Arbitration is likely to get a bit costlier, at least for larger claims, now that the SEC has signed off on a proposal from the
Financial Industry Regulatory Authority Inc. to boost pay for its roughly 6,300 arbitrators.
Once implemented, the rule change will increase fees to file claims, member surcharges, processing fees and hearing session fees for larger cases, according to the proposal, which the Securities and Exchange Commission approved in its entirety on Monday.
“The commission also believes that the proposed rule change would further the purposes of the [Securities Exchange] Act as it is reasonably designed to protect investors and the public interest,” SEC secretary Brent Fields wrote in
the letter posted to the SEC's website Tuesday. “The commission also agrees with Finra's assessment that the proposal is designed to 'retain high-quality arbitrators and attract qualified individuals.'”
(Related: Finra asks SEC to sign off on raising arbitration fees)
Finra has not yet announced an effective date of the rule. A spokeswoman, Michelle Ong declined to comment.
The changes would only affect cases in which claims are larger than $250,000. It could add between $100 and $300 per hearing session, depending on the size of the claim.
A hearing session, for example, in which 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.
It also would boost filing fees, the amount Finra charges to initiate a case, by 10% to 25%, depending on the size of the claim. A $1 million case would now cost $1,725, up from $1,575.
It will be the first time the regulator has raised fees since 1999, Finra said. The regulator said it was running into criticism that its arbitration forum paid less than others.
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 and extra $125 per day.
The amount Finra brings in should more than offset the cost of increasing arbitrator pay, Finra said. The regulator stands to take in an additional $4 million to $5.6 million per year, according to the proposal. Finra estimates the pay raise would cost $3.5 million to $4.2 million.
The regulator said it subsidizes a substantial portion of the cost of running the arbitration forum, so it should still be cheaper to bring a case than in other industries.
The SEC said it received eight comment letters on the proposal since Finra first requested approval in June. Many in the industry, including the Securities Industry and Financial Markets Association, a trade group of securities firms, agreed with the proposal, although there was some dissent.
One of the main concerns in the comment letters was that the fee hike would unfairly impact investors, who are required by the contracts they sign with their brokerage firm to resolve disputes in Finra's arbitration forum.
The commission said the hike was still fair because it was the first in 15 years, the fees were assessed evenly for members and the public, and Finra targeted the boost toward the larger cases.
