SEC Approves Amendments to the Customer and Industry Codes of Arbitration Procedures

The Amendments to Rules 12400 and 13400 were announced by the SEC on January 3, 2017 and became effective on January 9, 2017.

The goal of these amendments is to expand the roster of arbitrators who might be eligible to serve as a public chairperson in each hearing location. An attorney is now eligible for the chairperson roster if he or she has completed chairperson training and served as an arbitrator through award on at least one arbitration ( instead of originally two) administered by an SRO in which hearing was held.

Roster extension provides the parties with a greater selection of local chairpersons, without negatively impacting the quality of the chairperson roster[1].

To ensure the quality and efficiency of arbitrations, FINRA rules require chairpersons who play a vital role in the administration of arbitration cases, to have arbitrator experience and training. That is why an arbitrator only was eligible for a chairperson roster if he or she completed a chairperson training provided by FINRA and…

• Had a law degree and was a member of a bar of at least one jurisdiction and had served as an arbitrator through award on at least two arbitrations administered by an SRO in which hearings were held; or
• Had served as an arbitrator through award on at least three arbitrations administered by an SRO in which hearings were held.

Besides these requirements in disputes involving associated persons, chairpersons had to be public arbitrators.

Conclusion:

An attorney who has completed chairperson training and served as an arbitrator through award in at least one arbitration administered by an SRO in which hearing was held, is eligible to serve as a public chairperson.

If you have any questions about this Client Alert or any of the Regulatory Notice discussed, please contact Paul A. Lieberman, PLieberman@sh-law.com.

Paul Lieberman has more than three decades of experience preparing and revising policies and procedures, developing effective supervision structures, leading and coordinating internal investigations and defending regulatory enforcement proceedings before the SEC, FINRA and state securities departments/commissions.

Laura K. Kues assisted in the preparation of these Alerts. Laura graduated from Johannes Gutenberg University in Mainz (Germany) in June 2015 (First State Exam) with the priority area in Competition Law Intern at Eaton & Van Winkle, LLP (USA) during the 2017 German legal clerkship at the district court of Mainz (Germany).

FOOTNOTES
[1] This was necessary after FINRA amended the definition of the public arbitrator, by adding disqualifications in 2015. After these Amendments, approximately 14 percent of the public arbitrators, from which many were chair-qualified, were removed from the roster. To ensure that FINRA had a sufficient number of public chairperson arbitrators to serve each of its 71 arbitration hearing locations, many chairpersons had to travel to nearby hearing locations. Forum users complained about the inconvenience of scheduling hearings with out-of-town arbitrators. Furthermore, due to weather conditions many hearings had to be rescheduled because arbitrators were not able to travel to the hearing location.