SR-FINRA-2016-033 – A Case Study

By Geoff Hafer, Fall 2016 Student Intern

Let’s take a look at our case study, SR-FINRA-2016-033, a proposal to expand eligibility for the public chairperson roster.  As they currently stand, FINRA Rules 12400 and 13400 provide that an arbitrator is eligible for the chairperson roster if he or she has completed chairperson training provided by FINRA and “has a law degree and is a member of a bar of at least one jurisdiction and has served as an arbitrator through award on at least two arbitrations administered by an SRO in which hearings were held…”

Now the proposed rule change:  FINRA is proposing to amend FINRA Rule 12400 and 13400 to provide that an attorney arbitrator would be eligible for the chairperson roster if he or she completes chairperson training and serves as an arbitrator through award on at least one arbitration, instead of two arbitrations.  So, why the change?

Currently, the public chairperson roster in each hearing location ranges from as little as 40 to over 200.  Depending on caseload, FINRA may not have a sufficient number of public chairpersons, in a specific location, available to meet demand.  This is in large part due to a diminished public chairperson roster resulting from amendments to the “public arbitrator” definition that became effective on June 26, 2015.  As a result of the amended definition, FINRA reclassified “approximately 13.8 percent (487 out of 3,512) of its public arbitrator roster as non-public and approximately 2.6 percent (93 out of 3,512) of its public arbitrator roster were temporarily disqualified and made ineligible for service.” For more information, click here.  As a result, arbitrators are often required to travel to multiple hearing locations out-of-town.

Well, it seems like increasing the number of public chairpersons is the way to go then right?  Why should I care?  In the third part of the series, SR-FINRA-2016-033 “The Good and the Bad,” we will dig deeper into the proposed rule change and its potential impact on investors.