Selecting FINRA Arbitrators

An important part of the arbitration process through the Financial Industry Regulatory Authority (FINRA) is the selection of the arbitrators. Arbitrator selection can have a significant impact on the outcome of the case. As a result, gaining an understanding of the process can be beneficial before initiating FINRA arbitration. Here, we focus on the selection process for panels consisting of three arbitrators.

FINRA classifies its arbitrators as either public or nonpublic. Public arbitrators are individuals who do not have specialized knowledge of the securities industry. In contrast, non-public arbitrators have a background in the securities industry. Non-public arbitrators include, but are not limited to, individuals who, within the last five years:

1. Have been associated with a broker or dealer;
2. Registered under the Commodity Exchange Act;
3. A member of a commodities exchange or a registered futures association; or
4. Associated with a person or firm registered under the Commodity Exchange Act.

FINRA uses a Neutral List Selection System (System), which is a computer system that randomly generates lists of arbitrators from FINRA’s rosters of arbitrators. The parties select the panel that will arbitrate their case through a process of striking and ranking the arbitrators on the lists generated by the System. FINRA maintains a roster of nonpublic, and public arbitrators, as well as arbitrators who are eligible to serve as the chairperson of a panel. An individual is eligible to serve as a chairperson if he or she has completed chairperson training provided by FINRA and the person:

Has a law degree, is a member of the bar of any state, and has served as an arbitrator through award on at least two arbitrations administered by a self-regulatory organization in which hearings were held; or

1. Has served as an arbitrator through award on at least three arbitrations administered by a self-regulatory organization in which hearings were held.

A panel consisting of three people will consist of non-public arbitrators, with one of them being selected from the non-public chairperson roster. If the case is between members of FINRA, the parties will be provided with a list of 20 arbitrators from the non-public roster and ten from the non-public chairperson roster. The parties are allowed to strike up to eight from the non-public list and up to four from the non-public chairperson list.

For disputes that are not entirely between members, the parties will be provided with a list of ten arbitrators from the non-public roster, ten from the public roster, and ten from the public chairperson roster. The parties are allowed to strike up to four arbitrators from each list.

After completing the striking process, the parties rank the remaining arbitrators in order of preference. The results of the striking and the ranking must be submitted to the Director within 20 days of the date on which the Director sent the lists to the parties. A failure to return the list will result in the Director proceeding under the assumption the party did not wish to strike or rank the arbitrators.

If you would like more information about the FINRA arbitration process, contact the securities law attorneys at the Silver Law Group.