FINRA Stats, 9/19: Big Surge in August Filings Ebbs; Return To Calm
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Remember in August, case filings suddenly shot up to 501 for the month, from an average of about 300 during the first seven months? That surge ended quickly, as new submissions for September totaled 294 and customer-related case filings dropped to 171 for the month of September from 368 the month before.

In our coverage of the August statistical report (SAA 2019-38), we attributed the big August spurt to the Puerto Rico bond price collapse that dates back to the summer months of 2013 and a rush to beat the six-year eligibility deadline. At the recent (10/22-26) PIABA Annual Conference in Austin, TX, FINRA-DR officials confirmed during presentations that the spurt was attributable to the Puerto Rico cases and to a perceived eligibility event. With nine months of the year passed, FINRA-DR is now reporting 2,592 new cases filed, as compared to 2,958 at this juncture last year, a 12% decline from 2018. Customer claims are down 9% (1,688 vs. 1,859) and intra-industry claims are off 18% (904 vs. 1,099).

Closed/Open Cases and Turnaround Times

We also heard confirmation at the PIABA Conference that the Puerto Rico cases are settling at a rate that hits the high 90s. We know, too, that these cases, due to arbitrator resources and other logistics, take much longer than the usual FINRA customer claim to reach hearing readiness. That means that the relatively few Puerto Rico cases that are heard will have a negative impact on FINRA average turnaround time (ATT) for Hearing Decisions, but the greatest impact is likely on the Overall ATT, as that measurement includes the many Puerto Rico-related settlements. Thus, despite the fact that closed cases number more through the first nine months of 2019 than same-period 2018 (2,987 vs. 2,791) and despite the gradual decline in Open Cases that is underway (4,982 in 1/19 vs. 4,958 in 9/19), Overall ATT has moved back up to 14.1 months (vs. 12.9 in 1/19) and Hearing Decision ATT has returned to 17 months (17.4 mos.) from 16.0 last year at this time and 16.5 at the start of 2019.

Controversies & Products

Of the 1,859 customer claims filed in 2019 to date, as many as 1,618 claim Breach of Fiduciary Duty, 1,442 assert Negligence, and 1,368 charge Failure to Supervise. Yet, among the 15 top Controversy Types in FINRA-DR’s September Report, the only Controversies that stand higher in number than they did last year are Manipulation (287 vs. 213), Errors-Charges (71 v. 62) and Margin Calls (69 vs. 65). Thus, the claims on the customer side do not appear to be altering much from the norm. Similarly, on the “Security Type” chart, Municipal Bond Funds, Municipal Bonds, and Mutual Funds dominate, but are down 15-20% from same-period last year. Government Securities, REITs, Options, Private Equities, and Variable Annuities/Annuities stand higher in number -- and certainly percentage-wise -- than last year’s comparative figures, reflecting (except for Options (but, think covered calls)) the thirst for yield that surely plays a role in these claims. Where are the “Common Stock” cases? Fifth on the list and down 27% from the nine-month period in 2018.

How are Customers Faring?

With only 13% of the closed customer-claimant cases decided by arbitrators, Awards have been seemingly relegated to a minor role, although settlements and other resolutions short of hearing are affected by the panels that parties select, the time to hearing, and perceptions relating to win rates and recovery rates. Customers who do seek an arbitral decision are actually doing quite well in 2019, relative to past years. The overall win rate of 47%, according to FINRA break-out charts on customer-claimant Awards, is the best for customers in six years. Similarly, those who brave hearing win 46% of the time -- again, the highest in six years; even the “Paper-Only” cases are on a tear, so to speak, with a 2019 win rate of 49%. That’s a big leap from the mid-to-low 30s that characterize most prior, recent years. The stand-out win rate, of course, is the three-person Public Panel Awards that have consistently been in the mid-50s (now 55%) for the whole of 2019. With 107 such cases decided so far this year, this rate merits credit; with a rate this high, one wonders why so many cases are settling?

(ed: We had expected that FINRA’s aggressive arbitrator recruiting efforts would have pushed the Neutral Roster ranks over the 8,000-mark by now. In July, FINRA was reporting a total of 7,952 neutrals onboard (4,273 NPAs & 3,679 PAs). The roster total has been dropping the last two months. In September, the overall figure dropped to 7,888. Public Arbitrator numbers continue to grow (3,722), but Non-Public Arbitrators now tally only 4,116.) (SAC Ref. No. 2019-41-01)

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