Effective September 27, 2010, FINRA’s Code of Arbitration Procedure will be amended to increase from eight to ten the number of arbitrator candidates parties will receive on each of the prospective panel lists (Chair-qualified, public and industry arbitrator lists) that FINRA generates during the neutral selection process. FINRA proposed this change, and the SEC quickly approved it, in response to complaints voiced from parties and counsel that the neutral list selection system – in which parties may strike up to four names on each list and rank the remaining names — too often resulted in the appointment of an “extended list” arbitrator. This appointment reduces parties’ input in and control over the arbitrator selection process, leading to disputant dissatisfaction with the arbitration panels that heard their disputes. Recognizing that party selection of a neutral is a critical feature to arbitration, designed to be a consensual dispute resolution mechanism, FINRA proposed increasing the number of names on each list, so that even if each party to a two-party dispute struck four names different from the adverse party, two names would still remain eligible for selection, reducing the likelihood of an “extended list” appointment (known to some who practice frequently in securities arbitration as a “cram-down” arbitrator). For more details, see FINRA Regulatory Notice 10-37.
It will be interesting to review statistics from arbitrator appointments under this new regime to see how often FINRA still has to appoint “extended list” arbitrators.