Securities Litigation

FINRA has proposed a new $100 per-arbitrator fee and a $100 per-arbitrator honorarium for the late cancellation or continuation of prehearing conferences in FINRA arbitrations. The proposed rule change would affect both customer cases and industry cases, and FINRA is seeking to amend FINRA Rules 12214(a), 12500, 12501, 13214(a), 13500, and 13501. In essence, if one or more of the arbitrating parties cancels or obtains a continuance of a prehearing conference within three business days of the scheduled hearing (for example, an Initial Prehearing Conference or "IPHC"), the responsible party or parties would be required to compensate any arbitrators scheduled to participate in the conference. In extraordinary cases, arbitrators would also be permitted to waive the fee.

FINRA's proposal appears targeted towards recruitment and retention of arbitrators. The rationale is that the rule change would encourage people willing to devote themselves to consideration of prehearing issues to continue to act as arbitrators. Further, FINRA has determined that arbitrators often spend time preparing for conferences that are canceled at the last minute and receive no compensation. The proposed rule seeks to remove a disincentive to contentious arbitrators.

In proposing the rule change, FINRA acknowledged that customers could face increased costs. But it pointed to the fact that the rule change would incentivize the parties to attempt to address preliminary matters well in advance of scheduled conferences. FINRA further suggested that the parties could negotiate responsibility for the extra fee. In any event, the fees could be avoided by providing notice concerning cancellation or continuation more than three business days ahead of any scheduled conferences.