FINRA Amends Customer Code of Arbitration Procedure Regarding Panel Selection in Cases with Three Arbitrators

The SEC approved amendments to FINRA Rule 12403 of the Code of Arbitration Procedure for Customer Disputes, increasing the number of arbitrators on the public arbitration list from 10 to 15, and increasing the number of strikes to that same list from four to six.  The chairperson and non-public arbitration lists will remain unchanged at 10 arbitrators each.

Under current FINRA rules, in customer cases with three arbitrators, FINRA sends the parties three lists (one list for each selected arbitrator):  (1) a list of 10 potential chair-qualified public arbitrators; (2) a list of 10 potential public arbitrators; and (3) a list of 10 potential non-public arbitrators.  Using these lists, the parties then select their panel by striking up to 4 potential arbitrators on the chair-qualified and public arbitrator list, and unlimited striking on the non-public arbitrator list.  Each of the parties then ranks the remaining arbitrators on their lists.

Under FINRA rules, if all of the non-public arbitrators are struck, FINRA will first look to fill the remaining arbitrator from the remaining choices left on the public arbitrator list.  If no arbitrator remains after all strikes, FINRA looks to fill the panel using any remaining arbitrator from the chair-qualified public arbitrator list.

By increasing the number of arbitrators on the public arbitrator list from 10 to 15, FINRA believes there is a greater likelihood of FINRA appointing arbitrators both parties accepted, particularly in cases where the parties collectively strike the non-public arbitrator list.

The amendments become effective for all arbitrator lists that FINRA sends to parties on or after January 3, 2017 for panel section in customer cases with three arbitrators.

Click here to view the applicable Regulatory Notice, which includes the text of amended Rule 12403.