Only 305 new customer cases have been filed in the first two months of the year, 146 in January and 159 in February, which explains the shortfall in new cases thus far in 2017.

By February 2016, 390 customer claims had been filed. Industry claims newly filed are actually up from last year; 192 new claims have been filed, while only 168 industry claims were posted by February 2016. The total number of claims filed this February increased from January’s tepid showing (226), but the total, at 271, still fell below the 300-plus monthly average achieved in 2016. For the first two months, FINRA’s arbitration facility has opened 497 new cases and closed 663 existing matters (of all types).

Caseload on Pullback Also

Pending cases at FINRA contracted from 4,592 last year at this time to 4,538 at the end of February. The Puerto Rico bond cases have been a major contributor to volume over the past few years, adding a total beyond that continuum of well over 1,000 cases. New cases from that sector slowed in 2016 and, in 2017, the pending caseload in Puerto Rico is clearly on the wane. According to FINRA’s hearing location statistics, 890 cases were pending in San Juan at the end of 2016; in February, the report indicates only 814 remain. That’s a net loss of 76 cases in two months’ time. Since only a relatively few cases have been tried to conclusion in that time period, the settlement process is evidently accelerating, as cases age, parties weary, and the field acquires a more predictable terrain.

Controversy/Product Changes

That the Puerto Rico bubble of cases may have begun to deflate can be discerned in FINRA’s product statistics, where claims related to municipal bond and municipal bond funds ballooned in 2014 and 2015. In 2016, the stream of new claims declined, although still quite lofty, and, through February 2017, the figures are far more grounded (fewer than 100 overall and, of course, not all new claims in these categories are Puerto Rico bound. Where’s the real drop-off? The figures suggest common stocks, where customers have filed fewer claims than in any equivalent period in at least the past four years. Government Securities and 401(k) complaints show signs of life, but none of the “usual suspects” is breaking norms.

Miscellaneous Observations

The samples are too small at the start of the year to make many relevant observations. We note that the number of cases going to decision continues to trend down, so that the 21% of closed cases that were decided by arbitrators has drifted lower. Some disturbing anomalies are forming on the customer closed-case side as well, but, for now, we’ll restrict ourselves to surprise and pleasure at the progress FINRA-ODR staff have made in moving the numbers on arbitrator recruitment. In February 2016, 6,672 arbitrators (3,033 PAs; 3,639 NPAs) were active on FINRA’s Neutral Roster. As of the end of February 2017, the ranks have increased by a net of almost 500 arbitrators to 7,138. There are now 3,248 Public Arbitrators (+115) and 3,888 Non-Public Arbitrators (+249). FINRA’s dedicated efforts at recruitment have turned around a long-term trend towards attrition that one might have believed was inevitable.

(ed: We reported previously that FINRA-ODR had replaced the static 15 product entries with a dynamic field, made up of those displaying action. Our observations about that switch would be that, besides common stocks and options, the product categories are virtually all income- or distribution-oriented securities. Tech stocks are not at the heart of these disputes; while products in these categories may be speculative, the investor orientation — generalizing perhaps grossly — would appear to be yield.) (SAC Ref. No. 2017-13-01)

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