SEC Order Instituting Proceedings Under Section 19(b)(2)(B) of the Exchange Act
Summary
SIFMA provided comments to the SEC Order Instituting Proceedings Under Section 19(b)(2)(B) of the Exchange Act. The Order requests comment on whether the Proposal, as modified by Amendment No. 1, is consistent with the Exchange Act. For the reasons stated below, we recommend that the Proposal, as modified by Amendment No. 1, be disapproved as inconsistent with the requirements of the Exchange Act, among other things.
Excerpt
Via E-Mail to [email protected]
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Attn: Vanessa A. Countryman, Secretary
Re: File Number SR-FINRA-2020-030 SEC Order Instituting Proceedings Under Section 19(b)(2)(B) of the Exchange Act (the “Order”) 1 to Determine Whether to Disapprove FINRA’s Proposed Rule Change to Amend the Code of Arbitration Procedure Relating to Requests to Expunge Customer Dispute Information, Including Creating a Special Arbitrator Roster to Decide Certain Arbitration Requests (the “Proposal”),2 as Modified by Amendment No. 1 (“Amendment No. 1”)3
Dear Ms. Countryman:
The Securities Industry and Financial Markets Association (“SIFMA”)4 appreciates the opportunity to comment on the Order. The Order requests comment on whether the Proposal, as modified by Amendment No. 1, is consistent with the Exchange Act. For the reasons stated below, we recommend that the Proposal, as modified by Amendment No. 1, be disapproved as inconsistent with the requirements of the Exchange Act, among other things. We hereby incorporate by reference all of our prior comments and recommendations on the Proposal. 5 We further comment and recommend as follows:
The Proposal Limits the Grounds for Granting Expungement to the Three Grounds Listed in Rule 2080(b)(1), and Excludes Other Grounds, Including, Without Limitation, Those Listed in Rule 2080(b)(2), in Violation of the Exchange Act.
The Proposal would amend FINRA Rules 12805(c)(8) and 13805(c)(8) to require the arbitrator or panel to “indicate in the arbitration award which of the Rule 2080(b)(1) grounds for expungement serve(s) as the basis for its expungement recommendation.” (emphasis added). The arbitrator or panel must also “provide a written explanation of the reason(s) for its finding that one or more Rule2080(b)(1) grounds for expungement apply….” (emphasis added).6
Currently, an associated person is free to seek expungement on equitable grounds, including, without limitation, those listed in Rule 2080(b)(2) (i.e., the request is meritorious and granting expungement would not adversely affect investor protection, CRD system integrity, or regulatory requirements).7
Under the Proposal, however, a panel would be strictly limited in granting expungement to one of the three grounds listed in Rule 2080(b)(1) (i.e., error, mistake or falsity). An associated person could no longer request expungement on equitable grounds because the panel would no longer have authority to grant it on those grounds. The Proposal offers no explanation or justification for strictly limiting the grounds for granting expungement. The Proposal violates Section 19(b)(1) of the Exchange Act because it failed to provide a “statement of the basis and purpose of” this limitation, and it failed to provide the public with a meaningful “opportunity to submit written data, views, and argument concerning” this limitation. The Proposal also violates Section 19(d)(1) of the Exchange Act because it failed to give required notice and opportunity to comment on the proposed expungement grounds limitation, which explicitly “limits
[associated persons] in respect to access to services offered by [FINRA]….”8