Neutral Corner - August 2007
We Are FINRA - the Financial Industry Regulatory Authority
With the consolidation of NASD and NYSE Member Regulation, the Financial Industry Regulatory Authority (FINRA) became the largest non-governmental regulator for all securities firms doing business in the United States. FINRA was created through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange. The consolidation, which was announced on November 28, 2006, and approved by the Securities and Exchange Commission (SEC) on July 26, 2007, became effective on July 30, 2007. Mary L. Schapiro, former NASD Chairman and CEO, serves as FINRA's CEO. Richard G. Ketchum, former NYSE Regulation CEO, serves as FINRA's non-executive Chairman.
FINRA conducts the regulatory oversight of more than 5,000 securities firms and more than 660,000 registered representatives. It is responsible for all member regulation and arbitration and mediation functions. The SEC works closely with FINRA to eliminate duplicative regulation, including consolidating the two different member rulebooks and enforcement systems.
How the Consolidation Affects Dispute Resolution
While July 30, 2007, officially marked the consolidation of NASD and NYSE Regulation, Inc. (NYSE) to form FINRA, the consolidation of NASD and NYSE arbitration and mediation programs occurred on August 6, 2007, with the SEC's approval of SR-NYSE 2007-48.1
FINRA is working to scan all NYSE awards into the Arbitration Awards Online database, to harmonize NASD's and NYSE's arbitration and mediation rules and best practices, and to finalize neutral roster issues. Although we will make additional recommendations, FINRA has developed the following plans for immediate implementation.
Administration of Arbitration Cases
On July 30, 2007, NASD Dispute Resolution and NYSE Dispute Resolution combined operations and staff to form FINRA's Dispute Resolution department. Parties involved in a pending arbitration or mediation case should not expect any significant changes or interruptions to their case. FINRA staff will administer arbitration and mediation cases that were pending on the effective date of the consolidation, using the rules under which the cases were filed.
- For any case pending with the NYSE forum: FINRA will administer the case using the NYSE Regulation Arbitration Rules, with the case to be heard at the hearing location assigned for that case. FINRA staff formerly employed by NYSE Arbitration will continue to administer the case.
- For any case pending with the NASD forum: FINRA will administer the case using the NASD Code of Arbitration Procedure, with the case to be heard at the hearing location assigned for that case.
- FINRA will administer all arbitration and mediation cases filed on or after August 6, 2007, under the NASD Code of Arbitration Procedure.
Consolidation of the Self Regulatory Organizations' Award Databases
Parties will continue to have access to NASD awards from January 1989 to the present in FINRA's Arbitration Awards Online database. We also plan to provide access to NYSE arbitration awards and the awards of arbitration programs previously absorbed by NASD and NYSE, by the end of 2007.2 Additionally, we will incorporate all non-NASD awards into FINRA's arbitrators' Arbitrator Disclosure Reports by the end of 2007.
Integration of the Neutral Rosters
Approximately 95 percent of NYSE's arbitrators are also NASD arbitrators. Those arbitrators—who serve on either forum's roster—will maintain their roster status. NASD arbitrators will maintain their classification as described in NASD's arbitration rules regardless of when the arbitrator appointment on a case occurred. NYSE arbitrators appointed to cases filed in NYSE's forum prior to August 6, 2007, will maintain their classification as described in NYSE's arbitration rules. FINRA will evaluate the classification, background, experience, and training of the remaining 5 percent of NYSE arbitrators who are not NASD arbitrators for their placement on FINRA's post-consolidation roster.
Approximately 25 percent of the NYSE's mediators are also NASD mediators. Those mediators will maintain their status serving on FINRA's roster and on the NYSE roster for cases continuing to conclusion under the NYSE rules. FINRA will evaluate the background, experience and training of the remaining NYSE mediators who are not NASD mediators, and assess its current recruitment needs when determining their placement on FINRA's post-consolidation roster.
To ensure a seamless transition, we look forward to providing you with more information regarding the impact of the consolidation on NASD's and NYSE's consolidated arbitration and mediation programs in future issues of The Neutral Corner.
1 On August 6, 2007, the SEC approved SR-NYSE-2007-048, which proposed to provide guidance regarding both new and pending arbitration claims in light of the consolidation of the member firm regulation function of NYSE Regulation, Inc. with NASD. Even though the consolidation occurred on July 30, 2007, the effective date of the consolidation is the date of approval of this proposal, which is August 6, 2007. See Securities Exchange Act Rel. No. 56208 (August 6, 2007) (Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 Thereto Relating to Proposed Amendments to Rule 600 to Provide Guidance Regarding New and Pending Arbitration Claims in Light of the Consolidation of NYSE Regulation into NASD DR), "See also the Dispute Resolution News" section of this issue for more information on SR-NYSE-2007-48."
2 This includes awards from the following Self Regulatory Organizations: American Stock Exchange, Municipal Securities Rulemaking Board, Pacific Stock Exchange, and Philadelphia Stock Exchange.
Arbitrator Responsibility in Assessing Forum and Postponement Fees3
By Zeb Barnhardt, Jr.*
Both the old and new NASD Codes of Arbitration Procedures (Codes) provide that arbitrators shall determine amounts chargeable to parties as forum and postponement fees, and shall determine who will pay such fees. Forum fees consist of hearing session fees, fees for decisions rendered on discovery-related motions without a prehearing conference and decisions on contested subpoenas without a prehearing conference. Arbitrators do not decide filing fees. Parties pay a filing fee depending on how much it claims as its amount in dispute. This fee covers some of the costs of processing a case up to the initial prehearing conference. Hearing session fees, fees for deciding discovery-related motions on the papers, and decisions on contested subpoenas without a prehearing conference are intended to cover some of the costs of administering a hearing and paying arbitrators for making those decisions. Postponement fees, in part, help to defray the costs of canceling hearing rooms.
It is part and parcel of FINRA's arbitration process that the parties should share in the cost of the process by paying forum fees as the Codes describe. FINRA's arbitration forum affords an expedient means of dispute resolution when compared to the regular litigation process. It lessens the cost to the parties, as well. FINRA incurs expenses in setting up conference calls and booking facilities for hearings. When a late cancellation occurs, FINRA frequently pays for unused facilities that meeting facilities cannot re-rent to others. Similarly, fee waivers—granted without just cause—adversely impact the financial support that the fees provide. Forum fees help pay such expenses and, therefore, contribute to maintaining the arbitration forum.
The Codes require that each member4 that is named as a party in an arbitration, or that employed an associated person who is named as a party at the time of the events that gave rise to the dispute, must pay a surcharge. Each member that is a party to an arbitration in which more than $25,000 is involved, or employed an associated person who is named as a party at the time of the events that gave rise to the dispute in an arbitration in which more than $25,000 is involved, must pay a prehearing process fee, due at the time the arbitrator list is sent, and a hearing process fee, due at the time parties are notified of the date and location of the hearing on the merits. The impact of the member surcharge and process fees results in members bearing approximately 75 percent of the costs of administering the arbitration forum.
Requests for Fee Waivers
Arbitrators should seek to balance the equities, scrutinize the facts and circumstances, and carefully consider whether to grant a request to waive forum fees and postponement fees. Waiving fees may be clearly appropriate in some circumstances. After all, emergencies occur. One example is a postponement resulting from the sudden illness of a party, counsel or a critical witness during the course of an evidentiary hearing. Inability of a party to pay might also be a valid reason, but the panel should first make an inquiry to substantiate the request or elicit facts and circumstances from testimony that would demonstrate the fairness of granting the waiver. A party's waiver request based on alleged inability to pay made early in the arbitration process might, for example, appear less meritorious to the arbitrators after they hear the evidence than it did when the party initially made the request.
Forum fees help support the costs of running the dispute resolution forum. An indiscriminate waiver of such fees tends to undercut that process. Arbitrators should be reluctant to grant a waiver request that follows dilatory conduct by the requesting party or one that comes from a party that has failed to comply with orders of the panel on discovery or other matters. Declining the request in such circumstances upholds the integrity of the arbitration process in which all parties have an obligation to cooperate to keep the matter moving to a conclusion.
Parties who request a postponement at the last minute impose on the time of the arbitrators. Waiving the postponement fees, absent a valid reason for the delay, tends to reward such parties for their conduct.
Interim Assessment of Fees
Arbitration panels have the option of making an interim assessment of both forum and postponement fees, pending the conclusion of the hearing, at which time the fees can be assessed and apportioned as the panel may determine when making its decision and issuing the award. Such interim assessment typically begins with the initial prehearing scheduling conference, in which the panel preliminarily indicates on its Scheduling Order the assessment of the forum fees for the initial prehearing conference. Arbitrators can employ this same approach for subsequent prehearing conferences and rulings. When parties settle a dispute, they have the opportunity to apportion the fees between or among themselves, and the Codes provide a default apportionment if they fail to do so.
Frequently, when the panel waits until the conclusion of the arbitration to decide a request to waive a postponement fee, it gains insight into the case and possesses a greater understanding of the merits of a fee waiver request. The resulting decision can, therefore, better satisfy the arbitrators' responsibility of exhibiting fairness to both FINRA and the parties as well as to the continuing viability of the arbitration process. In this situation, the chairperson should maintain a record of fee rulings, and other rulings, held in abeyance, and remind the panel, prior to the closing of the case, to properly consider any unresolved rulings.
*Zeb Barnhardt, Jr., is a member of the North Carolina Bar. He serves as an arbitrator, mediator and a co-trainer in FINRA's Southeast Region. Mr. Barnhardt practiced corporate and securities law with Womble Carlyle Sandridge & Rice, PLLC, in Winston-Salem, NC, for 29 years. He is a member of the Dispute Resolution Sections of the American Bar Association and the North Carolina Bar Association, where he has served as a member of the NCBA Board of Governors and as a member of several committees, two of which he chaired. A former chair of the NCBA Business Law Section, he also chaired that section's Committee on Securities Regulation. He currently serves as chair of the NCBA Dispute Resolution Section's Ethics and Professionalism Committee and as a member of the Section Council. Mr. Barnhardt received his undergraduate degree from Duke University and his JD degree from Vanderbilt University, where he served as Brief Editor for the Moot Court Board.
3 The views reflected in Mr. Barnhardt's article are his own and do not necessarily reflect the views of FINRA Dispute Resolution.
4 The term "member" means any broker or dealer admitted to membership in NASD, whether or not the membership has been terminated or canceled; and any broker or dealer admitted to membership in a self regulatory organization that, has required its members to arbitrate pursuant to the Code and/or to be treated as members of NASD for the purposes of the Code, whether or not the membership has been terminated or cancelled.
Subpoenas Served on FINRA: Production Turnaround Times
By Megan Herman*
On January 3, 2007, the Securities Exchange Commission (SEC) approved SR-NASD-2005-079, which provides that only arbitrators may issue subpoenas in FINRA's forum, whether for discovery or for the appearance of a witness at a hearing before the arbitrators. On April 2, 2007, the new subpoena rule went into effect. In an effort to help arbitrators—as well as counsel—understand FINRA's subpoena process when subpoenas are served on FINRA, the following is a guide to how FINRA's Office of General Counsel (OGC) produces frequently requested documents and OGC's customary turnaround times for production of these documents.
All subpoenas, regardless of the FINRA office in which they were originally served, are sent to FINRA's OGC in Washington, D.C. When OGC staff receives subpoenas, they are logged into a tracking system, and then assigned to an attorney or legal assistant for processing. With the exception of Central Registration Depository (CRD) reports, OGC staff orders all documents from other FINRA departments; sometimes these documents are located in district or arbitration offices across the country, or archived in a storage facility. Requestors should expect a response time to their subpoena request of documents, other than CRD Reports, to take at least several weeks. The following is a list of the documents most commonly requested and the turnaround times for producing them.
Categories of Subpoena Requests
CRD Reports/CRD Snapshots
Parties most frequently request CRD Reports and OGC staff strives to produce them quickly. The CRD Snapshot is synonymous with the CRD Report OGC staff produces; and it uses the terms "CRD Snapshot" and "CRD Report" interchangeably. OGC staff, in response to a subpoena request, produces CRD Reports that differ greatly from CRD Reports available to the public via BrokerCheck on FINRA's Web site.
CRD Snapshots are available for all presently and formerly registered individuals. CRD information from BrokerCheck, however, is available only for currently registered representatives or those who have been out of the securities business for less than two years. These CRD Snapshots also contain information not necessarily available to the public, including criminal matters, customer complaints and arbitrations. CRD Snapshots include information created prior to the Web-based CRD program.
Turnaround Time: less than two weeks. In an emergency, OGC can fax the CRD Snapshot if it is less than 15 pages. Requestors are encouraged to include a Federal Express number if they want expedited delivery.
Forms U4 and U5
Generally, member firms file the Form U4 to provide or update a person's registration and transfer information, and file the Form U5 to terminate associations with individuals. Forms U4 and U5 also contain any amendments that a firm submits during a representative's tenure with that firm. OGC staff frequently receives subpoenas for Form U4 and U5. OGC staff must order these documents from CRD. Depending on the time period in which FINRA captured the Form U4 and U5, it stored these documents in an electronic, paper or microfiche format.
Many requestors do not realize that the information—such as employment history, regulatory actions taken against the representative, details on any customer complaints or civil actions—in the CRD Snapshot provided by OGC is taken verbatim from disclosures made on Forms U4 and U5, including language found in a disclosure reporting page (DRP). Thus, the information contained in the CRD Snapshot and in the Forms U4 and U5 is often redundant.
OGC staff often reminds counsel that the information requested is usually on the CRD Snapshot. For efficiency, OGC staff suggests that counsel, at least initially, seek only the production of CRD Snapshots. The requesting party would receive the CRD Snapshots in less than two weeks, and after review, the requestor could contact OGC staff if he or she still wants the Forms U4 and U5.
Turnaround Time: 30 days.
FINRA Disciplinary Actions
OGC staff can produce final FINRA disciplinary actions. However, FINRA cannot produce disciplinary actions from any other self-regulatory organization or the SEC, although many are now available on Lexis-Nexis, Westlaw and the Internet.
Turnaround Time: 2 weeks.
FINRA Arbitration Cases
If a firm has reported arbitration case information on Forms U4 or U5, CRD Snapshots will include a representative's prior arbitration cases. After reviewing CRD Snapshots, requestors may want to subpoena information from an arbitration case. Generally, in response to a subpoena for information from an arbitration case, OGC staff sends the requestor the Statement of Claim, Answer, Motions, and Award or other documentation indicating the resolution of the case. FINRA retains arbitration case files for six years from the date a case is closed. After this six-year period, FINRA destroys the arbitration case file. Parties can also search for awards online at www.finra.org by clicking on "Arbitration & Mediation," selecting "Get Arbitration Awards," and then "FINRA Arbitration Awards Online."
Turnaround Time: up to 30 days.
OGC staff will produce the first 100 pages of documents with no copying charge. This is roughly the number of pages found in two to four CRD Snapshots. OGC staff assesses a copying charge of $.25 per page after the first 100 pages. OGC staff sends larger production jobs to an authorized outside vendor for copying, and asks the subpoenaing party to open an account with the vendor and make payment directly to the vendor for all copying and shipping charges.
OGC staff believes it is helpful for arbitrators who sign subpoenas to understand the normal production turnaround times. Some subpoenas received by OGC request document responses within, weeks or even days. OGC staff finds such production schedules difficult to fulfill. FINRA hopes that this information will enlighten those involved in the subpoena process. Counsel, parties, representatives and FINRA staff are always welcome to call FINRA's Office of General Counsel at (202) 728-8294 to discuss the production of documents, projected response times, and costs.
* Megan Herman is a Senior Legal Assistant in FINRA's Office of General Counsel. Ms. Herman joined the organization in 1985, and, among other responsibilities, processes subpoenas served on FINRA for arbitration and employment law cases.
Dispute Resolution News
Arbitration case filings from January 1 through June 30, 2007, reflect a 38 percent decrease compared to cases filed during the same six-month period in 2006 (from 2,651 cases in 2006 to 1,650 cases in 2007).
The overall turnaround time to process an arbitration case (hearing and simplified) from January 1 through June 30, 2007, decreased by 2 percent compared to the same period in 2006 (from 13.8 months in 2006 to 13.5 months in 2007).
Guidance Regarding Arbitration Claims in Light of the Consolidation
On May 23, 2007, the New York Stock Exchange LLC (NYSE) filed with the Securities and Exchange Commission (SEC) a proposed rule change amending NYSE Rule 600 and proposing new NYSE Rule 600A. On August 6, 2007, the SEC approved SR-NYSE-2007-48, which provides that NYSE Arbitration Rules 600 through 639, and Rule 347, will only apply to NYSE arbitration cases pending prior to August 6, 2007, and that, thereafter, disputes between NYSE member organizations, associated persons and/or their customers will be arbitrated under the NASD Dispute Resolution Codes of Arbitration Procedure.
The rules governing the administration will depend on the date a party filed its arbitration. This will ensure that any party that filed an arbitration under a particular set of arbitration rules will continue to have the case administered pursuant to those rules through to the case's conclusion. FINRA filed the proposal for immediate effectiveness, which was granted; it therefore became effective on August 6, 2007.
Jurisdiction Over Members of Other Self-Regulatory Organizations
On June 14, 2007, the SEC approved SR-NASD-2007-038, which provides FINRA with jurisdiction over members of other self-regulatory organizations. The proposed rule change amends NASD Rules 12100 and 13100 of the NASD Code of Arbitration Procedure for Customer Disputes and the NASD Code of Arbitration Procedure for Industry Disputes (together, the "Codes"), respectively, to clarify that, for purposes of the Codes, the term "member" includes any broker or dealer admitted to membership in a self-regulatory organization that, with FINRA's consent, has required its members to arbitrate pursuant to the Codes and/or to be treated as members of FINRA for purposes of the Codes. FINRA filed the proposal for immediate effectiveness which was granted; it therefore became effective on June 14, 2007.
SEC Rule Filing
Amendment to the Definition of Public Arbitrator
On March 12, 2007, NASD filed with the SEC a proposal, SR-NASD-2007-021, to amend the definition of public arbitrator by adding an annual revenue limitation. Under the proposal, a person would not be classified as a public arbitrator if the person is an attorney, accountant or other professional whose firm derived $50,000 or more in annual revenue in the past two years from professional services rendered to any persons or entities involved in securities business relating to any customer disputes concerning an investment account or transaction, including but not limited to, law firm fees, accounting firm fees and consulting fees. The SEC published NASD's proposal in the Federal Register on July 17, 2007. The comment period expired on August 7, 2007.
FINRA Releases The Arbitration Policy Task Force Report—A Report Card
In 1994, NASD, before it consolidated with NYSE Member Regulation to form FINRA, assembled a group of outside experts, led by former Securities and Exchange Commission Chairman David S. Ruder, to conduct a thorough examination of the nature of securities arbitration and recommend a roadmap for the future. It was the first comprehensive assessment of securities arbitration since the Supreme Court decisions in the late 1980s that held predispute arbitration agreements enforceable.
The task force report, Securities Arbitration Reform, recommended comprehensive proposals to revamp securities arbitration. The recommendations in the report formed the framework that currently guides FINRA's dispute resolution policy and rulemaking. FINRA has implemented nearly every key recommendation, and has worked extensively to preserve and respect the basic elements of a fair and efficient dispute resolution system. Review the Arbitration Policy Task Force Report-A Report Card.
Help Us Stay in Touch
Please help us stay in touch with you by providing FINRA with your email address. This helps us convey important messages to you and keep you up-to-date on current events in the forum. Most of you already have an email address on record; please make sure to notify us of any changes. To add or update your email address, simply send an email with the subject line "My Email Address" to us. Please be sure to include your name and arbitrator identification number in the body of the email. We will update your profile using the address that appears on your email.
FINRA Small Firm Conference Series
FINRA will host a Small Firm Conference in Chicago on September 24.
FINRA designed its Small Firm Conferences specifically to help small broker-dealer firms identify best practices for compliance and supervision matters. FINRA encourages employees of small firms to attend a conference to share common experiences, as well as to learn about and discuss updates on the latest securities regulations.
The upcoming conference in Chicago will feature a session on Arbitration and Mediation. During this session, speakers Stuart M. Widman, FINRA arbitrator and mediator and a partner in the law firm of Miller Shakman & Beem LLP; Miriam G. Bahcall, a partner in the Securities Litigation Practice of Morgan Lewis & Bockius LLP; and Shari L. Sturm, Director of Constituent Relations of FINRA Dispute Resolution, will discuss how to evaluate new claims, whether to hire an attorney, how to select an arbitration panel, common misconceptions about mediation, and FINRA's discovery arbitrator pilot program. Other session topics include supervision and supervisory controls, clearing and introducing firm relationships, an anti-money laundering update for small firms, and compliance tools and resources.
Visit http://www.finra.org/smallfirmconf to view the full agenda and register online.
Continuing Professional Education (CPE) and Continuing Legal Education (CLE) credits are available for FINRA's Small Firm Conference. Please indicate on the registration form if you wish to receive CPE and/or CLE credit.
FINRA Fall Securities Conference
FINRA will hold its 2007 Fall Securities Conference on October 10-12,in Scottsdale, Arizona. This premier event for securities professionals, explores the industry's latest updates in securities regulation and compliance. In addition, FINRA Dispute Resolution will present a program on the basics of arbitration and mediation. Linda Fienberg, President of FINRA Dispute Resolution; George Friedman, Executive Vice President and Director of Dispute Resolution; John Ohashi, FINRA Arbitrator; Rosemary Shockman of the law firm of Shockman Law Office, P.C.; and Sandra Grannum of the law firm of Davidson & Grannum, LLP, will present this highly interactive program. Register by September 12, 2007 to take advantage of discounted registration fees.
For more information about the Fall Securities Conference, please visit FINRA's Web site at www.finra.org.
Continuing Professional Education (CPE) and Continuing Legal Education (CLE) credits are available for FINRA's Fall Securities Conference. Please indicate on the registration form if you wish to receive CPE and/or CLE credit.
The Neutral Corner Editorial Board News
We thank Lisa Lasher, Case Administrator in the Southeast Region, for her contributions to The Neutral Corner's Editorial Board over the past two-and-a-half years.
Nene Ndem will replace Ms. Lasher as the Southeast Region's Editorial Board member. Ms. Ndem joined FINRA's Southeast Regional Office in April 2003 and was promoted to Case Administrator in January 2005. She obtained a Barrister of Law from the University of Jos in Nigeria and practiced law in Nigeria prior to moving to the United States.
Welcome aboard, Nene!
Questions and Answers
Question and Answer: Postponement of Scheduled Hearing
Question: I recently had a weeklong hearing scheduled that one of the parties postponed at the last minute. For some arbitrators, this type of cancellation creates a financial loss. When the parties postpone a week-long hearing, can FINRA raise the fee paid to arbitrators?
Answer: If one or more of the parties makes a postponement request within three days of the scheduled hearing and the arbitrators grant the request before a scheduled hearing session, each arbitrator receives a payment of $100. FINRA assesses the party or parties who make the request to postpone an additional fee of $100 per arbitrator.
We realize that FINRA's arbitrator honorarium is modest when compared to the arbitrator compensation rates charged by arbitrators in private dispute resolution forums. However, unlike these forums, FINRA does not pass along separate arbitrator compensation charges to the parties. FINRA designed its forum fees to keep its arbitration program accessible and affordable for the parties.
FINRA has taken several steps in recent years to enhance arbitrator benefits, such as:
- charging parties a $100 fee per arbitrator to compensate arbitrators—in the same amount—in the event a hearing on the merits is canceled within three business days before a scheduled hearing session;
- paying an honorarium of $200 to arbitrators for deciding discovery-related motions on the papers; and
- paying $200 for deciding one or more contested subpoena requests per case for the issuance of a subpoena without a hearing.
In addition, FINRA offers arbitrators on our roster the following services and training programs either free of charge or for a nominal fee:
- The Neutral Corner
- Arbitrator Call-in Workshops that FINRA conducts for its arbitrators' benefit several times a year
- Subject-specific online training modules
- Training webcasts on substantive issues such as Section 529 college savings plans and variable annuities
All of these are free of charge, other than the modest fee charged for some of the online training modules. We are in the process of considering ways to further enhance the benefits for arbitrators on FINRA's roster while keeping the forum accessible to investors.
Question and Answer: The Chairperson Roster
Question: I am a retired attorney and am no longer a member of a Bar. Do I understand correctly that I am no longer eligible to serve as a chairperson under the new Codes?
Answer: You may still be eligible to be included on the Chairperson Roster. However, because you are no longer a member of a Bar in any jurisdiction, you will need to qualify for the Chairperson Roster under the non-attorney criteria. To qualify as a non-attorney, you must (1) successfully complete Chairperson training AND (2) serve on three or more cases through award. Upon meeting these initial qualifications, your name will be presented to the Director of Arbitration for approval for the Chairperson Roster. FINRA's decisions regarding whether to appoint eligible arbitrators to the Chairperson Roster are discretionary.
If you do not meet these criteria, you are not eligible for inclusion on the Chairperson Roster. Additionally, please note that service on a case that does not continue through award in which hearings on the merits were held (e.g., those that are settled by mediation prior to award or that result in a stipulated award) is not considered when determining whether an arbitrator has met the case service requirement.
Arbitrators with questions or concerns about the new Chairperson Roster should email Jisook Lee.
Question and Answer: The New Subpoena Process
Question: How will FINRA process arbitration subpoenas under the recently amended subpoena rules?
Answer: Under amended Rules 12512 and 13512 titled "Subpoenas," only arbitrators will have the authority to issue subpoenas, both for discovery and for appearance of witnesses at a hearing before the arbitrators. Parties requesting the issuance of a subpoena will send their request(s) to FINRA, with an additional copy of each subpoena for the arbitrator. Requesting parties must simultaneously send their request to all other parties using the same manner of service. The requesting party must place its request in the form of a written motion and must include a draft subpoena.
If a party objects to the scope or propriety of a request for a subpoena, that party must, within 10 calendar days of service of the motion, file written objections with FINRA, with an additional copy for the arbitrator. The objecting party must serve copies of the objection on all other parties at the same time and in the same manner as on FINRA. The party who requested the subpoena may respond to the objections within 10 calendar days of their receipt.
After considering all objections, the arbitrator responsible for deciding discovery-related motions, generally the chairperson, will promptly rule on the issuance and scope of the subpoena. (If the parties are participating in the voluntary Discovery Arbitrator Pilot Program, the Discovery Arbitrator will decide on prehearing subpoena requests.) The arbitration panel has authority to determine who should bear the costs of producing the subpoenaed documents.
A related change to the Codes involves a new honorarium for arbitrators who consider contested subpoenas. Rule 12214 provides payment of a $200 honorarium per case for each arbitrator who considers contested motions for the issuance of subpoenas. The parties will pay no more than $600 for contested motions for issuance of subpoenas, collectively, for any one case.
For additional information addressing both rule changes, please visit our Web site at www.finra.org and access Notice to Members 07-13.
Regional and Mediation Updates
NOTE: Participants in Basic Arbitrator Training must successfully complete the online portion of basic arbitrator training before attending the onsite training program. Please visit the Arbitrator Training page on our Web site at www.finra.org for more information about basic arbitrator training. Generally, FINRA requires a minimum of nine attendees to conduct an onsite session. FINRA will close its registration once a session reaches the maximum of 25 registrants.
Northeast Regional Update
On May 2, 2007, Richard Berry, Vice President and Director of Case Administration and Michele Collins, Associate Director of Case Administration, presented the program, "NASD's New Codes of Arbitration Procedure and the Impact of the New Subpoena Rules" at the New York County Lawyers Association. The program addressed changes to NASD's Code of Arbitration Procedure, including topics such as arbitrator selection process, motion practice and sanctions. They also discussed the new subpoena rules, which provide arbitrators with the exclusive authority to issue subpoenas.
On June 5, 2007, Elizabeth Clancy, Vice President and Regional Director of the Northeast Region and Richard Berry spoke at the New York City Bar's annual program, "Securities Arbitration & Mediation Hot Topics 2007." Elizabeth Clancy shared with the audience current developments, including the revised NASD Code of Arbitration Procedure. Richard Berry discussed the effect of the old and new Codes on case administration.
On July 17, 2007, Richard Grahn, FINRA arbitrator and managing partner of the law firm of Looney & Grossman LLP; Robert Baker, associate at the law firm of Bingham McCutchen; and Shari L. Sturm, Director of Constituent Relations of FINRA Dispute Resolution, participated in NASD's Small Firm Conference in Boston. The panel members discussed arbitration and mediation issues of particular importance to small securities firms.
On August 8, 2007, George Friedman, Executive Vice President; Richard Berry, Vice President and Director of Case Administration; and Katherine Bayer, Deputy Regional Director of the Northeast Region, participated as panelists at the Practicing Law Institute's program titled, "Securities Arbitration 2007: Arbitrators and Mediators - Winning Their Hearts and Minds." The program examined how arbitrators fulfill their roles, how parties can effectively present cases before arbitrators, and what parties can do after the hearing if they believe that the arbitrators did not provide a fair ruling. On demand Web segments, audio CDs and DVDs of this program are available at www.pli.edu.
During the next few months, the Northeast Regional Office will conduct in-person Basic Arbitrator Training programs in these cities on the following dates:
- Newark, New Jersey — September 18, 2007
- Boston, Massachusetts — October 17, 2007
If you are interested in attending an onsite classroom training program in any of these locations, please contact Cheree White at (212) 858-4063.
Southeast Regional Update
On June 21 and 22, 2007, Rose Schindler, Vice President and Regional Director; and Jill A. Wile, Deputy Regional Director, accompanied by Scott Borchert, FINRA's State Liaison, attended a meeting sponsored by the Tennessee Securities Division, Department of Commerce and Insurance. At the meeting, Ms. Schindler and Ms. Wile made a comprehensive presentation regarding the current state of our forum's arbitration and mediation programs and, among other things, described the arbitrator training process, expungement procedures and the mandatory nature of arbitration. They reiterated that our forum serves to administer the arbitration program as a neutral body with no stake in the outcome of hearings, and that our forum reminds arbitrators to consider making disciplinary referrals at the conclusion of a case if the arbitrators deem it appropriate to do so.
On June 20, 2007, in conjunction with the Center for Alternative Dispute Resolution's Twentieth Anniversary Celebration, Shari L. Sturm, Director of Constituent Relations, conducted an in-person Basic Arbitrator Training program in Greenbelt, Maryland.
During the next few months, the Southeast Regional Office will conduct in-person Basic Arbitrator Training programs in these cities on the following dates:
- Raleigh, North Carolina — September 18, 2007
- Orlando, Florida — October 12, 2007
- Richmond, Virginia — October 16, 2007
If you are interested in attending an onsite classroom training program in any of these locations, please contact Lanette Cajigas at (561) 447-4911.
Midwest Regional Update
In a continuing effort to attract neutrals in the Midwest Region, Erroll Angara, Case Administrator, attended and recruited at the Nebraska State Bar Solo and Small Firm Conference in Ashland, Nebraska, on June 14 -16, 2007.
In addition, the Midwest Regional Office will participate in the State Bar of Michigan's Annual Meeting on September 26 - 28, 2007, in Grand Rapids, Michigan. This meeting is a joint effort between the State Bar of Michigan and the Institute of Continuing Legal Education Solo and Small Firm Institute. During this event, Ms. Angara will attend the meeting to talk to potential neutrals and provide information about FINRA's arbitration and mediation programs.
During the next few months, the Midwest Regional Office will conduct in-person Basic Arbitrator Training programs in these cities on the following dates:
- Wichita, Kansas — September 12, 2007
- Des Moines, Iowa — October 3, 2007
If you are interested in attending a Basic Panel Member Training program in any of these locations, please contact Deborah Woods at 312-899-4431.
West Regional Update
Audrey Philips, Case Administrator, attended the 2007 annual convention of the American Association of University Women in Phoenix, Arizona, from June 29-July 2, 2007. Ms. Philips recruited women in academia to serve as arbitrators and mediators to further diversify our rosters of neutrals.
The Council of Distinguished Advisors of the Straus Institute for Dispute Resolution at Pepperdine University School of Law (Straus Institute) recently announced that Judith Hale Norris, Vice President and Regional Director of the West Region, is a member. The Straus Institute is a leader in the field of dispute resolution education and training. Its Council of Distinguished Advisors identifies developments in the field of conflict resolution, provides guidance concerning the continued development of the Straus Institute and helps the Institute develop important strategic affiliations.
During the next few months, the West Regional Office will conduct in-person Basic Arbitrator Training programs in these cities on the following dates:
- Los Angeles, California — September 18, 2007
- Seattle, Washington — October 16, 2007
If you are interested in attending a Basic Arbitrator Training program in any these locations, please contact David Newson at (213) 613-2693.
Celebrating Mediation Administrators' Years of Service - Late last year, Leon de Leon, our National Mediation Administrator, celebrated an impressive 20 years with our organization. Leon administers mediations and maintains the mediator roster for the Boca Raton Region, which covers the Southeast and Southwest states, and California. In May 2007, Senior Mediation Administrator, Edward Sihaga, celebrated 10 years of service. Ed administers mediations and maintains the mediator roster for the New York Region, which covers the Northeast and Mid-Atlantic states, and Ohio. The Senior Mediation Administrator for the Chicago Region, Rosari Domenick, has worked with our organization for over 11 years. Having started in Arbitration, she has contributed her breadth of knowledge and talents to the Mediation Department for the past four years. We wish to congratulate all three of them for their invaluable contributions to FINRA Mediation and are proud of the tremendous commitment, knowledge and skill they each add to our program.
Customer Outreach - Kenneth L. Andrichik, Senior Vice President and Director of Mediation; and Rosari Domenick, Senior Mediation Administrator, held a focus group meeting in Chicago on May 16, 2007. They surveyed a small group of mediation clients, including several investor and brokerage firm representatives, to learn more about how to better meet their needs. The Mediation staff is also planning similar small, information gathering sessions in New York City and Boca Raton.
Mediator Request - We have had inquiries from prospective and current mediators about how to find a mentor to help them learn the basics of securities mediation. We do not provide a mentor-matching service; however, we do encourage our active mediators to take time to serve as mentors when possible. If you are a mediator on our roster, please let us know if you are interested in serving as a mentor to other mediators. You can set the terms of how you would like to make yourself available. For example, you can indicate if you want us to give your contact information to people in your area who express a desire to find a mentor, or we can provide you with contact information of interested people, without revealing your name. Some of you may find that mentoring other mediators is a meaningful way to give back to the profession. Please contact Julie Crotty if you are interested in serving as a mentor.
Mediator Tip - When it comes to negotiating a settlement that involves a member firm and an individual registered representative making an offer to an investor, parties often ask what the individual representative must report to CRD. Member firms and registered representatives must report any settlement of $10,000 or more to CRD. If the registered person contributes to a settlement of $10,000 or more, regardless of how small his or her contribution is, he or she must report the terms of the settlement, including his or her portion. This is an important point for mediators to be aware of when negotiating settlements with the parties. We encourage our mediators to review the regulatory filing guidance on our Web site.