FINRA Proposes New Rule on Explained Awards

FINRA is filing with the SEC a proposed rule change to amend NASD Rules 12214, 12514 and 12904 of Code of Arbitration Procedure for Customer Disputes (“Customer Code”) and NASD Rules 13214, 13514 and 13904 of the Code of Arbitration Procedure for Industry Disputes (“Industry Code”) to require arbitrators to provide an explained decision upon the joint request of the parties (SR-FINRA-2008-051).  This proposed rule replaces a much-criticized proposal, filed three years ago, that would have required arbitrators to provide reasons upon the request of the customer only.  The explained decision would be a fact-based award stating the general reason(s) for the arbitrators’ decision; it would not be required to include legal authorities and/or damage calculations. Under the proposed rule change, parties would be required to submit any joint request for an explained decision at least 20 days before the first scheduled hearing date. The chairperson would: 1) be required to write the explained decision; and 2)receive an additional honorarium of $400 for writing the decision. The panel would allocate the cost of the additional honorarium to the parties as part of the final award.  The rule would not apply to simplified arbitration claims.