Finra plans to focus arbitrator recruitment efforts on increasing the number of arbitration chairs in midsize cities in the U.S. The move comes in response to feedback from parties involved in cases brought before the regulator’s arbitration and mediation forum, says Richard Berry, director of the watchdog’s Office of Dispute Resolution.
“Listening to the parties and counsels in the forum is a great way for us to improve,” Berry says. “One thing we hear is they don’t like having non-local chairpersons.”
In 2018 the priority cities in this recruitment campaign are Birmingham, Ala.; Buffalo, N.Y.; Hartford, Conn.; Las Vegas, Nev.; Milwaukee, Wis.; New Orleans, La.; Salt Lake City, Utah; and St. Louis, Mo. In 2019, the priority cities will be Charlotte, N.C.; Kansas City, Mo.; Nashville, Tenn.; and Oklahoma City, Okla.
Lawyers can serve as chairs in Finra’s arbitration panels if they have completed at least one case through to an award as an arbitrator and have finished a special chair training course. Non-lawyers can serve as chairs if they have completed at least three cases through to an award as an arbitrator and have finished a special chair training course.
To assign arbitrators to cases, Finra uses a “neutral list selection system” computer algorithm to randomly generate lists of arbitrators as well as chairs from its arbitrator roster. There must be at least 20 potential chairs in a location to generate a list of potential chairs for an arbitration case to be conducted in that location. If there are not enough chairs in a location to generate that list, the system pulls names of potential chairs from other locations -- specifically, those who have agreed to travel for arbitration cases at Finra’s expense.
Berry says the arbitration parties claim a non-local chair’s need to travel has led to challenges.
“They would say the non-local chairs were more likely to drop off a case – for example, if conflicts develop or if they get sick,” he says. “The parties spend a lot of time researching and ranking arbitrators, so if they drop off, that’s frustrating to them.”
Berry says the availability of local chairs in most of the cities was affected when Finra changed the definition of a public arbitrator.
Under the old rules of Finra’s arbitration and mediation forum, an individual who worked at Merrill Lynch 30 years ago, for example, but hadn’t spent too much time in the industry since then could be a public arbitrator, he says. Under the new rules, that individual could never be a public arbitrator.
“We lost quite a few public arbitrators and public chairs from the roster as a result of that rule change. We think it was the right thing to do but it had that impact. Now we’ve been working to build those numbers up,” he says.
Finra maintains a roster of more than 7,000 arbitrators who are classified as public or non-public. Public arbitrators are not required to have specialized knowledge of the securities industry. Non-public arbitrators have worked in the financial industry, or provide services to financial industry clients or to parties engaged in securities arbitration and litigation. Cases are decided either by three-member arbitrator panels – made up of either all-public or a majority-public arbitrators – or by a sole public arbitrator.
Aside from arbitrator recruitment initiatives, Berry’s priorities for 2018 include improving the process broker-dealers undertake when trying to expunge customer dispute records; crafting proposals to expedite cases involving elderly and extremely ill parties; working to ensure that the discovery process at the watchdog’s arbitration and mediation forum is expeditious; and continuing to enhance the portal used for researching arbitrations and communicating with arbitration parties.