Entries Tagged as 'FINRA arbitration'

SEC Approves FINRA’s Proposal for All Public Arbitration Panels

I’ve written previously about the Financial Regulatory Authority (FINRA) proposals for allowing consumer complainants in arbitrations to use all public arbitration panels.  Non-public (or industry) panel members are those who work within the financial services industry.  Claims for over $100,000 are heard by a panel of three arbitrators.  Studies have shown a perception among complainants that the FINRA arbitration process, often mandated by brokerage agreements, is biased against consumers at least in part by the participation of industry panelists.  Thanks to an approval from the Securities and Exchange Commission (SEC), claimants can now opt for a full public panel.

The recently enacted Dodd-Frank Act mandated that the SEC study the fairness of the “mandatory” securities industry arbitration process.  Whether this change will move the opinion of the SEC is open to debate.

Stock Market Arbitration Filings up 43% in 2009

Filings for arbitration at the Financial Industry Regulatory Authority (FINRA), the self-regulation body of Wall Street, are up 43% in 2009 over the previous year.  Nearly all brokerage agreement specify FINRA arbitration as the only way to resolve a dispute between a client and broker or an employee and broker.  In years where the stock markets are down, arbitration filings tend to increase as investors seek redress for their losses.  The average time from filing to award decreased from 13.0 months in 2008 to 11.5 months in 2009 — a 12% decrease. Investors received a monetary or non-monetary award in 45% of the cases in 2009, up from 37% in 2008.

FINRA also has an mediation program.  Filings in their mediation program were also up (23%) and average turnaround time dropped 33% from 135 days in 2008 to 91 days in 2009.

I arbitrate cases for FINRA, among other bodies.

FINRA to test all public arbitration panels

FINRA is the financial industry’s self-regulatory arm.  Part of what they do is manage arbitrations for broker-client and broker-employee disputes.  Nearly all brokerage agreements and broker employment agreements contain a clause mandating aribtration rather than litigation.

Most arbitration panels are comprised of 3 arbitrators, one who is considered an “industry” arbitrator (generally, someone who works or has worked in the financial services industry) and two who are “public” arbitrators (never having been associated with the financial services industry).  In this way, the panel will have a perspective from within and outside the industry and having 2 public arbitrators protects the client or employee claimant from feeling like the panel is stacked against them by a self-regulating body.

Now, FINRA is launching a pilot program to test how well an all public panel will work.  From their press release:

Six firms — Merrill Lynch, Citigroup Global Markets, UBS, Wachovia Securities, Morgan Stanley and Charles Schwab — have volunteered to participate in the pilot program. The first five firms will contribute 40 arbitration cases each per year to the program and Schwab, with fewer cases in the forum, will refer 10 cases – meaning that over the course of the pilot, over 400 arbitration cases involving those firms can be heard by all-public arbitration panels. Only the investor making the arbitration claim can elect to participate in the pilot program; the firms will not decide which cases become part of the pilot. The pilot will be available to eligible claims filed on or after October 6, 2008.

FINRA is also reaching out to a wide range of other firms to join the pilot so that a variety of firm sizes and business models will be represented.

The pilot program will be evaluated according to a number of criteria, including the percentage of investors who opt into the pilot and the percentage of investors who choose an all-public panel after opting in. FINRA will compare the results of pilot and non-pilot investor cases, including the percentage of cases that settle before award (and how quickly they settle). FINRA will also study the length of hearings and the use of expert witnesses in pilot and non-pilot cases.

I am an arbitrator for FINRA.  I’ll be curious to see how this works.