Late last year, the Securities Lawyer Blog posted that the Financial Industry Regulatory Authority (FINRA) had proposed a rule change to enable customers to select an "all public panel." This week FINRA announced that the Securities and Exchange Commission (SEC) has approved this proposed rule change.
The new Optional All Public Panel Rule 12403(d) is the result of concerns about investor confidence as to how business is conducted Wall Street and the desire to enhance the investing public's perception of the fairness of arbitration proceedings when they have a dispute involving their investments. Providing "an additional choice" to investors in arbitration proceedings is intended in part to "increase public confidence in the fairness of [the} dispute resolution process," says FINRA Chairman and CEO, Richard Ketchum.
Prior to this change, panels have included one arbitrator that is in the securities industry and two public arbitrators. The all-public arbitration panel option will apply going forward, and will be available to those arbitrations for which the list of potential arbitrators has not been provided. FINRA is imposing a brief moratorium on sending arbitrator lists in customer cases with three arbitrators, from the time of the issuance of the SEC approval order and ending with publication of FINRA's Regulatory Notice.
After a lengthy pilot program that took place over a 27-month time frame, with 14 firms volunteering to participate, FINRA determined that in about 60 percent of the arbitrations included in the pilot, customers chose the all-public option. In many instances, investors also included a non-public arbitrator.
Public perception was apparently key in this rule change, as the ability to choose was a favorable part of the process for investors involved in the pilot. The "right to decide" whether a panel included a non-public member was strongly support by investors and consumer groups.
For detailed information on the new "Optional All Public Panel Rule" please click here.
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