The
Financial Industry Regulatory Authority Inc. of Washington and New York will conduct a two-year pilot program, starting this fall, allowing about 400 arbitration claimants to select a panel without an industry representative.
Currently, arbitration panels are made up of two public arbitrators and one arbitrator from the industry.
The securities industry has argued that having an industry representative on the panel provides needed expertise, while plaintiff’s attorneys and critics of the system say it biases the panel in favor of industry interests.
Six major brokerage firms have volunteered to participate in the program.
Merrill Lynch & Co. Inc.,
Citigroup Inc. and Morgan Stanley, all of New York; Wachovia Corp. of Charlotte, N.C.; and
UBS AG of Zurich, Switzerland, each will refer 40 cases a year to the program.
Charles Schwab Corp. of San Francisco, which has fewer arbitration cases, will refer 10 cases per year.
Investors with arbitration cases can elect to participate in the pilot program, Finra said in a statement, and the brokerage firms will have no say regarding which cases can be included in the program.
The pilot will start with claims filed on or after Oct. 6.
“This pilot will give investors greater choice when selecting an arbitration panel,” Finra chief executive Mary Schapiro said in the statement. It will allow Finra to examine if a change in the way panels are selected “is a better way to serve and protect the interests of investors,” she said.
The North American Securities Administrators Association Inc. of Washington issued a statement from its president, North Dakota securities regulator Karen Tyler, who was critical of Finra’s move.
The pilot “does not go far enough toward resolving immediate investor harm,” she said in the statement.
“Only a select few customers will realize the benefit of having a panel where there is no mandatory industry representative, but thousands of others will not have that choice,” Ms. Tyler said.
“Investor protection demands that all investors be given that choice immediately,” she said.
