SEC Approves FINRA Chair Honoraria Increases
Posted on Categories Arbitrators, FINRA Code of Arbitration, Securities ArbitrationTags , , ,

By George H. Friedman, SAA Publisher & Editor-in-Chief

The SEC has approved a FINRA proposal increasing certain Chairperson honoraria.

We reported in SAA 2019-48 (Dec. 18) that FINRA’s Board of Governors in December 2019 authorized staff to submit a rule filing with the SEC increasing certain Chairperson honoraria. As reported in SAA 2020-39 (Oct. 21), FINRA on October 16 filed with the SEC SR-FINRA-2020-035, Notice of Filing of a Proposed Rule Change to Amend the FINRA Codes of Arbitration Procedure to Increase Arbitrator Chairperson Honoraria and Certain Arbitration Fees. What were the specifics? As described in the Approval Order, the proposed rule change would amend the customer and industry Codes to: “(1) increase the additional hearing day honorarium Chairs receive for each hearing on the merits from $125 to $250 and; (2) create a new $125 Chair honorarium for each prehearing conference in which the Chair participates. Under the proposed rule change, these increases would be funded primarily by certain increases to the member surcharge and process fees for claims of more than $250,000 or claims for non-monetary or unspecified damages. The proposed rule change would also increase filing fees and hearing session fees for customers, associated persons and members bringing claims of more than $500,000 or claims for nonmonetary or unspecified damage.”

One Comment and Swift Approval

The proposal was published in the Federal Register on October 26, yielding just one comment – supportive – from Steven B. Caruso, Esq. After being granted an extension to act by the end of the year, the Commission swiftly approved the Rule filing on December 17. The Order, which contains several charts showing the fee increases, validates FINRA’s raison d’être for the changes: “The Commission acknowledges FINRA’s concern that fewer Chair-eligible arbitrators may be taking on the additional burdens of being on the Chair roster due to insufficient compensation. The Commission believes that increasing the amount that FINRA compensates its Chair-eligible arbitrators may incentivize them to take on the additional training and responsibilities associated with the position. Consequently, FINRA may be able to recruit new, and retain current, Chairs for its roster, potentially alleviating the shortage of Chairs in certain locations and the concomitant negative impact (e.g., dissatisfied parties and scheduling delays)” (footnote omitted).

Customer Fee Increase Not a Problem

We had previously expressed concerns that the Customer fee increase part of the proposal might be subject to enhanced scrutiny by the Commission, but those fears were misplaced. Says the Approval Order: “… FINRA designed the arbitration fee structure to distribute much of the increased costs of the forum to member firms that are parties to an arbitration proceeding and to parties associated with large claims or non-monetary or unspecified claims. The Commission believes that this proposed distribution of fees will help keep the FINRA arbitration forum accessible. Otherwise, the Commission believes that increasing fees on claimants with small claims could discourage retail investors from bringing their claims. Accordingly, the proposed allocation of the fee increases will help ensure that FINRA’s arbitration forum remains accessible and affordable to parties” (footnote omitted).


(ed: *As we said after the Board’s action, this is good news. $850 a day – $600 for two hearing sessions plus $250 – is decent compensation, and the “extra” for IPHCs is fair. **Next is Approval Order publication in the Federal Register and a FINRA Regulatory Notice setting the effective date. We’re guessing the Authority will try for January 1 and that effectiveness will be “hearings held” versus “cases filed” but one never knows.)