FINRA, next month, will propose allowing all investors who file arbitration claims the option of having an all-public panel, greatly increasing investor choice in the FINRA arbitration program.  The rule change would expand to all investor claims a 2-year-old FINRA pilot program that gives investors filing an arbitration claim against certain firms the option of choosing an all-public panel. 

"Giving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process."   "All investors will have greater freedom in choosing arbitration panels, and any investor will have the power to have his or her case heard by a panel with no industry participants."  -- FINRA Chairman and CEO Richard Ketchum.

If approved by the SEC, the rule would give investors the option of choosing an arbitration panel that has 2 public arbitrators and one non-public arbitrator - as is now the case - or choosing to have their case heard by an all-public panel.  The proposed rule would apply to all investor disputes against any firm and any individual broker.  It would not apply to arbitration disputes involving only industry parties.

    Public Arbitrator Pilot Program, To Date.    The current pilot program, which began in October 2008, involves 14 firms that agreed voluntarily to a set number of investor cases that did not involve individual brokers.  Since that date, slightly more than 60% of investors eligible to participate have opted in - almost 560 cases.  Of those investors who opted into the pilot - and thus had the power to eliminate all non-public arbitrators - about 50% still chose to have one non-public arbitrator on their panel.  The pilot program was originally set to conclude after 2 years.  However, the participating firms agreed recently to extend the pilot program for an additional year while the rule making process goes forward.  [FINRA News Release, 9/29]