FINRA Stats, 10/19: Reading the “Stats” for a Clue to 2020
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FINRA has published the latest monthly batch of statistics about its Dispute Resolution operations. We all use these statistics for our own purposes; likely, FINRA will be using them to project its budget for next year. Let's take a look from that perspective.

With ten months of the year taken into account, the FINRA-DR Report states that 3,203 new case filings have been received in 2019. The monthly total of 317 new cases in October fell closely in line with the monthly average for all ten months and, if repeated in the final two months, would mean that 2019 results would surpass all but one of the past six years. In 2012, 4,299 new cases were filed; in 2018, the forum took in 4,325 new matters. 2019 will fall in between, begging the question, which way will 2020 go?

Closed Cases and Turnaround Times

It seems certain that FINRA will surpass 2018's closed-case results of 3,756. With 3,372 cases concluded through October, the FINRA unit might even break the 4,000 mark. 2018's stronger case inflow is certainly part of the reason for that uptick in performance, as the surge of new cases that year surely had an impact on the case throughput in 2019. Average turnaround time -- the average interval between a case's filing date and issue date -- has changed little overall from 2018 (14.1 vs. 14.2 months), but Hearing Decisions -- those closed cases requiring a live hearing -- rose to an ATT of 17.0 months in 2019 (through October), versus a Hearing Decision ATT of 16.3 months for the same ten-month period in 2018.

Controversies & Products

Controversies in newly filed customer cases are tracked by FINRA in its monthly reports and so they are in intra-industry cases as well. New submissions by customers are down 11% from same-period 2018, so we reviewed the 15 top controversies and noted only a couple that are off a lot more than 11%. Unauthorized trading and churning -- the intentional torts -- are down the most percentage-wise -- not just in comparison to 2018, but as to each of the past four years (Churning: 141 vs. 180, 196, 219 and 206; Unauthorized Trading: 165 vs. 202, 233, 315 & 216). Not surprising.... Regulators may look for these practices in good times, but it takes a down market and claimed losses for arbitration claims of this kind to blossom. Perhaps, though, the real cause of this intentional-tort decline relates more to shifts in the market structure and the switch to fee-based compensation.

On the product side, Municipal Bond Funds and Municipal Bonds remain at the top of the list for customer claims, but, in relation to last year, the numbers are decidedly down (MBF: 686 vs. 813; MB: 665 vs. 828). Mutual Funds, the third top Security Type in Customer Arbitrations, also scored way down, from 622 in 2018's first ten months to 490 in 2019. We have noted before that Options stand out as one of the only "types" registering much higher numbers (181 vs. 135). There may be a more localized reason for this increase, but heightened speculation (and consequent losses) would be natural to expect in an aging bull market.

Intra-industry cases are down 13%, perhaps because promissory note disputes and expungement requests were a strong factor in the surge represented in 2018's case-filing numbers. Every single one of the top fifteen controversy-types is down this year (except for discrimination/harassment claims), including promissory notes (note: expungement relief is not a designated controversy-type in this FINRA chart). Promissory note cases have been tapering down on the FINRA chart since 2015, when they tallied 401 for the full year (in 2012, they stood at 802!). This year, promissory note cases, at 198, are down proportionately (-13%) from last year -- 228 in October 2018. As for expungement claims, it's our sense, judging from the related "types" that do appear on FINRA's Chart and are all down -- some markedly -- that expungement requests have peaked. One might expect a spurt, with FINRA's new expungement procedures due for filing soon. In that sense, time grows short, but, by the same token, those who really wanted to attempt a CRD record cleanup, have had ample time to proceed -- and lots have.

(ed: With the contributors to last year's surge ebbing -- that is, Puerto Rico cases -- promissory notes and expungement attempts -- a prediction of lower case inflow for 2020 would be wrong, we'd guess, only if there's some kind of market event that brings about change.) (SAC Ref. No. 2019-45-01)

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