Finra arbitration cases are down, but the rest of the year may tell another story

A former Finra director says wild market gyrations over the summer will induce arbitrations that could take months to fully reveal themselves

Oct 30, 2015 @ 2:04 pm

By Laura Sanicola

Finra has reported a decline in arbitration compared to this time last year.

According to September 2015 statistics, 2,538 cases were filed year-to-date through Sept. 30, a 14% drop from the same period in 2014, when 2,935 cases were filed.

But a former Financial Industry Regulatory Authority Inc. official said there is more to the statistics than meets the eye.

“The gap is closing with an uptake in filings in recent months, and that can't be ignored,” said George Friedman, who was director of Finra arbitration from 1998-2013.

At the end of June, the number of cases year-to-date was 25% below the same six-month period in 2014, according to a newsletter from the Securities Arbitration Commentator.

Further, more cases are entering into agreements to mediate, as figures through September are 20% ahead of the same time span in 2014, according to Finra.

“Our case filings are countercyclical to the stock market," a Finra spokeswoman said in an emailed response to questions, adding that officials were not surprised by the decline. "If the market goes down substantially, historically, we have seen a rise in case filings."

NO WAY TO GO BUT UP

“Just what accounts for the apparent change in direction [on the mediation side], we cannot tell,” said Rick Ryder, founder of the SAC. “But maybe, like interest rates, there's no place to go but up.”

Mr. Friedman predicted that by year-end, total filings this year will be the same as last year, because the wild market gyrations over the summer will likely induce investors to file arbitration cases that could take months to make their way onto public records.

As for the surge in filings in recent months, Mr. Friedman theorized that Puerto Rican bond funds “are probably coming home to roost.”

Another notable trend from the September statistics is that the “preferred stock” product category is producing new claims. While preferred stocks were the source of claims in 47 cases all of last year, for the first nine months of 2015, the category has seen 110 claims.

“It's a pretty dramatic increase and a lot more difficult to explain,” Mr. Friedman said.

Overall, arbitration filings tend to follow the trend of the markets. Mr. Friedman noted that when the Great Recession hit, filings more than doubled. Following the recent bull market, he found that arbitrations dwindled from about 7,000 to almost half.

“People fight less when they are making money, and they fight more when they are losing money,” he said. “That's my theory.”

The most common arbitration cases included negligence, failure to supervise and misrepresentation.

0
Comments

What do you think?

View comments

Most watched

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

Target-date fund design may be wrong for retirees

Researchers suggest the funds don't adequately hedge against sequence-of-returns risk in retirement.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print