“Unseemly Haste” in Pushing Proposal Forward is Inconsistent With Original FINRA, SEC 2000 Statements on Need for Independent FINRA Dispute Resolution Subsidiary.

Morningstar (WASHINGTON, November 2, 2015 /PRNewswire/) — In the face of a hurried effort by FINRA to merge its currently independent Dispute Resolution division overseeing nearly all investment arbitration cases back into the main, broker-run FINRA organization, the nonprofit Public Investors Arbitration Bar Association (PIABA) called today for “a slowing down of this process so that there is sufficient time for the public to weigh in on this step that appears to completely contradict previous FINRA and Securities Exchange Commission (SEC) statements about the need for independence, fairness and neutrality.”

The SEC approved the FINRA merger proposal on October 6, 2015, with a public comment period that ends November 3, 2015.  However, public notice of the proposed rule change did not appear in the Federal Register until October 13, 2015, leaving just 15 business days for public comment.

Attorney Hugh Berkson, president of PIABA, said:  “What is the rush here?  Why leave the impression that this is being slammed through before the public can get wind of this change?  Why would the SEC even consider taking further chances with investor confidence in the already troubled FINRA arbitration system?  We call for more time to be allowed for public analysis of and comment on this important change.  After all, FINRA (then NASD) said in 2000 that the spin-off of the Dispute Resolution system was needed to make it independent and for there to be a perception of fairness.  The SEC agreed at the time.  If anything, we currently face a situation in which investors question the fairness and independence of the system more than ever.  Why would we make it worse by contradicting the original FINRA/SEC assumptions and merging the FINRA arbitration system back into the main FINRA regulatory organization?”

When the NASD (now FINRA) Dispute Resolution system was launched in July 2000, Linda Feinberg, then president of the subsidiary, said:  “We believe the creation of a separate subsidiary will further enhance the perception of neutrality and increase the confidence and comfort-level of forum users.”   (See the July 17, 2000 NASD news release at https://www.finra.org/newsroom/2000/nasd-launches-new-dispute-resolution-subsidiary.)

In its approval of the 2000 plan for an independent Dispute Resolution subsidiary, the SEC decided as follows:  “The Commission finds that the proposed rule change is … designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.  Specifically, the Commission believes that separating the dispute resolution role from the disciplinary role of NASD Regulation will result in a more neutral and independent forum for the resolution of disputes between members, associated persons, and customers.”  (The SEC decision is available at https://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=2341.)

Berkson commented:  “Basically, we think FINRA and the SEC got it 100 percent right 15 years ago when they created the independent subsidiary now known as FINRA Dispute Resolution.  However, real concerns exist today about the fairness and neutrality of FINRA-run arbitration.  As such, the proposed rule change would be a huge step backward to, in essence, put the chicken coop back into the fox den.   At a minimum, the SEC should open up this comment period to allow more time for public views and concerns to be expressed.   The unseemly haste with which this is being pushed through only furthers the impression that FINRA arbitration is run by the industry and for the industry.  We hope that isn’t truly the case, and accordingly call for more time for the public to analyze the proposal.”

ABOUT PIABA
Public Investors Arbitration Bar Association is an international, not-for-profit, voluntary bar association of lawyers who represent claimants in securities and commodities arbitration proceedings and securities litigation. The mission of PIABA is to promote the interests of the public investor in securities and commodities arbitration, by seeking to protect such investors from abuses in the arbitration process, by seeking to make securities arbitration as just and fair as systemically possible and by educating investors concerning their rights. For more information, go to www.piaba.org.