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
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
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
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
The proposal has been submitted to the Securities and Exchange Commission
(SEC) for approval.
here to read the text of the proposed rule change.