FINRA Dispute Resolution Services (“FINRA-DRS” or “DRS”) posted cumulative caseload statistics through June. While there’s still no surge in Customer cases, Industry filings are way up. And pending cases seem to be piling up because of COVID-19 related in-person hearing cancellations.
Let’s start our review of the June 2020 FINRA statistics with a look back to June 2019. At the halfway mark in 2019, FINRA Dispute Resolution Services (“FINRA-DRS” or “DRS”) was reporting, through its monthly online Website postings, 1,801 new cases filed, comprised of 1,112 Customer-related matters and 689 new Intra-Industry claims. FINRA-DRS had closed 2,035 cases and 4,813 remained open. Turnaround times overall were averaging 14.1 months with Regular Hearing Decisions taking three months longer (17.3 mos.). For June 2020, DRS is reporting a total of 1,878 new cases submitted over the first six months, a 4% increase, but things switch around a bit from there, when comparing Y-O-Y figures.
A Tale of Two Caseloads
There are about a hundred fewer Customer cases this year (1,013 vs. 1,112). Intra-Industry matters rose significantly in number (865 vs. 689), so the growth this year originates on the industry side. Customer cases comprise only 54% of the total 1,878 new cases, while Intra-Industry now has a 46% share. FINRA has been closing 13% fewer cases this year (1,778 vs. 2,035), in good part doubtless due to the COVID-19 hearing moratorium. Likewise, the pending docket is growing. In part, that's due directly to the unavailability of live hearings, but that hiatus also means a lack of pressure on parties to negotiate a resolution.
COVID’s Impact: Mediation
In June 2019, DRS reported 1,138 matters settled by direct negotiation; that number in the June 2020 report was 965 -- a 15% fall-off. That 15% difference accounts for virtually all of the gap that we're seeing in close-outs year-to-year. Add to that the fact that, in June 2019, 288 cases were closed by way of Regular Hearings, while only 196 Regular Hearing cases are reported by DRS in 2020's first six months. Interestingly, mediated settlements tally about the same Y-O-Y, with a small difference of 10 (244 vs. 254). As a result, mediated resolutions now occupy a 14% share of the close-out pie -- historically quite high. Keep in mind, too, that these 244 settlements represent only those matters mediated under FINRA auspices that have an arbitration tie-in. FINRA also mediates "straight-in" cases --- disputes that are not the subject of a FINRA arbitration filing.
We suppose that's what FINRA means by "Pre-Arbitration Requests," a category of mediations it began reporting upon statistically in August 2019 (July 2019 Report). Back then, there were 331 "Cases in Agreement" and another 107 matters recorded as "Pre-Arbitration Requests." Those same categories in June 2020 stand at 241 and 83 cases, respectively. Those numbers are down at a time when we might expect that parties would be turning to mediation for assistance, especially in the absence of live hearings. But, consider that live mediations are also on hold, under DRS's administrative postponement. What's a party to do?
Herein, we think, lies an opportunity for FINRA DRS to serve. A cadre of mediators exists whose services are sufficiently in demand that they have not previously needed FINRA-DRS case administration. Technology was not a major factor in their operations; now it is. As more parties adopt virtual mediation and demand efficient, reliable and secure videoconferencing services, it may be that DRS will be reporting greater use of its administrative services by mediators who, in the past, eschewed the DRS umbrella.
(ed: *We've searched in previous report analyses to explain the drop in Customer cases and the sudden rise in Intra-Industry cases. To us, the DRS charts tell it all -- even through omission. Municipal Bond cases are off 70% from last year (98 vs. 331) -- we surmise we're at the tail end of the Puerto Rico chain of Customer cases that has bolstered DRS's case filings for the past six years. The explanation for the Intra-Industry case surge is less subject to demonstrative proof -- FINRA doesn't consider expungement a "controversy" when listing its Top 15 claims, but almost every one of the 15 "Controversy Types" on DRS's chart is stable or contributing little to the surge. So, where's the beef? It has to be expungements! We can see it on the Awards side, where expungement Awards, at this point in the moratorium, constitute a majority of the Awards issuing from FINRA. **As we’ve said before, while there is no sustained pandemic-induced surge yet in customer claims, we will keep our eye on the customer case filings. Such claims usually take a while to develop; if past is prologue, customer cases will surge in the fall.)