The Financial Industry Regulatory Authority (FINRA) is expected to file a rule proposal with the Securities and Exchange Commission (SEC) that would allow all investors filing arbitration claims against FINRA brokerage firms the option of having an all-public panel of arbitrators, greatly increasing investor choice in the FINRA arbitration program. Current FINRA rules generally require that one of three arbitrators assigned to a case be affiliated in some way with the securities industry. Many investor-advocate lawyers believe that this so-called “industry arbitrator” brings an unfair bias into the case in favor of the brokerage firms. As such, a rule permitting investors to eliminate the industry arbitrator from an arbitration panel may level the playing field more fairly.

“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,” said Richard Ketchum, FINRA Chairman and Chief Executive Officer. “All investors will have greater freedom in choosing arbitration panels, and any investor will have the power to have his or her case heard by a panel with no industry participants.”

If the SEC approves FINRA’s rule proposal, investors would have the option of choosing an arbitration panel that has two public arbitrators and one industry arbitrator, as is now the case, or choosing to eliminate the industry arbitrator and have their case heard by an all-public panel. That would be a significant favorable development in FINRA arbitration. Indeed, regardless of whether one believes that the industry arbitrator is unfairly biased, giving investors the choice of having an arbitration panel without a possibly biased industry arbitrator provides a fairer forum in which to resolve customers disputes with brokerage firms.

Dimond Kaplan & Rothstein, P.A. represents investors in securities arbitration cases throughout the United States and Latin America.


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