Skip to content

Menu

ChannelsPublishersSubscribe
LexBlog, Inc. logo
LexBlog, Inc. logo
ProductsSub-MenuBlogsPortalsTwentySyndicationMicrositesResource Center
Join
Search
Close
Join the Movement. Blog 4 Good

SEC Approval of New FINRA Public Arbitrator Rule Imposes New Limits on the Pool of Potential Public Arbitrators

By David Picon & Massiel Pedreira
March 14, 2015
EmailTweetLikeLinkedIn

The SEC recently approved FINRA’s proposed new rule changes to the definitions of public arbitrator (FINRA Rules 12100(u) and 13100(u)) and non-public arbitrator (FINRA Rules 12100(p) and 13100(p)), after receiving over 300 comment letters in addition to two letters from FINRA responding to the comment letters.  The new rule significantly limits the pool of potential public arbitrators by, chiefly, permanently disqualifying any person who worked in the financial industry from being a public arbitrator.  FINRA believes that this and other changes to the definitions of public and non-public arbitrators, as discussed below, address both investor and industry concerns about perceived bias and arbitrator neutrality. 

FINRA defines and classifies arbitrators as either public or non-public based on their affiliations and ties to the financial industry.  The recent rule changes to the composition of the Public Arbitrator pool  is particularly important in certain types of FINRA arbitrations (i.e. customer cases) where the parties have the option to select an all public arbitrator panel by striking all non-public arbitrators from their list.

As mentioned, FINRA’s new rule permanently bars any persons who are or were affiliated with or employed by specified financial industry entities (e.g. a broker or a dealer) from becoming public arbitrators.  The new rule also adds two new categories to the list of financial industry entities; namely, (1) employees of mutual funds, hedge funds, investment advisers, and (2) employees currently or in the future employed by any entity organized under or registered pursuant to the Securities Exchange Act of 1934, Investment Company Act of 1940, or the Investment Advisers Act of 1940.

In addition, under the old rule, attorneys, accountants and other professionals (“professionals”) who devoted 20% or more of their professional work in any single calendar year to providing services to the financial industry (“industry professionals”) were not permanently barred from serving as public arbitrators unless they provided a substantial portion of their professional services to the industry for 20 years or more over the course of their careers.  Industry professionals not subject to the permanent bar could be re-classified from a non-public arbitrator to a public arbitrator subject to a two year cooling-off period.  In contrast, under the old rule, professionals who represented or provided services to parties in disputes concerning investment accounts or transactions or employment relationships with the financial industry (“investor professionals”) qualified as public arbitrators.

Now, under FINRA’s new rule, investor professionals are treated the same as industry professionals and both are classified as non-public arbitrators.  They are now permanently barred from serving as public arbitrators under the new rule if they provided such professional services for 15 years or more over the course of their careers.  Industry professionals and investor professionals not subject to the permanent bar may qualify to serve as public arbitrators but only after a longer (5-year) cooling-off period.

With these new rule changes, FINRA seeks to change investor and industry perceptions about arbitrator neutrality.  While supporters of the rule change commend them for creating bright-line groupings that avoid confusion and disputes, critics of these rule changes contend, among other things, that they seek to address a non-existent problem and serve as yet another pro-claimant shift that FINRA arbitration rules have taken in recent years.

Photo of David Picon David Picon

David A. Picon is a seasoned advocate for financial services firms, as well as public and private companies. He is a partner in the Litigation Department and a trial lawyer who has led dozens of trials and arbitration hearings, primarily for financial services…

David A. Picon is a seasoned advocate for financial services firms, as well as public and private companies. He is a partner in the Litigation Department and a trial lawyer who has led dozens of trials and arbitration hearings, primarily for financial services firms. David’s practice covers a range of matters, including complex securities issues, fraudulent transfer actions, alleged Ponzi schemes, and contract and employment-related disputes. He is also co-chair of the Financial Services Group and a member of the Corporate Defense Group.

David appears in numerous judicial and administrative forums and represents financial services firms in investigations brought by the SEC, FINRA and other regulatory bodies. He also has broad experience in defending companies and directors in shareholder derivative actions and breach of fiduciary duty claims by shareholders.

Read more about David PiconEmail
Show more Show less
Photo of Massiel Pedreira Massiel Pedreira
Email
  • Posted in:
    Corporate & Commercial, Criminal, Financial
  • Blog:
    Corporate Defense and Disputes
  • Organization:
    Proskauer Rose LLP
  • Article: View Original Source

Stay Connected

Facebook LinkedIn Twitter RSS
Real Lawyers

Company

  • About LexBlog
  • Careers
  • Press
  • Contact LexBlog
  • Privacy Policy
  • Editorial Policy
  • Disclaimer
  • Terms of Service
  • RSS Terms of Service

Products

  • Products
  • Blogs
  • Portals
  • Twenty
  • Syndication
  • Microsites

Support

  • 1-800-913-0988
  • Submit a Request
  • Support Center
  • System Status
  • Resource Center

New to the Network

  • The HB Blog
  • The Tax Trotter
  • The Westchester Litigator
  • Data Privacy + Cybersecurity Insider
  • Law from the East to the West
Copyright © 2021, LexBlog, Inc. All Rights Reserved.
Powered By LexBlog