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FINRA Proposes Rule Change to Allow Investors the Option of All-Public

The Financial Industry Regulatory Authority (FINRA) announced today that it plans to file a rule proposal to expand and make permanent its Public Arbitrator Pilot Program. The rule proposal, which FINRA plans to file next month for approval with the Securities and Exchange Commission (SEC), would apply to all investor claims.

Under current FINRA rules, most arbitration cases are heard by a three-person panel, consisting of one non-public arbitrator and two public arbitrators. The non-public arbitrator is referred to as the “industry” arbitrator because he or she has worked in the securities industry.

The proposal would give the investor the option of electing to have a panel consisting of three public arbitrators hear their arbitration case, eliminating the “industry” arbitrator (as is currently the case under the Public Arbitrator Pilot Program).

The use of an “industry” arbitrator has been criticized over the years because of the perception of bias or potential conflict of interest by the industry arbitrator in favor of Wall Street and its brokers.

The current Public Arbitrator Pilot Program involves 14 firms that agreed to voluntarily participate in the program. The proposed rule would expand upon the pilot program by allowing for an all-public panel in all investor disputes against any firm and any individual broker.

Under current FINRA rules, most arbitration cases are heard by a three-person panel, consisting of one non-public arbitrator and two public arbitrators. The non-public arbitrator is referred to as the “industry” arbitrator because he or she has worked in the securities industry.

The proposal would give the investor the option of electing to have a panel consisting of three public arbitrators hear their arbitration case, eliminating the “industry” arbitrator (as is currently the case under the Public Arbitrator Pilot Program).

The use of an “industry” arbitrator has been criticized over the years because of the perception of bias or potential conflict of interest by the industry arbitrator in favor of Wall Street and its brokers.

The current Public Arbitrator Pilot Program involves 14 firms that agreed to voluntarily participate in the program. The proposed rule would expand upon the pilot program by allowing for an all-public panel in all investor disputes against any firm and any individual broker.

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