[Federal Register Volume 79, Number 106 (Tuesday, June 3, 2014)]
[Notices]
[Pages 32003-32008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12771]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72269; File No. SR-FINRA-2014-008]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of Proposed Rule Change, as Modified by Amendment
No. 1, Relating To Protecting Personal Confidential Information in
Documents Filed With FINRA Dispute Resolution
May 28, 2014.
I. Introduction
On February 13, 2014, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend FINRA's Code of Arbitration Procedure for
Customer Disputes (the ``Customer Code'') and the Code of Arbitration
Procedure for Industry Disputes (the ``Industry Code'') to require
parties to redact all but the last four digits of an individual's
Social Security number, taxpayer identification number, or financial
account number (collectively, ``personal confidential information'' or
``PCI'') from documents filed with FINRA Dispute Resolution (``DR'').
The proposed rule change was published for comment in the Federal
Register on February 28, 2014.\3\ The Commission received six comments
on the proposal.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 71608 (Feb. 24,
2014), 79 FR 11491 (Feb. 28, 2014) (``Notice'').
\4\ See Letters from Steven B. Caruso, Esq., Maddox Hargett &
Caruso, P.C., dated March 4, 2014 (``Caruso Letter''); Nataliya
Nemtseva, Student Intern, Timothy Guilmette, Student Intern, Thomas
Abrahamson, Student Intern, and Nicole Iannarone, Assistant Clinical
Professor, Georgia State University College of Law's Investor
Advocacy Clinic, dated March 14, 2014 (``Georgia State Letter'');
Kara Cain, Esq., Aderant CompuLaw, dated March 19, 2014 (``Aderant
Letter''); Jason Doss, Public Investors Arbitration Bar Association,
dated March 20, 2014 (``PIABA Letter''); Ryan Jennings, Legal
Intern, Christian Corkery, Legal Intern, and Daniel Coleman, Legal
Intern, Securities Arbitration Clinic, St. Vincent DePaul Legal
Program, Inc., St. John's University School of Law, dated March 20,
2014 (``St. John's Letter''); and Jill I. Gross, James D. Hopkins
Professor of Law, Director, Investor Rights Clinic, Pace Law School,
dated March 24, 2014 (``Pace Letter'').
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On April 10, 2014, FINRA granted the Commission an extension of
time to act on the proposal until May 29, 2014.\5\ On May 5, 2014,
FINRA responded to the comment letters \6\ and filed Amendment No. 1 to
the proposed rule change in response to a commenter's concern.\7\ The
Commission is publishing this notice and order to solicit comments on
Amendment No. 1 from interested persons, and to approve the proposed
rule change, as modified by Amendment No. 1, on an accelerated basis.
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\5\ See Letter from Margo A. Hassan, Assistant Chief Counsel,
FINRA Dispute Resolution, Inc., to Lourdes Gonzalez, Assistant Chief
Counsel, Sales Practices, Division of Trading and Markets,
Securities and Exchange Commission, dated April 10, 2014.
\6\ See Letter from Margo A. Hassan, Assistant Chief Counsel,
FINRA Dispute Resolution, Inc., to Secretary, Securities and
Exchange Commission, dated May 5, 2014 (``FINRA Response Letter'').
\7\ See Aderant Letter.
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II. Description of the Proposed Rule Change
Overview
FINRA filed the proposed rule change to amend the Customer Code and
the Industry Code to provide that any document that a party files with
DR that contains an individual's Social Security number, taxpayer
identification number, or financial account number must be redacted to
include only the last four digits of any of these numbers.\8\ The
proposed redaction requirements would apply only to documents filed
with DR and would not apply to documents that parties exchange with
each other or submit to the arbitrators at a hearing on the merits.\9\
In addition, the proposed redaction requirements would not apply to
cases administered under FINRA Rule 12800 of the Customer Code and
FINRA Rule 13800 of the Industry Code (collectively, the ``Simplified
Arbitration rules'').\10\
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\8\ See proposed FINRA Rules 12300(g)(1) and 13300(g)(1); see
also Notice, 79 FR at 11492. The text of the proposed rule change is
available at the principal office of FINRA, on FINRA's Web site at
http://www.finra.org, and at the Commission's Public Reference Room.
\9\ See proposed FINRA Rules 12300(g)(2) and 13300(g)(2); see
also Notice, 79 FR at 11492.
\10\ See proposed FINRA Rules 12300(g)(3) and 13300(g)(3); see
also Notice, 79 FR at 11492. The Simplified Arbitration rules
generally apply to arbitrations involving $50,000 or less, exclusive
of interest and expenses.
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Requiring Parties To Redact Specified PCI From Documents Filed With
FINRA
During an arbitration proceeding, parties file pleadings and other
supporting documents with DR that may contain individuals' PCI. FINRA
stated that, as a service to forum users, DR serves certain pleadings
on other parties to an arbitration.\11\ DR also provides arbitrators
with pleadings and attachments.\12\ FINRA believes that the greatest
risk of DR staff misdirecting PCI occurs when DR staff serves pleadings
on a party at an incorrect or outdated address (e.g., an associated
person of a member who has not updated his or her Central Registration
Depository record).\13\ In addition, FINRA stated that arbitrators
occasionally have misplaced parties' pleadings containing PCI.\14\
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\11\ See Notice, 79 FR at 11492.
\12\ See id.
\13\ See id.
\14\ See id.
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FINRA also stated that, since FINRA employees are regularly exposed
to PCI as they handle party documents, it has policies and procedures
in place to help guide staff on how to keep confidential information
safe.\15\ For example, FINRA maintains an Information Privacy and
Protection Policy, and administers Information Privacy and Protection
Training to all FINRA staff annually.\16\ In addition, DR has its own
procedures for protecting confidential information relating to, among
other matters, storage and disposal of case materials in a manner that
preserves the confidentiality of the information, and removal of PCI
that appears in awards
[[Page 32004]]
that will be published.\17\ In particular, DR procedures require
arbitrators to keep confidential all information obtained in connection
with arbitration and to participate in FINRA training programs on
information security.\18\
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\15\ See Notice, 79 FR at 11492.
\16\ See id.
\17\ See id. at n.4 (stating that FINRA ``keeps all documents
and information in DR case files confidential except for arbitration
awards. FINRA publishes every award in the Arbitration Awards Online
Database on FINRA's Web site'').
\18\ See Notice, 79 FR at 11492.
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In addition, FINRA has published guidance recommending that parties
to an arbitration and their counsel take steps to protect confidential
information.\19\ FINRA's Protecting PCI Notice states, among other
things, that parties and their counsel can safeguard confidential
information by redacting such information from pleadings, exhibits, and
other documents upon agreement of the parties.\20\ For example, parties
may agree not to use, or to redact, Social Security, account, or driver
license numbers and, where such data must be referenced, parties can
use only the last few digits of these numbers or similar
information.\21\
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\19\ FINRA Notice to Parties, Protecting Personal Confidential
Information, available at http://www.finra.org/ArbitrationAndMediation/Arbitration/Rules/NoticestoArbitratorsParties/NoticestoParties/P123999 (``Protecting
PCI Notice''); see also id.
\20\ See Notice, 79 FR at 11492 (discussing FINRA's Protecting
PCI Notice).
\21\ See id.
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FINRA believes that while these efforts have enhanced the security
of parties' confidential information, the risks associated with the
loss of PCI (e.g., identity theft) remain as long as parties continue
to file with DR pleadings and attachments containing PCI.\22\
Accordingly, FINRA is proposing to amend the Customer Code and the
Industry Code to require parties to redact specified PCI from documents
that parties file with DR. Specifically, FINRA is proposing to amend
Rule 12300 (Filing and Serving Documents) \23\ and Rule 12307
(Deficient Claims) \24\ of the Customer Code and Rule 1330 (Filing and
Serving Documents) \25\ and Rule 13307 (Deficient Claims) \26\ of the
Industry Code as described below.
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\22\ See id.
\23\ See proposed FINRA Rule 12300(g)(1)-(3); see also Notice,
79 FR at 11492.
\24\ See proposed FINRA Rule 12307(a)-(c); see also Notice, 79
FR at 11492.
\25\ See proposed FINRA Rule 13300(g)(1)-(3); see also Notice,
79 FR at 11492.
\26\ See proposed FINRA Rule 13307(a)-(c); see also Notice, 79
FR at 11492.
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Given that the proposed amendments to Rules 13300 and 13307 of the
Industry Code are identical to the proposed amendments to Rules 12300
and 12307 of the Customer Code, the description below only refers to
Rules 12300 and 12307 of the Customer Code. FINRA stated that its
rationale is the same for both sets of rules.\27\
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\27\ See Notice, 79 FR at 11492.
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Proposed Amendments to FINRA Rule 12300
FINRA is proposing to amend Rule 12300 to provide that any document
that a party files with DR that contains an individual's Social
Security number, taxpayer identification number, or financial account
number must be redacted to include only the last four digits of any of
these numbers.\28\ As proposed, the rule would specify that a party
shall not include the full numbers.\29\
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\28\ See proposed FINRA Rule 12300(g)(1); see also Notice, 79 FR
at 11492.
\29\ See proposed FINRA Rule 12300(g)(1).
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Under the proposed rule, if DR receives a claim, including
supporting documents, with a full Social Security, taxpayer
identification, or financial account number, it would deem the filing
deficient under Rule 12307 and request that the party refile the
document, without the PCI, within 30 days of receiving notice of non-
compliance from DR.\30\ In addition, if a party files a document with
PCI that is not covered by Rule 12307 (a document other than a claim,
such as a motion), FINRA would deem the filing to be improper and would
request that the party refile the document, with the required
redaction, within 30 days.\31\ If the party refiles the document within
the prescribed 30 days in compliance with the rule, FINRA would
consider the document to be filed on the date the party initially filed
it (i.e., the non-complying document) with DR.\32\
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\30\ See proposed FINRA Rule 12307; see also Notice, 79 FR at
11492 n.7 (stating that ``[t]he term ``claim'' means an allegation
or request for relief and includes counterclaims, cross claims and
third party claims'').
\31\ See Notice, 79 FR at 11492.
\32\ See proposed FINRA Rule 12307(c); see also Notice, 79 FR at
11492.
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Two Exemptions to the Proposed Amendments to FINRA Rule 12300
The proposed rule change would include two exemptions: (1) For
documents that parties exchange with each other (not with DR) or submit
to the arbitrators at a hearing on the merits; \33\ and (2) for cases
administered under the Simplified Arbitration rules.\34\
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\33\ See proposed FINRA Rule 12300(g)(2); see also Notice, 79 FR
at 11492.
\34\ See proposed FINRA Rule 12300(g)(3); see also Notice, 79 FR
at 11492.
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As explained above, FINRA believes that its greatest risk of
misdirecting PCI occurs when DR staff is transmitting pleadings and
documents to parties and arbitrators (e.g., serving pleadings).\35\
Therefore, FINRA is proposing to exempt documents that parties exchange
with each other or submit as exhibits during a hearing in order to
minimize the burden of the new requirements.\36\ FINRA stated, however,
that parties can always agree to measures that protect PCI in documents
they exchange with each other or submit or use at a hearing and DR
staff would not be at risk of transmitting PCI.\37\ Similarly, FINRA
stated that parties typically only bring hard copies of exhibits to
hearings, as opposed to transmitting them via email, and can safely
dispose of them by using secure shredding services.\38\ FINRA believes
that its proposal represents a balanced approach to protecting PCI
while minimizing the burden on parties.\39\
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\35\ See supra note 13 (``The greatest risk of DR staff
misdirecting PCI occurs when DR staff serves pleadings on a party .
. . at an incorrect/outdated address.'').
\36\ See proposed FINRA Rule 12300(g)(2); see also Notice, 79 FR
at 11493.
\37\ See Notice, 79 FR at 11493; see also supra note 19
(discussing FINRA's Protecting PCI Notice).
\38\ See Notice, 79 FR at 11493.
\39\ See Notice, 79 FR at 11493.
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The second exemption relates to claims administered under FINRA's
Simplified Arbitration rules.\40\ Generally, a single arbitrator
decides these claims based solely on the parties' written submissions.
FINRA noted that many claimants who initiate claims under its
Simplified Arbitration rules are not represented by counsel (i.e., pro
se parties).\41\ FINRA believes that the redaction requirements in the
proposed rule change may prove difficult for pro se parties.\42\
Therefore, FINRA is proposing to exempt from this proposed rule all
claims administered under the Simplified Arbitration rules.
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\40\ See proposed FINRA Rule 12300(g)(3); see also Notice, 79 FR
at 11493.
\41\ See Notice, 79 FR at 11493.
\42\ See id. (noting that pro se parties may not be familiar
with the practice of redacting documents).
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Proposed Amendments to FINRA Rule 12307
FINRA Rule 12307 states that the DR Director will not serve any
claim that is deficient, and identifies many reasons why a claim may be
deficient, including that the claims does not name all the parties.\43\
FINRA is proposing to make conforming changes to FINRA Rule 12307(a) to
include as a claim that is deficient failure to ``comply with the
restrictions on filings with personal confidential information under
Rule
[[Page 32005]]
12300(g).'' \44\ The proposal would also amend Rule 12307(c) to clarify
that if the submitting party corrects any deficiency within 30 days,
the claim would be considered filed on the date the deficient claim was
filed initially with FINRA.\45\ FINRA would also amend Rule 12307(c) to
correct a typographical error by deleting the word ``the'' (indicated
by brackets below) in the sentence that currently reads: ``The Director
will notify the party making the counterclaim, cross claim or third
party claim of [the] any deficiencies in writing.'' \46\
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\43\ See proposed FINRA Rule 12307; see also Notice, 79 FR at
11493.
\44\ See proposed FINRA Rule 12307(a).
\45\ See proposed FINRA Rule 12307(c).
\46\ See id.
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III. Summary of Comments, FINRA's Response, and Proposed Amendment No.
1
Overview
As noted above, the Commission received six comment letters on the
proposed rule change \47\ and a response letter from FINRA.\48\ Five of
the six commenters expressed support, in whole or in part, for FINRA's
proposal.\49\ Each of these five commenters, however, raised specific
concerns about certain aspects of the proposed rule change as discussed
in more detail below.\50\ The sixth commenter, although not expressing
a general view of support for or opposition to the proposal, questioned
what event triggers the 30-day deadline to correct a non-compliant
document that is included in the proposed rule change.\51\
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\47\ See supra note 4.
\48\ See supra note 6.
\49\ See Caruso Letter; Georgia State Letter; PIABA Letter; St.
John's Letter; and Pace Letter.
\50\ See supra note 49.
\51\ See Aderant Letter
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A. Deadline for Correcting Non-Compliant Documents and Amendment No. 1
Under the proposed rule change, if FINRA finds a document to be
deficient because a party did not comply with the redaction
requirement, the filing party has 30 days to correct the
submission.\52\ One commenter affirmatively supported the proposed 30-
day cure period.\53\ Two other commenters, however, suggested
amendments to FINRA's proposal.\54\ One commenter suggested that FINRA
should give parties an additional 15 days to submit compliant documents
after the proposed 30-day period expired.\55\ Specifically, this
commenter suggested that if a party does not resubmit a compliant
document within the original 30-day cure period, FINRA should send the
party a second notice granting an additional 15 days in which to
comply.\56\ Another commenter requested that FINRA clarify what event
triggers the 30-day deadline for a non-complying party to correct a
deficiency.\57\ This commenter stated that, as drafted, the proposed
rule is ambiguous and could be read to begin either: 30 days from the
date FINRA deems the filing improper, 30 days from the date of FINRA's
written notice of the deficiency, or 30 days from the date of the
party's receipt of the notice.\58\
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\52\ See proposed FINRA Rule 12307(c).
\53\ See PIABA Letter at 2.
\54\ See Aderant Letter and Georgia State Letter.
\55\ See Georgia State Letter.
\56\ See id.
\57\ See Aderant Letter.
\58\ See id. at 1-2.
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In response to the comment suggesting that FINRA provide parties an
additional 15 days to correct non-complaint submissions, FINRA noted
that its existing deficient claim Rules 12307(b) and 13307(b) provide a
30-day deadline to correct other claim deficiencies.\59\ FINRA also
stated that it believes that the 30-day deadline for correcting any
deficient claim, whether for non-compliance with redaction obligations
or otherwise, should be consistent under FINRA's rules.\60\ For this
reason, FINRA believes that the proposed 30-day cure period is
appropriate.\61\
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\59\ See FINRA Response Letter at 4.
\60\ See id.
\61\ See id. (``FINRA staff believes that the deadline for all
non-compliance should be . . . consistent, and that 30 days is
sufficient.'').
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In response to the comment recommending that FINRA clarify what
event triggers the 30-day deadline to correct a deficiency, FINRA noted
that its existing Deficient Claims Rules 12307(b) and 13307(b) provide
that if the claimant corrects the deficiency ``within 30 days from the
time the claimant receives notice,'' FINRA would consider the claim to
be filed on the date the initial statement of claim was filed.\62\
FINRA also stated that it believes the deadline to submit compliant
documents should be consistent under its rules.\63\ Therefore, FINRA
proposed Amendment No. 1 to the proposed rule change to clarify that
the triggering event for the deadline to submit compliant documents is
30 days ``from the time a party receives notice'' of non-compliance
from the Director of FINRA arbitration.\64\
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\62\ See id.
\63\ See id.
\64\ See id. at 4-6 (reflecting the text of FINRA's Amendment
No. 1 to the proposed rule).
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B. Exemptions From FINRA's Proposed Redaction Requirements
As noted above, the proposed rule change would include two
exemptions: (1) For documents that parties exchange with each other
(not with DR) or submit to the arbitrators at a hearing on the merits;
\65\ and (2) for cases administered under the Simplified Arbitration
rules.\66\ Four commenters either raised concerns about or recommended
changes to the proposed exemptions.\67\
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\65\ See proposed FINRA Rule 12300(g)(2); see also Notice, 79 FR
at 11492.
\66\ See proposed FINRA Rule 12300(g)(3); see also Notice, 79 FR
at 11492.
\67\ See Georgia State Letter; PIABA Letter; St. John's Letter;
and Pace Letter.
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One commenter suggested that the proposal should be more
comprehensive.\68\ In particular, the commenter suggested that FINRA
require parties to redact PCI from all documents submitted or exchanged
in all stages, and in every type, of arbitration proceeding regardless
of whether the documents are submitted to DR, another party, or an
arbitrator.\69\ The same commenter reasoned that investors face the
same potential harm regardless of the method of submission (e.g.,
electronically or on paper), the type of proceeding (including
simplified arbitration), whether the submitting party is pro se or
represented by counsel, or to whom the documents are provided.\70\
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\68\ See Georgia State Letter.
\69\ See id.
\70\ See id.
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Similarly, another commenter suggested that FINRA not exempt from
the redaction obligations documents submitted to DR by pro se
parties.\71\ Specifically, this commenter stated that even if FINRA is
concerned that many claimants in simplified arbitration are pro se
parties who, in the absence of counsel, may have difficulty with the
redaction process, ``that concern is soundly outweighed by far greater
concerns over identity theft.'' \72\ The commenter also suggested that
instead of exempting pro se investors, FINRA should assist those pro se
parties with the redaction process, if needed.\73\ Alternatively, this
commenter stated that if indeed FINRA believes that pro se parties
might have difficulty
[[Page 32006]]
complying with the proposed redaction obligations, then the simplified
arbitration exemption should be amended to exempt all pro se parties
and not just all claims under the Simplified Arbitration rules. If
FINRA decides to adopt an exception for pro se parties, the commenter
stated that FINRA should explain to pro se parties the importance of
protecting confidential information and strongly encourage them to
redact PCI from the documents they file with FINRA.\74\
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\71\ See Pace Letter.
\72\ Id. (stating that ``[i]f anything, pro se investors need
more protection from the possibility of identity theft, not less'').
\73\ See id.; see also Georgia State Letter at 2-3 (recommending
that FINRA inform parties about the redaction process by (1)
``creating a guide outlining the process and offering tips for
compliance'' and (2) providing instructions, in both the Submission
Agreement and the notices of non-compliance, on how to redact
documents and the risks associated with non-compliance).
\74\ Id.
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Two other commenters recommended that FINRA exempt all pro se
parties from complying with the proposed redaction requirements, and
not just those filing simplified arbitration claims, noting that pro se
claims may be heard in both arbitration and simplified arbitration.\75\
One of these commenters also suggested that FINRA should not exempt
represented parties in simplified arbitration as many claimants in
simplified arbitration are represented by counsel.\76\
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\75\ See PIABA Letter and St. John's Letter.
\76\ See St. John's Letter.
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In its response, FINRA stated that the exemption for documents
parties exchange with each other or submit to arbitrators at a hearing
is appropriate because it ``would reduce the burden of the redaction
requirements on the parties and would not raise the risk of DR staff
transmitting PCI.'' \77\ FINRA also noted that currently parties can
agree to measures to help protect PCI in documents they share (e.g.,
parties can agree to use secure shredding facilities to dispose of
documents used at a hearings).\78\ In addition, as a practical matter,
FINRA does not receive copies of the documents parties exchange with
each other during discovery, which would make policing that exchange
more difficult.\79\ Moreover, FINRA explained that if it instructed
arbitrators to reject documents with PCI at a hearing, the rejection
could disrupt the hearing, resulting in significant delays in
completing a case.\80\ FINRA also stated that given the current
precautions in place it believes that, by adopting this exemption, ``it
is taking a balanced approach to protecting PCI and minimizing burden
on parties.'' \81\
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\77\ See FINRA Response Letter at 2 (claiming that ``[t]he
number and size of documents produced during discovery or submitted
at a hearing can be voluminous, and the burden of redaction can be
onerous'').
\78\ See id. at 2-3.
\79\ See id. at 3 n.6.
\80\ See id. at 3.
\81\ See id.
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FINRA also believes that the exemption for cases administered under
the Simplified Arbitration rules is appropriate because, in part, ``the
risk of FINRA, the parties, or arbitrators misdirecting or losing
documents with PCI is reduced'' in simplified arbitration because,
among other things, a single arbitrator resolves the dispute and
hearings are not generally held in simplified arbitration.\82\ In
addition, FINRA also stated that there is a large concentration of pro
se parties in cases administered under the Simplified Arbitration rules
and, as previously noted, those parties may have greater difficulty
with the redaction process than parties represented by counsel.\83\
Finally, FINRA acknowledged that while not every simplified arbitration
proceeding involves a pro se party and not every other type of
arbitration proceeding involves represented parties, as a practical
matter, ``having a clear distinction between cases administered under
the Simplified Arbitration rules and all other cases makes application
of the exemption more straight forward for FINRA staff administering
cases.'' \84\
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\82\ See id.
\83\ See id.; see also Notice, 79 FR at 11493 (noting that pro
se parties may not be familiar with the practice of redacting
documents).
\84\ See FINRA Response Letter at 3.
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For the reasons stated above, FINRA declined to amend the two
exemptions from its proposed redaction requirements.\85\ FINRA also
stated, however, that in order to respond to the concerns raised by
commenters about the proposed exemption for cases administered under
the Simplified Arbitration rules, FINRA would add a discussion to its
Web page alerting pro se parties to the potential for identity theft
associated with the disclosure of PCI and emphasizing the importance of
excluding and/or redacting PCI from documents filed with FINRA.\86\
FINRA believes that this is a practical approach to alerting pro se
parties to the importance of protecting PCI. FINRA also noted that its
staff answers parties' questions about the arbitration process on a
regular basis, and that FINRA staff would explain the redaction process
if asked by a party, pro se or otherwise.\87\
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\85\ See id. at 3.
\86\ See id. (explaining that FINRA's Web site provides
resources to pro se parties in arbitration and mediation such as a
section on its Web site entitled ``Resources for Investors
Representing Themselves in FINRA Arbitrations and Mediations'').
\87\ See id.
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C. Additional Redaction Requested by Certain Commenters
Two commenters requested that FINRA amend the proposal to require
the redaction of additional confidential information.\88\ One commenter
recommended that FINRA also require parties to redact the day and month
of birth from documents filed with FINRA, noting that this would be
consistent with the Federal Rules of Civil Procedure, Criminal
Procedure, and Bankruptcy Procedure, and ``should not place an
unreasonable burden on the parties.'' \89\ The second commenter
recommended that FINRA amend the proposal to require parties to redact
the entire Social Security number and taxpayer identification number,
stating that full redaction would provide the parties with more
protection and would not be any more burdensome than partial
redaction.\90\ This second commenter also noted that FINRA's Discovery
Guide already requires full redaction of these numbers for certain
items set forth in the Document Production Lists.\91\
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\88\ See Georgia State Letter and PIABA Letter.
\89\ Georgia State Letter at 2.
\90\ See PIABA Letter.
\91\ See id.; see also Georgia State Letter (claiming that
FINRA's proposal ``would take away some investor protections that
are already in place, since the FINRA Discovery Guide requires
certain redactions on documents parties exchange in the discovery
process'').
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In response, FINRA stated that during the development of the
proposed rule change, FINRA identified Social Security numbers,
taxpayer identification numbers, and financial account numbers as the
types of confidential information ``most commonly found in arbitration
documents'' filed with DR and, as such, FINRA's constituents raised
concerns only about those numbers.\92\ Accordingly, FINRA declined to
amend the proposal to require the redaction of an individual's date of
birth at this time. FINRA also stated, however, that if the Commission
approves the proposal, FINRA would ``consider whether it makes sense to
propose additional redaction requirements after it evaluates the
efficacy of the amendments.'' \93\ In addition, FINRA stated that it
would update and reissue its Protecting PCI Notice \94\ to include a
reference to birth dates.\95\
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\92\ See FINRA Response Letter at 3.
\93\ Id.
\94\ See supra note 19.
\95\ See FINRA Response Letter at 3-4.
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In its response, FINRA also stated that it believes that the last
four digits of an individual's Social Security numbers, taxpayer
identification numbers, and financial account numbers provide a useful
way to identify parties and their accounts during an arbitration
proceeding.\96\ In addition, FINRA
[[Page 32007]]
explained that the Federal Rules of Civil Procedure allow parties to
include the last four digits of the Social Security number and taxpayer
identification number in filings made with the court.\97\ For these
reasons, FINRA declined to amend the proposal to require the redaction
of individuals' entire Social Security numbers, taxpayer identification
numbers, and financial account numbers.\98\
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\96\ See id. at 4 (FINRA also explained that its Discovery
Guide, which requires full redaction for certain items in the
Document Production Lists, applies only to customer cases over
$50,000, whereas the context of this proposed rule change is much
broader).
\97\ See id.
\98\ See id.
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IV. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2014-008 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2014-008. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for 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. Copies of the filing also will be available
for inspection and copying at the principal office of FINRA. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2014-008 and should be
submitted on or before June 24, 2014.
V. Discussion and Commission Findings
After carefully considering the proposed rule change, as modified
by Amendment No. 1, the comments submitted, and FINRA's response to the
comments, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, is consistent with the requirements of the
Act and the rules and regulations thereunder applicable to a national
securities association.\99\ In particular, the Commission finds that
the proposed rule change is consistent with Section 15A(b)(6) of the
Act,\100\ which requires, among other things, that FINRA's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, and, in general, to
protect investors and the public interest.
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\99\ In approving the proposed rule change, the Commission has
also considered the rule change's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\100\ 15 U.S.C. 78o-3(b)(6).
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As discussed above, FINRA proposes to amend the Customer Code and
the Industry Code to provide that any document that a party files with
FINRA that contains an individual's Social Security number, taxpayer
identification number, or financial account number must be redacted to
include only the last four digits of any of these numbers.\101\
Pursuant to the proposal, the proposed redaction requirements would not
apply to documents (1) that parties exchange with each other or submit
to the arbitrators at a hearing on the merits \102\ or (2) related to
cases administered under its Simplified Arbitration rules.\103\
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\101\ See proposed FINRA Rules 12300(g)(1) and 13300(g)(1); see
also Notice, 79 FR at 11492.
\102\ See proposed FINRA Rules 12300(g)(2) and 13300(g)(2); see
also Notice, 79 FR at 11492.
\103\ See proposed FINRA Rules 12300(g)(3) and 13300(g)(3); see
also Notice, 79 FR at 11492.
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The Commission believes that the proposed rule change would further
the purposes of the Act as it is reasonably designed to protect
investors and the public interest. In particular, the Commission agrees
with FINRA's assessment that prohibiting parties from submitting
documents with PCI would help ``reduce the risk to forum users of
identity theft.'' \104\ The Commission also agrees with FINRA's
assessment that given the processes FINRA already has in place,\105\
the proposed redaction requirements should enhance FINRA's ongoing
efforts to protect forum users' PCI and that the proposed exemptions to
those redaction requirements provide relief from the burden of
redaction at minimal risk to the parties.\106\ The Commission also
notes FINRA's representations, made in response to various commenters,
to: (1) Amend its Web site to alert pro se parties to the potential for
identity theft associated with the disclosure of PCI and emphasize the
importance of excluding and/or redacting PCI from documents filed with
FINRA; \107\ (2) explain the redaction process to any pro se party
seeking guidance; \108\ (3) consider whether to propose additional
redaction requirements after it evaluates the efficacy of the
amendments; \109\ and (4) update and reissue its 2010 Protecting PCI
Notice to include a reference to birth dates.\110\
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\104\ See FINRA Response Letter at 2; see also Notice, 79 FR at
11493.
\105\ See FINRA Response Letter at 2 (explaining that, as a
general matter, FINRA has procedures in place to guide its staff on
how to keep confidential information safe, maintains an Information
Privacy and Protection Policy, and administers Information Privacy
and Protection training to all FINRA staff annually. FINRA also
noted that DR has its own procedures for protecting confidential
information).
\106\ See FINRA Response Letter at 2; see also Notice, 79 FR at
11493.
\107\ See FINRA Response Letter at 3.
\108\ See id.
\109\ See id.
\110\ See id. at 3-4.
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In addition, the Commission also believes that the clarification
provided in Amendment No. 1 is also consistent with the Act. In
response to FINRA's initial proposal, one commenter suggested that, as
drafted, the proposed rule was ambiguous as to what event triggers the
30-day deadline for a non-complying party to correct a deficiency.\111\
FINRA responded by partially amending its proposed rule to clarify that
FINRA intends the deadline for correcting non-compliant documents to be
30 days from the time the party receives notice of non-compliance from
FINRA.\112\ The Commission agrees with FINRA's assessment that this
trigger event is consistent with other trigger events used in its
rules.\113\ Accordingly,
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the Commission believes that Amendment No. 1 is consistent with the
Act.
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\111\ See Aderant Letter.
\112\ See FINRA Response Letter at 4-6 (reflecting the text of
FINRA's Amendment No. 1 to the proposed rule change).
\113\ See id. at 4 (stating that FINRA believes that the
deadline for all non-compliance should be consistent under FINRA's
deficient claim rules).
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VI. Accelerated Approval
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\114\ for approving the proposed rule change, as amended by
Amendment No. 1 thereto, prior to 30th day after publication of
Amendment No. 1 in the Federal Register. As discussed above, Amendment
No. 1 responds to one concern raised by a commenter by partially
amending FINRA's proposed rule change to clarify that FINRA intends the
deadline for correcting non-compliant documents to be 30 days from the
time the party receives notice of non-compliance from FINRA. The scope
of the amendment adds clarity to one aspect of the proposal, and does
not raise any novel regulatory concerns. Furthermore, accelerated
approval would allow FINRA to institute the proposed rule change, as
amended by Amendment No. 1, without delay. Accordingly, the Commission
finds that good cause exists to approve the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
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\114\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\115\ that the proposed rule change (SR-FINRA-2014-008), as
modified by Amendment No. 1, be and hereby is approved on an
accelerated basis.
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\115\ Id.
\116\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\116\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12771 Filed 6-2-14; 8:45 am]
BILLING CODE 8011-01-P