Briefly Noted

Broker Arbitration Rule Change

Investors will soon be able to choose an all-public panel for arbitration cases against brokers. The Securities and Exchange Commission (SEC) approved a recommendation by the Financial Industry Regulatory Authority (FINRA) to give individual investors more choice over arbitrators. The changes are being made in response to criticisms that the existing process for selecting an arbitration panel favors brokerage firms over individual investors.

An investor who files a claim for more than $100,000, for an unspecified amount or for non-monetary damages will have his case heard by a three-person arbitration panel. A claim between $25,000 and $100,000 can also be heard by a three-person panel—instead of a single arbitrator—if both parties agree.

The old rules were criticized for leading to arbitration panels that favored brokerage firms over their clients. The rules called for a panel comprised of a chair-qualified public arbitrator, a public arbitrator and a non-public arbitrator. Both the claimant and the defendant could reject up to four names from each 10-candidate list for the three panel positions. This is known as the Majority Public Panel.

The new rules still call for a three arbitrators picked from a list of 10 candidates for each panel position. Like the old rules, they also allow both parties to reject up to four people from the 10-person lists for the chair-qualified arbitrator and up to four people from the public arbitrator list. Both parties, however, can reject all 10 candidates listed on the non-public list. This is viewed by regulators as effectively creating a panel of “three public arbitrators,” or an Optional All Public Panel.

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