The Financial Industry Regulatory Authority — better known as FINRA — has proposed changes to its Discovery Guide for customer cases that are designed to provide parties and arbitrators with greater guidance for handling e-discovery in securities arbitrations. The changes must be approved by the U.S. Securities and Exchange Commission.
The proposed amendments would encourage parties to discuss the form in which they intend to produce documents and, whenever possible, to agree to the form of production. The changes would require parties to produce electronic files in a “reasonably usable format,” which is defined to mean “the format in which a party ordinarily maintains a document, or to a converted format that does not make it more difficult or burdensome for the requesting party to use during a proceeding.”
The proposed amendments would also state that arbitrators, when resolving contested motions about the form of production, should consider the totality of the circumstances. The amendments include three factors arbitrators should consider:
- For documents in a party’s possession or custody, whether the chosen form of production is different from the form in which a document is ordinarily maintained.
- For documents that must be obtained from a third party (because they are not in a party’s possession or custody), whether the chosen form of production is different from the form in which the third party provided it.
- For documents converted from their original format, a party’s reasons for choosing a particular form of production; how the documents may be affected by the conversion to a new format; and whether the requesting party’s ability to use the documents is diminished by a change in the documents’ appearance, searchability, metadata, or maneuverability.
If these amendments are approved, FINRA says, it will also provide arbitrators with additional guidance on the terms “appearance,” “searchability,” “metadata” and “maneuverability,” as used in the third factor above.
In comments to the proposed amendments, FINRA says that it recognizes that parties have legitimate reasons for converting documents into different formats, and for requesting particular document formats.
For example, a firm may need to convert a document into a particular format to comply with legal requirements to redact personal confidential information, such as customer Social Security numbers. A customer may need a document to contain metadata in order to establish when a broker learned specific information. FINRA believes that requiring production in a reasonably usable format and providing general guidance on e-discovery would provide arbitrators with the flexibility to tailor document production to the needs of each case.
As part of these proposed amendments, FINRA is also seeking to amend the Discovery Guide’s discussion of costs and the burden of production. The proposed revision would advise arbitrators that they may order a different form of production if it would lessen the impact of producing electronic documents.
For more information about the proposed changes, see:
[Disclosure: I am a member of FINRA's roster of public arbitrators.]