FINRA: SEC Approves Amendments to Arbitration Codes to Revise the Definition of Public Arbitrator (with Lofchie Comment)

The SEC approved amendments to the definition of public arbitrator in the Customer and Industry Codes of Arbitration Procedure. The amended definition excludes persons associated with a mutual fund or hedge fund from serving as public arbitrators and requires individuals to wait for two years after ending certain affiliations before FINRA may permit them to serve as public arbitrators.

The amendments are effective on July 1, 2013, and apply to all cases in which FINRA has not sent to the parties lists of chair-qualified public arbitrators and public arbitrators for arbitrator selection.

Lofchie Comment: It is not so obvious that employees of either hedge funds or mutual funds would be biased systematically in favor of broker-dealers. I wonder if there are any statistics that evidence such bias. Does the arbitration system really improve if those with a background in financial services are excluded from serving on arbitration panels?

See: FINRA Regulatory Notice 13-21.Related FINRA Proposed Rules: Proposed Rule Change to Amend the Discovery Guide Used in Customer Arbitration Proceedings and Proposed Rule Change to Amend FINRA Rule 12403 of the Code of Arbitration Procedure for Customer Disputes to Simplify Arbitrator Selection in Cases with Three Arbitrators.