FINRA’s Hearing Location Statistics, 9/18: Focusing on Local Chairs and Chair-to-Case Ratios
Posted on Categories Arbitration, Arbitrators, FINRA Code of Arbitration, Securities ArbitrationTags , , , , ,

Tap a link that says "table format" above the U.S. map of FINRA hearing locations in the FINRA-DR monthly statistical report and you can see just how many arbitrators FINRA can deploy in each of its hearing locations, how many are local and non-local, and how many cases are currently open. In this analysis, we try to put that information to work for practitioners.

Among FINRA-DR's 70 domestic hearing locations, 68 have not achieved a 1:1 (or better) ratio between the number of Local Public Chairs available for service and the number of open cases on that city's docket. That means only two hearing locations, Albany, NY (9 Local Chairs vs. 9 Pending Cases) and Augusta, ME (6:4), have as many local Chairpersons from which to select as they do cases on their respective dockets.

To provide backup and support for those local Chairs, FINRA has recruited non-local Chairs from other hearing locations to serve, where the local numbers are low. Among the 68 non-qualifying locations, there are 26 that still do not rise to the 1:1 ratio, even when FINRA supplements the number of local Public Chairs with the non-local Public Chairs available in that hearing location. FINRA has recruited enough non-local Public Chairs to supplement the Public Chairs and cover the existing caseload at least once-over in the other 42 hearing locations.

Not to Worry

Should we worry about those 26 hearing locations? We don't think so and here's why. While those 26 FINRA hearing locations do not have a sufficient number of Public Chairs (whether local or non-local) to demonstrate a 1:1 Public Chair to Pending Case ratio, each and every one of these hearing locations is relatively large -- they all have at least 40 pending cases. Indeed, FINRA's largest and most active hearing locations fall into this category, including New York City with over 500 open cases. But, New York City also has 166 local Public Chairs and no non-local Chairs! FINRA has evidently chosen not to build a large, back-up cadre of non-local Public Chairs in these larger situses. In priority terms, we see the logic in that choice. If FINRA is committed to offering arbitration facilities in every state, so that public investors can have ready access to the forum and practical access to a local lawyer, then the smaller locations among the 70 warrant first attention.

Addressing Concerns About “Non-Local” Chairs

That takes us back to the 42 hearing locations that achieve a 1:1 ratio, but (except in the case of Albany NY and Augusta ME) do so by resorting to the use of non-local chairs. As we reported in our coverage of the late September PLI Seminar on Securities Arbitration, FINRA has heard "loud and clear" that the parties prefer locally-based arbitrators. An October 26 article appearing in FinancialAdvisorIQ following the program and quoting some of the PLI speakers, demonstrates that the demand can be heard on both sides of the hearing table. Having covered virtually all of these small cities with a mix of non-local and local chairpersons and having reached a ratio of chairs to caseload of 1:1 or better, FINRA's next challenge, in order to avoid the use of non-local Public Chairs altogether, would mean, according to its "Arbitrator Selection" protocols, raising the number of available Local Public Chairs in these hearing locations to 20.

Small City Recruitment Needs

To get there, FINRA must focus recruiting efforts on the small cities most in need of additional Public Chairs. Until FINRA reaches its targeted balances, Claimants' counsel may want to consider in advance the drawbacks to using a hearing location that reflects small numbers of local chairpersons relative to the number of open cases. If both sides want a locally-based panel, they can agree on the use of a local Chair; they can also mutually agree on a different hearing location, where FINRA's protocols already permit a local list. From our analysis, the small hearing locations that would be on our "watch list" of cities with the lowest ratios of local chairs to open cases are:

*Albuquerque, NM     (5:11)

*Anchorage, AK         (1:4)

*Bismarck, ND           (0:11)

*Boise, ID                   (3:5)

*Buffalo, NY               (8:26)

*Charleston, WV        (3:9)

*Cheyenne, WY          (1:2)

*Cincinnati, OH          (3:17)

*Columbia, SC            (5:34)

*Columbus, OH          (5:26)

*Des Moines, IA         (2:14)

*Helena, MT               (2:3)

*Honolulu, HI             (3:8)

*Jackson, MS             (3:12)

*Las Vegas, NV          (3:21)

*Little Rock, AR         (6:11)

*Louisville, KY           (6:17)

*Manchester, NH        (4:8)

*Montpelier, VT          (4:7)

*Norfolk, VA              (2:7)

*Omaha, NE               (3:16)

*Rapid City, SD          (0:2)

*Reno, NV                  (3:11)

*Syracuse, NY            (2:16)

*Wichita, KS              (2:4)

*Wilmington, DE        (1:17)

Constructive Advice for Counsel

Our purpose here is not to criticize FINRA-DR. Indeed, FINRA's recruiting efforts in the past few years have been vigorous and its commitment to re-building its roster ranks admirable. We have also shown in past reviews of the forum's Hearing Location Statistics that new arbitrator recruits have been widely distributed among the locations. FINRA-DR has also shown, in comments to the press (see SAA 2018-02) and reports at arbitration seminars that it aims to mitigate reliance on the non-local chair. Our purpose, rather, is to alert party counsel to the possibility of "bottleneck" delays, additional conflict problems, and the lack of diversity (in terms of choice -- background, experience, expertise, etc.) on certain of the hearing location rosters. With this knowledge in advance, counsel can consider the available alternatives.

(ed: *We've already done the work, so subscribers are invited to email for copies of our analysis of all 70 hearing locations. We show the chair to case ratios for each city and we asterisk those that do not reach the 1:1 ratio, even when both local and non-local chairs are counted. **What are some of the dangers of arbitrator rosters of inadequate size? When the numbers fall below that "red line" ratio, a great likelihood develops that one or more chairpersons will be called to serve on two or more cases. That circumstance becomes most undesirable when some, maybe all, of the filed cases involve the same facts, the same lawyers or the same broker-dealers. We focus primarily on the Chair, because she is not only the most influential member of a three-person Panel, but generally the only candidate for appointment in cases involving $100,000 and under. Roster-packing and the potential for other bad practices become more possible when the Chair roster is small.) (SAC Ref. No. 2018-42-01)

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