FINRA Decides to Extend Pilot Arbitration Program into 2011
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.