Sense on Cents

Those who care about truth, transparency, and integrity while navigating our financial markets and economic landscape won another round in our ongoing battle today. How so? As with any business, disputes and disagreements will always occur. How those disputes are adjudicated has always been a subject of much consternation on Wall Street and more so throughout America. Why? Many investors felt the mandated arbitration process disadvantaged investors against Wall Street firms because the arbitration panel has traditionally consisted solely of industry representatives. That standard went through a trial change. That trial change is now being proposed to be made permanent. Think Wall Street and FINRA are beginning to understand how America truly feels? Wall Street’s self-regulatory organization FINRA released the following statement today: 

WASHINGTON — The Financial Industry Regulatory Authority (FINRA) will file a rule proposal next month that would allow all investors filing arbitration claims the option of having an all-public panel, greatly increasing investor choice in the FINRA arbitration program. The rule proposal, which will be filed for approval with the Securities and Exchange Commission (SEC), would expand to all investor claims a two-year-old FINRA pilot program that gives investors filing an arbitration claim against certain firms the option of choosing an all-public panel.

“Giving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process,” said Richard Ketchum, FINRA Chairman and Chief Executive Officer. “All investors will have greater freedom in choosing arbitration panels, and any investor will have the power to have his or her case heard by a panel with no industry participants.”

Ketchum displays a tremendous grasp of the obvious in hinting at the lack of confidence and perceived fairness in the prior process.

If approved by the SEC, the rule would give investors the option of choosing an arbitration panel that has two public arbitrators and one non-public arbitrator, as is now the case, or choosing to have their case heard by an all-public panel. The current pilot program involves 14 firms that agreed voluntarily to a set number of investor cases that did not involve individual brokers. The proposed rule would apply to all investor disputes against any firm and any individual broker. It would not apply to arbitration disputes involving only industry parties.

Since the Public Arbitrator Pilot Program began in October 2008, slightly more than 60 percent of investors eligible to participate have opted in, resulting in almost 560 cases to date. Investors opting into the pilot, given the power to eliminate all non-public arbitrators, still chose to have one non-public arbitrator on their panel about 50 percent of the time. The pilot program was originally set to conclude after two years. However, the participating firms agreed recently to extend the pilot program for an additional year while the rule making process goes forward.

No doubt both Wall Street and FINRA realize they need a makeover in terms of public perception. This offer is a win for investors BUT there are many rounds left to go in the ongoing heavyweight fight for real truth, total transparency, and unbridled integrity as we navigate our economic landscape.

To that end, how is the FINRA board handling the proxy proposals submitted by Amerivet Securities and overwhelmingly supported by FINRA’s membership? Will America receive a healthy dose of truth, transparency, and integrity in that process? Will FINRA’s board listen to the American public and open their books and records on those proposals or was this arbitration “win” merely an olive branch while a lot of the real juice embedded in those proxy proposals will remain in hiding? For those interested in further investigating these proposals and seeing what America really wants to learn, please review, FINRA Gets New ‘Sheriffs’; Amerivet Proxy Proposals Approved!! Strongly Recommended.

FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. 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. Currently, there are roughly 6,200 FINRA arbitrators – 2,700 are non-public and 3,500 public. For more information, please visit www.finra.org.

For even more information, please also visit Sense on Cents/FINRA.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

This entry was posted on Wednesday, September 29th, 2010 at 4:49 AM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.