SEC Approves Amendments to the Panel Composition Rules of the Arbitration Code for Industry Disputes
- United States
- 08/06/2009
The criteria for determining the panel composition for an arbitration when the claim involves an associated person in an industry dispute will change effective August 31, 2009. The amendments to the Arbitration Code for Industry Disputes (“Industry Code”) will apply to claims that are filed on or after the effective date.
Currently, FINRA Rule 13402(a) of the Industry Code requires an all non-public panel for disputes between member firms, and for employment disputes between or among member firms and associated persons that relate exclusively to employment contracts, promissory notes or receipt of commissions. In all other disputes between or among member firms and associated persons, Rule 13402(b) requires a majority public panel, where one arbitrator would be a non-public arbitrator and two would be public arbitrators.
The amendments to Rules 13402, 13403 and 13406 of the Industry Code change the criteria for determining panel composition when the claim involves an associated person in industry disputes. Specifically, the amendments to the Rules of the Industry Code: (1) require that the parties receive a majority public panel for all industry disputes involving associated persons (excluding disputes involving statutory employment discrimination claims); (2) clarify that in disputes involving only member firms, parties will select an all non-public panel; and (3) provide that if a party amends its pleadings to add an associated person to a previously all-member firm case, the parties will select a majority public panel.
The deadlines for arbitrator list selection determine how FINRA processes an amended pleading that adds an associated person as a party. If the list of potential arbitrators has not been sent to the parties, FINRA will send the standard majority public panel lists (i.e. a public chairperson list, a public arbitrator list and a non-public arbitrator list.). If the lists have been sent to the parties, but not yet returned, FINRA will provide two public lists to the parties and keep the non-public list. If the ranked lists are due to FINRA, then the parties may not amend their pleading until a panel is appointed. Once appointed, the panel will decide the motion, and if granted, FINRA will retain the non-public chairperson and remove the remaining non-public members. The parties will then select two new public arbitrators from the lists. The selected public chairperson will become the chairperson of the panel. This process is substantially similar in single arbitrator cases as well.
