FINRA Board Approves New Rule for Selecting Arbitral Panels

Last week, the Financial Industry Regulatory Authority (FINRA) Board approved a measure that may make it easier for investors to select arbitrators in a dispute against a securities brokerage. Currently, brokerage customers must agree to resolve all of their future legal disputes with arbitrators previously approved by FINRA. Investor disputes that exceed $100,000 are decided before panel of three FINRA arbitrators. Although customers may affirmatively choose to utilize a panel that includes three public arbitrators, FINRA panels generally default to include one arbitrator with Wall Street experience.

The newly approved measure would authorize the parties to a dispute that exceeds $100,000 to select a panel chairman, a public arbitrator, and an arbitrator with industry ties from a FINRA list immediately. In addition, the parties may choose to reject all arbitrators with Wall Street experience at the same time. The proposal is reportedly popular with investors since they would no longer be required to opt out of using an arbitrator with industry ties straightaway or lose the opportunity. This is significant because some investors and others who engage in FINRA arbitral proceedings reportedly believe that arbitrators with Wall Street ties may demonstrate bias against investors. The measure will now be sent to the U.S. Securities and Exchange Commission for approval.