Finra expands pilot program that eliminates industry participants from arbitration panels

The Financial Industry Regulatory Authority Inc. will expand a pilot program that allows investors to choose arbitration panels without industry participants.
Currently, most Finra arbitration panels have two members not connected with the securities industry and one member from the industry. Most securities contracts include clauses requiring that disputes be heard in an arbitration forum rather than in court.
Finra began a two-year pilot program Oct. 6, 2008, in which it began allowing some investors to choose an all-public arbitration panel.
Today, Finra announced that the program will expand to 14 broker-dealers, from 11, and that the number of eligible cases will increase to 411, from 276.
Through August, 4,911 arbitration cases had been filed with Finra, a 65% increase from the first eight months of 2008, when 3,018 cases were filed, according to Finra statistics.
So far, investors have filed 474 eligible cases under the pilot program. Fifty-one percent of the eligible investors, who filed 244 cases, opted to participate in the pilot.
With additional firms and cases, “the resulting information derived from the pilot will permit a more robust analysis of the process of using three public arbitrators,” Linda Feinberg, president of Finra Dispute Resolution, said in a release.
The new firms participating in the pilot agreed to a specific number of cases. They are: Chase Investment Services Corp., with 10 cases; Oppenheimer & Co. Inc., with 15 cases; and Raymond James Financial Services Inc./Raymond James & Associates Inc., with 10 cases.
Five of the 11 firms that participated the first year are increasing the number of pilot cases from 40 to 60.
Mandatory-arbitration clauses have come under attack on Capitol Hill and within the industry. House Capital Markets Subcommittee Chairman Paul Kanjorski, D-Penn., included a provision in the draft Investor Protection Act of 2009 legislation that would give the SEC authority to ban mandatory-arbitration clauses in securities contracts. The Obama administration had called for the provision.
The North American Securities Administrators Association Inc. and the Investment Adviser Association support banning mandatory-arbitration clauses.

Related Topics: Financial Industry Regulatory Authority, Raymond James & Associates Inc.