Public Arbitrator Pilot Program Summary Sheet With Interim Results

In 2008, FINRA launched an innovative Public Arbitrator Pilot Program (Pilot Program) for eligible claims that gave investors greater choice when selecting an arbitration panel. Investors in cases that proceeded under the Pilot Program were allowed to choose a panel made up of three public arbitrators instead of two public arbitrators and one non-public arbitrator.

 

The Pilot Program began on October 6, 2008 and ended on January 31, 2011, when the United States Securities and Exchange Commission (SEC) approved a rule change that allows all investors filing arbitration claims the option of having an all-public panel, greatly increasing investor choice in the FINRA arbitration program. This rule change expands to all investor claims provisions of the Pilot Program that gave investors filing an arbitration claim against participating firms the option of choosing an all-public panel.

 

Evaluating the Pilot Program

While the Pilot Program is no longer accepting new cases, we will continue to update and evaluate the Pilot Program results according to a number of criteria, including but not limited to the following:  

  • Percentage of eligible investors who chose to participate in the Pilot Program;
  • Percentage of investors who chose an all-public panel after electing to participate in the Pilot Program;
  • Results of Pilot Program and non-Pilot Program investor cases, including the percentage of cases that settled before award and how quickly they settled;
  • Length of hearings;
  • Use of expert witnesses in Pilot Program and non-Pilot Program cases; and
  • Award results.

 

FINRA has been evaluating and compiling data on the Pilot Program since its launch on October 6, 2008.

 

As of May 1, 2013, 1 percent of cases in the Pilot Program are still pending. Accordingly, the Pilot Program data below—including award data—are not yet complete. We will continue to update the Pilot Program results.

 

Pilot Program Data as of May 1, 2013

How many investors opted into the Pilot Program? Of those who opted in, how many have chosen to rank one or more non-public arbitrators?

  • Fifty-four percent of investors who were eligible to participate opted in, resulting in 590 out of 1,083 cases that were eligible for the Pilot Program. Forty-six percent of eligible investors declined to participate in the Pilot Program. 
  • Investors have chosen to rank one or more non-public arbitrators on the list in 49 percent of the cases (281 of the 570 cases) in which parties completed the ranking process.
  • In 73 percent of cases eligible for the Pilot Program, investors opted for a non-public arbitrator either by choosing not to participate in the Pilot Program or by participating in the pilot but ranking one or more non-public arbitrators.

How many non-public names did investors leave on lists of proposed arbitrators?

  • The chart below shows the number of non-public arbitrators on the list ranked by investors in 570 Pilot Program cases in which parties completed the ranking process. i
  • Investors in 29 percent of pilot cases ranked four or more non-public arbitrators.

PAPP_chart1.jpg

 

How many non-public names did firms leave on lists of proposed arbitrators?

  • Firms chose to rank one or more non-public arbitrators in every Pilot Program case in which they submitted a ranking sheet (in 26 cases firms did not timely return a list for unknown reasons).ii  The chart below shows the number of non-public arbitrators on the list ranked by firms in these cases. Firms in 96 percent of cases ranked four or more non-public arbitrators. 

PAPP_chart2.jpg 

 

Are there differences in how Pilot Program cases were closed compared to non-Pilot Program cases?

  • Fewer Pilot Program cases resulted in awards than non-Pilot Program cases with three arbitrators.  
  • The chart below shows how Pilot Program cases with all-public panels closed compared to Pilot Program cases with majority public panels and non-Pilot Program (majority public) three-arbitrator investor cases.
     

 

 All 3-Arb Customer Cases Closed in 2010Pilot – All Public ArbsPilot – Majority Public Arbs
Settlement71%84%86%
Award19%13%8%
Withdrawal8%3%6%
Misc.2%  

 

Note that the non-Pilot Program cases measured are those closed from January 1 - December 31, 2010, while the Pilot Program cases measured are those closed from the commencement of the Pilot Program to May 1, 2013.
 


What were the outcomes of awards in Pilot Program cases?

  • Preliminary award outcomes show that all-public panels in Pilot Program cases awarded damages to investors slightly more often compared to awards issued by majority public panels in Pilot Program cases. Pilot Program cases – irrespective of panel composition – awarded damages to investors more often compared to awards issued by majority public panels in non-Pilot Program cases. There is not sufficient award data to draw meaningful conclusions.
    • There have been 57 Pilot Program awards issued by all-public panels. Investors were awarded damages in 27 of 43 contested cases (63 percent).
      • In the remaining 14 cases, the parties settled and the all-public panels awarded expungement or other relief.
    • Twenty-six Pilot Program awards were issued by panels comprising two public arbitrators and one non-public arbitrator. Investors were awarded damages in eight of the 14 contested cases (57 percent).
      • In the remaining 12 cases, the parties settled and the majority public panels awarded expungement or other relief.
    • By comparison, in 2009, arbitrators awarded damages to investors in 49 percent of investor-initiated, non-Pilot Program three-arbitrator cases; in 2010, arbitrators awarded damages in 48 percent of these cases.
  • Parties, as well as other users, can view awards in arbitration cases—including Pilot Program cases—through FINRA's Awards Online database. Users can access awards issued in Pilot Program cases by selecting the "Public Arbitrator Pilot Program" option in the Award Type drop-down box. Users can also use search terms such as "Public Arbitrator Pilot Program" to search for awards in Pilot Program cases, and can further narrow their search using a set of date ranges for the award.

 

Is there a difference in the amount of time it took Pilot Program cases to close compared to non-Pilot Program cases?

  • Pilot Program cases with all-public panels that went to award took somewhat longer to conclude compared to non-Pilot Program three-arbitrator investor cases.

 

 All 3-Arbitrator Customer CasesPilot – All Public ArbitratorsPilot – Majority Public Arbitrators
Turnaround Time (months)14.616.314.2

 

  • Pilot Program cases with all-public panels that were settled or withdrawn by the investor took approximately the same time to conclude compared to non-Pilot Program three-arbitrator investor cases.

 

 All 3-Arbitrator Customer CasesPilot – All Public ArbitratorsPilot – Majority Public Arbitrators
Turnaround Time (months)13.914.614.4


Did parties in Pilot Program cases use expert witnesses more often than non-Pilot Program cases?

  • Results of surveys on closed Pilot Program cases and meetings with constituents indicated that parties in Pilot Program cases did not use expert witnesses more often because they had an all-public panel.

 

 

i Effective September 27, 2010, FINRA implemented a rule change to increase from eight to 10 the number of proposed arbitrators available for review when parties choose arbitration panels.

 

ii See footnote 1.

Last Updated: 4/1/2013