Monday, January 30, 2012
On Feb. 1, 2011, the SEC approved the FINRA rule change that permits customers to select panels consisting solely of all-public arbitrators (i.e., no industry arbitrator). After nearly a year in operation, Linda Fienberg, head of FINRA's arbitration program, reports that 76% of investors chose the all-public option, according to Investment News. Ms. Fienberg says this is a "bit surprising," because the numbers in the pilot program were lower. The pilot program, however, could only be used by customers of a few large brokerage firms that voluntarily participated and could not be used in cases where the individual registered representative was named as a party.
Do all-public panels arrive at results that are more favorable to investors? There has not yet been examination of the data, and this will certainly be carefully watched by observers. Meanwhile, the consensus is that the FINRA arbitration forum gets high marks for instituting this change.
Perhaps, in light of the popularity of the all-public panel (a result that does not surprise me), FINRA will next consider a rule change to make all-public panels the default option. Under the current rule, unless the all-public panel is selected within a relatively short time frame, the claimant is stuck with the default choice -- one industry and two public arbitrators. This can create confusion and an unfortunate choice by the per se claimant or inexperienced counsel.