How to Improve FINRA Arbitration

On Behalf of | Jan 8, 2015 | Firm News

If James Carville, a campaign strategist of Bill Clinton’s 1992 presidential campaign, was on the FINRA Dispute Resolution Task Force,[1] it would surprise no one that at the top of his list for improvements would be this: It’s the Arbitrators, Stupid![2]  

With the best of intentions, specially selected advocates of FINRA’s securities arbitration program are considering recommendations to provide the proverbial “level playing field”                   for customers compelled to have their disputes resolved in that forum. While there will no doubt be calls for a system with fewer rules and a greater emphasis on its central precept of equity, in the end an arbitration forum is only as good as its arbitrators.  

When I had the privilege of chairing the Neutral Roster Subcommittee of FINRA’s  National Arbitration and Mediation Committee (NAMC)[3] for four years and worked closely with the wonderful Barbara Brady, Vice President – Neutral Management, I would examine the profiles of the arbitrator candidates we were tasked with reviewing for addition to the National Roster and ask myself: Is this someone before whom I would want to appear? Is this someone who has led a life that would display the ability to provide a full and fair opportunity for my clients (since I represent customers, brokers and firms)? 

Thereafter, as a practitioner, when I: went through the list of proposed arbitrators for my particular case; listened to the manner in which arbitrators conducted themselves in the Initial Pre-Hearing Conference (IPHC); saw how Chairs ruled on pretty straight-forward Motions to Compel; and viewed them in action (or inaction) during the course of a hotly contested hearing, I asked myself: Why do their Arbitrator Profiles trumpet their achievements in the Pacific in World War II?  If they are sitting on 21 other cases, how can they possibly distinguish those others from mine and how will they ever have a day free to hear my case?

And, during the course of a hearing, I’m compelled to ask myself: Don’t they know anything about the securities industry?  Didn’t they read the Statement of Claim or Answer?  Why aren’t they looking at the exhibits?  Do they know the basic elements of typical causes of action? Don’t they know they can make parties speed things up without the fear that their Award will be vacated?  Why were they so dead-set against implementing the Direct Communication Rule?  Why have they modeled their hearing demeanor after Supreme Court Justice Clarence Thomas (i.e., not asking a single question)?

                Anyone who has read my book and its yearly revisions[4] or my annual Practice Commentaries in McKinney’s Consolidated Laws of New York[5] or attended the many years of the Practising Law Institute and New York State Bar Association programs I co-chaired on securities arbitration knows that I believe in the process and have praised its evolution since I was a Director of Arbitration at one of the self-regulatory organizations. That doesn’t mean it can’t be improved without suffering the punishing fees attendant to a case at the American Arbitration Association (AAA) or JAMS.  Which begs the question: Can FINRA provide parties with AAA-quality arbitrators, or reasonable facsimiles, without bankrupting their clients in the process?

            If someone were to ask my wish list for a better FINRA Dispute Resolution program, it would come down to the arbitrators (stupid). And it would look like this:

1.      Age – There should be an age limit for being on the National Roster.  Sorry, but experienced practitioners strike really old arbitrators all the time.  I don’t know what that age limit should be, but I think, for starters, that a good cut-off date would be graduating college during Eisenhower’s second term.

2.      Too Busy – No arbitrator should be on more than four cases at the same time. These cases are fact intensive and require an arbitrator’s full attention. After all, the Code of Ethics for Arbitrators requires them to only take cases if they can expeditiously hear them.[6]

3.      Pay Them More.  It’s an unfortunate fact, but you often get what you pay for. Even the recent substantial percentage increase in honoraria[7] doesn’t cut it for experienced arbitrators who get their hourly rates at the AAA and JAMS.[8]  FINRA should have a list of elite arbitrators who will only sit on cases for certain amounts per day; parties should be able to select from that list if they can afford it.  The voluntary Large Case pilot program launched two years ago is a good start, but more needs to be done.

4.      Education – Substantive continuing education of arbitrators should be mandatory on the basic elements of common causes of action and defenses, as well as the grounds to vacate Award. The curriculum should be written by a joint SIFMA-PIABA committee and not by FINRA.  The Arbitrator’s Guide[9] has become a practical and highly readable procedural guide for arbitrators, but it shies away from the law.  While FINRA would prefer to have the parties’ attorneys educate the arbitrators in pre-hearing briefs, let’s face it – many arbitrators don’t read them. 

5.      Communicate – Direct Communication should be mandatory, as opposed to the current practice during IPHCs where Chairs don’t even ask the parties and their fellow arbitrators if they would like to try it.[10]  Almost every Chair I appear before says, in words or substance: “I don’t like it so I’m going to skip over that part of the script.”

6.      Expeditious Hearings – If arbitrators are schooled in the grounds to vacate Awards, they will grow a backbone during the course of a hearing to tell parties: “Enough already. We heard that. Let’s move on.”[11]

7.      Scripts – Make the IPHC and hearing scripts shorter and in plain English and not like the disclaimer on a roller coaster ticket or, dare I say it, like the arbitration clause in an opening account form. People don’t talk the way those scripts are written.

8.      Arbitrator Definition – Rube Goldberg[12] would develop a headache if he tried to figure out the definition of a FINRA arbitrator. With a desire to assuage critics and deal with the appearance of impartiality, FINRA’s definitions[13] have become so convoluted and restrictive[14] that highly qualified individuals are prohibited or discarded from being on the Roster. Over the years, FINRA has adopted and adapted many of the AAA’s rules and it would be well-advised to see how simply that forum distinguishes between public and industry arbitrators: as either being affiliated with the securities industry or not being so affiliated. That’s it and it’s worked for decades.[15]  Since the public’s perception of an arbitration forum is reflective of its arbitrators, the Task Force would attract top flight arbitrators by simplifying its definitions and being less nervous about offending critics.


Over the many years I’ve represented parties in arbitration, I still believe it’s the smarter way to get to the essence of a case faster.  As the Task Force considers the feedback it has been receiving from practitioners, arbitrators and the public, I hope they keep James Carville’s admonition in mind.  If they do, investors, brokers and firms will be the beneficiaries.






[4] Securities Arbitration Procedure Manual (5th Ed. Dec. 2014) 

[6] See Canon 1 (B) (4) – An Arbitrator Should Uphold the Integrity and Fairness of the Arbitration Process.


[8] I offer an anecdote to illustrate the point: My good friend George Friedman, who retired in early 2013 after 14 years as FINRA’s Director of Arbitration, applied to the AAA’s panel of arbitrators and asked me for a letter of recommendation.  When I asked him why he wasn’t first applying to FINRA’s roster, he quipped: “The AAA pays better.”


[10] See Rule 12211. Direct Communication Between Parties and Arbitrators

[11] See, David E. Robbins,” Calling All Arbitrators,” appearing in the February/April 2005 issue of 60:1 The Dispute Resolution Journal 9 (2005).

[13] See Rule 12100. Definitions

[14]FINRA’s latest effort to further define the definition of non-public arbitrators can be found at:  In its SR-FINRA-2014-028, entitled “Proposed Rule Change Relating to Revisions to the Definitions of Non-Public Arbitrator and Public Arbitrator,” FINRA announced in June 2014 that it had filed with the SEC a proposed rule change to amend both Codes of Arbitration Procedure to provide that persons who worked in the financial industry for any duration during their careers would always be classified as non-public arbitrators and persons who represent investors or the financial industry as a significant part of their business would also be classified as non-public, but could become public arbitrators after a cooling-off period.   Many believe this is a solution in search of a problem, including me.