Finra asks SEC to sign off on raising arbitration fees

Increase could add up to $400 per case; hike is tied to boost in pay for arbitrators

Jun 13, 2014 @ 7:11 pm

By Mason Braswell

Finra has asked the Securities and Exchange Commission to approve a round of fee increases in its dispute resolution forum as it looks to boost pay for its force of around 6,300 arbitrators.

The Financial Industry Regulatory Authority Inc., Wall Street's industry-funded watchdog, has sent a proposal to the SEC to raise filing fees, member surcharges, processing fees and hearing session fees on larger claims, according to a filing posted to Finra's website late Friday.

The changes would only affect cases in which claims are larger than $250,000. It could add between $100 to $400, depending on the size of the claim.

A hearing session, for example, where arbitrators and parties meet to discuss the case, would cost $1,300 rather than $1,200 for a claim between $500,000 and $1 million, according to proposed changes.

The changes are the first since 1999 and will go toward increasing arbitrator pay, Finra said. The proposal will still have to go through a period of public comment and review by the SEC before the new fee schedule could be implemented.

(Last December, Finra's board began thinking about raising fees to increase arbitrator pay.)

Claims larger than $50,000 are adjudicated by a panel of three arbitrators. They are currently paid an honorarium of $200 for each hearing session, and the panel chairman receives an extra $75 per day.

Under the proposed rule, they would receive $300 per hearing session and the chairman would receive $125 per day.

Finra said the fee increases more than cover the cost of raising arbitrators' honorariums. Finra stands to take in an additional $4 million to $5.6 million per year, according to the proposal. The regulator estimates the pay raise would cost $3.5 million to $4.2 million.

The industry, including the Securities Industry and Financial Markets Association, has largely supported the increase as a way to help improve the quality of Finra's arbitration process, which has come under fire this year in high-profile cases involving arbitrators who were arguably unfit to serve, including one who was struck from the roster after allegedly lying about being a lawyer .

Finra said it had received “numerous complaints” from arbitrators regarding the amount they were paid. Arbitrators had skipped or postponed their duties when they conflicted with a higher-paying assignment.

“There are nonmonetary benefits to serving as a Finra arbitrator, such as learning the skills necessary to be an effective commercial arbitrator, serving the public, or giving back to one's community,” Finra wrote. “However, the current honoraria level is a barrier to recruiting.”

Finra argues that because it subsidizes a substantial cost of arbitration, even an increase in fees for panel members would still leave Finra's arbitration process less expensive than those in other industries, the regulator said.

“To increase the honoraria to market rates [paid by other industries] would impose a significant financial burden on firms by increasing the fees they pay if they file or are named as a party to an arbitration, and could increase consequently the cost of securities transactions for customers,” Finra wrote in its proposal.

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