FINRA Stats, 12/19: Another Slow Year at FINRA-ODR, in Terms of New Filings
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Take the final tally of 3,757 new case submissions that FINRA Office of Dispute Resolution recorded during the past year, deduct the reported total of some 500 cases for the month of August, when a pile of new Puerto Rico Bond cases was filed, and the monthly averages for the rest of the year come in slightly under 300.

That’s just about the way the real monthly tallies occurred, all in a fairly tight group around 300 with a single month’s surge. The 303 new filings in December only punctuate that regularity. The yearly total represents a drop of 13% from 2018’s 4,325 cases, but 2018 was a relative outlier; one has to look back to 2011, when 4,729 cases were filed to find a higher outcome.

“Market Bottom”? Viewing 2020

So, one can view this range of case filings, which, from 2013 to 2017, has run in a steady range from about 3,400 to 3,800, as a sort of “market bottom,” possibly an indicator of the probable caseload in 2020, but consider this: 1) those results from 2013-2017 were comprised in part of some 4,000 Puerto Rico bond cases. That source peaked in 2018, judging from FINRA’s Municipal Bond and Municipal Bond Fund figures of 971 and 959, respectively, for that year. The comparable figures for 2019 were 717 and 702, respectively, and that surge in August, because it was related to a six-year eligibility issue, was likely an exclamation point at the end of a long sentence. 2) On the intra-industry side, which contributed 1,394 cases to the 3,757 total for 2019 (-14%), the Controversy Types section of FINRA-ODR’s December report tells us that expungement claims have peaked. For the past few years, we have reported an upsurge in sole expungement proceedings by brokers, driven by an impending deadline on their ability to pursue expungement of aged CRD items. A small legal niche has grown up around this excited demand, but, again, the trend has, based on the statistical evidence, suggests it waned in 2019. Expungement is not a category that appears in FINRA’s Controversy Type Chart, but nominee names, such as fiduciary duty, suitability, negligence, and (perhaps) misrepresentation, for those proceedings, we believe, reflect sharp declines in case numbers in 2019 (ex: suitability, 17 cases vs. 63 in 2018). Assuming no stock market correction in the first half of 2020 -- and a continued downdraft in the two case sources above -- 2020 could be a very slow year. That’s not a prediction, just an observation.

A Definite Arbitration Trend

While we’re tossing around case statistics, let’s return to a matter we touched upon in our November 2019 report (SAA 2020-01 (Jan. 8)): the “disappearing” Award. According to the overall close-out statistics in FINRA’s 2019 year-end report, 84% of the concluded matters closed without an arbitrator’s ruling. At least 70% of those cases were settlements, probably more, and, in the customer column alone, the total was 87% -- i.e., only 13% of customer-initiated claims were tried to an Award. That’s not much different than litigation in the courts and, when one considers that many of the closed cases in litigation were lost by plaintiffs in motion practice -- probably a single-digit percentage outcome in FINRA arbitration -- one appreciates the robust settlement structure that supports case processing at FINRA-ODR.

Settlement Observations

We have two observations about this “disappearing Award” phenomenon -- anomalies, really, because we see this high settlement rate as somewhat anomalous in an arbitration regime: 1) the FINRA report for December indicates that 57% of the cases were settled via direct negotiation by the parties and 13% of the whole were settled via mediation. We credit the overall settlement sum of 70%, but reports from the “field” that we hear -- and statements by arbitration counsel at seminars -- suggest that mediation plays a much large role in the settlement process. We recall at 2019’s PLI seminar -- which is mainly about FINRA arbitration -- senior inside counsel saying that she could not remember the last time a case had settled without mediation -- that Claimant’s counsel wanted mediation even where the case could have been settled by direct negotiation. 2) it also seems inconsistent to see such a high settlement rate for customer claims that, when tried at FINRA-ODR, are winning at an increasing clip. The overall “win” rate for customer claims in 2019 was 45%, up from 40% in 2018. Small claims cases (paper only) had a stunning year, with a 48% “win” rate (versus 35% in 2018) and the larger cases with all-public panels registered a 53% “win” rate (vs. 42% in 2018).

(ed: We might return to these 2019 statistics for other readings that we see. We’d like to hear from readers with your observations -- please email us at with comments, whether anonymously or for publication.) (SAC Ref. No. 2020-04-01)

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