FINRA Stats, 6/19: First Half Results Steady; ODR Adds New Feature to its Monthly Report
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At the half-year mark, FINRA’s Office of Dispute Resolution is on track to receive about 3,600 case filings for 2019. With 1,799 new case submissions through June, the forum is running 21% behind the pace for 2018, while the composition of the cases (customer/intra-industry) remains proportionally about the same.

In the month of June alone, 314 new case filings were received, according to FINRA’s latest online statistical report, which remains within a close grouping of monthly inflows that are averaging about 300 per month for the year-to-date. As we have noted before, the annualized 3,600 would place this year’s case volume squarely in the middle of the results for the past six years, excepting 2018 (3,600E vs. 4,325). Were case close-outs to continue at the rate achieved through June, the annualized 4,100 would be the highest result since 2013, when 3,714 cases were filed and 4,498 cases were closed. The FINRA staff are currently administering 4,813 cases, only a 1% difference with cases-in-process in June 2018 (4,849).

Special Proceedings Highlighted

Small claims were the original focus of SICA, when it began its role in the 1970s and the affordability (speed, efficiency, finality) of redress for small investors properly remains a FINRA priority. The Special Proceedings rule that took effect in September 2018 provides the option for an “abbreviated telephonic” hearing that has captured interest. FINRA changed its reporting format in the June Report to display separate statistics for the Special Proceeding cases, relative to average turnaround times, manner of resolution, and the result. Over time, as more cases are decided using this hybrid option, these statistics will gain greater meaning. So far, five cases have been closed after using the Special Proceeding option.

Customer Cases by Controversy & Product

FINRA reports on the nature of the newly filed claims by classifying them by the top 15 types of controversy. Breach of fiduciary duty leads the way and its prominence can only be further solidified in future disputes by the SEC new Reg BI and state initiatives to tie brokers to a more defined fiduciary standard. Among those categories that have increased in prominence, relative to prior years, the only items with more cases than last year (remember, there's a 21% gap) are some minor categories, like “Manipulation” (166 v. 128) and “Margin Calls” (50 v. 38). The security types involved in the filed disputes are similarly categorized; investment instruments with more claims than YOY 2018 include “Options” (118 v. 103) -- these derivative instruments are often tied to investment strategies, like naked puts, writing options, and others, that arise from a search for greater yield. In the same vein, “REITs,” “Private Equities” and “Variable Annuities” stand out from the rest of the pack -- REITS especially, VAs not so much.

Arbitrators & Hearing Locations

Last year at this time, FINRA-ODR boasted 7,527 arbitrators on its Neutral Roster. As of June 30, 2019, FINRA had added a net of 361 arbitrators, bringing the total to 7,888 -- and more than two-thirds of the new additions are Public Arbitrators. New arbitrators have to become Chair-qualified, so we anticipated less progress in those ranks. We checked both the Local Chairs by Hearing Location and the Non-Local Chairs. Comparing the number of Local Chairs in July 2018 to the number in June 2019, we counted 27 Hearing Locations in which the numbers actually decreased over the 11-month period. Only 12 locations rose in number (the rest were the same). Non-Local Chair numbers were either the same or down from July 2018; only location rose in number. This latter trend bespeaks a move by FINRA to de-emphasize a program that is both unpopular with many and not particularly needed, given the slowing of new cases.

(ed: *We also compared the number of pending cases by Hearing Location from July to June and found that 44 of the locations were down from last year, while only 23 displayed an increase (the rest were the same in number). **FINRA has made tremendous strides in upping the number of ready arbitrators and increasing diversity. That FINRA is losing Chairpersons, especially Local Chairs, invites treatment; it may be a matter of attrition, nothing more and, with claims down, FINRA has time to deal with that issue.) (SAC Ref. No. 2019-28-01)

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