[Federal Register Volume 78, Number 124 (Thursday, June 27, 2013)]
[Notices]
[Pages 38771-38776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15367]
[[Page 38771]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69825; File No. SR-FINRA-2013-018]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change Relating to FINRA
Rule 8313 (Release of Disciplinary Complaints, Decisions and Other
Information) as Modified by Amendment No. 1
June 21, 2013.
I. Introduction
On March 5, 2013, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) \1\ of the
Securities Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4
thereunder,\3\ a proposed rule change to amend FINRA Rule 8313 (Release
of Disciplinary Complaints, Decisions and Other Information), which
governs the release of disciplinary and other information by FINRA to
the public. In addition, the proposed rule change would make conforming
amendments to certain rules in the FINRA Rule 9000 Series (Code of
Procedure) and add a provision to FINRA Rule 9268 (Decision of Hearing
Panel or Extended Hearing Panel) regarding the effective date of
sanctions. The proposed rule change was published for comment in the
Federal Register on March 25, 2013.\4\ The Commission received five
comment letters on the proposal.\5\ On June 17, 2013, FINRA responded
to the comments \6\ and filed Amendment No. 1 to the proposed rule
change.\7\ This order approves the proposed rule change, as modified by
Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 69178 (March 25,
2013), 78 FR 17975 (``Notice'').
\5\ See Letters from William A. Jacobson, Associate Clinical
Professor of Law and Ali N. Wright, Cornell Law Student, Cornell Law
School, to Elizabeth M. Murphy, Secretary, Securities and Exchange
Commission, dated April 15, 2013 (``Cornell Letter''); David T.
Bellaire, Executive Vice President and General Counsel, Financial
Services Institute, to Elizabeth M. Murphy, Secretary, Commission,
dated April 15, 2013 (``FSI Letter''); Jenice L. Malecki, Malecki
Law, to Elizabeth M. Murphy, Secretary, Commission, dated April 15,
2013 (``Malecki Letter''); Jason R. Doss, Executive Vice President/
President-Elect, Public Investors Arbitration Bar Association, to
Elizabeth M. Murphy, Secretary, Commission, dated April 15, 2013
(``PIABA Letter''); Kevin M. Carroll, Managing Director and
Associate General Counsel, to Elizabeth M. Murphy, Secretary,
Commission, dated April 15, 2013 (``SIFMA Letter'').
\6\ See Letter from Erika Lazar, Assistant General Counsel,
FINRA, to Elizabeth M. Murphy, Secretary, Commission, dated June 17,
2013.
\7\ In Amendment No. 1, FINRA proposes to amend the proposed
rule change to retain the requirement in Rule 8313(a) that in
response to a request, FINRA will release a copy of any identified
disciplinary complaint or disciplinary decision to the requesting
party. FINRA proposed to eliminate this provision in light of the
proposed adoption of general standards for the release of
disciplinary complaints, disciplinary decisions, and other
information to the public. However, FINRA believes that maintaining
this provision in the proposed rule clarifies that FINRA will
continue to respond to requests for, and provide access to,
identified complaints and decisions. The amendment is technical and
therefore not subject to notice and comment.
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II. Description of the Proposal
As further described below, FINRA proposes to amend Rule 8313 to
establish general standards for the release of disciplinary information
to the public. The amendment would provide greater information
regarding FINRA's disciplinary actions, clarify the scope of
information subject to Rule 8313 and eliminate from the rule provisions
that do not address the release of information by FINRA to the public.
The proposed rule would also make conforming amendments to certain
rules in the FINRA Rule 9000 Series and add a provision to FINRA Rule
9268 regarding the effective date of sanctions.
A. Disciplinary Complaints and Disciplinary Decisions
Rule 8313(a) currently provides that in response to a request,
FINRA shall release any identified disciplinary complaint or
disciplinary decision issued by FINRA (or any subsidiary or Committee
thereof) to the requesting party. Absent a specific request for an
identified complaint or decision, Rule 8313 provides publicity
thresholds for the release of information with respect to disciplinary
complaints and disciplinary decisions to the public.\8\
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\8\ Rule 8313 provides for the release of ``information with
respect to'' disciplinary complaints and decisions in light of
FINRA's practice to issue, in addition to the complaints or
decisions themselves, information, for example, in press releases or
summaries of complaints and decisions that meet the current
publicity thresholds, or are otherwise permitted to be released
under the rule.
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The publicity thresholds of Rule 8313(b)(1) currently require FINRA
to make public information with respect to any disciplinary complaint
that contains an allegation of a violation of a ``designated'' statute,
rule, or regulation of the Commission, FINRA, or the Municipal
Securities Rulemaking Board (``MSRB''), as determined by the FINRA
Regulation Board of Directors (``Board'').\9\ In addition, FINRA may
release to the public information with respect to any complaint or
group of complaints that involves a significant policy or enforcement
determination where release of the information is deemed by FINRA's
Chief Executive Officer (``CEO'') (or such other senior officer as the
CEO may designate) to be in the public interest.
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\9\ FINRA has identified the rules in NASD Notice to Members 97-
42 (July 1997).
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Pursuant to the current publicity thresholds of Rule 8313(c)(1),
FINRA releases to the public information with respect to any
disciplinary decision that: (1) Imposes a suspension, cancellation, or
expulsion of a member; (2) imposes a suspension or revocation of the
registration of an associated person; (3) imposes a suspension or bar
of a member or associated person from association with all members; (4)
imposes monetary sanctions of $10,000 or more upon a member or
associated person; or (5) contains an allegation of a violation of a
designated rule. FINRA may also release information with respect to any
disciplinary decision or group of decisions that involves a significant
policy or enforcement determination where its release is deemed by
FINRA's CEO, or his designee, to be in the public interest. Current
Rule 8313(c)(1) contains an omnibus provision permitting FINRA to
release information on any disciplinary or other decision issued
pursuant to the Rule 9000 Series not specifically enumerated,
regardless of the sanctions imposed, if the names of the parties and
other identifying information is redacted. Rule 8313(c)(1)(A) and
(c)(1)(B) currently sets forth redaction standards for the release of
information with respect to disciplinary decisions where information
regarding the decision has previously been released to the public in
unredacted form, where only certain respondents in a decision on appeal
meet one or more of the publicity thresholds, or where an underlying
Office of Hearing Officers (``OHO'') decision meets a publicity
threshold, but a later National Adjudicatory Council (``NAC'') decision
on the matter does not meet a threshold.
The FINRA Disciplinary Actions online database (``FDA'') became
available in May 2011. It provides interested parties with greater
access to information regarding FINRA's disciplinary actions.\10\ The
FDA contains copies of FINRA's disciplinary actions (dating back to
early 2005) that are eligible for publication under Rule
[[Page 38772]]
8313. Interested parties may search the database to obtain copies of
disciplinary complaints and disciplinary decisions as well as to find
actions involving violations of a particular rule or statute, or other
criteria of interest to them.\11\ However, the publicity thresholds in
Rule 8313 limit disciplinary information available for publication in
the FDA (or otherwise available for release by FINRA).
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\10\ The FDA is available at http://www.finra.org/Industry/Enforcement/DisciplinaryActions/FDAS/.
\11\ The FDA also includes decisions issued by the SEC and
federal appellate courts that relate to FINRA disciplinary actions
that have been appealed.
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FINRA proposes to eliminate the restrictions on publication by
eliminating the provision addressing the release of ``identified''
disciplinary complaints and disciplinary decisions in Rule 8313(a) as
well as the publicity thresholds in 8313(b)(1) and (c)(1).\12\ In their
place, the proposed rule change would adopt general standards for the
release of disciplinary complaints, disciplinary decisions, and other
information to the public. Specifically, under proposed Rule 8313(a)
FINRA will release to the public a copy of, and in FINRA's discretion,
information with respect to any disciplinary complaint or disciplinary
decision it issues.\13\ Subject to limited exceptions, FINRA would
release such information in unredacted form.\14\
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\12\ In light of the elimination of the publicity thresholds,
the proposed rule change also would delete from Rule 8313 the
redaction standards made necessary by the publicity thresholds in
current paragraphs (c)(1)(A) and (c)(1)(B).
\13\ The proposed rule change would eliminate as unnecessary
references to ``groups of'' disciplinary complaints and disciplinary
decisions. See Rule 8313(b)(1) and (c)(1). FINRA does not view the
proposed rule change as distinguishing between the release of
individual, versus groups of, disciplinary complaints and
disciplinary decisions.
\14\ See Notice at 6.
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B. Temporary Cease and Desist Orders (``TCDOs'')
Rule 8313(c)(1) currently states that FINRA shall release to the
public information with respect to any TCDO. The proposed rule change
would retain this provision with minor changes as part of proposed Rule
8313(a)(2) to provide that FINRA will release to the public a copy of,
and in FINRA's discretion information with respect to, any order or
decision issued by FINRA under the Rule 9800 Series.
C. Statutory Disqualification Decisions
Rule 8313 does not address the release of statutory
disqualification decisions to the public. Pursuant to the omnibus
provision in Rule 8313(c)(1), discussed above, FINRA currently releases
information on statutory disqualification decisions issued by the NAC
pursuant to the Rule 9520 Series with the names of members and
associated persons redacted. In addition, FINRA currently does not
disclose the identity of the statutorily disqualified individuals or
member firms. Under proposed Rule 8313(a)(2) FINRA will release to the
public unredacted copies of, and in FINRA's discretion, information
with respect to statutory disqualification decisions, notifications,
and notices issued pursuant to the Rule 9520 Series by either the NAC
or FINRA's Member Regulation Department (``Member Regulation'') that
will be filed with the SEC.\15\
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\15\ All statutory disqualification decisions issued by the NAC
are filed with the Commission. In contrast, depending on the nature
of the disqualifying event, Member Regulation may or may not have to
file a notice of its approval of an application for relief (referred
to as a 19h-1 notice or notification) with the Commission. For
example, Member Regulation may approve the association of a person
without filing a 19h-1 notice or notification with the SEC when the
disqualifying event consists of an injunction that was entered more
than 10 years ago. See also Rule 19h-1 under the Act.
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D. Expedited Proceeding Decisions
Rules 9552 through 9558 \16\ currently provide a procedural
mechanism for FINRA to address certain types of misconduct (e.g., a
failure to pay fees or dues or a failure to meet eligibility or
qualification standards) more expeditiously than would be possible
using the FINRA disciplinary process.
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\16\ See Rule 9552 (Failure to Provide Information or Keep
Information Current), Rule 9553 (Failure to Pay FINRA Dues, Fees and
Other Charges), Rule 9554 (Failure to Comply with an Arbitration
Award or Related Settlement or an Order of Restitution or Settlement
Providing for Restitution), Rule 9555 (Failure to Meet the
Eligibility or Qualification Standards or Prerequisites for Access
to Services), Rule 9556 (Failure to Comply with Temporary and
Permanent Cease and Desist Orders), Rule 9557 (Procedures for
Regulating Activities Under Rules 4110, 4120 and 4130 Regarding a
Member Experiencing Financial or Operational Difficulties), and Rule
9558 (Summary Proceedings for Actions Authorized by Section
15A(h)(3) of the Act).
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Rule 8313(c)(1) currently states that FINRA may release to the
public information with respect to any decision issued pursuant to the
Rule 9550 Series imposing a suspension or cancellation of a member, or
a suspension or bar of the association of a person with a member,
unless FINRA determines otherwise. Separately, the ``Notice to
Membership'' provisions in Rules 9552 through 9556 and 9558 through
9559 currently state that FINRA shall provide notice of any final
action it takes under the rules in the next notice of Disciplinary and
Other FINRA Actions. The Notice to Membership provision in Rule 9557
requires notice when FINRA imposes a suspension pursuant to the rule,
but does not reference final FINRA action because the procedural
mechanisms in Rule 9557 differ from the other rules in the expedited
proceedings series.
Proposed Rule 8313(a)(2) would require FINRA to release to the
public information with respect to any suspension, cancellation,
expulsion or bar that constitutes final FINRA action imposed pursuant
to Rules 9552 through 9556 and 9558 and information with respect to any
suspension imposed pursuant to Rule 9557. FINRA would also be required
to release a copy of, and information with respect to, any decision
issued pursuant to Rule 9559 (Hearing Procedures for Expedited
Proceedings under the Rule 9550 Series) that constitutes final FINRA
action. Accordingly, the proposed rule change would delete the ``Notice
to Membership'' provisions in Rules 9552 through 9559.
E. Summary Actions
Rule 8313 currently does not specifically address the release of
information regarding summary actions taken by FINRA pursuant to Rule
8320 (Payment of Fines, Other Monetary Sanctions, or Costs; Summary
Action for Failure to Pay). Proposed Rule 8313(a)(3) would codify
FINRA's practice by expressly requiring FINRA to release to the public
information with respect to the summary suspension or expulsion of a
member or the summary revocation of the registration of a person
associated with a member for a failure to pay fines, other monetary
sanctions, or costs pursuant to Rule 8320.
F. Membership and Continuing Membership Application (``MAP'') Appeals
Rule 8313(l) currently provides that FINRA shall release to the
public, in the form issued by the NAC, information with respect to any
MAP appeal decision issued by the NAC pursuant to NASD Rule 1015
(Review by National Adjudicatory Council). The NAC in its discretion
may redact certain information from such decisions before they are
issued.
Proposed Rule 8313(a)(4) would require FINRA to release to the
public a copy of, and in FINRA's discretion, information with respect
to any MAP appeal decision issued by FINRA pursuant to NASD Rules 1015
and 1016 (Discretionary Review by FINRA Board). The proposed rule would
also require FINRA to release copies of, and information with respect
to, such decisions to the public in redacted form; provided, however,
the NAC or the Board, in its discretion, may determine
[[Page 38773]]
to release such decisions and information in unredacted form.
G. Permissive Publication of Certain Decisions and Notices
FINRA does not currently publish decisions or notices issued
pursuant to Rule 6490 and the Rule 9700 Series. However, if FINRA
determines that there is public benefit to releasing a specific
decision or notice issued under these rules to provide guidance to
other firms or to alert the public to an investor protection issue, it
would do so.\17\ The proposed rule change would add Rule 8313(a)(5)
that would permit FINRA to release to the public a copy of, and
information with respect to, any decision or notice issued pursuant to
Rule 6490 (Processing of Company-Related Actions),\18\ the Rule 9600
Series (Procedures for Exemptions),\19\ the Rule 9700 Series
(Procedures on Grievances Concerning the Automated Systems),\20\ and
any other decision appealable to the Commission under Section 19(d) of
the Act.
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\17\ In general, FINRA does not release copies of, or
information with respect to, decisions or notices addressing
company-related actions or grievances concerning the automated
systems.
\18\ Under Rule 6490, FINRA's Operations Department reviews and
processes documents related to announcements for Exchange Act Rule
10b-17 Actions and Other Company-Related Actions to facilitate the
orderly trading and settlement of OTC securities.
\19\ The Rule 9600 Series allows a member seeking exemptive
relief, as permitted under certain FINRA and NASD rules and MSRB
Rule G-37, to file a written application with the appropriate
department or staff of FINRA. The proposed rule change would make
conforming amendments to Rule 9620, which governs exemption
decisions issued under the Rule 9600 Series, to reflect the
permissive nature of proposed Rule 8313(a)(5).
\20\ The Rule 9700 Series sets forth procedures for redress for
persons aggrieved by the operations of any automated quotation,
execution, or communication system owned or operated by FINRA, or
its subsidiaries, and approved by the SEC, not otherwise provided
for by the FINRA rules.
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FINRA currently posts to its Web site exemption decisions for
several rules listed in Rule 9610, in large part, to provide guidance
to members, investors, and other interested parties to assist them in
understanding the rationale for the decisions to grant or deny requests
for exemptive relief.\21\ With respect to exemption decisions, the
proposed rule change would permit exemption decisions issued under the
Rule 9600 Series to be released to the public because Rule 9610, which
governs the application for exemptive relief, authorizes members to
request relief from a diverse set of member conduct rules. Proposed
Rule 8313(a)(5) would also provide for the release of ``any other
decision'' appealable to the Commission under Section 19(d) of the Act.
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\21\ Consistent with current practice under the Rule 9600
Series, FINRA will continue to consider statements included by an
applicant to show good cause to treat a decision as confidential in
whole or in part.
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H. Publication of Information Deemed by FINRA's CEO To Be in the Public
Interest
As discussed above, notwithstanding the existing publicity
thresholds, FINRA Rule 8313(b)(1) and (c)(1) currently allows FINRA to
release information with respect to any disciplinary complaint or
disciplinary decision that involves a significant policy or enforcement
determination where the release of such information is deemed by
FINRA's CEO to be in the public interest. Consistent with these
provisions, proposed Rule 8313(a)(6) would allow FINRA to release to
the public a copy of, and information with respect to, any complaint,
decision, order, notification, or notice issued under FINRA rules,
where the release of such information is deemed by FINRA's CEO (or such
other senior officer as the CEO may designate) to be in the public
interest.
I. Release Specifications
Rule 8313 currently requires copies of, and information with
respect to, disciplinary complaints and disciplinary decisions released
to the public to be accompanied by certain disclosure statements
regarding their status.\22\ Proposed Rule 8313(b)(1) would modify the
disclosure to state that a disciplinary complaint represents the
initiation of a formal proceeding by FINRA in which findings as to the
allegations in the complaint have not been made and does not represent
a decision as to any of the allegations contained in the complaint.
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\22\ See Notice at 16.
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Similarly, Rule 8313(a)(2) through (a)(4) and (c)(2) currently
requires copies of, and information with respect to, disciplinary
decisions released to the public to be accompanied by disclosure
statements. Proposed Rule 8313(b)(2) would require copies of, and
information with respect to, any disciplinary decision or other
decision, order, notification, or notice released to the public
pursuant to Rule 8313(a) before the time period provided for an appeal
or call for review has expired, to indicate that the findings and
sanctions imposed therein are subject to review and modification by
FINRA or the Commission. Disclosures relating to a pending appeal or
call for review will include the same information.
J. Discretion To Redact Certain Information or Waive Publication
As discussed above, FINRA has determined that, subject to limited
exceptions, disciplinary information should be released to the public
in unredacted form. With respect to the limited exceptions, proposed
Rule 8313(c)(1) would permit FINRA, notwithstanding the requirements of
proposed Rule 8313(a), to redact, on a case-by-case basis, confidential
customer information, including customer identities, or information
that raises significant identity theft, personal safety, or privacy
concerns that are not outweighed by investor protection concerns. FINRA
takes the same approach with respect to the release of information in
BrokerCheck.\23\
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\23\ See Rule 8312(d) (FINRA BrokerCheck Disclosure).
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Similarly, proposed Rule 8313(c)(2) would adopt with minor changes
a statement from current Rule 8313(c)(1) that provides FINRA with
discretion to waive the requirement to release a disciplinary or other
decision. The proposed rule change would expand this provision to give
FINRA discretion to waive the requirement to release any item under
paragraph (a) of the proposed rule. Accordingly, proposed Rule
8313(c)(2) would provide that notwithstanding paragraph (a) of the
proposed rule, FINRA may determine, in its discretion, to waive the
requirement to release a copy of, or information with respect to, any
disciplinary complaint, disciplinary decision or other decision, order,
notification, or notice under those extraordinary circumstances where
the release of such information would violate fundamental notions of
fairness or work an injustice.
K. Notification of Appeals of FINRA Decisions
Rule 8313(g) currently requires FINRA to provide notice to the
membership and the press when a FINRA disciplinary decision that meets
certain publicity thresholds has been appealed to the Commission. The
notice must be released as soon as possible after the Commission
notifies FINRA of the appeal and it must state whether the
effectiveness of the Board's decision has been stayed pending the
outcome of proceedings before the Commission. Proposed Rule 8313(d)
would adopt this provision with minor changes eliminating the publicity
thresholds and the limitation on notification to the membership and the
press. Under the proposed rule FINRA must provide notice to the public
when a disciplinary
[[Page 38774]]
decision of FINRA is appealed to the Commission and the notice shall
state whether the effectiveness of the decision has been stayed pending
the outcome of proceedings before the Commission.
The proposed rule change would delete Rule 8313(h) and (i) because
they limit notice to the membership based on the publicity thresholds
that would be eliminated under proposed Rule 8313(d). FINRA notes that
the FDA includes decisions issued by federal appellate courts that
relate to FINRA disciplinary actions that have been appealed.
L. Provisions Outside the Scope of Rule 8313
Certain provisions in the current Rule 8313 are outside the purview
of the rule, which is intended solely to address the release of
disciplinary and other information by FINRA to the public. FINRA moved
those provisions to other rules as appropriate.\24\ FINRA has indicated
that it would announce the effective date of the proposed rule change
in a Regulatory Notice to be published no later than 60 days following
Commission approval, and that the effective date will be no later than
120 days following publication of the Regulatory Notice announcing
Commission approval. Once effective, the proposed rule change will
govern the release of disciplinary and other information for all new
and pending matters.\25\
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\24\ See Notice at 21-22.
\25\ Offers of settlement and AWCs are entered into with the
express agreement that the publication of such items will be
pursuant to Rule 8313. Accordingly, publication of any order
accepting an offer of settlement or AWC entered into prior to the
effective date of the proposed rule change would be governed by the
version of the rule in effect as of the date of such offer or AWC.
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III. Summary of Comment Letters and FINRA's Response
As noted above, the Commission received five comment letters on the
proposed rule change.\26\ The comment letters expressed general support
for FINRA's initiative, but each comment letter raised concerns with
particular aspects of the proposal. The comments and FINRA's response
\27\ thereto is summarized below.
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\26\ See note 5, supra. FINRA did not address the concerns
raised by the SIFMA Letter that were outside the scope of the
proposed rule.
\27\ FINRA Letter.
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A. Comments Relating To General Release Standards
One commenter opposed the elimination of the requirement that FINRA
release identified complaints and decisions to the requesting party,
arguing that removal of the requirement for FINRA to release such
information makes FINRA's obligation to respond to requests
unclear.\28\ The commenter noted that some information can only be
obtained by a request to FINRA, such as pre-2005 decisions that are not
posted on the FDA, and that absent an express mechanism to access the
information, investors will not be aware that they can request the
information directly from FINRA.\29\ In response to this concern, FINRA
amended the proposed rule change to retain the requirement in Rule 8313
that FINRA release identified complaints and decisions to a requesting
party.\30\
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\28\ See PIABA Letter, p. 3.
\29\ Id.
\30\ See FINRA Letter, p. 2.
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Another commenter expressed concern about the discretion FINRA
would have regarding whether to release information with respect to
disciplinary complaints and disciplinary decisions to the public, and
requested that FINRA provide guidance on its discretionary powers.\31\
In response, FINRA explained that its current practice is to issue
information, such as press releases or monthly summaries of complaints
or decisions, along with the disciplinary complaints and decisions it
releases.\32\ FINRA stated that it intends to continue its practice of
releasing monthly summaries of complaints and decisions, and with
respect to the issuance of press releases in connection with
disciplinary decisions, issue press releases in situations where there
is a significant policy or investor protection reason to do so.\33\
FINRA, however, stated that it does not believe that it necessary or
appropriate to further delineate the specific circumstance when it may
release such summary information or press releases.\34\
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\31\ See Cornell Letter, p. 2.
\32\ See FINRA Letter, p. 2.
\33\ See FINRA Letter, p. 3.
\34\ Id.
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Another commenter suggested that complaints that have been
dismissed or withdrawn not be posted on FDA and questioned the
propriety of publicizing such complaints given that it draws attention
to actions that pose reputational harm to firms and representatives,
but were found lacking on the merits.\35\ In response, FINRA stated
that it believes that including the subsequent decision or order helps
to ensure the public has a full understanding of the status of a filed
disciplinary complaint.\36\ FINRA also noted that complaints that have
been withdrawn or dismissed are not removed from BrokerCheck, so they
are publicly available through that source.\37\ In addition, FINRA
noted that the Commission does not remove the original Order
Instituting Proceedings from the public record when an Administrative
Law Judge grants a staff motion to withdraw a complaint or when the
Commission, on appeal issues an opinion.
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\35\ See FSI Letter, p. 3.
\36\ See FINRA Letter, p. 3.
\37\ Id.
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One commenter opposed FINRA's proposal to provide for the
permissive publication of exemptive decisions or notices issued
pursuant to the Rule 9600 Series (Procedures for Exemptions), and
argued that publication should be mandatory.\38\ The commenter
suggested that FINRA should be required to identify and codify the
criteria governing the exercise of its discretion to release exemption
decisions.\39\ In response, FINRA stated that it does not believe that
mandatory publication of all exemption decisions would benefit members,
investors, and other interested parties because Rule 9610 covers a
diverse set of rules, and the exemption decisions and notices generally
are not disciplinary in nature, are often highly fact-specific, and may
contain proprietary and confidential information.\40\
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\38\ See PIABA Letter, p. 2.
\39\ See PIABA Letter, p. 2-3.
\40\ See FINRA Letter, p. 3.
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B. Comments Relating To Release Specifications
One commenter opposed the proposed elimination of language from
current Rule 8313(a)(1) that directs the recipient of a complaint to
``contact the respondent before drawing any conclusions regarding the
allegations in the complaint.'' \41\ The commenter stated that this
language is important because it provides notice to the public that
firms are responsive to concerns relating to allegations and should be
contacted with questions.\42\ FINRA disagreed with the commenter, and
asserted that the language is unnecessary because the recipient of
information released pursuant to Rule 8313 can contact a respondent at
any time.\43\ Further, FINRA stated that it does not believe that its
rules should be the basis to provide notice to the public that firms
are responsive to concerns relating to allegations in a complaint.\44\
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\41\ See FSI Letter, p. 3.
\42\ Id.
\43\ See FINRA Letter, p. 4.
\44\ Id.
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[[Page 38775]]
C. Comments Relating To Discretion To Redact Information or Waive
Publication
Three commenters raised concerns about FINRA's proposed Rule
8313(c)(1) that would permit FINRA to redact, on a case-by-case basis,
confidential customer information, and would provide FINRA with the
discretion to waive the requirement to release a disciplinary or other
decision under those extraordinary circumstances where the release of
such information would violate fundamental notions of fairness or work
an injustice.\45\ More specifically, one commenter requested guidance
regarding the circumstances under which FINRA would exercise the
discretion to redact information or waive publication, and suggested
accepting comment from members and the public on instances where the
exercise of such discretion would be appropriate.\46\ Another commenter
stated that the phrase ``violate fundamental notions of fairness or
work an injustice'' in the Rule is vague and could present challenges
for uniform application.\47\ The commenter suggested that if FINRA
exercises its discretion to waive publication, it should release the
type of document or the information being withheld, the date of the
document, and the reason for withholding.\48\ A third commenter opposed
FINRA's discretion to waive publication stating that the deterrent
effect of publication of disciplinary information would be undermined
if certain information is withheld out of concern for firms and their
associated persons.\49\
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\45\ See FSI Letter, p. 4; Malecki Letter, p. 2; and PIABA
Letter, p. 1.
\46\ See FSI Letter, p. 4.
\47\ See Malecki Letter, p. 2.
\48\ Id.
\49\ See PIABA Letter, p. 1.
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In response to these comments, FINRA stated that it believes it is
necessary to balance investor protection benefits with the harm that
might result if confidential customer information or information that
raises personal safety or privacy concerns is released to the public
when considering whether to release information.\50\ FINRA believes
that its proposed authority to redact, on a case-by-case basis,
confidential customer information or information that raises identity
theft, personal safety or privacy concerns that do not outweigh
investor protection considerations is consistent with FINRA's approach
with respect to the release of information in BrokerCheck pursuant to
Rule 8312.\51\ FINRA further believes that it is appropriate for it to
retain its current discretionary authority to waive the requirement to
release information to the public in the event FINRA is presented with
truly unique circumstances where the release of information would
violate fundamental notions of fairness or work an injustice.\52\
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\50\ See FINRA Letter, p. 5.
\51\ See FINRA Letter, p. 4.
\52\ Id.
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IV. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to a national securities association.\53\ In particular, the Commission
finds that the proposed rule change is consistent with Section 15(b)(6)
of the Act,\54\ which requires, among other things, that the rules of a
national securities association be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\53\ In approving the proposed rule change, the Commission has
considered the impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\54\ 15 U.S.C. 78o(b)(6).
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The Commission believes that the proposed rule change promotes
transparency, consistency across FINRA's programs, and clarity
regarding the information FINRA releases to the public and will provide
greater access to information regarding FINRA's disciplinary actions.
As stated in the proposal, FINRA's current rules are inconsistent
regarding release of information given that some information not
disclosed under the current rule is publicly available through other
resources. For example, BrokerCheck reports include unredacted summary
information regarding a FINRA disciplinary action that FINRA is not
permitted to release in the monthly notice of Disciplinary and Other
FINRA Actions or in the FDA under the current publicity thresholds
contained in Rule 8313.\55\ FINRA believes that providing greater
access to information regarding its disciplinary actions is in the
public interest and will provide valuable guidance to members,
associated persons, other regulators and the public. Accordingly, the
Commission believes that it is appropriate for FINRA to provide general
standards for the release of disciplinary and other information to the
public, clarify the scope of Rule 8313 and eliminate provisions that do
not relate to the release of information by FINRA to the public.
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\55\ The information about members and registered persons made
available through BrokerCheck is derived from the Central
Registration Depository (CRD[supreg]). Information in the CRD system
is obtained through the uniform registration forms (i.e., Forms U4,
U5, and U6, and Forms BD, BDW, and BR).
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As discussed above, three commenters raised concerns with the
proposed general standards for the release of information pursuant to
Rule 8313(a). One commenter opposed the elimination of FINRA's current
Rule 8313(a) which required FINRA to provide any identified
disciplinary complaint or disciplinary decision to a requesting
party.\56\ In response to this comment, FINRA proposes to amend a
portion of the proposed rule change to maintain the current requirement
that FINRA release the requested information.\57\ The commenter also
opposed FINRA's discretion to publish exemption decisions or notices
issued pursuant to the Rule 9600 Series.\58\ Another commenter
requested guidance for the meaning of ``at FINRA's discretion'' and
``information with respect to'' in Rule 8313(a)(1), (2) and (4) related
to FINRA's discretion to release information with respect to any
disciplinary complaint or decision issued by FINRA.\59\ A third
commenter opposed FINRA's proposal to post dismissed and withdrawn
complaints on the FDA.\60\
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\56\ See PIABA Letter, p. 3.
\57\ See FINRA Letter, p. 2 and Amendment No. 1, supra note 7.
\58\ See PIABA Letter, p. 2.
\59\ See Cornell Letter, p. 2.
\60\ See FSI Letter, p. 3.
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First, the Commission agrees with FINRA's decision to maintain the
explicit requirement to release disciplinary complaints and decisions
in Rule 8313(a), as this will ensure that FINRA's intent to release
disciplinary complaints and decisions upon request is clear. Second,
the Commission believes it is appropriate for FINRA to have discretion
to decide whether to publish exemption decisions because certain
exemption decisions contain proprietary details and are not
disciplinary in nature. Third, although FINRA does not delineate the
specific circumstances in which it may release disciplinary information
or press releases, the Commission supports FINRA's intention to
continue to release
[[Page 38776]]
monthly summaries of complaints and press releases as it deems
appropriate. The Commission notes that the decisions will be public.
Fourth, the Commission believes it is appropriate for FINRA to release
complaints that have been withdrawn or dismissed as such documents are
publicly available on BrokerCheck. The Commission notes that any
decision to withdraw or dismiss a disciplinary complaint or decision
would be released as well, therefore, persons reviewing disciplinary
information should have a complete understanding of the status of a
filed disciplinary complaint. The Commission believes that FINRA
responded adequately to the commenters' concerns regarding proposed
changes to Rule 8313(a).
As detailed above, four commenters raised concerns related to Rule
8313(b) and (c). One commenter opposed the removal of language
recommending that a recipient of a complaint contact the respondent
regarding allegations made in a complaint.\61\ The same commenter
requested guidance on when FINRA would exercise discretion to redact
information.\62\ Another commenter indicated that the phrase ``violate
fundamental notions of fairness or work an injustice'' is vague and may
not be universally applied.\63\ A third commenter opposed FINRA's
authority to use discretion in waiving publication.\64\
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\61\ See FSI Letter, p. 4.
\62\ Id.
\63\ See Malecki Letter, p. 2.
\64\ See PIABA Letter, pp. 2-3.
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The Commission agrees that the inclusion of the disclosure
statement language in Rule 8313(b) is not necessary because a recipient
of a complaint may contact a respondent at any time. FINRA's proposal
to remove the disclosure statement does not change a recipient's
ability to contact a respondent for information. The Commission
believes that FINRA should have discretion to redact information in
disciplinary complaints and decisions and waive publication under
certain circumstances in order to effectively balance investor
protection benefits with the harm that may result from not redacting
certain confidential information before releasing to the public. FINRA
has had this authority since the 1990's and the Commission believes
that FINRA will continue to exercise it appropriately.
Accordingly, for the reasons stated above, the Commission finds
that FINRA's proposal is consistent with Section 15A(b)(6) of the
Act.\65\
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\65\ 15 U.S.C. 78o-3(b)(6).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\66\ that the proposed rule change (SR-FINRA-2013-018), as modified by
Amendment No. 1, be, and hereby is, approved.
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\66\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\67\
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\67\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2013-15367 Filed 6-26-13; 8:45 am]
BILLING CODE 8011-01-P