By Courtney Werning, Dave Neuman, Jorge Riera, and Michael Edmiston
Industry-sponsored arbitration has long been the only option for investors who have claims against their financial advisors and brokerage firms. When an investor opens a brokerage account, in almost all cases he or she must sign away their right to a day in court should a dispute arise. For investors doing business at a FINRA-member brokerage firm, that means arbitration sponsored by the securities industry.
Investor protection advocates have long argued that the arbitration system should be reformed to eliminate investors’ obligations to take their claims to an industry-related forum. In 2002, the Securities Industry Conference on Arbitration (“SICA”) piloted an experimental program giving investors the alternative choice to use non-SRO-sponsored arbitration forums. Twenty years later, we look back over the difficult lessons learned by SICA’s failed experiment to address the unfairness (perceived or actual) of investors forced to take their disputes to a forum run by the securities industry.
The History of Arbitration as the Primary Dispute Resolution Process for Securities Disputes
For many decades, investors had the option of pursuing claims against brokers or brokerage firms through either litigation or arbitration. While investors typically had a choice, the securities industry used alternative dispute resolution even in its early days. In 1817, the New York Stock Exchange (“NYSE”) accepted jurisdiction to hear the arbitration of customer disputes. It is thought by some that arbitration grew in the securities industry specifically because quick resolutions of disputes whose value changed rapidly as stock markets rose or fell was necessary. In 1869, the NYSE amended its Constitution to officially require members of the NYSE to submit to arbitration whenever requested by a nonmember, and by the end of the nineteenth century, arbitration use to resolve investor disputes was extensive.
In 1925, Congress passed the Federal Arbitration Act (“FAA”), which made pre-dispute arbitration clauses in customer agreements valid and enforceable. This reflected the federal policy heavily in favor of arbitration as an alternative dispute resolution process to alleviate the growing burden on court dockets. Over time, self-regulatory organizations (“SROs”) like the American Stock Exchange and the Chicago Board Options Exchange built up their arbitration forums and established procedural rules. In the 1970s the Securities and Exchange Commission (“SEC”) helped form the Securities Industry Conference on Arbitration (“SICA”) to develop uniform arbitration rules. The National Association of Securities Dealers (“NASD”) adopted its first arbitration procedure code in 1968. At this time, brokerage firm customers were still able to go to court if their dispute arose under federal securities laws.
In 1987, the U.S. Supreme Court determined in Shearson/American Express v. McMahon, 482 U.S. 220, that brokerage firms could compel customers to agree to arbitrate claims in an industry-sponsored forum as a condition of opening a brokerage account. In such agreements, customers would forfeit their right to pursue individual claims in court. This overturned the long-standing precedent that federal securities claims belonged in court (concluding then that arbitrators were competent to apply the complex federal law).
Since the Supreme Court ruling, the use of mandatory arbitration agreements has become so widespread that it is thought to be a foregone conclusion and has effectively eliminated investor choice regarding the forum of resolving their disputes. Indeed, the current rules of the Financial Industry Regulatory Authority (“FINRA”) permit broker-dealers to include mandatory pre-dispute arbitration provisions in their customer account agreements, as long as FINRA is one of the named arbitration forums, and virtually all FINRA members have done so.
SRO Arbitration Evolution
Over the years FINRA, and its predecessor NASD, have made numerous amendments to its arbitration rules to foster investor confidence in the integrity of the arbitration process, although doubts persist because of its compulsory nature. The arbitrator selection process, arbitrator classification of “public” and “non-public” arbitrators, arbitration panels, and diversity of arbitrator pools at hearing locations are crucial components in creating a system that is in fact fair and that investors perceive to be fair. While the current SRO arbitration rules address these components, FINRA has not resolved lingering concerns about the role of arbitrators in the arbitration process and perception that arbitrators tend to possess pro-industry biases.
Pre-McMahon, the NASD arbitration staff selected the panel of arbitrators from the pool of qualified arbitrators. When the amount of the claim did not exceed $500,000, the panel generally consisted of three arbitrators, with a majority public panel consisting of two public arbitrators (not affiliated with the securities industry) and one non-public arbitrator (affiliated with the securities industry). When the amount of the claim was equal to or more than $500,000, the panel consisted of five arbitrators, with a majority public panel consisting of three public arbitrators and two non-public arbitrators. Each party had the right to one preemptory challenge. All arbitrators were required to be neutral, meaning they did not have an affiliation or bias towards either party.
In the aftermath of McMahon, it became increasingly important that the SRO forums provide fair arbitration proceedings to strengthen investor confidence. In September 1987, the SEC, as part of its oversight of the SROs, sent a letter to SICA members and each of the SROs (including the NASD) with recommended changes to the arbitration procedures. While the SEC endorsed the continued use of mixed public/industry panels, it indicated that “[t]he absence of clear guidelines for qualifying public arbitrators … and the inclusion in the pool of public arbitrators of persons with clear affiliations with the securities industry is a source of great concern.” The SEC also recommended narrowing the definition of public arbitrator to include only individuals “who are not so connected with the industry that it may hinder their ability to make independent judgments with respect to specific industry practices.”
SICA and the SROs developed rule proposals responsive to the SEC’s recommendations, including making standards for classifying public arbitrators more stringent, because of concerns about the impartiality of arbitrators with industry ties. In 1989, the SEC reviewed the procedural fairness of the SROs’ proposed arbitration rules and approved them, while signaling that it awaited further changes, noting that SICA was considering making recommendations regarding the training of arbitrators, and evaluation of arbitrators’ performance, among other things.
The next impetus for reform was the NASD appointment in 1994 of an Arbitration Policy Task Force, chaired by former SEC Chairman David S. Ruder, to evaluate the securities arbitration process and make recommendations. The Task Force’s 1996 Report, known as the Ruder Report, contained more than 70 recommendations and served as the basis for substantial changes intended to enhance the fairness of the arbitration system, particularly with respect to the selection of arbitrators, quality of arbitrators and arbitrator training. For example, in 1998, NASD significantly altered its system for selecting arbitration panels when it adopted the computerized Neutral List Selection System (the “NLSS”). The new rules provided a list selection process that gives the parties a greater role in choosing who will decide their cases. Under NLSS, the parties are given power to strike names, to rank the arbitrators, and to challenge for cause. NLSS was based on the recommendations in the Ruder Report and was intended to address public perceptions of fairness by giving all parties greater participation in selecting the arbitration panels that would hear their case. The Task Force noted that for the selection process to be effective, the parties must be provided adequate arbitrator disclosure information in order to make informed judgments in selecting arbitrators.
In July 2002, the SEC retained Michael Perino, Associate Professor at St. John’s University School of Law, to assess the adequacy of the SROs arbitrator disclosure requirements, and to evaluate the impact of the California Ethics Standards on the current conflict disclosure rules of the SROs. Professor Perino’s report (“Perino Report”) concluded that undisclosed conflicts of interest did not represent a significant problem in SRO arbitrations. However, the Perino Report recommended several amendments to SRO arbitrator classification and disclosure rules that might “provide additional assurance to investors that arbitrations are in fact neutral and fair.” Responding to the Perino Report, the NASD submitted a rule change to the SEC seeking revisions: (i) to emphasize that arbitrator conflict disclosures are mandatory; (ii) provide greater transparency with respect to challenges for cause by including the cause standard; and (iii) narrowing its definitions of “public arbitrator” and “non-public arbitrator.”
Following the Ruder Report, the NASD reviewed and analyzed its more than 70 recommendations. In a 2007 Report Card assessing the post-Ruder Report reforms, the NASD stated that it had implemented “nearly every key recommendation” of the Report. NASD reiterated its objectives in reforming the arbitration process “to preserve and respect the basic elements of a fair and efficient dispute resolution system, while responding to the changing needs of our customers by embracing the modifications needed to enhance the system.” Nevertheless, the NASD did not mention investor protection as one of its objectives.
In July 2008, FINRA announced the launch of a two-year pilot program to evaluate whether the selection of an all public arbitration panel “is a better way to serve and protect the interests of investors.” The voluntary Public Arbitrator Pilot Program allowed investors in cases with a participating firm to choose a panel consisting of three public arbitrators, instead of two public arbitrators and one non-public arbitrator. In January 2011, the SEC approved a FINRA rule change to provide all investors filing arbitration claims the option of selecting to have their case heard by an all-public panel, thereby increasing investor choice in the FINRA arbitration program. FINRA believed that providing investors the ability to choose to exclude a non-public arbitrator from the panel deciding their case would enhance their perception of the fairness of FINRA’s arbitration process.
In June 2014, FINRA established the FINRA Dispute Resolution Task Force (“Task Force”) to recommend improvements to its dispute resolution systems, including “the transparency, impartiality and efficiency of FINRA's securities arbitration forum for all participants.” The Task Force focused its attention on arbitration disputes that arise in connection with the business activities between customers and broker-dealers and associated persons. After concluding its review of FINRA’s dispute resolution forum as it relates to customers’ disputes, the Task Force issued its Final Report, making 51 recommendations to improve the system. The Task Force unanimously agreed that the most important investment needed to meet the evolving needs of parties of the FINRA arbitration forum is in the arbitrators.
Expanding the pool of qualified arbitrators was identified by the Task Force as a perennial issue for the FINRA forum; as noted in the Ruder Report, the NASD faced “a serious challenge in recruiting qualified arbitrators.” In addition, the revision of the definition of public arbitrator, combined with the optional selection of an all public panel, made the need for recruiting additional public arbitrators more acute. The task force also noted concerns about the lack of diversity in the FINRA arbitrator pools and agreed that diversity must be increased. In response to meetings with the FINRA staff to discuss outreach efforts, FINRA established recruitment initiatives strongly focused on recruiting individuals from diverse backgrounds and across different industries to serve as arbitrators. In its Final Report, the Task Force recommended that FINRA continue efforts to develop effective strategies to recruit aggressively applicants for the arbitrator pool, with a view to increasing both the depth and the diversity of the pool, and to ensure its recruitment materials conveyed a message of inclusiveness.
Despite FINRA’s commitment to recruit new arbitrators with a particular focus on adding arbitrators from diverse backgrounds, professions, and geographical locations, FINRA recognizes that it needs to make more progress toward achieving its diversity goals. To provide transparency about the makeup of its arbitrator pool, FINRA shares the results of its voluntary annual survey, including information on the race, ethnicity, gender, age, and LGBTQ identity of its arbitrators, on its website. Nevertheless, FINRA lacks transparency concerning the diversity of the arbitrator pool associated with each hearing location. For example, FINRA’s current reporting only provides the number of arbitrators by hearing location; it does not provide demographic information, making it difficult to determine if FINRA’s diversity recruitment efforts have been successful in any hearing location. FINRA should provide information concerning the diversity of the arbitrator pool associated with each hearing location to evaluate the progress of FINRA’s diversity recruitment measures and assess the fairness of its forum to investors.
Concept of Non-SRO Arbitration in the Securities Industry is Born
The mandatory nature of SRO securities arbitration continues to engender controversy about its fairness. In 2015, the Task Force noted that despite all of FINRA’s reforms to its arbitration process, FINRA’s lack of transparency makes it difficult to assess the fairness of the forum. Prohibiting mandatory arbitration would promote investor confidence by allowing investors a choice of forums to pursue remedies and would improve transparency. Proponents of investor choice feel strongly that requiring investors to use the FINRA arbitration forum is unfair.
As far back as 1987, the SEC encouraged broker-dealers to include in their arbitration clauses the option of using AAA arbitration as well as SRO arbitration forums.” In 1988, the SEC’s Division of Market Regulations proposed that the SEC prohibit broker-dealers from requiring customers to sign pre-dispute arbitration agreements and that the creation of an alternative forum would provide SROs an incentive to ensure that their arbitration forums remain fair and efficient, and increase the perception of fairness and investor confidence. In fact, the SEC mandated in 1989 that the securities industry could no longer preclude access of investors to their choice of SRO forums. The SEC was clear that the SRO “rules are intended to effectuate an underlying policy of allowing the customer to choose the most appropriate forum for resolution of [their] claim.” However, commencing in 1991, most broker-dealers required investors to agree to resolve their disputes through SRO-sponsored arbitration as a condition of opening an account. According to the AAA, its securities-related caseload declined significantly because broker-dealers required investors to use SRO-sponsored arbitration forums.
In 1998, SICA appointed a subcommittee to explore ways in which investors might have alternatives to the present system of SRO-sponsored arbitration. SICA’s action coincided with a proposal by PIABA to the SEC requiring the NASD to provide investors the choice of arbitrating disputes before the AAA as an alternative forum. After considering several alternatives, including the possibility of some form of opt-out to court, the SICA subcommittee determined that the most encouraging alternative was the choice of non-SRO-sponsored arbitration. In January 2000, SICA initiated a two-year Pilot Program to provide investors the choice of having their dispute heard at a non-SRO arbitration forum designated by the participating brokerage firms. The two non-SRO forums in the Pilot Program were the AAA and JAMS. In 2002, SICA concluded the pilot program and reported that only eight cases were submitted to a non-SRO forum of the 277 cases eligible to participate in the pilot program. Based upon responses to a survey of investors, SICA reported that “…higher costs, more familiarity with the SRO forums, and possible additional delays were the main reasons claimants did not choose the non-SRO forums.”
To facilitate the use of arbitration dispute programs offered by non-SROs, the NASD proposed to amend its arbitration rules. Specifically, the NASD wanted to ensure that it could take disciplinary action if a brokerage firm failed to pay an award obtained pursuant to disputes decided under the securities rules of the non-SRO dispute resolution forum. Therefore, the NASD approved an amendment to IM-10100, Interpretive Material, adding language clarifying that failure to comply with awards issued by any dispute resolution forum selected by the parties could be grounds for disciplinary action. In May 1999, the amendment to IM-10100 became effective.”
Growth of the Investment Advisory Industry
The number of FINRA registered representatives has been slowly decreasing over the last several years, while the number of investment advisers (“IAs”) has been increasing. FINRA statistics demonstrate that there were 639,442 registered representatives in 2015 but the number has been decreasing every year since; and as of 2021, there were 612,457 representatives. Similarly, the number of broker-dealers decreased every year since 2015 – falling from 3,943 broker-dealers in 2015 to 3,394 in 2021.
Meanwhile, the number of IAs registered with the SEC has increased each year since 2015 – from 11,847 in 2015 to 14,806 in 2021. The number of clients who utilized the services of an investment advisory firm increased 6.4% during 2021, reaching a record high of 64.7 million clients.
This trend has held consistently over the last decade. The number of FINRA broker-dealers decreased at least 2.3% each year between 2015 and 2020, and decreased 1.2% from 2020 to 2021. The number of investment advisers has increased at least 2.7% each year during the same timeframe, between 2015 and 2020, and between 2020 and 2021 grew 6.7%. The growing number of IAs, along with the declining number of FINRA broker-dealers and representatives, is important to the resolution of investor disputes, as the IAs’ desire to arbitrate remains strong, but the investor-disputant rules from FINRA are not being brought into the RIA arbitration arena.
Problems with Non-SRO Arbitration Forums
FINRA rules require broker-dealers to have certain language in their pre-dispute arbitration clauses and prohibit the use of inconvenient forum selection clauses, inappropriate choice-of-law clauses, and hedge clauses seeking to limit liability. This results in near uniformity in arbitration clauses amongst brokerage firms. The same uniformity is lacking in the IA space. While some IAs do not have arbitration clauses (meaning disputes are typically resolved in court), there is great variation as to the language and forums implicated in such clauses among those that do have them.
When IAs use arbitration clauses in their investment advisory agreements, frequently named arbitration providers are AAA and JAMS. Non-SRO forums like JAMS, AAA, ADR Services, and others are often far more expensive than SRO forums like FINRA. If a claim is subject to the AAA Commercial Rules or a JAMS case that is not administered in the JAMS Consumer Rules, the claimant has to pay a filing fee, as well as half of the hourly fees that the arbitrator or arbitrators charge, and the claimant’s share of fees totals several thousand dollars per day. Even in a single arbitrator case, the claimant may have to pay $50,000 or more in forum and arbitrator fees alone just for their claim to be heard. A failure to pay the forum or arbitrator fees can result in the case being suspended or prevent a party from presenting evidence until such fees are paid. Such staggering costs for an arbitration renders a small or even midsize claim incapable of being economically brought and amounts to an inability to access justice.
Moreover, some advisory agreements also contain venue clauses that are not fair for an investor claimant. As an example, an advisory firm who uses a Cincinnati, Ohio venue clause would force a California resident client to arbitrate their claim three-quarters of the way across the country. While FINRA Rules provide that the arbitration hearing will be the hearing location closest to the investor’s residence at the time the dispute arose, AAA and JAMS generally enforce venue clauses that may be far from a customer’s residence, which can be a significant impediment to investors proceeding.
Likewise, JAMS has 28 locations throughout North America, but 11 of those locations are located in California. Many states are without a local JAMS office to hear local disputes. An investor claimant from Utah would have to travel to Denver or Las Vegas for a hearing, while an investor from Louisiana would have to travel to St. Louis or Houston for a hearing. Alternatively, an investor Claimant would have to pay at least some of the arbitrator’s travel expense to come to the investor’s location. This is unlike FINRA, which has arbitration hearing locations in every state. While the increased use of virtual platforms like Zoom can help alleviate some travel hardships, an investor or attorney who prefers an in-person hearing may have to travel far when suing an IA.
Transparency of arbitration awards involving IAs is non-existent. There is no one centralized database anywhere tracking the results of customer arbitrations with IAs. Non-SRO forums generally have rules preserving the confidentiality of the awards. In California, some limited information about consumer arbitration awards is required to be made public by the ADR provider.  However, that information is fragmented by provider and each provider’s rules determining whether a specific type of case is treated as a consumer arbitration differ. As an example, ADR Services publishes its consumer arbitration data on its website. The consumers and their attorneys who are aware of the database of awards are not able to determine whether all cases against the IA were classified as a consumer arbitration, and whether an IA paid an arbitration award. Similarly, where JAMS expressly does not treat disputes with IAs as consumer arbitrations, it discloses no information about such awards.
In addition, statistics have shown that arbitration forums tend to favor “repeat players” – companies who appear more than once (or often) in an arbitration forum. A 2019 study from the University of California-Davis analyzed consumer arbitration award data from a number of sources, including AAA, JAMS, and ADR Services. After analyzing these awards, the professors found that “the probability of a plaintiff win declines in AAA consumer cases against high-level repeaters, AAA employment matters against high-level and super repeaters, JAMS tort cases against high-level repeaters, and ADR Services tort arbitrations against high-level repeaters.”
Finally, the fact that the non-SRO arbitration forums are completely independent from any regulator creates an issue with unpaid awards. FINRA, which runs its own arbitration forum and also separately regulates the brokerage industry, will suspend the license of a broker or broker-dealer for failing to pay a FINRA arbitration award. There is no similar mechanism by the SEC to bar IAs who fail to pay a non-SRO arbitration award. NASAA recently adopted a model rule which bars broker-dealers and IAs for failing to pay any arbitration award or judgment. The NASAA model rule has no effect until a state enacts such legislation, meaning there will be no uniformity on a state-by-state basis.
Continuing Problems with the Fairness of SRO-Run Arbitration Forums
While SRO-run arbitration forums like FINRA have made some ground in creating a fairer forum, there are still issues that persist with these forums. The problem of favoring “repeat players” also holds true in SRO-run forums like FINRA. There are FINRA arbitrators who make a living being full-time arbitrators. Those arbitrators may be reluctant to find in favor of investor claimants, especially in larger cases, as the arbitrators realize that they may not get chosen in the future by the repeat players – the brokerage firms.
Moreover, there are still a significant number of arbitration awards that go unpaid every year in FINRA. The General Accountability Office (“GAO”) recognized this problem in 2001, when it found that 49% of NASD awards went unpaid. More recent studies of awards have revealed that nearly 30% of all FINRA awards in an investor’s favor in 2020 went unpaid. Despite knowing this for decades, FINRA has not been able to resolve this serious problem.
The unfairness (either real or perceived) of presenting a case to a panel of FINRA arbitrators that have been recruited, selected, and trained by the securities SRO can be compared to trying a medical malpractice case to a jury of doctors. Is it a fair process? Would anyone suggest this approach in another industry? As Massachusetts Commonwealth Secretary William Galvin poignantly said in an address to Congress in 2005:
For instance, would anyone here seriously suggest that in all future disputes between automobile manufacturers and their customers relating to defects, that those who purchase an automobile can only bring their complaints and claims before a panel selected by GM, Ford or Chrysler? I do not think so. Are not the financial futures of our citizens entitled to at least as much protection as their cars?
Possible Solutions to Perceived or Real Arbitral Unfairness
The mandatory nature of securities arbitration lends itself to the question of “why shouldn’t investors be allowed to choose arbitration or court?” In some instances, parties may feel that a jury trial in court is their best option. In others, arbitration makes the most sense - whether in an SRO or private forum. So why allow firms to force their customers into mandatory arbitration?
In 2021, Sen. Jeff Merkley, D-Ore., and Rep. Bill Foster, D-Ill., offered bills in their respective chambers, the Investor Choice Act of 2021, that would ban pre-dispute mandatory arbitration agreements in brokerage and investment advisory customer agreements. This proposed legislation cleared committee approval but has yet to go to the floor for debate, and its future is uncertain. The Investor Choice Act of 2021 is similar to other proposed legislation that has been introduced over the last decade but stalled.
Proponents of the Investor Choice Act argue that with the competition that comes from freedom of choice, it will require FINRA Dispute Resolution and the non-SRO arbitration providers to become more transparent, fairer, and less costly in order to attract the cases. This laissez-faire approach allows investors to decide for themselves what is most important to them.
Another solution to the access to justice issue presented by the high costs of commercial dispute resolution providers is the creation of another arbitration forum administered by the state securities regulators and the SEC. Without the need to reinvent the wheel, NASAA and/or the SEC could largely model the forum on FINRA’s dispute resolution program. That leads to a number of questions, including funding, rulemaking, and administration. However, such a program runs into the same perceived fairness problems as any forced arbitration forum.
Currently, FINRA Dispute Resolution accepts investment adviser disputes on a voluntary basis, where the RIA signs a post-dispute agreement to arbitrate and one or more of the parties agrees to pay the surcharge and processing fees that subsidize the costs of each arbitration. The availability of the forum naturally suggests that FINRA could be given a charge by regulators to either incorporate RIA arbitration into its existing arbitration program or operate a separate RIA investor arbitration forum with the same or similar rules and procedures it currently has for broker-dealer arbitration. When compared to private dispute resolution forums, FINRA arbitration offers certain benefits, including the certainty that the parties will have a say in arbitrator selection, and the facts that arbitrator fees and costs are minimized compared to private providers, awards are made publicly available, and data from the cases is reported on a regular basis. However, when FINRA made an effort to expand its arbitration forum to RIAs in 2012, it was met with fierce opposition from the RIA industry. The main concern was that FINRA was seeking to expand into the regulation of RIAs.
Although superficially appealing, imposing FINRA arbitration on RIAs is an approach fraught with issues. The most obvious is that the RIA industry does not want FINRA as its regulator. Any requirement to become involved with FINRA will meet stiff resistance. Related to the unwanted regulator argument, FINRA has no authority over RIAs, and thus cannot impose restrictions on the use of hedge clauses or similar harmful practices, and most importantly, has no authority to impose penalties on RIAs that do not pay arbitration awards. Another issue is at the state level; each state will have to agree to legislate participation in a FINRA-run arbitration program, which will likely lead to fragmented participation particularly if a state is concerned it may risk losing its ability to regulate RIAs by letting FINRA become involved in any aspect of RIA regulation. Lastly, someone will need to ask FINRA what it might like. While FINRA might be an option on the table, it is not one any stakeholder is currently requesting.
One last solution is rulemaking by the SEC and state regulators to impose strict limitations on non-SRO arbitration as an obligation of an RIA’s fiduciary duty owed to its clients. The most immediate issue is cost. An SEC rulemaking requiring RIAs to subsidize most or all of the cost of the arbitration, similar to what is happening in the employment and consumer arbitration fields, would remove the largest barrier to justice. The next rules would be ones to prohibit the use of choice-of-law clauses, unfair hearing location selections, and aggressively barring the use of hedge clauses and liability limitation clauses.
 Courtney Werning is a partner with Meyer Wilson in Columbus, Ohio. She has been representing investors in claims against investment advisers and brokerage firms for the last 10 years and runs her firm’s investor claims practice group. She is joining the PIABA Board of Directors for its 2022-23 year. David Neuman is a partner with Israels & Neuman in Seattle. He focuses his practice on representing investors in arbitration, is a PIABA Board Member and serves as its Secretary. Jorge Riera is a former Senior Counsel for the SEC. He served in the SEC’s Division of Enforcement for 10 years before founding Riera Law Firm and now focuses his practice on representing investors with claims against brokerage firms and investment advisers. He currently serves as Co-Chair of PIABA’s Arbitration Committee. Michael Edmiston is an attorney with the Law Offices of Jonathan W. Evans & Associates in Studio City, California. His practice focuses on representing investors in claims against broker-dealers, Registered Investment Advisors, and insurance companies. He is the immediate past President of PIABA. A big “thank you” goes to PIABA members Elliot Rosenberger and Makoa Kawabata for serving as Bluebook editors for this article.
 Rule 17, Transcript of Constitution of the New York Stock & Exchange Board (Feb. 25, 1817).
 Jill Gross, The Historical Basis of Securities Arbitration as an Investor Protection Mechanism, 2016 J. Disp. Resol. 171, 176-77. http://digitalcommons.pace.edu/lawfaculty/1024/.
 Id. at 179.
 Arbitration Act, Pub. L. No. 68-401, 43 Stat. 883 (codified as amended at 9 U.S.C. §§ 1-16 (2012)).
 Margaret M. Harding, The Cause and Effect of the Eligibility Rule in Securities Arbitration: The Further Aggravation of Unequal Bargaining Power, 46 DePaul L. Rev. 109, 181 n.30 (1996).
 Wilko v. Swan, 346 U.S. 427 (1953) (holding claims arising under the Securities Act of 1933 are not arbitrable).
 See NASD, Code of Arbitration Procedure §§ 4, 20.
 Id. § 19(a).
 Id. § 19(b).
 Id. § 22.
 Self-Regulatory Organizations; Order Approving Proposed Rule Changes by the New York Stock Exchange, Inc., National Association of Securities Dealers, Inc., and the American Stock Exchange, Inc. Relating to the Arbitration Process and the Use of Predispute Arbitration Clauses, Exch. Act Rel. 34-26805, 54 Fed. Reg. 21144, 21146 (May 16, 1989).
 Id. (SICA was comprised of representatives from each SRO, as well as representatives of PIABA, academia, and the SIA, now SIFMA).
 National Association of Securities Dealers, Inc., Securities Arbitration Reform: Report of the Arbitration Policy Task Force to the Board of Governors National Association of Securities Dealers, Inc. (Jan. 1996) [hereinafter, the “Ruder Report”].
 Id. at 11.
 See Notice to Members 98-90: New Arbitrator List Selection Rules And Monetary Thresholds For Simplified And Single Arbitration Cases Take Effect, NASD, https://www.finra.org/rules-guidance/notices/98-90 (last visited Oct. 5, 2022).
 See Ruder Report, supra note 11.
 Id. (The Ruder Report noted that “[p]articipants are concerned that the arbitrator selection process reflects staff bias and prejudgment” and “had limited input on the choice of arbitrators.”)
 Michael A. Perino, Report to the Securities and Exchange Commission Regarding Arbitrator Conflict Disclosure Requirements in NASD and NYSE Arbitrations, 2 (Nov. 4, 2002).
 Id. at 3.
 Id. at 4.
 Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to Arbitrator Classification and Disclosure in NASD Arbitration, SEC Release No. 34-48347 (Aug. 14, 2003).
 NASD Dispute Resolution, The Arbitration Policy Task Force Report–A Report Card at 6 (July 27, 2007) (noting that “in several areas the path to implementation and the final outcome may be different than the [Ruder Report] recommended or envisioned.”).
 Id. at 27.
 FINRA was created through the consolidation of NASD and the member regulation, enforcement and arbitration operations of the New York Stock Exchange. The consolidation was announced on Nov. 28, 2006, approved by the SEC on July 26, 2007, and became effective on July 30, 2007. NASD and NYSE Member Regulation Combine to Form the Financial Industry Regulatory Authority – FINRA, FINRA, https://www.finra.org/media-center/news-releases/2007/nasd-and-nyse-member-regulation-combine-form-financial-industry (last visited Oct. 5, 2022). Following the creation of FINRA, FINRA established a process to develop a new consolidated rulebook, which is outlined in Information Notice, March 12, 2008 (Rulebook Consolidation Process), available at https://www.finra.org/sites/default/files/NoticeDocument/p038121.pdf. The current FINRA rulebook consists of (1) FINRA Rules; (2) NASD Rules; and (3) rules incorporated from NYSE.
 FINRA to Launch Pilot Program to Evaluate All-Public Arbitration Panels, FINRA, https://www.finra.org/media-center/news-releases/2008/finra-launch-pilot-program-evaluate-all-public-arbitration-panels (last visited Oct. 5, 2022).
 FINRA Regulatory Notice 11-05, Customer Option to Choose an All Public Arbitration Panel in All Cases (effective Feb. 1, 2011), https://www.finra.org/rules-guidance/notices/11-05 (last visited Oct. 5, 2022).
 See FINRA Announces Arbitration Task Force, FINRA, https://www.finra.org/newsroom/2014/finra-announces-arbitration-task-force (last visited Oct. 5, 2022).
 Final Report and Recommendations of the FINRA Dispute Resolution Task Force, FINRA, available at https://www.finra.org/sites/default/files/Final-DR-task-force-report.pdf (last visited Oct. 5, 2022) [hereinafter, “Task Force Final Report”].
 Id. at 5.
 Id. at 8.
 Id. at 9.
 See Our Commitment to Achieving Arbitrator and Mediator Diversity, FINRA,
https://www.finra.org/arbitration-mediation/our-commitment-achieving-arbitrator-andmediator-diversity-finra (last visited Oct. 5, 2022) (reporting national arbitrator pool diversity statistics).
 See Nicole G. Iannarone, Structural Barriers to Inclusion in the Securities Arbitrator Pools, 96 Wash. L. Rev. 1389 (2021).
 Id. at 1445-46.
 Id. at 1446.
 Task Force Final Report, supra note 38, at 44.
 Id. at 46.
 Id. at 47.
 Letter from Richard G. Ketchum (Director of Market Regulation Division, Securities Exchange Commission) to all Securities Industry Conference on Arbitration (SICA) members (Sept. 10, 1987) at 11.
 Securities and Exchange Commission, Office of the Inspector General, “Oversight of Self-Regulatory Organization Arbitration” at 5 (Aug. 24, 1999), available at https://www.sec.gov/about/oig/audit/289fin.pdf.
 Letter from Securities Industry Conference on Arbitration to SEC Chairman Christopher Cox, “The Public’s Concerns about the Newly Combined NASD/NYSE Arbitration Forum and SICA’s Mandate” (Jan. 12, 2007), available at https://www.sec.gov/comments/sr-nasd-2007-023/nasd2007023-10.pdf.
 U.S. General Accounting Office, Securities Arbitration: Actions Needed to Address Problem of Unpaid Awards at 30 (June 15, 2000), available at https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-00-115/html/GAOREPORTS-GGD-00-115.htm.
 Securities Industry Conference on Arbitration, Final Report, Pilot Program for Non-SRO Sponsored Arbitration Alternatives (Aug. 1, 2005), available at https://www.lgesquire.com/SICA_Pilot_Report.pdf.
 See Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to the Use of Non-SRO Arbitration Forums, Securities Exchange Act Release No. 41339 (Apr. 28, 1999) 64 Fed. Reg. 23887, 23888 (May 4, 1999) available at https://www.govinfo.gov/content/pkg/FR-1999-05-04/html/99-11144.htm.
 Id. at 23889.
 Id. at 23887.
 See FINRA, Statistics, available at https://www.finra.org/media-center/statistics#more (last visited Aug. 17, 2022).
 See Statista, Total number of investment advisors registered at the U.S. Security and Exchange Commission (SEC) from 2000 to 2021 (Jun. 2022) available at https://www.statista.com/statistics/1251310/total-number-of-sec-registered-investment-advisors/ (last visited Aug. 17, 2022).
 See Investment Advisor Association and National Regulatory Services, Investment Adviser Industry Snapshot 2022 (2022) at 25, available at https://investmentadviser.org/wp-content/uploads/2022/06/Snapshot2022.pdf.
 Id. at 20.
 See FINRA Rule 2268.
 See JAMS Rule 31(a) and (b), and AAA Commercial Rule R-57(e) and (f).
 See FINRA Rule 12213(a)(1).
 See AAA Commercial Rule R-11(b) (providing that when an arbitration agreement requires a specific locale, absent a parties’ agreement to change it or a determination by the arbitration to use a different locale, the locale shall be that specified in the arbitration agreement).
 See JAMS, JAMS Locations, available at https://www.jamsadr.com/locations/ (last visited Aug. 17, 2022).
 FINRA, Dispute Resolution Services Regional Offices and Hearing Locations, available at https://www.finra.org/arbitration-mediation/dispute-resolution-regional-offices-and-hearing-locations (last visited Aug. 15, 2022).
 See Cal. Code Civ. Proc. § 1281.96 (2019).
 See ADR Servs, Inc., Consumer Case Information, available at https://www.adrservices.com/services/consumer-case-information/ (last visited Aug. 17, 2022).
 See JAMS, Consumer Arbitration Minimum Standards, fn. 1, available at https://www.jamsadr.com/consumer-minimum-standards/ (last visited Sept. 18, 2022).
 See Andrea Cann Chandrasekher & David Horton, Arbitration Nation: Data from Four Providers, 107 Cal. L. Rev. 1 (Feb. 2019).
 Id. at 58.
 See FINRA Rule 9554.
 See North American Securities Administrators Association, NASAA Members Adopt Model Rule Addressing Unpaid Customer Arbitration Awards and Judgment (May 20, 2022) available at https://www.nasaa.org/63563/nasaa-members-adopt-model-rule-addressing-unpaid-customer-arbitration-awards-and-judgments/ (last visited Aug. 17, 2022).
 See Hugh Berkson & David P. Meyer, FINRA Arbitration’s Persistent Unpaid Award Problem: PIABA’s Third Report Concerning FINRA’s Refusal to Tackle the Unpaid Arbitration Award Problem Head-On (Sep. 29, 2021) available at https://piaba.org/piaba-newsroom/piaba-report-finra-arbitrations-persistent-unpaid-award-problem-september-29-2021.
 The Securities Arbitration System: Hearing Before the Subcomm. on Capital Markets, Insurance and Government Sponsored Enterprises of the H. Comm. on Fin. Servs., 109th Cong. 13-14 (Mar. 17, 2005) available at https://www.govinfo.gov/content/pkg/CHRG-109hhrg24398/pdf/CHRG-109hhrg24398.pdf.
 Investor Choice Act of 2021, 117 Bill Tracking S. 1171; Investor Choice Act of 2021, 117 Bill Tracking H. R. 2620.
 See Suzanne Barlyn, FINRA Steps Up to Arbitrate Investment Adviser Disputes, Reuters (Nov. 12, 2012) https://www.reuters.com/article/us-finra-arbitration/finra-steps-up-to-arbitrate-investment-adviser-disputes-idUSBRE8A113J20121102 (last visited Oct. 20, 2022).