Last week, the SEC finally approved FINRA's proposed changes to the
arbitration discovery guide ("CORRECT: SEC Approves Finra Securities-Arbitration
Discovery Proposal," Dow Jones Newswire, April 4, 2011). FINRA originally
submitted a proposal to change the guide in 2008, but the organization
withdrew the proposal when it was attacked from all sides by investors,
investor advocates, financial firms, and financial industry advocates.
A newly revised proposal was filed in July of 2010.
The FINRA discovery guide governs the types of documents and information
that must be exchanged by the opposing parties in a securities arbitration
proceeding. FINRA arbitrators also use the guide to settle disputes that
arise regarding the admission of contested documents and information.
The approved changes reduce the number of lists used to categorize the
documents that must be exchanged from 14 to two, but expand the list of
"typical" documents that both parties must provide. FINRA expects
the changes to make the process smoother and less cumbersome for all of
the parties involved, but that remains to be seen.
Some investor advocates say the changes could have unintended effects such
as making it more difficult to overcome the assumption that the items
listed in the guide are the only documents necessary to an investor's
case. Securities arbitration attorneys say such an effect could make it
more difficult to admit non-listed, case-specific discovery items.
The SEC seems to recognize the potential for problems and has required
the establishment of a FINRA task force to evaluate the practical effects
of the changes. According to the Newswire, the task force will convene
six months after the changes take effect.