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The Financial Industry Regulatory Authority (“FINRA”) announced last week that it will file a rule proposal in October that allows all investors filing individual securities arbitration claims the option of having an all-public arbitration panel. This move greatly increases investor choice in the FINRA arbitration process. The rule will be filed for approval with the Securities and Exchange Commission (“SEC”).
“Giving 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,” said Richard Ketchum, FINRA Chairman and Chief Executive Officer. “All 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.”
If the proposed rule is approved by the SEC, it would give investors the option of choosing an arbitration panel that has two public arbitrators and one non-public arbitrator, as is now the case, or choosing to have their case heard and decided by an all-public panel. The proposed rule would apply to all investor disputes against any firm and any individual broker. However, it would not apply to arbitration disputes involving only industry parties.
Before filing the proposed rule, FINRA had launched a Public Arbitrator Pilot Program in October 2008 which involved 14 brokerage firms that agreed to a set number of investor cases that did not involve individual brokers. Since that time, a little more than 60% of investors eligible to participate have opted in, resulting in almost 560 cases to date. Investors opting into the pilot, given the power to eliminate all non-public arbitrators, still chose to have one non-public arbitrator on their panel about 50 percent of the time. The pilot program was originally set to conclude after two years. However, the participating firms agreed recently to extend the pilot program for an additional year while the rule making process goes forward.
KlaymanToskes, an experienced, qualified and nationally recognized securities litigation law firm, practices exclusively in the field of securities arbitration and litigation. It continues its representation of investors throughout the world in securities arbitration and litigation matters against major Wall Street brokerage firms.