FINRA changes arbitrator list – And then there were two?

Posted by on Sep 16, 2010 in arbitration, FINRA, securities | Comments(0)

In case you don’t normally handle FINRA securities arbitrations, after the Statement of Claim and Answers are filed, the parties receive a list of arbitrators. The classification of arbitrators, public vs. non-public (these used to be called industry), is usually a total of sixteen choices in public (broken down into two 8-person lists) and one 8-person non-public list. Each party was entitled to four “peremptory” strikes, forcing out up to four people “just because”. The remaining names were ranked from 1 through, up to, 8 depending on the number of strikes.

Once FINRA received the list, the ranked arbitrators common to both lists were combined and the rankings are added up. The arbitrator with the lowest combined ranking (meaning most desirable from the combined list) is contacted first, then the next, and so on. But if both parties exercised all of their strikes, then it was possible that there were no names in common and FINRA would have to select names, on its own, at random. The parties, theoretically, then have no input on who the next two arbitrators are.

This selection process will change on September 27, 2010. Under the new rules, which you can read about here, each list will have groups of 10, not eight. However, the number of party strikes will not increase. This could lead to some unintended consequences.

For example, let’s say that the Claimant and Respondent use each of their strikes on four separate people, striking a total of eight. This leaves two people, who could have been ranked as numbers 5 and 6 by both parties. So the parties end up with their least desired arbitrator candidates (which they could not strike). While this may end up removing an administrative burden on FINRA, I’m not sure the parties are going to be happier.

On the other hand, my own experience led me to believe that the previous procedure was not so “random.” It seemed to me that the many of the same arbitrators would get the call as an off-list choice. But that could just be my perception.

So now, we will likely be assigned a name that we know, but not necessarily one that we like. It is rare that both sides agree on which arbitrator candidates they like, so it will be interesting to see how this new process changes the dynamics of list selection.

And finally, here’s another twist. When multiple parties are represented by the same lawyer, they get one set of strikes – four per listing of 10. When multiple parties are represented by separate counsel, each lawyer gets a set of strikes, four per lawyer per listing of 10. If both the broker and the firm are named respondents, then the entire list can still be stricken. A loophole? Perhaps.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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