Meyer Wilson

Recovering Losses Caused By Investment Misconduct

FINRA Proposed Rule Change Would Expand Arbitrator Selection Lists

The Financial Industry Regulatory Authority (FINRA) recently proposed a change to the way arbitration panels are ranked and selected. The proposal would amend FINRA Rules 12403and 12404 of the Code of Arbitration Procedure for Customer Disputes to increase the number of arbitrators on each list generated by the Neutral List Selection System.

Under the current FINRA rules, FINRA sends a list of available arbitrators to the parties from the Neutral List Selection System, including a detailed biography for each arbitrator on the list. In a three-arbitrator case, the parties receive three lists of eight arbitrators each – one each for the public chair-qualified arbitrator, the public arbitrator, and the non-public (or “industry”) arbitrator. Each party then ranks the list; each party may strike up to four of the eight names on each list, and ranks the remaining names in order of preference. FINRA appoints the panel from among the names remaining on the lists that the parties return.

As a result, sometimes there are no names remaining on the lists because the parties have struck all the arbitrators. In such a case, or when a mutually acceptable arbitrator is unable to serve, FINRA randomly selects additional arbitrators (“extends the list”) to complete the panel. Parties may only challenge “extended list” arbitrators for cause.

The proposed rule change would increase the number of arbitrators available for selection by the parties to ten (from the current eight) for each type of arbitrator on a three-member panel – the public chair-qualified arbitrator, the public arbitrator, and the non-public (or “industry”) arbitrator. The rule change would likewise increase the number of available arbitrators for cases involving less than $100,000, which are heard by a single, chair-qualified public arbitrator (also to ten from the current eight).

Under the proposed rule, the number of strikes available to each party would remain at four. Thus, at least two of the proposed arbitrators would remain on each list of ten. This increases the likelihood that the parties will get panelists they actually chose and rank, as opposed to extended list appointments. It would also reduce the need for extended list appointments when vacancies occur in a panel later in a case.

The proposed rule change will ensure that at least two names will remain on the list in cases involving only two parties. In cases involving more than two parties, the proposal would reduce the need for “extended list” appointments.

The proposal has been submitted to the Securities and Exchange Commission (SEC) for approval.

Click here to read the text of the proposed rule change.

Categories: General

Choose a Firm with Accolades:

  • Super Lawyers
  • Million Dollar Advocates Forum
  • Preeminent AV Peer Review Rated
  • Best Lawyers Lawyer of the Year
  • Best Lawyers Best Law Firm
  • The Best Lawyers in America
  • Avvo 10/10 Rating