This article first appeared on the Securities Arbitration Alert (SAA) blog, here.
The SEC has approved a FINRA proposal increasing certain Chairperson honoraria.
We reported in SAA 2019-48 (Dec. 18) that FINRA’s Board of Governors in December 2019 authorized staff to submit a rule filing with the SEC increasing certain Chairperson honoraria. As reported in SAA 2020-39 (Oct. 21), FINRA on October 16 filed with the SEC SR-FINRA-2020-035, Notice of Filing of a Proposed Rule Change to Amend the FINRA Codes of Arbitration Procedure to Increase Arbitrator Chairperson Honoraria and Certain Arbitration Fees. What were the specifics? As described in the Approval Order, the proposed rule change would amend the customer and industry Codes to: “(1) increase the additional hearing day honorarium Chairs receive for each hearing on the merits from $125 to $250 and; (2) create a new $125 Chair honorarium for each prehearing conference in which the Chair participates. Under the proposed rule change, these increases would be funded primarily by certain increases to the member surcharge and process fees for claims of more than $250,000 or claims for non-monetary or unspecified damages. The proposed rule change would also increase filing fees and hearing session fees for customers, associated persons and members bringing claims of more than $500,000 or claims for nonmonetary or unspecified damage.”
One Comment and Swift Approval
The proposal was published in the Federal Register on October 26, yielding just one comment – supportive – from Steven B. Caruso, Esq. After being granted an extension to act by the end of the year, the Commission swiftly approved the Rule filing on December 17. The Order, which contains several charts showing the fee increases, validates FINRA’s raison d’être for the changes: “The Commission acknowledges FINRA’s concern that fewer Chair-eligible arbitrators may be taking on the additional burdens of being on the Chair roster due to insufficient compensation. The Commission believes that increasing the amount that FINRA compensates its Chair-eligible arbitrators may incentivize them to take on the additional training and responsibilities associated with the position. Consequently, FINRA may be able to recruit new, and retain current, Chairs for its roster, potentially alleviating the shortage of Chairs in certain locations and the concomitant negative impact (e.g., dissatisfied parties and scheduling delays)” (footnote omitted).
Customer Fee Increase Not a Problem
We had previously expressed concerns that the Customer fee increase part of the proposal might be subject to enhanced scrutiny by the Commission, but those fears were misplaced. Says the Approval Order: “… FINRA designed the arbitration fee structure to distribute much of the increased costs of the forum to member firms that are parties to an arbitration proceeding and to parties associated with large claims or non-monetary or unspecified claims. The Commission believes that this proposed distribution of fees will help keep the FINRA arbitration forum accessible. Otherwise, the Commission believes that increasing fees on claimants with small claims could discourage retail investors from bringing their claims. Accordingly, the proposed allocation of the fee increases will help ensure that FINRA’s arbitration forum remains accessible and affordable to parties” (footnote omitted).
(ed: *As we said after the Board’s action, this is good news. $850 a day – $600 for two hearing sessions plus $250 – is decent compensation, and the “extra” for IPHCs is fair. **Next is Approval Order publication in the Federal Register and a FINRA Regulatory Notice setting the effective date. We’re guessing the Authority will try for January 1 and that effectiveness will be “hearings held” versus “cases filed” but one never knows.)
George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA dispute resolution forum in particular.
He is former Executive Vice President - Dispute Resolution of the Financial Industry Regulatory Authority (“FINRA”), a position he held through January 2013. He held the same title at NASD, which consolidated with NYSE Member Regulation to form FINRA in 2007. In this capacity, he was in overall charge of FINRA's dispute resolution program, carried out by the company's four regional offices and 72 hearing locations in the United States and abroad, 200 employees, and an annual budget of $50 million. He also served as Secretary of the Securities Industry Conference on Arbitration. He has been referred to by the U.S. Court of Appeals—4th Circuit as a “leading arbitration expert.” He is a member of the American Arbitration Association's National Roster of Neutrals.
Mr. Friedman is an Adjunct Professor of Law at Fordham Law School, where he has taught a course on alternative dispute resolution since 1996. He is Chairman of the Board of Directors of Arbitration Resolution Services, Inc. of Coral Springs, Florida. Arbitration Resolution Services is an innovative online arbitration services company facilitating an affordable alternative to costly courtroom litigation and in-person arbitration for resolving Business-to-Business, Business-to-Individual, and Vehicle and Property Damage disputes. ARS is unique in that its entire process can be completed online through the company website.
In his extensive dispute resolution career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He joined NASD in 1998 as Senior Vice President of NASD's Dispute Resolution Division, and was named Executive Vice President in 2002.
Mr. Friedman received a B.A. in Political Science from Queens College, and a Juris Doctor from Rutgers Law School - Newark, where he was an editor of the Law Review. He is admitted to the New York and New Jersey Bars and the United States Supreme Court, and is a Certified Regulatory and Compliance Professional. Mr. Friedman is a member of the Securities Experts Roundtable, and of several bar associations. He is past chair of the Committee on Alternative Dispute Resolution of the New York County Lawyers Association. He is a member of the Banking Advisory Committee of Bergen (NJ) Community College.
Mr. Friedman has lectured extensively on the subject of alternative dispute resolution, and has the distinction of being one of the architects of the American Arbitration Association’s Due Process Fairness Protocols for both employment arbitration and health care dispute resolution, and assisted in creating the Consumer Due Process Protocol. He has published often, with articles appearing in the Securities Arbitration Commentator, the ABA's Dispute Resolution Magazine, the New York Law Journal, the Rutgers Law Review, and the National Law Journal. He has blogs at Arbitration Resolution Services, Inc., the Securities Arbitration Commentator, and the World Future Society, among others.