Articles Posted in Arbitration

The Securities and Exchange Commission has approved the Financial Industry Regulatory Authority’s proposal to give investors the choice of having their securities claims against broker-dealers heard by an arbitration panel that doesn’t include any industry members. FINRA says that its Rule 12403, which lets investors choose between a majority-public panel and all-public panel, will go into effect right away. Arbitration cases that began prior to the SEC’s decision to approve the proposal will be notified of this new rule.

Prior to submitting its proposal to the SEC, FINRA tested the idea as a pilot program for more than two years. FINRA says that while investors regularly chose to have nonpublic arbitrators hear their securities case, it became clear that giving them other options improved their perception that the arbitration process was a fair one.

State securities regulators are praising the SEC’s decision. However, they are calling for even more reform.

Optional All Public Panel Rule 12403(d):
FINRA will send the parties three lists. One list will contain the name of 10 non-public arbitrators. The other list will name 10 chair-qualified public arbitrators. The other list will name 10 public arbitrators. Each party will be able to strike up to four arbitrators from the public and chair-qualified lists. Parties can strike the names of all 10 arbitrators from the non-public arbitrator list.

Majority Public Panel Rule 12403(c):
This panel will include one non-public arbitrator, one public arbitrator, and one chair-qualified public arbitrator. The same three lists as the ones mentioned for the All Public Panel will be sent to the parties. Up to four arbitrators from each list can be struck.

Related Web Resources:
Notice to Parties – New Optional All Public Panel Rules, FINRA

SEC Approves FINRA Proposal to Give Investors Permanent Option of All Public Arbitration Panels, FINRA, February 1, 2011

Related Blog Posts:
FINRA Wants to Make All-Public Arbitration Panel for Investors Permanent, Stockbroker Fraud Blog, October 7, 2010
Number of FINRA Arbitration Claims Rose in 2009 Following Market Crisis, Stockbroker Fraud Blog, January 13, 2010
FINRA Says Number of Stockbroker Fraud Arbitration Claims by Plaintiffs is Rising, Stockbroker Fraud Blog, July 14, 2009 Continue Reading ›

The Financial Industry Regulatory Authority says it wants investors with securities claims against broker-dealers to have the right to an arbitration panel that doesn’t include industry representatives. FINRA will file its proposal with the Securities and Exchange Commission for approval.

Under the new rule, investors would have the option of choosing between a panel comprised of one industry arbitrator and two public arbitrators and a panel made up of three public arbitrators. FINRA is hoping this will create a greater perception of fairness in the mandatory arbitration system, which it oversees.

During the last two years, FINRA has run a pilot program that gave investors the option between the two types of panels. The program was created to test whether all-public panels gave investors a fairer shake in their disputes with broker-dealers. 14 investment firms took part in the program. According to FINRA, investors chose to have their securities case heard by an all-public panel 60% of the time. 50% of the time they chose the panel that included one industry member. The pilot has been extended for another year. As of September 28, nearly 560 cases have been part of this program.

Now that the Dodd-Frank Wall Street Reform and Consumer Protection Act has been enacted, the SEC can limit or ban mandatory arbitration clauses, which can be found in contracts between broker-dealers and their clients. Investor advocates are hoping for this.

Related Web Resources:
Finra asks SEC to OK all-public panels for arbitration disputes, Investment News, September 28, 2010
FINRA Proposes to Permanently Give Investors the Option of All-Public Arbitration Panels, September 28, 2010
Number of FINRA Arbitration Claims Rose in 2009 Following Market Crisis, Stockbroker Fraud Blog, January 13, 2010 Continue Reading ›

According to FINRA dispute resolution president Linda Fienberg, the market turmoil of the last two years has led to an increase in the number of arbitration cases filed, as well as a change in the the kinds of claims that are submitted. Fienberg made her statements before the DC bar.

7,134 arbitration files were submitted last year-a definite increase from the 4,982 arbitration cases filed the year before and the 3,238 arbitration cases submitted in 2007. Fienberg said that the number of cases filed goes up when stock prices go down. For example, when the dotcom bubble burst, nearly 9,000 arbitration claims were submitted in 2003.

Fienberg told the group that in the wake of the auction-rate securities crisis, more large corporations filed claims over frozen assets last year. The last two years also saw an increase in claims over mutual funds, making this type of fund the most common security cited in arbitration cases.