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In a superficial effort to avoid Congress enacting the Arbitration Fairness Act, in response to the perceived corruption of the arbitration process by FINRA, a “self”-regulatory organization consisting of the same brokerage firms that are the defendants or respondents in these cases, announced that it will launch a two-year pilot program later this fall. The pilot program that will allow some investors making arbitration claims to choose a panel made up of three public arbitrators instead of two public arbitrators and one non-public arbitrator, as is currently the norm.

Six Firms Volunteered

Six firms — Merrill Lynch, Citigroup Global Markets, UBS, Wachovia Securities, Morgan Stanley and Charles Schwab — have volunteered to participate in the pilot program.

The first five firms will contribute 40 arbitration cases each per year to the program and Schwab, with fewer cases in the forum, will refer 10 cases – meaning that over the course of the pilot, over 400 arbitration cases involving those firms can be heard by all-public arbitration panels. Only the investor making the arbitration claim can elect to participate in the pilot program; the firms will not decide which cases become part of the pilot. The pilot will be available to eligible claims filed on or after October 6, 2008.

FINRA is also reaching out to a wide range of other firms to join the pilot so that a variety of firm sizes and business models will be represented.

According To FINRA CEO Mary Schapiro

“This pilot will give investors greater choice when selecting an arbitration panel,” said FINRA CEO Mary Schapiro. “Additionally, this program will allow us to see if a change in the way arbitration panels are selected is a better way to serve and protect the interests of investors.

“Investors who choose to have their claims heard under the pilot program – and the firm they are making their claim against – will receive the same three lists of potential arbitrators that parties to standard arbitration disputes receive: a list of eight chair-qualified public arbitrators, a list of eight public arbitrators and a list of eight non-public arbitrators.

Parties may strike up to four of the arbitrators from the chair-qualified and public arbitrator lists for any reason, then rank the remaining arbitrators on those lists according to preference. Parties participating in the pilot program may strike all eight names on the non-public arbitrator list and the next highest-ranked public arbitrator will be selected to complete the panel. This selection process “allows investor claimants to choose a non-public arbitrator if they prefer, or an all-public panel if that is their wish,” Schapiro said.

How The Pilot Program Will Be Evaluated

The pilot program will be evaluated according to a number of criteria, including the percentage of investors who opt into the pilot and the percentage of investors who choose an all-public panel after opting in. FINRA will compare the results of pilot and non-pilot investor cases, including the percentage of cases that settle before award (and how quickly they settle). FINRA will also study the length of hearings and the use of expert witnesses in pilot and non-pilot cases.


FINRA Dispute Resolution is the largest securities dispute resolution forum in the world. It facilitates the efficient resolution of monetary, business, and employment disputes between investors, securities firms, and employees of securities firms by offering both arbitration and mediation services through a network of hearing locations across the United States. It currently maintains a roster of approximately 6,400 arbitrators and conducts arbitrations in 73 hearing locations in the United States and abroad.

FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. Created in 2007 through the consolidation of NASD and NYSE Member Regulation, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business-from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.finra.org.

Guiliano Law Group

Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.