Client Alerts

SEC Approved Amendments to FINRA’s Arbitration Codes Relating to Subpoenas and Orders to Direct the Appearance of Witnesses and Production of Documents

About: Financial Services Regulatory

February 2013 – On January 18, 2013, the Financial Industry Regulatory Authority, Inc. (“FINRA”) announced that the Securities & Exchange Commission (“SEC”) approved proposed amendments to FINRA’s Customer and Industry Codes of Arbitration Procedure (the “Codes”) pertaining to the authority of arbitrators to issue subpoenas, and to order FINRA member firms, their employees, and associated persons to appear as witnesses and to produce documents. The amendments are effective on February 18, 2013.

Under the amended Rules, unless circumstances dictate the need for a subpoena, arbitrators may refrain from issuing subpoenas to non-party member firms or their employees, or associated persons. If arbitrators determine that the appearance of witnesses or the production of documents is warranted, it may be done through an arbitrator order. For example, an arbitrator might issue a subpoena if a firm failed to produce documents pursuant to an arbitrator order or if a former associated person of a member firm has left the industry and the arbitrator believes that an order would not be effective.

Currently, Rule 12512 of the Customer Code and Rule 13512 of the Industry Code set forth procedures for (1) a party making a motion for a subpoena; (2) a party objecting to a subpoena and replying to an objection; and (3) parties sharing documents produced under a subpoena. These subpoena rules, however, do not set forth procedures for determining who bears the production costs under a subpoena and do not include procedures for non-parties to object to subpoenas served upon them. Under the current rules, arbitrators also have authority to order member firms, their employees, and associated persons to produce documents and/or to appear as witnesses without using the subpoena process. Unlike the subpoena rules, Rule 12513 of the Customer Code and Rule 13513 of the Industry Code address the costs relating to the appearance of witnesses or the production of documents by non-parties.

New Rules 12512(g) and 13512(g) address costs when a party member firm, its employees, or associated persons request a subpoena directed to a non-party firm. If an arbitrator issues a subpoena, the party firm requesting the subpoena must 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) provide procedures 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 ten calendar days of service. The requesting party will have ten calendar days to respond to the objections making the new rules operationally consistent.

If you have any questions or would like additional information, please contact Ulmer & Berne LLP.

This article was co-authored by Joseph Simms and Erika Ostrowski.