Tag Archives: Rule 12100

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

FINRA Proposes Changes to Definitions of Non-Public and Public Arbitrators

The proposal expands the “non-public” arbitrator definition by: (1) requiring individuals who worked in the financial services industry for any duration to always be classified as non-public arbitrators; (2) adding new categories of financial industry personnel who qualify as non-public arbitrators; and (3) requiring professionals (e.g., attorneys and accountants) devoting a significant part of their business to representing or providing services to parties in disputes concerning investments or employment relationships to be classified non-public.  With respect to the “public” arbitrator definition, the proposal (1) adds criteria disqualifying persons from being classified or reclassified as a public arbitrators, and (2) extends “cooling off” periods for certain professionals – such as those in item 3 above – from being reclassified as public arbitrators.  The proposed changes are pending before the SEC.