Tag Archives: Arbitrator Selection

FINRA Proposes Rule Change on Definition of a Non-Public Arbitrator

FINRA recently filed a proposed rule change with the SEC to amend Rules 13100 and 12100 of the FINRA Code of Arbitration Procedure to simplify the definition of a non-public arbitrator, and to address an eligibility gap that has been preventing certain otherwise qualified arbitrators from serving on panels.

To address concerns about arbitrator’s neutrality, FINRA last amended the definitions of public and non-public arbitrators in 2015. Under the current definition, non-public arbitrators are those who work, or worked, in the financial industry, or are individuals engaged in securities arbitration and litigation such as certain attorneys and accountants. Public arbitrators are currently those who do not have any significant affiliation with the financial industry and don’t have immediate family members or co-workers who do.

This rule created an eligibility gap preventing certain otherwise qualified arbitrators from serving in any capacity. For example, someone whose immediate family member worked in the industry could not be a public arbitrator based on the rule, but because the individual did not ever work in the industry, he/she also did not qualify as a non-public arbitrator. The same was true for arbitrators whose co-workers serviced the industry.

The proposed rule change addresses the eligibility gap by eliminating any specific criteria for qualified arbitrators to serve as a non-public arbitrator. In essence, one who meets the general qualifications for serving as an arbitrator will automatically be classified as a non-public arbitrator if they do not meet the specific criteria for serving as a public arbitrator. This rule change closes the eligibility gap, simplifies the non-public arbitrator definition, and provides greater choice for parties during the panel selection process.

The rule filed with the SEC can be found here.

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DWH Legal frequently represents registered representatives, brokerage firms, and individuals in FINRA arbitration proceedings nationwide. Our attorneys bring a unique combination of securities enforcement expertise and litigation strength. Our attorneys have worked in-house for major financial institutions as well as for the U.S Securities and Exchange Commission. To learn more about our firm’s arbitration practice, please contact us or call our Chicago office at 312.380.6587.

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

FINRA Defends Arbitrator Pool Amidst Criticism From New PIABA Study

On October 7, 2014, the Public Investors Arbitration Bar Association (“PIABA”) released a report that condemns FINRA for the “lack of diversity” and “transparency” found within its arbitrator pool. The PIABA report, based on an analysis of 5,375 FINRA arbitrators, identifies concerns involving: (1) arbitrators average age – according to the report, the average age of a FINRA arbitrator is 69 years old, with 40% of the pool aged 70 or older; (2) gender concentration – PIABA found that FINRA’s arbitrator pool is about 80% male; and (3) lack of adequate procedural safeguards to ensure appropriate disclosures are made to parties, and that neutral arbitrators are added to a selection pool. In addition, PIABA cited to a declining award rate for investors which it implied could be attributed to arbitrator fairness concerns. According to PIABA, the investor win rate was about 42% in 2013, compared to about 60% for similar claims in 1992.

Within hours of the report’s release, FINRA issued a statement defending itself against PIABA’s critiques. FINRA stated that it had been “working closely with PIABA since 1999 in an effort to recruit the best arbitrators possible” and “[t]he suggestion that FINRA has not been partnering with PIABA in recruitment of potential arbitrators is absurd.” FINRA further noted that it formed an Arbitrator Task Force, in July 2014, to consider possible enhancements to the arbitration forum that includes “strong” PIABA representation. FINRA also disputed the relevance of PIABA’s win rate statistics, stating, “[t]he reality is that win rates increase or decrease depending upon the controversy involved, market events and counsel.”

PIABA’s press release can be found here:

http://piaba.org/system/files/pdfs/PIABA%20Press%20Release%20%28October%207,%202014%29.pdf

FINRA’s Statement on PIABA’s Arbitrator Report can be found here:

http://www.finra.org/Newsroom/NewsReleases/2014/P601075