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May 6, 2019.
On January 29, 2019, Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) 
and Rule 19b-4 thereunder,
a proposed rule change to amend FINRA Rule 12512(d) through (e) and FINRA Rule 12513(d) through (e) of the Code of Arbitration Procedure for Customer Disputes (“Customer Code”) and FINRA Rule 13512(d) through (e) and FINRA Rule 13513(d) through (e) of the Code of Arbitration Procedure for Industry Disputes (“Industry Code” and together, “Codes”), to expand the time for non-parties to respond to arbitration subpoenas and orders of appearance of witnesses or production of documents, and to make related changes to enhance the discovery process for forum users.
The proposed rule change was published for comment in the Federal Register on February 12, 2019.
The public comment period closed on March 5, 2019. The Commission received four comment letters in response to the Notice, all supporting the proposed rule change.
On April 22, 2019, FINRA responded to the comment letters received in response to the Notice.
On March 19, 2019, FINRA extended the time period in which the Commission must approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change to May 13, 2019.
This order approves the proposed rule change.
II. Description of the Proposed Rule Change 
Parties exchange documents and information to prepare for an arbitration through the discovery process. The Codes currently provide that parties in FINRA arbitration who seek discovery from a non-party may request the panel to issue: (1) An order of appearance of witnesses or production of documents if the non-party is subject to FINRA's jurisdiction as an associated person or member firm or (2) a subpoena if the non-party is not subject to FINRA's jurisdiction.
If the panel decides to issue the order or subpoena, FINRA will transmit the signed order or subpoena to the moving party to serve on the non-party.
If a non-party receiving an order or a subpoena objects to the scope or propriety of the order or subpoena, the non-party may, within 10 calendar days of service of the order or subpoena, file written objections through the Director of the Office of Dispute Resolution (Director).
FINRA is proposing three amendments to the Codes to enhance the discovery process for forum users, particularly non-parties. Specifically, FINRA is proposing to amend the Codes to:
(1) Extend the response time for non-parties to object to an order or subpoena from 10 calendar days of service to 15 calendar days of receipt of the order or subpoena; 
(2) exclude first-class mail as an option to serve documents on a non-party and as an option for the non-party to file the objection to the scope or propriety of the order or subpoena; 
(3) codify the current practice that the Director sends, at the same time, objections and responses to the panel after the reply date has elapsed, unless otherwise directed by the panel.
III. Comment Summary
As noted above, the Commission received four comment letters on the proposed rule change.
Overall, all four commenters support the proposal and believe that it represents a fair and reasonable approach to helping expedite the arbitration process.
More specifically, all four commenters explained that the extension of time to respond to an order or subpoena would help ensure that non-parties have sufficient time to respond to an order or subpoena during arbitration and enhance the discovery process for forum users.
The commenters also believe that FINRA's proposed change to the acceptable methods of service would help enable forum users to “better facilitate and confirm service of subpoenas and orders.” 
One Start Printed Page 20670commenter states that the new acceptable service methods would further its efforts to “provide no-cost advocacy to retail investors who cannot obtain legal representation because [they] do not cost anything.” 
This commenter also supports the proposed fifteen-day response deadline because “it would promote speed and efficiency in arbitration.” 
One commenter suggests that FINRA amend the proposal to use service (instead of receipt) as the trigger for determining response deadlines.
Specifically, the commenter believes that the use of “receipt” instead of “service” as a trigger for responses “introduces uncertainty into the process [because w]hile service can be verified, a serving party may not be aware of when a request is received by a third party.” 
The commenter also points out that “other similar forums currently use service and not receipt as the trigger for calculating a response deadline.” 
In response, FINRA explains that the receipt of overnight mail service, overnight delivery service, hand delivery, email, or facsimile is accomplished on the date of delivery.
Accordingly, FINRA believes that parties will be able to determine the date of delivery because, other than for overnight mail service and overnight delivery service, typically delivery will be the same date as service.
FINRA also states that the rule change excludes first class mail as an option to serve documents on a non-party, in part, because it may be difficult to determine the date of delivery and, thereby, receipt.
For these reasons, FINRA did not take commenter's recommended change.
Similarly, another commenter recommends that FINRA adopt a certified mail option to “verify when the order or subpoena was received.” 
In response, FINRA states that service by overnight mail, overnight delivery, hand delivery, email, or facsimile allow the parties to verify both the date of delivery and receipt and, therefore, certified mail is unnecessary.
Accordingly, FINRA did not take the commenters recommended change.
IV. Discussion and Commission Findings
After careful review of the proposed rule change and the comment letters, the Commission finds that the proposal is consistent with the requirements of the Exchange Act and the rules and regulations thereunder that are applicable to a national securities association.
Specifically, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Exchange Act,
which requires, among other things, that FINRA rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. The Commission agrees with FINRA and the commenters that the proposed rule changes would protect investors and the public interest by improving the FINRA arbitration forum for the parties that use it.
As stated in the proposal, forum users have expressed concerns about the amount of time that non-parties have to respond to orders and subpoenas 
since the individual at a non-party firm who is responsible for responding to an order or subpoena may not actually receive a copy of the order or subpoena until after the tenth day from service has passed.
Once the objection to an order or subpoena is waived, the non-party must respond to the order or subpoena or risk incurring sanctions or disciplinary action.
Consequently, the Commission believes the extension from 10 calendar days of service to 15 calendar days of receipt of the order or subpoena would address forum users' concerns because the proposal would help to provide sufficient time to non-parties wanting to object to an order or subpoena. Consequently, we also believe that the proposal would also help prevent accidental waivers that could cause sanctions or disciplinary action, protest, and thus further delays in resolving arbitration claims between parties.
The Commission acknowledges one commenter's concern that adopting a trigger for response to a subpoena or order date based on the date of “receipt” rather than the date of “service” may cause confusion since “a serving party may not be aware of when a request is received by a third party.” 
However, we are also concerned that a non-party to the arbitration may not be able to anticipate the arrival of an order or subpoena, which could lead to inadvertently waiving its right to object. In addition, we note FINRA's statement that parties will be able to determine the date of delivery because, other than for overnight mail service and overnight delivery service, typically delivery will be the same date as service.
In sum, the Commission believes that the risks related to the inability to anticipate receipt of a subpoena or order support adopting a trigger date based on the date of receipt rather than the date of service.
The Commission also acknowledges another commenter's request to adopt a certified mail delivery option.
However, the Commission also notes that service by overnight mail, overnight delivery, hand delivery, email, or facsimile will allow the parties to verify both the date of delivery and receipt.
Therefore, on balance, the Commission believes that the proposed available delivery options will accommodate the commenter's concern.
The Commission also agrees with FINRA's proposal to exclude first-class mail as an option to serve documents on the non-party and as an option for the non-party to file the objection to the scope or propriety of the order or subpoena. As stated in the proposal, forum users have previously raised concerns that the use of first-class mail Start Printed Page 20671is too slow and thus slows down the discovery process.
The Commission agrees that by requiring forum users to serve or transmit discovery-related documents through overnight mail service, overnight delivery, hand delivery, email, or facsimile, the proposal would help forum users confirm and expedite discovery, and therefore expedite the arbitration process.
Finally, the Commission supports the proposal's codification of the current practice that the Director sends, at the same time, objections and responses to the panel after the reply date has elapsed, unless otherwise directed by the panel. This ensures that all members on the panel receive all the parties' advocacy positions at the same time. The Commission agrees that the proposed rule change will enhance forum users' understanding of existing case administration procedures and will improve transparency concerning forum operations.
It is therefore ordered pursuant to Section 19(b)(2) of the Exchange Act 
that the proposal (SR-FINRA-2019-004), be and hereby is approved.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.42
Eduardo A. Aleman,
[FR Doc. 2019-09633 Filed 5-9-19; 8:45 am]
BILLING CODE 8011-01-P