On September 28, 2010, FINRA announced that it will file a rule proposal with the SEC next month that would allow all investors filing arbitration claims to have the option of an all-public arbitrator panel. Currently under FINRA Rule 12401, on claims greater than $100,000 there are three arbitrators. Under FINRA Rule 12402, if the panel consists of three arbitrators, one will be a non-public arbitrator and two will be public arbitrators. The revised rule will allow the investor filing the arbitration to select the option of having an all-public arbitration panel.
This rule proposal will expand to all investors a two year FINRA pilot program that has provided for investors filing an arbitration claims against certain firms the option of choosing the all-public panel of arbitrators. FINRA Chairman and Chief Executive Richard Ketchum stated that "Giving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process[.]" FINRA notes that since the program began in October 2008, of the 560 cases given the power to eliminate all non-public arbitrators only 50% have elected to do so.
The effect on the results of arbitration due to having all-public arbitration panels is yet to be determined. FINRA spokesman Nancy Condon said that among the small sample size of 17 cases heard by all-public panels, investors were awarded damages 71 percent of the time. The Reuters story containing the quote from FINRA spokeswoman Nancy Condon can be found here. FINRA reports that of the 555 arbitration cases heard and decided through August of 2010, 279 of the cases (approximately 50%) resulted in cases where the customer received damages. The FINRA dispute resolution statistics can be found here.
The FINRA news release announcing the rule change can be found here.