January 15, 2013

FINRA Rule Proposal to Amend Definition of “Public Arbitrator”

By Jill Gross

FINRA has filed with the SEC a proposal to change the definition of “public arbitrator” in its Codes of Arbitration Procedure to ”exclude persons associated with a mutual fund or hedge fund from serving as public arbitrators and to require individuals to wait for two years after ending certain affiliations before they may be permitted to serve as public arbitrators.  FINRA believes that the proposed amendments to the public arbitrator definition would improve investors’ perception about the fairness and neutrality of FINRA’s public arbitrator roster.”  FINRA has regularly been revising its definition of “public arbitrator” to address investors’ concerns that arbitrators have ties to the securities industry through various affiliations and backgrounds not otherwise covered by the current definition.  I doubt that association with a mutual fund or hedge fund is the only category of industry-affiliated neutrals left to exclude from the public arbitrator classification.  Are “crowdfunders” next? (JK)

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