On July 2, 2012, FINRA announced a voluntary pilot program that
encourages participants in arbitrations of at least $10 million to
vary FINRA's usual arbitration rules. The program does not
necessarily break any new ground, but highlights FINRA's
willingness to work with parties to craft arbitration procedures
appropriate to particular cases.
Scope of Agreement
The pilot program calls for FINRA to appoint a senior case
manager to each case in the program, even before the panel is
appointed, to facilitate negotiation of modifications to
FINRA's standard arbitration procedures. The program explicitly
reminds the parties that they may agree to alter any of the
procedures associated with the FINRA arbitration, including the
arbitrator qualifications and selection, motion practice,
discovery, official record of proceedings, hearing facilities, or
explanation of decisions.
Even under current FINRA arbitration procedures, parties may
agree to modify many aspects of the standard arbitration procedures
(FINRA Codes of Arbitration Procedure 12105, 13105). In particular,
they may agree to change location of hearings (FINRA Codes of
Arbitration Procedure 12213, 13213), vary the number of arbitrators
(FINRA Codes of Arbitration Procedure 12401, 13401), ask for an
explained decision (FINRA Codes of Arbitration Procedure 12904(g),
13904(g)), or opt not to hold a hearing (FINRA Codes of Arbitration
Procedure 12600, 13600). Thus, the pilot program is only a modest
change. However, by rolling out the pilot and encouraging parties
to think about ways to vary the procedures, FINRA is focusing
attention on the parties' ability to craft procedures that meet
the needs of particular cases, including in ways that were not
explicit before. For example, rather than FINRA's usual
procedure for arbitrator selection - in which FINRA provides a
randomly-selected list of potential arbitrators from a pre-approved
roster, and the parties strike or rank the arbitrators on the list
- the parties could designate a particular arbitrator (including
one not on FINRA's usual roster of arbitrators), require that
the arbitrators have certain qualifications or experience, or have
each party select an arbitrator with the two then picking a third
arbitrator. The pilot also makes explicit that the parties can
agree to depositions or interrogatories, or vary the location of an
arbitration. Some of the usual FINRA arbitration venues are small,
and do not have facilities such as video conferencing, wi-fi,
breakout rooms, and other amenities useful in the presentation of a
How the Program Will Work
FINRA will contact the parties that are candidates for the pilot
when eligible matters are filed. Additionally, parties to ongoing
matters can ask that they be permitted to participate in the pilot.
According to FINRA, there are over 200 cases that they are
administrating that fit the qualification of at least $10 million
in damages claimed. All parties will need to consent, both to
participate in the program and to any specific changes.
The pilot envisions that parties will enter into a written
stipulation that details the plan for administration of the case.
Parties can mutually agree to terminate the agreement, but cannot
do so unilaterally.
FINRA anticipates that arbitrators under the pilot will be paid
at a higher (but unspecified) rate than regular arbitrators, and
may be compensated for deliberation time, travel time, and other
expenses. In addition, FINRA will charge an additional
administrative fee of $1,000 per separately represented party.
Who Might Be Interested in the Program
The changes to the arbitrator selection system and arbitrator
compensation may be attractive to parties to large cases,
particularly in complex cases that would benefit from certain panel
Some parties may find the use of additional discovery, such as
depositions, attractive, but other parties may decide that the
added cost and time, and breadth of this discovery, take away one
of the advantages of arbitration as compared to litigation, and
will find no reason to agree to modify the rules. And because the
pilot requires mutual consent to each modification to the standard
rules, a party cannot be forced to accept any particular changes
under the present program. Nevertheless, it appears that most
parties will find some aspect of this pilot program useful, as it
allows them greater flexibility and control in the FINRA
More specific details on the pilot program are available here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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