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FINRA Proposes Rule Change to SEC

Monday, February, 10, 2014


The Financial Industry Regulatory Authority (FINRA) has proposed a rule change for arbitrators involved in securities disputes that would allow them to refer a case to FINRA’s enforcement division even in the midst of an arbitration proceeding.  Under current rules, arbitrators must wait until after the arbitration process to refer cases to the enforcement division, which is responsible for taking actions such as suspensions or sanctions.


FINRA states that the current rule makes evidence gathering and discovery more difficult and blunts the effectiveness of the enforcement division.  The new rule would allow arbitrators to alert the enforcement division if new evidence comes to light during arbitration.


FINRA has sought similar rule changes in the past, but the Securities and Exchange Commission (SEC) objected each time, and FINRA withdrew or significantly re-wrote the rule each time.  The SEC believes the rule change would make arbitration impossible, as it would make each participant reluctant to be forthcoming about information they fear might trigger an instant enforcement procedure as opposed to an arbitrated resolution.