ShareCast News (NEW YORK Dow Jones) (July 21, 2010 2:52 pm) --The Financial Industry Regulatory Authority is extending a pilot program that gives investors the option of an arbitration panel without an industry-affiliated arbitrator.

The program was set to end after two years on Oct. 5, but brokerages participating in it agreed to let it continue until the same date in 2011, according to Finra's website. Finra, Wall Street's internal watchdog, oversees the arbitration process in securities disputes.

Most arbitration cases are heard by a three-person panel. One of those members is typically affiliated with the securities industry, while two others are so-called public arbitrators.

Investor advocates have long argued that an industry affiliation raises concern about possible bias or conflict of interest, in some types of cases, particularly those involving broad practices. An example they commonly cite is the sale of auction rate securities by numerous brokerages before the market for them froze up and left investors stranded.

Giving investors the option of a panel comprised of three public arbitrators would eliminate that potential bias, but they still can choose an industry arbitrator in cases where that expertise could be helpful, says Stuart Meissner, a New York-based securities lawyer. Those types of cases may involve complex issues, such as allegations that a firm failed to hedge. Industry arbitrators, in that context, can help explain intricacies to the public arbitrators, says Meissner.

"It's a very good program. It shouldn't be a pilot," says Meissner.

Scott Shewan, president of the Public Investors Arbitration Bar Association, or Piaba, a Norman, Okla.-based group of lawyers who represent investors in securities arbitration says the program's extension may have been prompted by favorable results.

Finra didn't formally announce the extension, but rather mentioned it in a question-and-answer section on its website. A spokesman declined to immediately comment.

Fourteen firms are participating in the program and have agreed, collectively, to have 411 cases heard in 2010 and again in 2011. Among them are UBS Financial Services Inc., Citigroup Global Markets, Inc. and Wells Fargo Advisors.