[ by Howard Haykin ]

FINRA published Regulatory Notice 13-04, bringing attention to Arbitration Code amendments that go into effect on 2/18/13.  The amendments impact the Customer and Industry Codes of Arbitration Procedures pertaining to the authority of arbitrators to order FINRA firms and their employees and associated persons to appear as witnesses and to produce documents.

Background Information.   Both Codes presently authorize provide arbitrators with the authority to order FINRA member firms and their employees and associated persons to produce documents and/or to appear as witnesses with or without using the subpoena process.  The purpose of the new amendments, approved by the SEC, establishes a new protocol that, in most instances, will empower arbitrators to issue orders - i.e., "arbitrator orders" - instead of issuing subpoenas, to call upon non-party firms or their employees or associated persons to appear as witnesses or to produce documents. 

As amended, the Codes now will have procedures for non-parties to object to subpoenas and for parties and non-parties to object to arbitrator orders of production.  The amendments also will standardize procedures under the Codes relating to service of motions for:  (i) subpoenas and arbitrator orders; (ii) service of issued subpoenas and arbitrator orders; and, (iii) time frames for responding to subpoenas and arbitrator orders, making them operationally consistent.

Effective Date.   The amendments are effective on 2/18/13 for all motions filed on or after 2/18 that request a subpoena under Rule 12512 or 13512, or an arbitrator order under Rule 12513 or 13513.

FINRA Contacts.  Direct questions to the following FINRA Dispute Resolution individuals:  Richard Berry, SVP and Director of Case Administration, Operations, and Regional Office Services, [ (212) 858-4307 or richard.berry@finra.org; or Margo Hassan, Asst Chief Counsel [ (212) 858-4481 or margo.hassan@finra.org].

Current Rules for Subpoenas.   Arbitrators have the authority to issue subpoenas to parties and non-parties. 

As such, Subpoena Rules 12512 and 13512 set forth procedures for:  (i) a party to make a motion for a subpoena;  (ii) a party to object to a subpoena and reply to an objection; and,  (iii) parties to share documents produced under a subpoena.

Subpoena Rules 12512 and 13512, however, do not set forth:  (i) procedures for determining who bears the production costs under a subpoena - though, in practice, arbitrators typically resolve such disputes between parties, and between parties and non-parties;  and (ii) procedures for non-parties to object to subpoenas served upon them - as a matter of practice, FINRA permits non-parties to file objections to subpoenas, including the issue of cost or production or appearance.

Current Rules for Arbitrator Orders.   Arbitrators have authority to order firms, their employees or their associated persons to produce documents, and/or to appear as witnesses without using the subpoena process.  Unlike the subpoena rules, Order Rules 12513 and 13513 expressly address the costs relating to production by non-party firms and their employees/associated persons - unless the panel directs otherwise, the party requesting the appearance of witnesses or the production of documents from non-parties pays the reasonable costs of the appearance and/or production.

FINRA's Reasons For Amending Subpoena Rules.   FINRA believes that:

• Regardless of whether a subpoena or an arbitrator order is used to request that a non-party firm and/or its personnel production documents or appear as witnesses, the issue of whether a party firm is responsible for reimbursing the non-party firm and its personnel should be the same.

• Firms and associated persons are better served with use of an arbitrator order, which offers an efficient mechanism for obtaining the appearance of witnesses and the production of documents.
  • Non-compliance with a subpoena and non-compliance to an arbitrator order are handled in different manners - subpoenas usually in a court of law;  arbitrator orders by arbitrators.
  • Arbitrator orders are not subject to the geographical limitations contained in subpoena statutes.  Arbitrator orders are cost effective because forum users avoid the costs and risks associated with court proceedings.

Terms and Conditions of the Amendments to Subpoenas.    Unless circumstances dictate the need for a subpoena, arbitrators may not issue subpoenas to non-party firms and/or their personnel at the request of party firms and/or their personnel.  If arbitrators determine that the appearance of witnesses or the production of documents should be granted to the requesting party, it should be done through an arbitrator order.  An arbitrator might order a subpoena if, for example, a firm failed to produce documents pursuant to an arbitrator order, or if a former associated person of a firm has left the industry and the arbitrator believes that an order would not be effective.

In addition, the amendments add:

• New Rules 12512(g) and 13512(g) to address costs when a party firm and/or its personnel requests a subpoena directed to a non-party firm and/or its personnel.  If an arbitrator issues a subpoena, the party firm requesting the subpoena shall pay the reasonable costs of the non-party’s appearance and/or production, unless the panel directs otherwise.

• New Rules 12512(e) and 13512(e) to provide a mechanism for non-parties to object to a subpoena they receive.  Going forward, a non-party that receives a subpoena may object to the scope or propriety of the subpoena, so long as it files written objections within 10 calendar days of service. The requesting party has 10 calendar days to respond to the objections, if it so wishes.  These new provisions codify FINRA’s current practice concerning non-party objections to subpoenas.

Terms and Conditions of the Amendments to Arbitrator Orders.   As described above, the order rules authorize arbitrators to order firms and their personnel to produce documents and/or to appear as witnesses without using a subpoena.  The rules also provide that, unless the panel directs otherwise, the requesting party pays the reasonable costs incurred by non-parties related to appearances and/or production.

For further details, go to:  [FINRA RegNote 13-4, January 2013].