Two weeks ago, FINRA decided to extend a pilot program that gave investors
involved in arbitration proceedings the right to opt for an arbitration
panel without an industry-affiliated arbitrator, according to a July 21
Wall Street Journal article. Standard arbitration cases are heard before
a three-arbitrator panel, typically with two "public arbitrators"
and one securities-industry-affiliated arbitrator.
While there may be an advantage to having an arbitrator on the panel who
understands the industry and can explain complex details to the two public
arbitrators, serious problems can arise as well, including
conflicts of interest and the potential for bias.
The decision to allow investors and their attorneys to determine for themselves
whether the benefits outweigh the risks associated with an industry-affiliated
arbitrator has proven favorable to investors. Initially set to expire
on October 5, 2010, the pilot program has been extended for an additional year.