FINRA Year-end Stats 2020: Average in Some Respects; in Other Ways, a Most Uncommon, Even Unique, Year

This article first appeared on the Securities Arbitration Alert (SAA) blog, here.

This review of the latest FINRA dispute resolution stats update is provided by Rick Ryder, President of SAC, Inc. and SAC’s ARBchek – securities arbitration’s first arbitrator evaluation service. We are delighted to offer this analysis and thank Mr. Ryder! The words that follow are his.

FINRA Dispute Resolution Services (“DRS”) ended this most challenging year with just short of 4,000 new cases submitted (3,902). That totals about 150 more than 2019 (3,757), for a 4% increase. In a similar fashion, FINRA DRS finished 2020 with total close-outs of 3,564, which, while a bit lower than average, fell within the norms of average performance going back to 2013. So, at first glance, 2020 appears as a typical year for case inflow and outflow, but, of course, it was not a common, typical, or average year at all. That DRS staff were able to turn in the numbers to make it appear so is something remarkable on its own.


2020 was the year COVID-19 turned securities dispute resolution, not to mention our daily lives, work habits, and the economy as a whole, topsy-turvy! First, there was the shutdown of live hearings starting in the early Spring that will ultimately stretch at least until 2021’s early Spring. Then, the market itself fell into a panic-driven, headlong collapse, losing more than a third of its value. Pundits* predicted a surge in cases flowing into and flooding FINRA DRS — even as the market began its V-shaped recovery and surpassed by 2,000 Dow points the heady highs of pre-COVID. DRS’s monthly statistical report for December 2020 — closing out this wild year — tells some of the story of what was happening as the COVID crisis unfolded.

With live hearings blocked and arbitrators and parties stuck at home, FINRA-DR could only offer settlement assistance. With no deadlines driving settlement negotiations and parties asserting their right to a live hearing, stalemate threatened. The answer — virtual hearings via Zoom — is now highlighted at the top of FINRA’s report, which shows that 222 contested motions for a virtual hearing have arisen in pending customer cases through December and 69% of those decided (128:186) have granted a virtual hearing. In 138 customer cases (which includes those to which parties stipulated), at least one virtual hearing has been held. Arbitrators are granting virtual hearings over party objections in similar fashion on the industry side, albeit there are far more voluntary stipulations (105:155); that’s due mostly, we’d venture, to sole expungement proceedings, where party opposition itself is often virtual.

One can see the impact on case adjudication of the COVID hearing moratoriums by reviewing FINRA DRS’s pre-COVID March 2020 report. That showed 134 cases closed by “regular hearing” in the first three months of the year, about 13% of all close-outs. At year-end, the number of cases closed after the regular hearing was only 335. That’s only 9% of all close-outs, but even that level was achieved only by the great majority of the 201 cases utilizing the virtual hearing option. The number of pending cases was driven above the 5,000 (5,138 vs. 4,808 in 2019) level by hearing delays, but the “safety valve” of virtual hearings gave customers and others a choice. The statistics indicate that the virtual option averted the prospect of forced settlements. Settlements overall made up 71% of case close-outs in 2020 versus 70% in 2019. Withdrawals accounted for the same percentage year-over-year (9%).

Expungement Surge – Puerto Rico Dip

Among the other anomalies in the newly submitted 2020 cases is the mix of customer vs. industry cases. Historically, customer cases constitute at least 60% of the new case crop at FINRA, but in 2020, the mix was 53%-47%. The reasons are several. First, industry cases were up significantly (+31%) from 2019, primarily due, we believe, to the pre-September rush to file sole expungement claims before new fees took effect. Also, customer claims were negatively impacted in number by another deadline — one affecting six-year eligibility — as a result of which Municipal Bond (148 from 702) claims and Municipal Bond Fund (136 from 717) claims took a deep dive in this past year from 2019 and the years before. The era of the Puerto Rico Bond cases, which overwhelmed the forum some six years before and has fed the system since with thousands of customer claims, ceased in 2020. Whether the surge in expungement cases offset fully the curtain-closing on the Puerto Rico customer claims, one can only speculate. On the other hand, we can certainly expect that 2021 will not have case support from either source!

(R. Ryder: *When SAC was publishing the Arb Alert in the first half of 2020, I wrote an article with George Friedman, in which we projected a surge in customer claims following the big drop in the Dow. We did hedge our bets against a quick recovery (which occurred), but we still predicted that claims from margin liquidations, structured products like the YES amalgam, and other bullish derivative strategies would bring realized losses and claims galore. We gave ourselves six months and not much has materialized. There is reportedly a block of YES cases pending at FINRA, but we hear little of excessive losses from hasty margin sell-outs; the brokerage houses have evidently learned the virtues of discipline and consistent risk management in that arena. We can rationalize/quibble further, but it’s time — pass the crow, my friend! **We touched here upon many aspects of the year-end report, but not the customer win section — it’s pretty bad for the customer, albeit the overall win rate — a dismal 32% — is confined to 193 cases vs. a more usual 300-plus. It’s hard to blame these results on the virtual hearing dynamic, although some have, because the win rates for Special Proceedings and Paper-Only cases are even worse — 20% and 29%, respectively. Here’s the capper: in 2019, the win rate for customers before a three-person All-Public Panel was 53%; in 2020, it dropped to 33%! ***FINRA did not stop arbitrator recruiting, despite the lack of active assignments. At the end of 2019, there were 7,839 arbitrators on the FINRA roster (4,155 Non-Public; 3,684 Public); in 2020, the number rose above 8,000 for the first time in more than a decade (8,111: 4,291 NPA; 3,820 PA).)


George Friedman

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…

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