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Sec Approves FINRA Rule Change Expanding Arbitrator Selection Lists

The Securities and Exchange Commission (SEC) recently approved the proposed changes to the Financial Industry Regulatory Authority (FINRA) rules to increase the number of arbitrators on each list generated by the Neutral List Selection System.

As discussed in more detail in our previous post, FINRA Proposed Rule Change Would Expand Arbitrator Selection Lists, the amendments to FINRA rules will increase the number of arbitrators available for selection by the parties. For each type of arbitrator on a three-member panel – the public chair-qualified arbitrator, the public arbitrator, and the non-public (or “industry”) arbitrator – the rule change increases the number of proposed arbitrators from eight to ten.

The number of strikes available to each party would remain at four. Thus, in a typical case, at least two of the proposed arbitrators would remain on each list of ten after the parties have used their strikes. This increases the likelihood that the parties will get panelists they actually 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.

In its order, the SEC stated that the rule change “will protect investors and the public interest by providing investors greater control in the arbitrator selection process.” The rule change will reduce the number of instances where an arbitrator is appointed with no input from or approval by the parties. The SEC hopes this will “enhance investor and industry participants’ confidence in the arbitration process.”

The proposal gained support from both the securities industry and those who represent investors in securities arbitrations (including the Public Investors Arbitration Bar Association (PIABA). Click here to read the SEC’s order.

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