Daily Rules, Proposed Rules, and Notices of the Federal Government
This order approves the proposed rule change.
The proposed rule change would amend the By-Laws to clarify that services provided by mediators when acting in such capacity and not representing parties in mediation should not cause the individuals to be classified as Industry Members under the By-Laws. Consequently, mediators who were otherwise qualified would be eligible to become Public Members of the NAMC would not be excluded because of the mediation activity excepted by the proposed rule. Currently, those mediators cannot become members of the NAMC because of the definitions of Industry Member and Public Member in the By-Laws.
In a FINRA mediation, all parties agree on the selection of a mediator, agree on the compensation of the mediator, and agree on how to allocate the mediator's compensation among the parties; the mediator receives part of the compensation in each case from an industry party. However, for mediations to which investors are parties, mediators represent neither the investors nor the FINRA-registered individuals or entities. Similarly, for mediations involving industry parties only, mediators represent neither the FINRA-registered individuals nor entities.
Pursuant to the Plan of Allocation and Delegation of Functions by FINRA to Subsidiaries ("Delegation Plan"), the NAMC has the power and authority pursuant to FINRA's Rules to advise the FINRA DR Board on the development and maintenance of an equitable and efficient system of dispute resolution that will equally serve the needs of public investors and FINRA members, to monitor rules and procedures governing the conduct of dispute resolution, and to have such other powers and authority as is necessary to effectuate the purposes of FINRA's Rules.
Currently, under the By-Laws, a mediator could be classified as an Industry Member rather than a Public Member for purposes of Committee participation because of the services provided by a mediator to an industry party. In FINRA's mediation forum, mediators are retained only by agreement of all parties to a dispute rather than by any one party and the parties compensate mediators jointly pursuant to that agreement. While mediators derive some of their revenue from brokers or dealers, FINRA has indicated that it does not believe the compensation earned in the capacity as a mediator compromises the mediator's neutrality.
The proposed rule change would amend the definitions of Industry Members and Public Members in the By-Laws to except any services provided in the capacity as a mediator of disputes involving a broker or dealer and not representing any party in such mediations from being considered professional services provided to brokers or dealers.
As explained in the Notice, FINRA believes that the proposed rule change is consistent with the provisions of Section 15A of the Act, including Section 15A(b)(2) of the Act,
The Commission received one comment letter on the proposed rule change in response to the Notice.
The Commission has carefully reviewed the proposed rule change and the comment received. Based on its review, the Commission finds that the proposed rule change is consistent with
More specifically, the Commission finds that by enlarging the pool from which to draw Public Members for the NAMC, the proposed rule change facilitates the organization of FINRA and FINRA Dispute Resolution in a manner consistent with Section 15A(b)(2) of the Act; the Commission also finds that enlarging the pool from which to draw Public Members for the NAMC facilitates compliance with and thus is consistent with the provision of Section 15A(b)(4) of the Act to provide that one or more of FINRA's directors shall be representative of issuers and investors and not be associated with a member of FINRA, broker-dealer.
The Commission appreciates the commenter's letter about members with industry experience acting as mediators. However, the Commission believes that the proposed rule change simply prevents mediation activity from automatically qualifying the mediator as an Industry Member. It does not shield the mediator from being classified as an Industry Member for other activities that would otherwise cause the mediator to be considered an Industry Member.
The Commission has reviewed the record for the proposed rule change and believes that the record does not contain any information to indicate that the proposed rule would have a significant effect on efficiency, competition, or capital formation. In light of the record, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation and has concluded that the proposed rule is unlikely to have any significant effect.
For the reasons stated above, the Commission finds that the rule change is consistent with the Act and the rules and regulations thereunder.