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FINRA “Special Notice” on Organization-Wide Engagement and Transparency Initiative Pulls Almost 50 Comments
Posted on Categories News, Rulemaking, Securities ArbitrationTags , , , , ,

FINRA in late March issued a “Special Notice” soliciting public comments on a new enterprise-wide project examining transparency and engagement. Questions relating to the Office of Dispute Resolution (“ODR”) were specifically part of the mix and we reviewed those letters after the comment deadline of June 19.

The comment letters are arranged by date received and posted on FINRA’s Website for public viewing. About a third of the letters had something to say about FINRA-ODR. Almost all of the commenters addressed the committee system at FINRA and the transparency of the rulemaking process; we included comments only by those who spoke expressly about NAMC or ODR rulemaking (ed: for more background on the Initiative itself, see our earlier reporting at SAA 2017-04, -10 and -14).

Questions for ODR Participants

The Special Notice solicited comments about the ODR program in three major areas (ed: listed verbatim): 1) How helpful are the tools and resources currently available on FINRA’s dispute resolution web page? What additional tools and resources regarding FINRA’s arbitration and mediation processes would be helpful? 2) If you have accessed the Awards Online database, how user-friendly did you find the database? Should FINRA consider making any changes to the accessibility of the database, or the information available through the database? 3) How else might FINRA enhance its dispute resolution forum’s operational transparency? In addition, as we noted, commenters were invited to address ODR's National Arbitration and Mediation Committee, in terms of its composition and effectiveness. Some commenters addressed specific points, while others wrote long letters making numerous points. For brevity, we focus on the most salient of each commenter’s remarks.

Comment Letter Summaries

FINRA posted the comment letters in three tranches. The first commenters, from March 25 to May 8, had nothing to say about the ODR program. From May 9 to June 8, there were several and the rest came in with the deadline flurry.

SIFMA: SIFMA submitted three comment letters in response to the Initiative. We covered its June 2 letter specifically speaking to the ODR program at SAA 2017-24. In an earlier (5/8) letter, FINRA protested the follow-up inquiries from FINRA that track “nearly every filing” of a Form U4/U5. “For example, arbitration disclosures are often met with inquiries before the facts have been gathered and hearings held. Seeking such information early in an arbitration interferes with the litigation process and puts the firm in an awkward position of having to explain to FINRA why an extension is required pending the litigation.”

George Friedman: Mr. Friedman praises ODR’s portion of the FINRA website and suggests as improvements: (1) archiving historical statistical data; (2) calculating recovery rates in the statistical reports; and (3) adding “search check boxes” to Arbitration Awards Online and making it easier to search for explained Awards. Awards themselves should have less detail about fee calculations. He suggests making public “high-level results” of NAMC meetings, publishing “aggregate arbitrator performance data and aggregate ODR forum performance data.” Finally, he would change the Award Information Sheet to clarify, with “Yes/No” boxes, whether arbitrators are awarding things like pre-judgment interest or attorney's fees.

Jeffrey Kaplan: Mr. Kaplan states that he has previously served on the NAMC and would not want to change the way it operates. He does think the Committee should meet more frequently and, perhaps, make its “general topics/agenda public.” He believes FINRA has done a good job in the past of assuring both the industry and public members represent diverse perspectives.

Bob Muh: “I would like to propose a significant change so that an ‘explained decision’ is the default option. If both parties do not want an ‘explained decision’ they would have to submit a joint request not to require an explained decision at least 20 days prior to the first scheduled hearing date. I would also suggest that an additional fee of $500 be assessed on each party if they do not waive the explained decision. This fee would be paid to the Chair who would have the responsibility for writing the opinion. As allowed today, the parties may limit the matters that are included in the explained opinion.”

Bill Singer: Mr. Singer conveyed extensive remarks in his letter, mostly having to do with Board and committee composition. He added, in closing, that “FINRA should establish an Anti-Fraud Fund whereby all defrauded public customers would obtain restitution for unpaid arbitration awards.” He also supports abolishing “mandatory arbitration for customers and associated persons.”

Peter Chepucavage: Mr. Chepucavage also had extensive remarks, which he organized into five recommendations. The first and the fifth have relevance to ODR. In the first, he decries the manner in which houses are “weaponizing” the Form U5 against departing employees. The Form “needs to be modified to include only regulatory violations and not employment disputes.” The fifth recommendation holds that the “arbitration program has become too expensive” to handle expungement claims and claims under $100,000. “FINRA can cure this by hiring independent hearing officers to hear these claims as is done in small claims courts across the U.S.”

Ryan Bakhtiari: NAMC plays “a vital role” in the ODR process. As a former member and Chair, Mr. Bakhtiari favors leaving much alone and would only add contact information about the members.

Steven Caruso: As NAMC’s current Chair, Mr. Caruso states that NAMC serves “a critical and essential purpose.” He likes the current selection method, which is based on experience and knowledge." He praises the tools and resources on the website, the mandatory DR Portal, and calls the Arbitration Awards Online “one of the greatest improvements” by ODR in a decade. He would like access to “interim arbitrator orders” and “denial of motion to dismiss” orders when they are in writing.

(ed: The remainder of the letters were all posted under the deadline date. We’ll cover those letters in a "Part II" segment in SAA 2017-26.) (SAC Ref. No. 2017-25-01)

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