The Securities and Exchange Commission recently approved a rule change that allows claimants to choose an arbitration panel made up entirely of public arbitrators. This change is applicable to all current customer cases in which FINRA has not sent a list of arbitrators by the rule’s effective date of February 1, 2011.

Background

Investor advocates have long attacked the arbitration process as being unfair to customers, particularly because an industry arbitrator is included on each three-person panel. In response to these criticisms, FINRA enacted a trial program called the Public Arbitrator Pilot Program (PAPP), which allowed broker-dealers to opt-in to a process that gave claimants a choice between the traditional majority public panel or an all public panel. Nearly 60% of claimants chose the all public panel option in these PAPP cases. The new rule expands the procedures implemented in PAPP to all cases involving customers.

What Changed?

Since single arbitrator panels are already “all public,” the new rule affects only three-arbitrator panels. In short, when a customer now chooses the all public panel option, the ranking lists will remain the same, but each separately represented party will have the ability to use up to ten strikes in the non-public arbitrator category, thus eliminating the industry arbitrator from the panel.

Here are the specifics...

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