FINRA Proposes Expanding Arbitrator Selection Lists

Change Would Reduce "Extended List" Arbitrator Appointments

Washington, DC — The Financial Industry Regulatory Authority (FINRA) today said it intends to increase the number of arbitrators available for selection when parties pick arbitration panels, to 10 from the current eight, for each type of arbitrator on a three-member panel – public chair-qualified, public and non-public.

Lists of available arbitrators for cases involving less than $100,000, which are heard by a single, chair-qualified public arbitrator, would also expand from eight to 10 names. The proposed expansion, made in a recent rule filing with the Securities and Exchange Commission (SEC), is designed to increase the likelihood that all arbitrators appointed to a case will have been selected by the parties.

"With a larger pool of arbitrators to select from, parties will be able to present cases before arbitrators they helped choose," said Linda Fienberg, President of FINRA Dispute Resolution. "Adding two names to each list will give parties in most cases the panelists they have selected rather than an arbitrator randomly selected by a computer."

Currently, under FINRA's Code of Arbitration Procedure, parties are sent lists of available arbitrators, along with detailed biographical information on each arbitrator. In a three-arbitrator case, the parties receive three lists of eight arbitrators each – one public, one public chair-qualified and one non-public. Each party is permitted to strike up to four of the eight names on each list and ranks the remaining names in order of preference. FINRA appoints the panel from among the names remaining on the lists that the parties return.

When there are no names remaining on a list, or when a mutually acceptable arbitrator is unable to serve, a random selection is made to "extend the list" by generating names of additional arbitrators to complete the panel. Parties may only challenge extended list arbitrators for cause.

While the proposed change would increase the number of arbitrators on each list by two, the number of available strikes would remain at four per party. If the SEC approves the new procedure, it would ensure that at least two proposed arbitrators will remain on each list of 10 potential arbitrators – thus significantly increasing the likelihood that the parties will get panelists they chose and rank, as opposed to extended list appointments. It would also reduce the need for extended list appointments when vacancies occur in a panel later in a case.

Prior to 2007, the arbitration code allowed the parties unlimited strikes of proposed arbitrators on lists. This often resulted in parties collectively striking all the arbitrators on the list. In April 2007, FINRA implemented a change that limited the number of strikes each party may exercise to four, in an effort to reduce the frequency of extended list appointments.

FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. Currently, there are roughly 6,200 FINRA arbitrators – 2,700 are non-public and 3,500 public. For more information, please visit our Web site at www.finra.org.