FINRA Takes Steps to Level the Playing Field for Investors

Today, the Financial Industry Regulatory Authority (FINRA) announced plans that should help level the playing field for investors pursuing securities arbitration claims against their stockbroker or financial advisor. FINRA’s proposed rule change would give investors the option of selecting an arbitration panel that is composed entirely of “public” arbitrators.
Under the existing rule, a three-arbitrator panel must include two “public” arbitrators and one “non-public” arbitrator. A “non-public” arbitrator is an arbitrator that is affiliated with the securities industry, such as a brokerage firm employee or a defense attorney. Many have argued that industry arbitrators have an inherent bias or tendency to favor brokers over customers. In my experience, having industry arbitrators on panels has been a mixed blessing. At a minimum, the presence of an industry arbitrator gives an appearance of bias. Giving investors the ability to choose whether or not to have an industry arbitrator on their panel is, in my opinion, a compromise solution meant to counter criticism that mandatory arbitration of securities disputes is fundamentally unfair.

FINRA plans to file the rule proposal with the Securities and Exchange Commission (SEC) next month. So far, as as many as 560 cases have already elected to to utilize “all public” arbitration panels under a pilot program established in October 2008 by FINRA through an arrangement with 14 brokerage firms that volunteered to participate in the pilot program.

See related blog posting: FINRA Dispute Resolution Expands Pilot Program for Securities Arbitration Panels

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