“FINRA Listens … and Speaks,” an Evening Forum on FINRA Arbitration Hosted by NY County Lawyers Association, Took Place Feb. 12: Here’s Our Roundup
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This annual program, now in its 20th year, runs only a couple of hours, but it has a perspective that’s unique and often helpful in uncovering useful practice tips.

The moderator, Martin Feinberg, comes to the podium with an arbitrator’s perspective, while Katherine Bayer, Director of FINRA-Dispute Resolution’s Northeast Region, approaches the subject matter and her presentation from an administrative bent. Together, they are wont to focus on the details, mechanics and procedural side of the arbitration process. In that dialogue are often nuggets of value to the veteran practitioner, even if much of the material seems otherwise familiar.

The FINRA arbitrators in the audience are quite naturally interested, among other things, in compensation and, there, FINRA has been working on improvements. FINRA Rule 12214(a) currently provides arbitrator compensation of $600 for each arbitrator, “if a hearing session other than a prehearing conference is postponed within 10 days before a scheduled hearing session….” (emphasis added). In 2017, FINRA’s Board of Governors moved to compensate arbitrators for late cancellation of prehearing conferences and FINRA received SEC approval in July 2018 to charge a $100 per-arbitrator fee for late (3 business days) cancellation of a prehearing conference (RN 18-33). That charge will pass through to the arbitration panel, Ms. Bayer reported, starting with cases filed on or after October 29, 2018.

Additionally, FINRA recently made effective (1/7/19) another fee hike, approved by the SEC in October, that will permit a $200 payment to each arbitrator deciding a contested subpoena, OPD or order of appearance request, outside the context of a hearing session (RN 18-40). Ms. Bayer mentioned, in connection with these fee enhancements, a final review and report published by FINRA on January 15, 2019 on its progress in implementing the recommendations of its Dispute Resolution Task Force. The reference stimulated one Public Arbitrator to object to the FINRA report’s characterization of these fee changes as “an alternative approach” to the robust DRTF recommendation to raise honoraria to $1,000 a day.

The DRTF did recommend an intermediate solution to the problem of “paper” cases and FINRA did deliver. Because it is now in effect and remains relatively untested, the Special Proceedings change to the Simplified Arbitration Rules (customer disputes of $50K or less) occupied the audience’s attention and much of the forum’s time. Ms. Bayer began with a count of 15 as the number of cases in which claimants have opted for this new option, since the September 17, 2018 effective date. She called it an “intermediate form of adjudication,” because it straddles the default option of a decision “on the papers” and the alternative of a live hearing. None of the fifteen cases have been tried as yet, so the two speakers addressed the written procedures. She did report that the Securities Arbitration Clinics, which specialize in small-dollar claims, generally favor this new option.

  • Mr. Feinberg made the observation that, because of the paragraph order in Rule 12800/13800, specifically subparas. (c)(3)(B)(ii) and (iii), it appears that Claimants are expected to present their rebuttal and closing statements, following upon their direct presentation. As this would be an irregular procedure, if not impracticable, clarification of the proper order will have to come from the hearing script or each arbitrator.
  • Because the parties are unable to question the opposing parties or their witnesses, the arbitrator is placed in the awkward position of being both neutral and cross-examiner. Involving the arbitrator in the proceeding risks changing dynamics and perceptions.
  • The customer claimant makes the initial choice concerning the three options when filing; that filing can be through the Party Portal or, if the party will appear pro se, or by paper filing. Ms. Bayer described the ways in which prospective filers are advised about the Special Proceedings option. If a customer chooses the paper or the live hearing option initially, the issue remains whether the Special Proceeding may be elected later, e.g., at the IPHC?

Among the other items covered, we found these of interest:

  • Mediation cases in agreement decreased by 18% in 2018 from the year before, despite case filings increasing by 25% to 4,325 (20% customer; 36% industry).
  • The Puerto Rico bond cases contributed greatly to the surge in customer filings in 2018, such that the Boca Raton office, which administers these cases, has been assisted by all of the other regional offices in handling their remaining caseload.
  • Eliminating the charge to parties of $400 for an Explained Award in February 2018 was directed towards encouraging parties’ mutual agreement to request explanations. It’s not commonplace to get requests and there has not been any big increase in the past year.
  • The Arbitrator Oath on the Party Portal, now available in html format, is used by arbitrators at a rate of 800 times a month and is the only form currently that goes directly to the parties, instead of through the staff first. The new IPHC form, rolled out in December 2018, is being reviewed because it’s new, but staff hope to flow it directly to parties at some point soon. That form has been completed by arbitrators 353 times so far. Finally, the Chair has recently been provided an online, standard Order form -- 42 were received in a week’s time.
  • Recently retired Ken Andrichik had three job titles. Manly Ray is the new Director of Mediation. His Chief Counsel responsibilities will flow to the Office of General Counsel and an attorney advising FINRA-DR will report to OGC.
  • IPHCs held by telephone (and also the new Special Proceedings) will be handled by conference operators, so everybody dials into the conference, rather than the panel or staff dialing out.
  • The IPHC hearing script has a new reminder that parties should set a cut-off date for serving subpoenas, OAs and OPDs.
  • We extrapolated this, so “grain of salt,” but we believe the new ban on compensated NARs that will be proposed at some point will not have an exception for small claims matters.


(ed: So, is 15 requests for Special Proceedings a good reception from investors? We figure there were about 150-200 Small Claims cases filed in 2018, so, in a five-month period (e.g., 9/17/18 - 2/12/19), at least 60 such cases will be filed -- not especially impressive. We do worry about adequate notice, especially for the pro se investor. We’ll bet many of those 15 are Clinic cases, some of which were perhaps timed to catch the newly effective option, and we know from the rule comments that PIABA attorneys generally support this new tool.) (SAC Ref. No. 2019-08-01)

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