Appealing a Nullification to the Uniform Practice Code Committee

The appeal is fast, narrow and unforgiving on timing. It also does nothing to lift the break while it runs: an appeal does not operate as a stay of the determination being appealed, so the determination stands until the Committee decides. That is the single fact most likely to be tested.

Who May Appeal, and What Cannot Be Appealed?

A member or person associated with a member may appeal a determination to declare a transaction null and void made by a FINRA officer, under either the exchange-listed clearly erroneous rule or the OTC equity clearly erroneous rule, to the Uniform Practice Code (UPC) Committee.

Three determinations sit outside that right.

The first two bars attach to the exchange-listed review and the third to the OTC equity review, so they are not interchangeable.

The rulebook is not consistent on the first bar. The member technology-issue provision itself says a member aggrieved by the action may appeal, while the exchange-listed review paragraph and this appeal rule both withhold that appeal, and this course teaches both as printed.

Exam Tip: Gotchas

• The appeal right belongs to a member or a person associated with a member. Those are the two categories the rule names.
• The three bars are keyed to different rules. Two of them limit appeals from the exchange-listed review, and the third limits appeals from the OTC equity review.
• The technology-issue bar is contradicted inside the rulebook. The provision that bar points at says a member aggrieved by the action may appeal, so the course teaches the bar and the grant as printed.
• The finality bar requires a separate determination. The officer must also determine that the number of affected transactions makes immediate finality necessary, so a large break by itself does not remove the appeal.

How Is an Appeal Filed, and Does It Stop the Break?

An appeal must be made in writing, and must be received by FINRA within thirty minutes after the person making the appeal is given the notification of the determination being appealed.

An appeal shall not operate as a stay of the determination being appealed, and the scope of the appeal is limited to trades to which the person making the appeal is a party.

All materials submitted under this rule shall be submitted in writing within the time parameters the rule specifies, via such telecommunications procedures as FINRA may announce from time to time. Materials are deemed received at the time indicated by the equipment receiving them, that is, the facsimile machine or the computer.

FINRA, in its sole and absolute discretion, reserves the right to reject or accept any material that is not received within those time parameters.

Exam Tip: Gotchas

• The thirty minutes runs from notification, not from the trade or the break. It starts when the person making the appeal is given the notification of the determination being appealed.
• Timeliness is measured on FINRA's receiving equipment. Materials are deemed received at the time indicated by the equipment receiving them, so the time the member sent the appeal is not the test.
• A late filing is not automatically dead. FINRA reserves the right, in its sole and absolute discretion, to reject or accept material that arrives outside the time parameters.
• Filing buys no relief in the meantime. The determination stands while the appeal runs, because an appeal does not operate as a stay.

What Happens Once the Appeal Is Received?

Once a written appeal has been received, the counterparty to the trade that is the subject of the appeal will be notified of the appeal, and both parties shall be able to submit any additional supporting written information up until the time the appeal is considered by the Committee.

Either party to a disputed trade may request the written information provided by the other party during the appeal process.

Once a party has appealed a determination, the determination shall be reviewed and a decision rendered, unless one of two things happens:

• Both parties to the transaction agree to withdraw the appeal prior to the time a decision is rendered
• The party filing the appeal withdraws its appeal prior to the notification of counterparties

Upon consideration of the record, and after such hearings as it may in its discretion order, the Committee, pursuant to the standards set forth in the rule, shall affirm, modify, reverse, or remand the determination.

Exam Tip: Gotchas

• A one-sided withdrawal works only before the counterparty is notified. After that point, withdrawing the appeal takes the agreement of both parties to the transaction.
• The Committee has four dispositions, not two. It shall affirm, modify, reverse, or remand, so upholding and overturning are not the only available outcomes.
• A hearing is discretionary. The Committee decides upon consideration of the record and holds such hearings as it may in its discretion order.

When Is the Decision Rendered, and Is It Final?

The decision of the Committee on an appeal, or a determination by a FINRA officer that is not appealed, shall be final and binding upon all parties and shall constitute final action on the matter in issue.

Finality here does not close every route. Any determination by a FINRA officer under the exchange-listed or the OTC equity clearly erroneous rule, and any decision of the Committee on an appeal, is rendered without prejudice as to the rights of the parties to the transaction to submit their dispute to arbitration.

Exam Tip: Gotchas

• An unappealed determination is as final as a Committee decision. The rule treats both as final and binding upon all parties and as final action on the matter in issue.
• Finality does not close off arbitration. Both the officer's determination and the Committee's decision are rendered without prejudice to the parties' right to submit their dispute to arbitration.
• Only the exchange-listed branch has a time-of-day trigger. The afternoon cutoff applies to a request for appeal received after 3:00 p.m. Eastern, and the OTC equity branch carries no such split.

Who Decides the Appeal, and How Is Notice Given?

A decision of the Committee may be rendered by a panel of that Committee.

FINRA shall provide affected parties with prompt notice of determinations under this rule via facsimile, electronic mail, or telephone, including voicemail.

One exception applies to that notice method. Where an officer nullifies or modifies a large number of transactions under the exchange-listed or the OTC equity clearly erroneous rule, FINRA may instead provide notice via a press release or any other method reasonably expected to provide rapid notice to many market participants.

Exam Tip: Gotchas

• Mass notice replaces individual notice only for a large number of transactions. In that case a press release or another rapid method is permitted in place of facsimile, electronic mail or telephone.

What Should You Check on Exam Day?

• Confirm the appellant is a member or an associated person, and that the appeal covers only trades to which that person is a party.
• Start the thirty-minute clock at notification, and measure receipt on FINRA's equipment rather than on the time the member sent the appeal.
• Check the appeal is not barred: a technology-issue decision outside the Price Bands, a multi-regulator ruling, or an OTC finality determination. The technology-issue provision itself grants an appeal, so read both.
• Confirm nothing pauses while the appeal runs. An appeal does not operate as a stay of the determination being appealed.