FINRA announced earlier this week that it will be filing a rule proposal in October that will enable investors filing arbitration claims the option to have an "all-public" arbitration panel. This, says FINRA, will greatly increase "investor choice in the FINRA arbitration program."
The proposed rule will be submitted by FINRA to the Securities and Exchange Commission (SEC) for approval. If the SEC does approve the rule proposal, this will expand the two-year pilot program to all investor claims. The pilot program has allowed investors the option to choose an all-public panel in arbitration claims and against specific firms involved in the program.
Specifically, the pilot program currently in place involved 14 firms that volunteered to participate in a two-year program for cases brought by investors that did not involve individual brokers. These firms have agreed to participate in an extended pilot that will continue for an additional year while the rule making process goes forward.
The proposed rule would not be applicable in cases involving only industry members. It will however apply to investor matters brought against firms or individual brokers.
If the SEC approves this new rule, investors will be able to select whether they want their arbitration panel to be comprised of only public arbitrators or go forward with the current composition available of two public arbitrators and one non-public arbitrator.
Some view this as a consumer-oriented move that will create more options for investors in how their arbitration matters are handled. FINRA's Chairman and Chief Executive Officer, Richard Ketchum summed up the desired impact saying that " '[g]iving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process.' " He continued saying that " 'investors will have greater freedom in choosing arbitration panels, and any investor will have the power to have his or her case heard by a panel with no industry participants.' "
FINRA reports that over the past two years, about 560 cases have been heard under the program and about 60 percent of investors have opted to participate in the Public Arbitrator Pilot Program. In about 50 percent of the matters heard under the pilot, investors still chose to retain a non-public arbitrator on their panels.
The Securities Lawyer Blog will keep you posted on this proposed rule.
The New York law firm of Gusrae Kaplan Nusbaum PLLC, represents broker-dealers in litigation and before all regulatory tribunals. Please contact our law firm for more information on the breadth and depth of our practice and our lawyers.
