Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, December 12, 2011

FINRA Discusses Changes to Arbitration Rules

At its December Board of Governors meeting, FINRA discussed several rulemaking items involving arbitration.  Specifically:

Expungement for Persons Not Named as Parties in Arbitration Claims

The Board authorized staff to issue a Regulatory Notice requesting comment on a rule proposal to amend the Codes of Arbitration Procedure for Customer and Industry Disputes to adopt new rules that would permit persons who are the "subject of" allegations of sales practice violations made in arbitration claims, but who are not named as parties to the arbitration, to seek expungement relief by initiating In re expungement proceedings. The proposed In re proceeding would eliminate the practice of naming public customers or brokerage firms as respondents in claims seeking expungement. However, unnamed persons would retain the ability to have their firm or former firm seek expungement in the underlying customer arbitration. 

The proposal also clarifies that if an associated person is named as a respondent in a customer-initiated arbitration proceeding, that person may seek expungement of customer dispute information only during that customer case, and not later under the In re expungement rule.

Under the proposal, FINRA would create two new documents to facilitate the process: a Notice of Intent to File an In re Expungement Claim, and a Submission Agreement for In re Expungement Claims. An unnamed person must file a Notice of Intent to alert FINRA that the person is considering filing a claim for expungement relief. If an unnamed person determines to seek expungement relief, the person must file a Submission Agreement, which would confer jurisdiction on FINRA to arbitrate these types of cases.

Subpoenas and Orders of Production in Arbitrations

The Board authorized staff to file with the SEC proposed amendments to the Customer and Industry Codes of Arbitration Procedure (Rules 12512, 12513, 13512 and 13513) to standardize FINRA practices relating to arbitrator orders or subpoenas to non-party brokerage firms. The amendments provide that a brokerage firm party requesting the appearance of a witness or production of documents, either by subpoena or arbitrator order, would pay the reasonable costs of the appearance and/or production. In addition, the amendments would codify FINRA's current practice of allowing the non-party to raise objections to subpoenas or orders issued by arbitrators.

Threshold for Simplified Arbitration

The Board authorized staff to file with the SEC proposed amendments to Rules 12800 and 13800 of the Customer and Industry Codes of Arbitration Procedure, respectively, to raise the threshold for simplified arbitration from $25,000 to $50,000. Under simplified arbitration procedures, claims may be decided on the written submissions of the parties, and no hearing takes place.

In addition,

The Board authorized staff to file with the SEC a proposed amendment to Rule 14107 of the Code of Mediation Procedure, to provide the Director of Mediation with discretion to determine whether parties to a FINRA mediation may select a mediator who is not on FINRA's mediator roster. Currently, the Mediation Code permits parties to select a mediator either from a FINRA-supplied list or from a list or other source of the parties' choosing.

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FINRA is a legal mob in my opinion. They pay Mary something like 9 million...take losses on their investments...they're completely unregulated no matter what they say..and all they do is hit investment firms with fees for petty things. I understand if an investment firm is running a scam but come one...take a look at how much fees FINRA collects from broker dealers and others per year...and they still manage to make bad investments lol....what a waste of money all around!

Posted by: Pete | Dec 14, 2011 2:44:54 PM

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