FINRA DRS Posts Stats Through March: Customer Claims Come Roaring Back While Industry Claims Plummet  
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By George H. Friedman, SAA Publisher & Editor-in-Chief

FINRA Dispute Resolution Services (“DRS”) posted case statistics through March with the overall case filing decline unchanged from February, but with a major shift in the underlying details.

In brief, the headlines are: 1) overall arbitration filings through the first quarter – 774 cases –  are down 18%, the same as in February; 2) customer claims are now up 6%; 3) industry disputes are almost halved, down 45%; and 4) for the seventh month in a row, pending cases declined and the backlog is almost gone. Overall arbitration turnaround times were 13.5 months, with hearing cases now taking 17.0 months.

Virtual Arbitration, Mediation and Miscellany

There were just 105 mediation cases in agreement, a 29% decrease. The settlement rate remains high at 80% (it had been 81% in February). There are now 8,283 DRS arbitrators, 3,915 public and 4,368 non-public. Perhaps of greater interest in the current climate, FINRA’s “Virtual Arbitration Hearings” category shows that, since FINRA started cancelling in-person hearings a year ago, 263 cases were conducted with one or more hearings via Zoom (104 customer and 159 industry cases). There were 255 joint motions for virtual hearings (89 customer and 166 industry cases). As reported in SAA 2021-10 (Mar. 18), DRS in March posted two new stats on its Website that allow users to gauge results in hearings conducted by Zoom: Awards on the Merits of the Case with One or More Zoom Evidentiary Hearings and Awards on the Merits of the Case with In-Person Evidentiary Hearings are both listed under the category, Result of Customer Claimant Arbitration Award Cases (Regular Hearing Only.

Pending Cases Backlog is Almost Gone

We had reported earlier that pending cases were growing in the wake of the onset of the pandemic and in-person hearing cancellations. We’ve also reported more recently that parties and counsel appear to have grown more familiar with virtual hearings and that, as a result, the pending cases backlog has been shrinking. As of March, it’s almost gone. As the chart below shows, the last seven months have shown reductions in pending cases, reflecting a 546 case decline from last year’s cumulative high water mark of 5,415 open cases in August, leaving a cumulative increase (Cum Inc) of only 88 since last March.

Month  Open cases Change Cum Inc
Aug 2020

           5,415

353 634
Sep 2020            5,392 -23 611
Oct 2020            5,304 -88 523
Nov 2020            5,205 -99 424
Dec 2020            5,138 -67 357
Jan 2021            5,047 -91 266
Feb 2021

           4,998

-49 217
Mar 2021            4,869 -129 88

Margin Debt Continues to Grow

We said in SAA 2021-13 (Apr. 15): “We’ll be keeping an eye on the ‘Margin Calls’ Controversy Type on FINRA’s monthly report. Through February, there were 20 such cases, up from 7 in 2020.” The March stats show there were 34 cases, up from 8 in 2020. The total margin call cases through the quarter are already half the 68 reported for all of 2020. And total customer margin debt now stands at nearly $823 billion, up another $9 billion from February. Lastly, Reuters on April 26 ran a story, Goldman Sachs Watching Total Margin Loans After Archegos Fund Blowup – Executive, reporting that the bank's President and Chief Operating Officer John Waldron had said the firm was: “monitoring the total amount of loans borrowed on margin after the collapse of investment fund Archegos Capital Management last month .…”

(ed: *The bump in customer claims is certainly worth watching, although we caution that one month does not constitute a trend. **The cratering of industry filings is a sharp contrast to 2020, when they were up a robust 31%. ***Our theory remains that, with the resumption of in-person hearings still remaining an elusive goal, more parties are coming to embrace the virtues of virtual hearings. ****The National Futures Association posted its 1Q stats, which show only 5 cases (4 customer), compared to 49 for all of 2020. *****Our friend Rick Ryder will analyze the AAA’s quarterly stats after they are released.)