How Parties Select Arbitrators
FINRA’s arbitrator appointment process uses the Neutral List Selection System (NLSS), a computer algorithm, to randomly generate lists of arbitrators from FINRA’s arbitrator roster. The specific case type will affect the number of lists generated and the number of arbitrator names per list.
FINRA arbitrators are independent and are chosen by the parties to issue final, binding awards. FINRA administers an arbitration forum pursuant to rules approved by the SEC. In its capacity as a neutral administrator of its forum, FINRA does not have any input into the outcome of arbitrations.
Cases Decided by One Arbitrator
For claims of up to $100,000, the case is decided by one arbitrator.
Disputes Involving an Investor, Disputes Between Associated Persons and Disputes Between or Among Brokerage Firms and Associated Persons (That Do Not Contain a Statutory Employment Discrimination Claim)
See FINRA Rules 12100(t) and 13100(r) for the definition of non-public arbitrator.
See FINRA Rules 12100(aa) and 13100(x) for the definition of public arbitrator.
See FINRA Rules 12400(c) and 13400(c) for information on how an arbitrator becomes chair-qualified.
The parties will receive one list of 10 chair-qualified public arbitrators. Each separately represented party may strike up to four arbitrators on the list, leaving at least six arbitrator names remaining on each party’s list.
After exercising their strikes, each separately represented party shall rank all remaining arbitrators in order of preference, with a "1" indicating the party's first choice, a "2" indicating the party's second choice, and so on.
The Director of FINRA Dispute Resolution Services (“Director”) will combine the parties’ ranked lists to appoint the chair-qualified public arbitrator based on the parties’ rankings. The Director makes every effort to appoint the highest ranked arbitrators based on the parties’ combined lists. If there is no chair-qualified public arbitrator available to serve from the parties’ combined lists, the Director will appoint a chair-qualified public arbitrator from names generated randomly by NLSS.
Disputes Between Brokerage Firms (That Do Not Contain a Statutory Employment Discrimination Claim)
This process is the same as above, except the arbitrators will be classified as chair-qualified and non-public.
Investor Cases Decided by Three Arbitrators
For claims more than $100,000, the case is decided by three arbitrators.
The parties will receive three lists of arbitrators:
- One with 10 chair-qualified public arbitrators;
- One with 15 public arbitrators; and
- One with 10 non-public arbitrators.
Each separately represented party may strike:
- Up to four of the 10 arbitrators on the chair-qualified public list for any reason (at least six names must remain on this list);
- Up to six of the 15 arbitrators on the public list for any reason (at least nine names must remain on this list); and
- Up to all 10 arbitrators on the non-public list.
After exercising their strikes, each separately represented party shall rank all remaining arbitrators on the lists in order of preference with a "1" indicating the party's first choice, a "2" indicating the party's second choice, and so on. Each list of arbitrators must be ranked separately.
The Director will combine the parties’ ranked lists to appoint the panelists based on the parties’ rankings. The Director makes every effort to appoint the highest ranked arbitrators based on the parties’ combined lists. If there are not sufficient arbitrators available to serve from the combined chair-qualified public list or public list, the Director will appoint an arbitrator(s) of the required classification from names generated randomly by NLSS.
Arbitrator Appointment When All Non-Public Arbitrators Have Been Stricken
If the parties collectively strike all the non-public arbitrators, or if all ranked non-public arbitrators are not available to serve, the Director will select the next highest-ranked public arbitrator to complete the panel.
If the public list is exhausted, the Director will select the next highest-ranked arbitrator on the chair-qualified public list. If the chair-qualified public list is exhausted, the Director will appoint a public arbitrator from names generated randomly by NLSS.
Conflicts of Interest
NLSS automatically excludes arbitrators from the lists based upon known conflicts of interest, such as when the arbitrator is currently employed by or currently has a securities account with a party. FINRA staff then conducts a final review to check for other current conflicts (e.g., when the proposed arbitrator currently works at the same law firm as counsel for one of the parties), so that the parties’ choices are not reduced during the selection stage. FINRA staff document in writing the specific reason that an arbitrator is replaced on a list based on a current conflict.
Selection Pools to Populate Arbitrator Lists
FINRA makes arbitrator applicants available to appear on case lists after applicants have:
- completed the required application and background check;
- been approved by the Neutral Roster Subcommittee of the National Arbitration and Mediation Committee (NAMC); and
- completed FINRA’s Basic Arbitrator Training Program, which includes the online basic arbitrator and expungement trainings.
FINRA will assign an arbitrator to one primary hearing location, which is the hearing location closest to the arbitrator’s primary residence.
To populate the lists, NLSS requires a minimum number of available arbitrators (“pool”) from which to randomly select names. This pool size is equal to the number of arbitrators needed to fill a standard list, multiplied by two. For example, in a customer case decided by three arbitrators (which will have 10 names on the chair-qualified public arbitrator list; 15 names on the public arbitrator list; and 10 names on the non-public arbitrator list), NLSS requires a pool size for each list of: 20 chair-qualified public arbitrators; 30 public arbitrators; and 20 non-public arbitrators. A chair-qualified public arbitrator is eligible to appear on both the chair-qualified public arbitrator list and the public arbitrator list (but not in the same case).
NLSS Random List Selection Process
The NLSS arbitrator list selection process is random. The randomized process has been verified by an Ernst & Young audit in a report that confirmed that a “random pool management algorithm [is] used to ensure that each arbitrator in the pool has the same opportunity to appear on a list as all other arbitrators in that pool.”
NLSS uses up to three “passes” to ensure that there is a sufficient arbitrator pool from which to generate random lists:
Pass One – All Local Arbitrators
A list will be populated on the first pass when NLSS can select from a local pool of at least two times the number of required arbitrators per list. A local arbitrator is one who serves in the hearing location closest to their primary address. If there are multiple hearing locations within 75 miles of an arbitrator’s primary address, the arbitrator is considered local to each of those hearing locations.
Pass Two – Arbitrators Traveling at FINRA’s Expense
If local arbitrators alone cannot fill the minimum pool, NLSS will supplement the pool by adding arbitrators from other hearing locations who previously agreed to travel at FINRA’s expense to that hearing location.
Pass Three – Arbitrators Not Pre-Screened to Travel
In extremely rare circumstances, the first two passes will not be sufficient to fill the pool. If so, FINRA staff will designate additional hearing locations from which NLSS can randomly select arbitrators. However, the arbitrators in these locations are not pre-screened with respect to their willingness to travel to the hearing.
Continual Monitoring to Ensure Sufficient Pool Sizes
FINRA staff routinely analyzes the number of available arbitrators of each classification (i.e., public or non-public) in each of FINRA’s hearing locations. This analysis ensures that there will be enough available arbitrators for panel selection in each hearing location. If FINRA staff determine that additional public or non-public arbitrators are needed in a specific hearing location, all arbitrators of the required classification in an alternate hearing location are invited to travel at FINRA’s expense. All arbitrators who agree to travel at FINRA’s expense are designated accordingly in NLSS and only supplement local pools when a local pool is insufficient to populate the required list.
For reference, a complete breakdown of the number and classification of available arbitrators in each hearing location is available on FINRA’s Dispute Resolution Statistics Web page, which is updated monthly. The hearing location chart reflects the number of local and non-local arbitrators available in each hearing location.
Other Types of Intra-Industry Claims
For arbitration claims that involve only industry parties and that involve a statutory employment discrimination claim, promissory note proceedings, or permanent injunctive relief, please refer to the appropriate rule for the arbitrator selection rules:
- Statutory Employment Discrimination (Rule 13802);
- Promissory Note Proceedings (Rule 13806); or
- Permanent Injunctive Relief (Rule 13804).
Party Requests for Additional Arbitrator Information
If a party requests additional information about an arbitrator, FINRA will request the additional information from the arbitrator, and will send any response to all the parties at the same time. When a party requests additional product-related information about an arbitrator within 10 days from the date FINRA sent the ranking form to the parties, all parties will have 20 days from the date FINRA receives the party’s request to return the ranking form. However, FINRA will not toll the time for parties to return the ranking form when a party requests any other additional information about an arbitrator.
Objections to List Composition
- Filing a motion with the Director under Rule 12503(d)(1)/13503(d)(1) requesting that the Director remove the arbitrator from the ranking list or,
- Requesting that the opposing party agree to remove the arbitrator from the ranking list.
The Director will only remove an arbitrator from a ranking list if the arbitrator has a current conflict (e.g., the proposed arbitrator currently works at the same law firm as counsel for one of the parties) so that the parties’ choices are not reduced during the selection stage.
Challenges for Cause
In addition to allowing parties to strike proposed arbitrators on the ranking lists prior to appointment, FINRA rules also provide parties with the right to challenge arbitrators for cause. FINRA Rule 12407 states that FINRA will resolve close questions regarding challenges to an arbitrator by a customer in favor of the customer.
Before the first hearing session begins, the Director may remove an arbitrator for conflict of interest or bias, either upon request of a party or on the Director's own initiative. The Director will grant a party’s request to remove an arbitrator if it is reasonable to infer, based on the information known at the time of the request, that the arbitrator is biased, lacks impartiality, or has a direct or indirect interest in the outcome of the arbitration. The interest or bias must be definite and capable of reasonable demonstration, rather than remote or speculative.
After the first hearing session begins, the Director may remove an arbitrator based only on information required to be disclosed under Rule 12405 that was not previously known by the parties. The Director may exercise this authority upon request of a party or on the Director's own initiative.
The following list, though not exhaustive, shows examples of circumstances where a challenge for cause would likely be granted. Generally, absent good cause, a party's ability to challenge an arbitrator(s) may be deemed waived if the challenge is not timely filed after a new disclosure is discovered by a party. Please consult FINRA Rules 12503 and 13503 for motion deadlines.
Opinion and Bias
- Arbitrator has a firm opinion or belief as to the subject of a case for which he or she is an arbitrator.
- Arbitrator has a personal bias toward a party or party representative.
- Arbitrator is or was related by blood or marriage to a party, its attorneys or witnesses.
- Arbitrator is or was a party's guardian.
- Arbitrator is or was a business partner, vendor, customer or client of a party.
- Arbitrator is a surety or guarantor of the obligations of a party.
- Arbitrator is currently a creditor or shareholder of any corporate party, or has any business relationship with a party.
- Arbitrator is or was a conservator or conservatee, employer or employee, principal or agent, or debtor or creditor of either a party or an officer of a corporation which is a party.
- Arbitrator is the parent, spouse or child of a person who is or was a conservator or conservatee, employer or employee, principal or agent, or debtor or creditor of either a party or an officer of a corporation which is a party.
- Arbitrator is adverse to a party, its attorneys or witnesses.
- Arbitrator is a party to or the subject of a complaint, arbitration or litigation involving a securities investment.
- Arbitrator is currently an expert witness for a party.
- A party, its attorneys or witnesses previously accused an arbitrator of wrongdoing in a prior action.
- A party, its attorneys, or witnesses filed a motion to vacate challenging an award in a case in which the arbitrator had participated and signed the award.
- Arbitrator issued a complaint against a party, its attorneys or witnesses, in an action instituted or resolved during the past five (5) years.
- Arbitrator or any member, shareholder or associate of, or of counsel to his or her law firm, has had an attorney/client relationship with a party within three (3) years of the filing of the arbitration claim.
- Arbitrator or any member, shareholder or associate of, or of counsel to his or her law firm, has had an attorney/client relationship adverse to a party within three (3) years of the filing of the arbitration claim.
- Arbitrator knows that he or she has, individually or as a fiduciary, a financial interest in the subject matter in controversy or in a party in the arbitration proceeding, or any other interest that could be substantially affected by the outcome of the arbitration proceeding.
- Arbitrator's immediate family member (as defined in Rule 12100) has a financial interest in the subject matter in controversy or in a party in the arbitration proceeding, or any other interest that could be substantially affected by the outcome of the arbitration proceeding.
- An arbitrator in this matter testified as an expert witness against a party during the past (5) years.
- An arbitrator in this matter testified as an expert witness for a party during the past (5) years.
- An arbitrator in this matter was retained as an expert witness (but did not testify) in an action involving a party during the past three (3) years.
- An arbitrator in this matter was retained as an expert witness by a party's counsel, or his or her law firm, in an action during the past three (3) years (where no party in this matter was involved in the earlier action).