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FINRA Stats, EOY 2015 (Part II)
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The Office of Dispute Resolution, FINRA’s new arbitration and mediation department, posted its statistical report for December 2015 on the FINRA Website in mid-January; we took an initial run at the figures in last week’s SAA and resolved to continue our analysis in this week’s Alert. Here’s Part II.

To review, we reported that new case filings were down 10% from 2014 (3,435 vs. 3,822) and the number of cases processed to conclusion fell by 9% (3,489 vs. 3,838). We looked at “Controversy Types” and found percentage increases in intentional misdeeds (Churning, Unauthorized Trading, Market Manipulations) and margin call disputes. On the Intra-Industry side, promissory note defaults featured in about 40% of the cases, but the number of such disputes was down dramatically from the past few years. Employees are most notably pursuing wrongful termination claim; that dispute category was up 50% in 2015, followed by smaller growth in defamation and discrimination claims. We also noted some turbulence in the raiding area in both 2015 and 2014. Viewing customer claims from the product perspective yielded some insights as well. We were able to see in the “Security Type” figures the “pig in the python” represented by the more than 1,000 cases filed in the Puerto Rico bond fund matters and we also puzzled over the surprising increase in matters involving U.S. Government Securities, which were up five-fold from last year!

How Arbitration Cases Close

This FINRA Chart, which categorizes the ways in which cases entering FINRA-ODR are disposed of, details dispositions among two classes, those that arbitrators decided and those “resolved by other means.” Arbitrators decide cases in two ways, essentially, “After Hearing” and “After Review of Documents.” Over the past five years, the percentage of cases disposed of by decision has risen – from 21% in 2011 to 24% in 2015. Cases decided “After Hearing” numbered 646 (19%), while another 182 were decided “After Review of Documents.” The latter are comprised mostly of Small Claims disputes and, from SAC’s Award Database, we know that the great majority of decided Small Claims cases resolve this way.

Those cases that are not decided do not necessarily settle. Indeed, only 59% of the cases concluded in 2015 settled – 50% by direct negotiations and 9% through mediation. That leaves 17% of the closed cases, which are closed when “Withdrawn” (9%) or “by other means.” FINRA no longer provides an explanation for the “All Others” category; as we recollect, many of the 8% or 294 cases were Stipulated Awards, with bankruptcies and administrative terminations (e.g., failure to pay filing fees) accounting for much of the rest. “Settlements” have generally accounted for 60% of closed cases in past years; “Withdrawn” cases have generally been higher in past years, hitting 12% in 2011. All in all, we view this year’s higher decisional rate as neutral to positive for parties.

Customer Outcomes

One reason customers might have for proceeding to a hearing and decision could be the All-Public Panel Option. Over the past five years, the percentage of customers choosing an arbitral decision has climbed from 16% to 20%. That’s still less than the 24% overall decisional rate in 2015 and the upward trend has been climbing a “wall of worry” represented by lower “win” rates. The percentage of cases in which customers won a monetary award jumped from 38% in 2014 to 42% in 2015, but lower win rates have been the general trend in the past six years. Today, however, nearly two-thirds of the eligible customer cases are being decided by three-member panels comprised of All-Public Arbitrators (163 of 247) – and the “win” rates on that front have been going up. That greater dependence on the Public Arbitrator could, in higher volume times, lead to a bottleneck in available arbitrators. 3,009 Public Arbitrators now serve on FINRA’s Neutral Roster, up from 2,978 at the end of November, as FINRA continues to re-build from the 3,527 Public Arbitrators it had available for service at the end of 2014.

(ed: Don’t forget to check out the Hearing Locations map that is embedded in FINRA’s monthly statistical report. It will give you information about your available hearing locations that may alert you in advance to possible bottleneck delays, to the breadth of choice in making arbitrator selections, and to other important tactical details.) (SAC Ref. No. 2016-05-02)

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