraph (c) to read as
follows.

Sec.  201.221  Prehearing conference.

* * * * *
    (c) Subjects to be discussed. At a prehearing conference
consideration may be given and action taken with respect to any and all
of the following:
    (1) Simplification and clarification of the issues;
    (2) Exchange of witness and exhibit lists and copies of exhibits;
    (3) Timing of disclosure of expert witness disclosures and reports,
if any;
    (4) Stipulations, admissions of fact, and stipulations concerning
the contents, authenticity, or admissibility into evidence of
documents;
    (5) Matters of which official notice may be taken;
    (6) The schedule for exchanging prehearing motions or briefs, if
any;
    (7) The method of service for papers other than Commission orders;
    (8) Summary disposition of any or all issues;
    (9) Settlement of any or all issues;
    (10) Determination of hearing dates;
    (11) Amendments to the order instituting proceedings or answers
thereto;
    (12) Production of documents as set forth in Sec.  201.230, and
prehearing

production of documents in response to subpoenas duces tecum as set
forth in Sec.  201.232;
    (13) Specification of procedures as set forth in Sec.  201.202;
    (14) Depositions to be conducted, if any, and date by which
depositions shall be completed; and
    (15) Such other matters as may aid in the orderly and expeditious
disposition of the proceeding.
* * * * *
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7. Section 201.222 is amended by revising the section heading and
paragraph (b) to read as follows:

Sec.  201.222  Prehearing submissions and disclosures.

* * * * *
    (b) Expert witnesses--(1) Information to be supplied; reports. Each
party who intends to call an expert witness shall submit, in addition
to the information required by paragraph (a)(4) of this section, a
statement of the expert's qualifications, a listing of other
proceedings in which the expert has given expert testimony during the
previous 4 years, and a list of publications authored or co-authored by
the expert in the previous 10 years. Additionally, if the witness is
one retained or specially employed to provide expert testimony in the
case or one whose duties as the party's employee regularly involve
giving expert testimony, then the party must include in the disclosure
a written report--prepared and signed by the witness. The report must
contain:
    (i) A complete statement of all opinions the witness will express
and the basis and reasons for them;
    (ii) The facts or data considered by the witness in forming them;
    (iii) Any exhibits that will be used to summarize or support them;
and
    (iv) A statement of the compensation to be paid for the study and
testimony in the case.
    (2) Drafts and communications protected. (i) Drafts of any report
or other disclosure required under this section need not be furnished
regardless of the form in which the draft is recorded.
    (ii) Communications between a party's attorney and the party's
expert witness who is identified under this section need not be
furnished regardless of the form of the communications, except if the
communications relate to compensation for the expert's study or
testimony, identify facts or data that the party's attorney provided
and that the expert considered in forming the opinions to be expressed,
or identify assumptions that the party's attorney provided and that the
expert relied on in forming the opinions to be expressed.
0
8. Section 201.230 is amended by:
0
a. Revising the paragraph (b) subject heading;
0
b. Redesignating paragraph (b)(1)(iv) as paragraph (b)(1)(v) and adding
new paragraph (b)(1)(iv);
0
c. Redesignating paragraph (b)(2) as paragraph (b)(3) and adding new
paragraph (b)(2); and
0
d. In paragraph (c), removing the term ``(b)(1)(iv)'' and adding in its
place ``(b)(1)(v)'' wherever it occurs.
    The revision and additions read as follows:

Sec.  201.230  Enforcement and disciplinary proceedings: Availability
of documents for inspection and copying.

* * * * *
    (b) Documents that may be withheld or redacted.
    (1) * * *
    (iv) The document reflects only settlement negotiations between the
Division of Enforcement and a person or entity who is not a respondent
in the proceeding; or
* * * * *
    (2) Unless the hearing officer orders otherwise upon motion, the
Division of Enforcement may redact information from a document if:
    (i) The information is among the categories set forth in paragraphs
(b)(1)(i) through (v) of this section; or
    (ii) The information consists of the following with regard to a
person other than the respondent to whom the information is being
produced:
    (A) An individual's social-security number;
    (B) An individual's birth date;
    (C) The name of an individual known to be a minor; or
    (D) A financial account number, taxpayer-identification number,
credit card or debit card number, passport number, driver's license
number, or state-issued identification number other than the last four
digits of the number.
* * * * *
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9. Section 201.232 is amended by revising paragraphs (a), (c), (d),
(e), and (f) to read as follows:

Sec.  201.232  Subpoenas.

    (a) Availability; procedure. In connection with any hearing ordered
by the Commission or any deposition permitted under Sec.  201.233, a
party may request the issuance of subpoenas requiring the attendance
and testimony of witnesses at such depositions or at the designated
time and place of hearing, and subpoenas requiring the production of
documentary or other tangible evidence returnable at any designated
time or place. Unless made on the record at a hearing, requests for
issuance of a subpoena shall be made in writing and served on each
party pursuant to Sec.  201.150. A person whose request for a subpoena
has been denied or modified may not request that any other person issue
the subpoena.
* * * * *
    (c) Service. Service shall be made pursuant to the provisions of
Sec.  201.150 (b) through (d). The provisions of this paragraph (c)
shall apply to the issuance of subpoenas for purposes of
investigations, as required by 17 CFR 203.8, as well as depositions and
hearings.
    (d) Tender of fees required. When a subpoena ordering the
attendance of a person at a hearing or deposition is issued at the
instance of anyone other than an officer or agency of the United
States, service is valid only if the subpoena is accompanied by a
tender to the subpoenaed person of the fees for one day's attendance
and mileage specified by paragraph (f) of this section.
    (e) Application to quash or modify--(1) Procedure. Any person to
whom a subpoena or notice of deposition is directed, or who is an
owner, creator or the subject of the documents that are to be produced
pursuant to a subpoena, or any party may, prior to the time specified
therein for compliance, but in no event more than 15 days after the
date of service of such subpoena or notice, request that the subpoena
or notice be quashed or modified. Such request shall be made by
application filed with the Secretary and served on all parties pursuant
to Sec.  201.150. The party on whose behalf the subpoena or notice was
issued may, within five days of service of the application, file an
opposition to the application. If a hearing officer has been assigned
to the proceeding, the application to quash shall be directed to that
hearing officer for consideration, even if the subpoena or notice was
issued by another person.
    (2) Standards governing application to quash or modify. If
compliance with the subpoena or notice of deposition would be
unreasonable, oppressive, unduly burdensome or would unduly delay the
hearing, the hearing officer or the Commission shall quash or modify
the subpoena or notice, or may order a response to the subpoena, or
appearance at a deposition, only upon specified conditions. These
conditions may include but are not limited to a requirement that the
party on whose behalf the subpoena was issued shall make reasonable
compensation to the person to whom the subpoena was

addressed for the cost of copying or transporting evidence to the place
for return of the subpoena.
    (3) Additional standards governing application to quash deposition
notices or subpoenas filed pursuant to Sec.  201.233(a). The hearing
officer or the Commission shall quash or modify a deposition notice or
subpoena filed or issued pursuant to Sec.  201.233(a) unless the
requesting party demonstrates that the deposition notice or subpoena
satisfies the requirements of Sec.  201.233(a), and:
    (i) The proposed deponent was a witness of or participant in any
event, transaction, occurrence, act, or omission that forms the basis
for any claim asserted by the Division of Enforcement, or any defense
asserted by any respondent in the proceeding (this excludes a proposed
deponent whose only knowledge of relevant facts about claims or
defenses of any party arises from the Division of Enforcement's
investigation or the proceeding);
    (ii) The proposed deponent is a designated as an ``expert witness''
under Sec.  201.222(b); provided, however, that the deposition of an
expert who is required to submit a written report under Sec.
201.222(b) may only occur after such report is served; or
    (iii) The proposed deponent has custody of documents or electronic
data relevant to the claims or defenses of any party (this excludes
Division of Enforcement or other Commission officers or personnel who
have custody of documents or data that was produced by the Division to
the respondent).
    (f) Witness fees and mileage. Witnesses summoned before the
Commission shall be paid the same fees and mileage that are paid to
witnesses in the courts of the United States, and witnesses whose
depositions are taken and the persons taking the same shall severally
be entitled to the same fees as are paid for like services in the
courts of the United States. Witness fees and mileage shall be paid by
the party at whose instance the witnesses appear. Except for such
witness fees and mileage, each party is responsible for paying any fees
and expenses of the expert witnesses whom that party designates under
Sec.  201.222(b), for appearance at any deposition or hearing.
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10. Section 201.233 is revised to read as follows:

Sec.  201.233  Depositions upon oral examination.

    (a) Depositions upon written notice. In any proceeding under the
120-day timeframe under Sec.  201.360(a)(2), except as otherwise set
forth in these rules, and consistent with the prehearing conference and
hearing officer's scheduling order:
    (1) If the proceeding involves a single respondent, the respondent
may file written notices to depose no more than three persons, and the
Division of Enforcement may file written notices to depose no more than
three persons. No other depositions shall be permitted, except as
provided in paragraph (b) of this section;
    (2) If the proceeding involves multiple respondents, the
respondents collectively may file joint written notices to depose no
more than five persons, and the Division of Enforcement may file
written notices to depose no more than five persons. The depositions
taken under this paragraph (a)(2) shall not exceed a total of five
depositions for the Division of Enforcement, and five depositions for
all respondents collectively. No other depositions shall be permitted
except as provided in paragraph (b) of this section;
    (3) A deponent's attendance may be ordered by subpoena issued
pursuant to the procedures in Sec.  201.232; and
    (4) The Commission or hearing officer may rule on a motion by a
party that a deposition shall not be taken upon a determination under
Sec.  201.232(e). The fact that a witness testified during an
investigation does not preclude the deposition of that witness.
    (b) Depositions when witness is unavailable. In addition to
depositions permitted under paragraph (a) of this section, the
Commission or the hearing officer may grant a party's request to file a
written notice of deposition if the requesting party shows that the
prospective witness will likely give testimony material to the
proceeding; that it is likely the prospective witness, who is then
within the United States, will be unable to attend or testify at the
hearing because of age, sickness, infirmity, imprisonment, other
disability, or absence from the United States, unless it appears that
the absence of the witness was procured by the party requesting the
deposition; and that the taking of a deposition will serve the
interests of justice.
    (c) Service and contents of notice. Notice of any deposition
pursuant to this section shall be made in writing and served on each
party pursuant to Sec.  201.150, and shall be consistent with the
prehearing conference and hearing officer's scheduling order. A notice
of deposition shall designate by name a deposition officer. The
deposition officer may be any person authorized to administer oaths by
the laws of the United States or of the place where the deposition is
to be held. A notice of deposition also shall state:
    (1) The name and address of the witness whose deposition is to be
taken;
    (2) The scope of the testimony to be taken;
    (3) The time and place of the deposition; provided that a subpoena
for a deposition may command a person to attend a deposition only as
follows:
    (A) Within 100 miles of where the person resides, is employed, or
regularly transacts business in person;
    (B) Within the state where the person resides, is employed, or
regularly transacts business in person, if the person is a party or a
party's officer;
    (C) At such other location that the parties and proposed deponent
stipulate; or
    (D) At such other location that the hearing officer or the
Commission determines is appropriate; and
    (4) The manner of recording and preserving the deposition.
    (d) Producing documents. In connection with any deposition pursuant
to Sec.  201.233(a), a party may request the issuance of a subpoena
duces tecum under Sec.  201.232. The party conducting the deposition
shall serve upon the deponent any subpoena duces tecum so issued. The
materials designated for production, as set out in the subpoena, must
be listed in the notice of deposition or in an attachment.
    (e) Method of recording--(1) Method stated in the notice. The party
who notices the deposition must state in the notice the method for
recording the testimony. Unless the hearing officer or Commission
orders otherwise, testimony may be recorded by audio, audiovisual, or
stenographic means. The noticing party bears the recording costs. Any
party may arrange to transcribe a deposition.
    (2) Additional method. With prior notice to the deponent and other
parties, any party may designate another method for recording the
testimony in addition to that specified in the original notice. That
party bears the expense of the additional record or transcript unless
the hearing officer or the Commission orders otherwise.
    (f) By remote means. The parties may stipulate--or the hearing
officer or Commission may on motion order--that a deposition be taken
by telephone or other remote means. For the purpose of this section,
the deposition takes place where the deponent answers the questions.
    (g) Deposition officer's duties--(1) Before the deposition. The
deposition officer designated pursuant to paragraph (c) of this section
must begin the

deposition with an on-the-record statement that includes:
    (i) The deposition officer's name and business address;
    (ii) The date, time, and place of the deposition;
    (iii) The deponent's name;
    (iv) The deposition officer's administration of the oath or
affirmation to the deponent; and
    (v) The identity of all persons present.
    (2) Conducting the deposition; Avoiding distortion. If the
deposition is recorded non-stenographically, the deposition officer
must repeat the items in paragraphs (g)(1)(i) through (iii) of this
section at the beginning of each unit of the recording medium. The
deponent's and attorneys' appearance or demeanor must not be distorted
through recording techniques.
    (3) After the deposition. At the end of a deposition, the
deposition officer must state on the record that the deposition is
complete and must set out any stipulations made by the attorneys about
custody of the transcript or recording and of the exhibits, or about
any other pertinent matters.
    (h) Order and record of the examination--(1) Order of examination.
The examination and cross-examination of a deponent proceed as they
would at the hearing. After putting the deponent under oath or
affirmation, the deposition officer must record the testimony by the
method designated under paragraph (e) of this section. The testimony
must be recorded by the deposition officer personally or by a person
acting in the presence and under the direction of the deposition
officer. The witness being deposed may have counsel present during the
deposition.
    (2) Form of objections stated during the deposition. An objection
at the time of the examination--whether to evidence, to a party's
conduct, to the deposition officer's qualifications, to the manner of
taking the deposition, or to any other aspect of the deposition--must
be noted on the record, but the examination still proceeds and the
testimony is taken subject to any objection. An objection must be
stated concisely in a nonargumentative and nonsuggestive manner. A
person may instruct a deponent not to answer only when necessary to
preserve a privilege, to enforce a limitation ordered by the hearing
officer or the Commission, or to present a motion to the hearing
officer or the Commission for a limitation on the questioning in the
deposition.
    (i) Waiver of objections--(1) To the notice. An objection to an
error or irregularity in a deposition notice is waived unless promptly
served in writing on the party giving the notice.
    (2) To the deposition officer's qualification. An objection based
on disqualification of the deposition officer before whom a deposition
is to be taken is waived if not made:
    (i) Before the deposition begins; or
    (ii) Promptly after the basis for disqualification becomes known
or, with reasonable diligence, could have been known.
    (3) To the taking of the deposition--(i) Objection to competence,
relevance, or materiality. An objection to a deponent's competence--or
to the competence, relevance, or materiality of testimony--is not
waived by a failure to make the objection before or during the
deposition, unless the ground for it might have been corrected at that
time.
    (ii) Objection to an error or irregularity. An objection to an
error or irregularity at an oral examination is waived if:
    (A) It relates to the manner of taking the deposition, the form of
a question or answer, the oath or affirmation, a party's conduct, or
other matters that might have been corrected at that time; and
    (B) It is not timely made during the deposition.
    (4) To completing and returning the deposition. An objection to how
the deposition officer transcribed the testimony--or prepared, signed,
certified, sealed, endorsed, sent, or otherwise dealt with the
deposition--is waived unless a motion to suppress is made promptly
after the error or irregularity becomes known or, with reasonable
diligence, could have been known.
    (j) Duration; cross-examination; motion to terminate or limit--(1)
Duration. Unless otherwise stipulated or ordered by the hearing officer
or the Commission, a deposition is limited to one day of 6 hours,
including cross-examination as provided in this subsection. In a
deposition conducted by or for a respondent, the Division of
Enforcement shall be allowed a reasonable amount of time for cross-
examination of the deponent. In a deposition conducted by the Division,
the respondents collectively shall be allowed a reasonable amount of
time for cross-examination of the deponent. The hearing officer or the
Commission may allow additional time if needed to fairly examine the
deponent or if the deponent, another person, or any other circumstance
impedes or delays the examination.
    (2) Motion to terminate or limit--(i) Grounds. At any time during a
deposition, the deponent or a party may move to terminate or limit it
on the ground that it is being conducted in bad faith or in a manner
that unreasonably annoys, embarrasses, or oppresses the deponent or
party. If the objecting deponent or party so demands, the deposition
must be suspended for the time necessary to present the motion to the
hearing officer or the Commission.
    (ii) Order. The hearing officer or the Commission may order that
the deposition be terminated or may limit its scope. If terminated, the
deposition may be resumed only by order of the hearing officer or the
Commission.
    (k) Review by the witness; changes--(1) Review; statement of
changes. On request by the deponent or a party before the deposition is
completed, and unless otherwise ordered by the hearing officer or the
Commission, the deponent must be allowed 14 days after being notified
by the deposition officer that the transcript or recording is
available, unless a longer time is agreed to by the parties or
permitted by the hearing officer, in which:
    (i) To review the transcript or recording; and
    (ii) If there are changes in form or substance, to sign a statement
listing the changes and the reasons for making them.
    (2) Changes indicated in the deposition officer's certificate. The
deposition officer must note in the certificate prescribed by paragraph
(l)(1) of this section whether a review was requested and, if so, must
attach any changes the deponent makes during the 14-day period.
    (l) Certification and delivery; exhibits; copies of the transcript
or recording--(1) Certification and delivery. The deposition officer
must certify in writing that the witness was duly sworn and that the
deposition accurately records the witness's testimony. The certificate
must accompany the record of the deposition. Unless the hearing officer
orders otherwise, the deposition officer must seal the deposition in an
envelope or package bearing the title of the action and marked
``Deposition of [witness's name]'' and must promptly send it to the
attorney or party who arranged for the transcript or recording. The
attorney or party must store it under conditions that will protect it
against loss, destruction, tampering, or deterioration.
    (2) Documents and tangible things--(i) Originals and copies.
Documents and tangible things produced for inspection during a
deposition must, on a party's request, be marked for identification and
attached to the deposition. Any party may inspect and copy them. But if
the person who produced them wants to keep the originals, the person
may:
    (A) Offer copies to be marked, attached to the deposition, and then

used as originals--after giving all parties a fair opportunity to
verify the copies by comparing them with the originals; or
    (B) Give all parties a fair opportunity to inspect and copy the
originals after they are marked--in which event the originals may be
used as if attached to the deposition.
    (ii) Order regarding the originals. Any party may move for an order
that the originals be attached to the deposition pending final
disposition of the case.
    (3) Copies of the transcript or recording. Unless otherwise
stipulated or ordered by the hearing officer or Commission, the
deposition officer must retain the stenographic notes of a deposition
taken stenographically or a copy of the recording of a deposition taken
by another method. When paid reasonable charges, the deposition officer
must furnish a copy of the transcript or recording to any party or the
deponent.
0
11. Section 201.234 is amended by revising paragraphs (a) and (c) to
read as follows:

Sec.  201.234  Depositions upon written questions.

    (a) Availability. Any deposition permitted under Sec.  201.232 may
be taken and submitted on written questions upon motion of any party,
for good cause shown, or as stipulated by the parties.
* * * * *
    (c) Additional requirements. The order for deposition, filing of
the deposition, form of the deposition and use of the deposition in the
record shall be governed by paragraphs (c) through (l) of Sec.
201.233, except that no cross-examination shall be made.
0
12. Section 201.235 is amended by revising the section heading and
paragraphs (a) introductory text, (a)(2), and (a)(5), and by adding
paragraph (b) to read as follows:

Sec.  201.235  Introducing prior sworn statements or declarations.

    (a) At a hearing, any person wishing to introduce a prior, sworn
deposition taken pursuant to Sec.  201.233 or Sec.  201.234,
investigative testimony, or other sworn statement or a declaration
pursuant to 28 U.S.C. 1746, of a witness, not a party, otherwise
admissible in the proceeding, may make a motion setting forth the
reasons therefor. If only part of a statement or declaration is offered
in evidence, the hearing officer may require that all relevant portions
of the statement or declaration be introduced. If all of a statement or
declaration is offered in evidence, the hearing officer may require
that portions not relevant to the proceeding be excluded. A motion to
introduce a prior sworn statement or declaration may be granted if:
* * * * *
    (2) The witness is out of the United States, unless it appears that
the absence of the witness was procured by the party offering the prior
sworn statement or declaration;
* * * * *
    (5) In the discretion of the Commission or the hearing officer, it
would be desirable, in the interests of justice, to allow the prior
sworn statement or declaration to be used. In making this
determination, due regard shall be given to the presumption that
witnesses will testify orally in an open hearing. If the parties have
stipulated to accept a prior sworn statement or declaration in lieu of
live testimony, consideration shall also be given to the convenience of
the parties in avoiding unnecessary expense.
    (b) Sworn statement or declaration of party or agent. An adverse
party may use for any purpose a deposition taken pursuant to Sec.
201.233 or Sec.  201.234, investigative testimony, or other sworn
statement or a declaration pursuant to 28 U.S.C. 1746, of a party or
anyone who, when giving the sworn statement or declaration, was the
party's officer, director, or managing agent.
0
13. Section 201.320 is revised to read as follows:

Sec.  201.320  Evidence: Admissibility.

    (a) Except as otherwise provided in this section, the Commission or
the hearing officer may receive relevant evidence and shall exclude all
evidence that is irrelevant, immaterial, unduly repetitious, or
unreliable.
    (b) Subject to Sec.  201.235, evidence that constitutes hearsay may
be admitted if it is relevant, material, and bears satisfactory indicia
of reliability so that its use is fair.
0
14. Section 201.360 is amended by revising paragraphs (a)(2) and (3)
and (b) to read as follows:

Sec.  201.360  Initial decision of hearing officer.

    (a) * * *
    (2) Time period for filing initial decision and for hearing--(i)
Initial decision. In the order instituting proceedings, the Commission
will specify a time period in which the hearing officer's initial
decision must be filed with the Secretary. In the Commission's
discretion, after consideration of the nature, complexity, and urgency
of the subject matter, and with due regard for the public interest and
the protection of investors, this time period will be either 30, 75, or
120 days from the completion of post-hearing briefing, or if there is
no in-person hearing, the completion of briefing on a dispositive
motion (including but not limited to a motion for summary disposition
or default) or the occurrence of a default under Sec.  201.155(a).
    (ii) Hearing. Under the 120-day timeline, the hearing officer shall
issue an order scheduling the hearing to begin approximately 4 months
(but no more than 8 months) from the date of service of the order
instituting the proceeding, allowing parties approximately 2 months
from the conclusion of the hearing to obtain the transcript and submit
post-hearing briefs, and no more than 120 days after the completion of
post-hearing or dispositive motion briefing for the hearing officer to
file an initial decision. Under the 75-day timeline, the hearing
officer shall issue an order scheduling the hearing to begin
approximately 2\1/2\ months (but no more than 6 months) from the date
of service of the order instituting the proceeding, allowing parties
approximately 2 months from the conclusion of the hearing to obtain the
transcript and submit post-hearing briefs, and no more than 75 days
after the completion of post-hearing or dispositive motion briefing for
the hearing officer to file an initial decision. Under the 30-day
timeline, the hearing officer shall issue an order scheduling the
hearing to begin approximately 1 month (but no more than 4 months) from
the date of service of the order instituting the proceeding, allowing
parties approximately 2 months from the conclusion of the hearing to
obtain the transcript and submit post-hearing briefs, and no more than
30 days after the completion of post-hearing or dispositive motion
briefing for the hearing officer to file an initial decision. These
deadlines confer no substantive rights on respondents. If a stay is
granted pursuant to Sec.  201.161(c)(2)(i) or Sec.  201.210(c)(3), the
time period specified in the order instituting proceedings in which the
hearing officer's initial decision must be filed with the Secretary, as
well as any other time limits established in orders issued by the
hearing officer in the proceeding, shall be automatically tolled during
the period while the stay is in effect.
    (3) Certification of extension; motion for extension. (i) In the
event that the hearing officer presiding over the proceeding determines
that it will not be possible to file the initial decision within the
specified period of time, the hearing officer may certify to the
Commission in writing the need to extend the initial decision deadline
by up to 30 days for case management purposes. The certification must
be issued no later than 30 days prior to the

expiration of the time specified for the issuance of an initial
decision and be served on the Commission and all parties in the
proceeding. If the Commission has not issued an order to the contrary
within fourteen days after receiving the certification, the extension
set forth in the hearing officer's certification shall take effect.
    (ii) Either in addition to a certification of extension, or instead
of a certification of extension, the Chief Administrative Law Judge may
submit a motion to the Commission requesting an extension of the time
period for filing the initial decision. First, the hearing officer
presiding over the proceeding must consult with the Chief
Administrative Law Judge. Following such consultation, the Chief
Administrative Law Judge may determine, in his or her discretion, to
submit a motion to the Commission requesting an extension of the time
period for filing the initial decision. This motion may request an
extension of any length but must be filed no later than 15 days prior
to the expiration of the time specified in the certification of
extension, or if there is no certification of extension, 30 days prior
to the expiration of the time specified in the order instituting
proceedings. The motion will be served upon all parties in the
proceeding, who may file with the Commission statements in support of
or in opposition to the motion. If the Commission determines that
additional time is necessary or appropriate in the public interest, the
Commission shall issue an order extending the time period for filing
the initial decision.
    (iii) The provisions of this paragraph (a)(3) confer no rights on
respondents.
    (b) Content. An initial decision shall include findings and
conclusions, and the reasons or basis therefor, as to all the material
issues of fact, law or discretion presented on the record and the
appropriate order, sanction, relief, or denial thereof. The initial
decision shall also state the time period, not to exceed 21 days after
service of the decision, except for good cause shown, within which a
petition for review of the initial decision may be filed. The reasons
for any extension of time shall be stated in the initial decision. The
initial decision shall also include a statement that, as provided in
paragraph (d) of this section:
* * * * *
0
15. Section 201.410 is amended by revising paragraph (b), redesignating
paragraph (c) as paragraph (d), and adding new paragraph (c) to read as
follows:

Sec.  201.410  Appeal of initial decisions by hearing officers.

* * * * *
    (b) Procedure. The petition for review of an initial decision shall
be filed with the Commission within such time after service of the
initial decision as prescribed by the hearing officer pursuant to Sec.
201.360(b) unless a party has filed a motion to correct an initial
decision with the hearing officer. If such correction has been sought,
a party shall have 21 days from the date of the hearing officer's order
resolving the motion to correct to file a petition for review. The
petition shall set forth a statement of the issues presented for review
under Sec.  201.411(b). In the event a petition for review is filed,
any other party to the proceeding may file a cross-petition for review
within the original time allowed for seeking review or within ten days
from the date that the petition for review was filed, whichever is
later.
    (c) Length limitation. Except with leave of the Commission, the
petition for review shall not exceed three pages in length.
Incorporation of pleadings or filings by reference is not permitted.
Motions to file petitions in excess of those limitations are
disfavored.
* * * * *
0
16. Section 201.411 is amended by revising paragraph (d) to read as
follows:

Sec.  201.411  Commission consideration of initial decisions by hearing
officers.

* * * * *
    (d) Limitations on matters reviewed. Review by the Commission of an
initial decision shall be limited to the issues specified in an opening
brief that complies with Sec.  201.450(b), or the issues, if any,
specified in the briefing schedule order issued pursuant to Sec.
201.450(a). Any exception to an initial decision not supported in an
opening brief that complies with Sec.  201.450(b) may, at the
discretion of the Commission, be deemed to have been waived by the
petitioner. On notice to all parties, however, the Commission may, at
any time prior to issuance of its decision, raise and determine any
other matters that it deems material, with opportunity for oral or
written argument thereon by the parties.
* * * * *
0
17. Section 201.420 is amended by adding a sentence to the end of
paragraph (c) to read as follows:

Sec.  201.420  Appeal of determinations by self-regulatory
organizations.

* * * * *
    (c) * * * Any exception to a determination not supported in an
opening brief that complies with Sec.  201.450(b) may, at the
discretion of the Commission, be deemed to have been waived by the
applicant.
* * * * *
0
18. Section 201.440 is amended by revising paragraph (b) to read as
follows:

Sec.  201.440  Appeal of determinations by the Public Company
Accounting Oversight Board.

* * * * *
    (b) Procedure. An aggrieved person may file an application for
review with the Commission pursuant to Sec.  201.151 within 30 days
after the notice filed by the Board of its determination with the
Commission pursuant to 17 CFR 240.19d-4 is received by the aggrieved
person applying for review. The applicant shall serve the application
on the Board at the same time. The application shall identify the
determination complained of, set forth in summary form a brief
statement of alleged errors in the determination and supporting reasons
therefor, and state an address where the applicant can be served. The
application should not exceed two pages in length. The notice of
appearance required by Sec.  201.102(d) shall accompany the
application. Any exception to a determination not supported in an
opening brief that complies with Sec.  201.450(b) may, at the
discretion of the Commission, be deemed to have been waived by the
applicant.
* * * * *
0
19. Section 201.450 is amended by revising paragraphs (b), (c), and (d)
to read as follows.

Sec.  201.450  Briefs filed with the Commission.

* * * * *
    (b) Contents of briefs. Briefs shall be confined to the particular
matters at issue. Each exception to the findings or conclusions being
reviewed shall be stated succinctly. Exceptions shall be supported by
citation to the relevant portions of the record, including references
to the specific pages relied upon, and by concise argument including
citation of such statutes, decisions and other authorities as may be
relevant. If the exception relates to the admission or exclusion of
evidence, the substance of the evidence admitted or excluded shall be
set forth in the brief, or by citation to the record. Reply briefs
shall be confined to matters in opposition briefs of other parties;
except as otherwise determined by the Commission in its discretion, any
argument raised for the first time in a reply brief shall be deemed to
have been waived.

    (c) Length limitation. Except with leave of the Commission, opening
and opposition briefs shall not exceed 14,000 words and reply briefs
shall not exceed 7,000 words, exclusive of pages containing the table
of contents, table of authorities, and any addendum that consists
solely of copies of applicable cases, pertinent legislative provisions
or rules, and exhibits. Incorporation of pleadings or filings by
reference is not permitted. Motions to file briefs in excess of these
limitations are disfavored.
    (d) Certificate of compliance. An opening or opposition brief that
does not exceed 30 pages in length, exclusive of pages containing the
table of contents, table of authorities, and any addendum that consists
solely of copies of applicable cases, pertinent legislative provisions,
or rules and exhibits, is presumptively considered to contain no more
than 14,000 words. A reply brief that does not exceed 15 pages in
length, exclusive of pages containing the table of contents, table of
authorities, and any addendum that consists solely of copies of
applicable cases, pertinent legislative provisions, or rules and
exhibits is presumptively considered to contain no more than 7,000
words. Any brief that exceeds these page limits must include a
certificate by the party's representative, or an unrepresented party,
stating that the brief complies with the requirements set forth in
Sec.  201.450(c) and stating the number of words in the brief. The
person preparing the certificate may rely on the word count of the
word-processing system used to prepare the brief.
0
20. Section 201.900 is revised to read as follows:

Sec.  201.900  Informal Procedures and Supplementary Information
Concerning Adjudicatory Proceedings.

    (a) Guidelines for the timely completion of proceedings. (1) Timely
resolution of adjudicatory proceedings is one factor in assessing the
effectiveness of the adjudicatory program in protecting investors,
promoting public confidence in the securities markets and assuring
respondents a fair hearing. Establishment of guidelines for the timely
completion of key phases of contested administrative proceedings
provides a standard for both the Commission and the public to gauge the
Commission's adjudicatory program on this criterion. The Commission has
directed that:
    (i) To the extent possible, a decision by the Commission on review
of an interlocutory matter should be completed within 45 days of the
date set for filing the final brief on the matter submitted for review.
    (ii) To the extent possible, a decision by the Commission on a
motion to stay a decision that has already taken effect or that will
take effect within five days of the filing of the motion, should be
issued within five days of the date set for filing of the opposition to
the motion for a stay. If the decision complained of has not taken
effect, the Commission's decision should be issued within 45 days of
the date set for filing of the opposition to the motion for a stay.
    (iii) Ordinarily, a decision by the Commission with respect to an
appeal from the initial decision of a hearing officer, a review of a
determination by a self-regulatory organization or the Public Company
Accounting Oversight Board, or a remand of a prior Commission decision
by a court of appeals will be issued within eight months from the
completion of briefing on the petition for review, application for
review, or remand order. If the Commission determines that the
complexity of the issues presented in a petition for review,
application for review, or remand order warrants additional time, the
decision of the Commission in that matter may be issued within 10
months of the completion of briefing.
    (iv) If the Commission determines that a decision by the Commission
cannot be issued within the period specified in paragraph (a)(1)(iii),
the Commission may extend that period by orders as it deems appropriate
in its discretion. The guidelines in this paragraph (a) confer no
rights or entitlements on parties or other persons.
    (2) The guidelines in this paragraph (a) do not create a
requirement that each portion of a proceeding or the entire proceeding
be completed within the periods described. Among other reasons,
Commission review may require additional time because a matter is
unusually complex or because the record is exceptionally long. In
addition, fairness is enhanced if the Commission's deliberative process
is not constrained by an inflexible schedule. In some proceedings,
deliberation may be delayed by the need to consider more urgent
matters, to permit the preparation of dissenting opinions, or for other
good cause. The guidelines will be used by the Commission as one of
several criteria in monitoring and evaluating its adjudicatory program.
The guidelines will be examined periodically, and, if necessary,
readjusted in light of changes in the pending caseload and the
available level of staff resources.
    (b) Reports to the Commission on pending cases. The administrative
law judges, the Secretary and the General Counsel have each been
delegated authority to issue certain orders or adjudicate certain
proceedings. See 17 CFR 200.30-1 et seq. Proceedings are also assigned
to the General Counsel for the preparation of a proposed order or
opinion which will then be recommended to the Commission for
consideration. In order to improve accountability by and to the
Commission for management of the docket, the Commission has directed
that confidential status reports with respect to all filed adjudicatory
proceedings shall be made periodically to the Commission. These reports
will be made through the Secretary, with a minimum frequency
established by the Commission. In connection with these periodic
reports, if a proceeding pending before the Commission has not been
concluded within 30 days of the guidelines established in paragraph (a)
of this section, the General Counsel shall specifically apprise the
Commission of that fact, and shall describe the procedural posture of
the case, project an estimated date for conclusion of the proceeding,
and provide such other information as is necessary to enable the
Commission to make a determination under paragraph (a)(1)(iv) of this
section or to determine whether additional steps are necessary to reach
a fair and timely resolution of the matter.
    (c) Publication of information concerning the pending case docket.
Ongoing disclosure of information about the adjudication program
caseload increases awareness of the importance of the program,
facilitates oversight of the program and promotes confidence in the
efficiency and fairness of the program by investors, securities
industry participants, self-regulatory organizations and other members
of the public. The Commission has directed the Secretary to publish in
the first and seventh months of each fiscal year summary statistical
information about the status of pending adjudicatory proceedings and
changes in the Commission's caseload over the prior six months. The
report will include the number of cases pending before the
administrative law judges and the Commission at the beginning and end
of the six-month period. The report will also show increases in the
caseload arising from new cases being instituted, appealed or remanded
to the Commission and decreases in the caseload arising from the
disposition of proceedings by issuance of initial

decisions, issuance of final decisions issued on appeal of initial
decisions, other dispositions of appeals of initial decisions, final
decisions on review of self-regulatory organization determinations,
other dispositions on review of self-regulatory organization
determinations, and decisions with respect to stays or interlocutory
motions. For each category of decision, the report shall also show the
median age of the cases at the time of the decision, the number of
cases decided within the guidelines for the timely completion of
adjudicatory proceedings, and, with respect to appeals from initial
decisions, reviews of determinations by self-regulatory organizations
or the Public Company Accounting Oversight Board, and remands of prior
Commission decisions, the median days from the completion of briefing
to the time of the Commission's decision.

    By the Commission.

    Dated: September 24, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015-24707 Filed 10-2-15; 8:45 am]
BILLING CODE 8011-01-P