October 20, 2014
I am the immediate past FINRA Director of Arbitration, having retired in 2013. I submit this comment with respect to SR-FINRA-2014-028 (Order Instituting Proceedings to Determine Whether to Approve or Disapprove Proposed Rule Change Relating to Revisions to the Definitions of Non-Public Arbitrator and Public Arbitrator). For the reasons articulated below I believe the proposed rule as drafted needs more work and should not be approved.
I previously submitted comments on this rule on July 24, 2014. As I stated in my previous comment letter, arbitrator classification is an important and challenging issue. This rule proposal is clearly well-intended but in my opinion it could have negative consequences if approved. Rather than repeat here at length my concerns, I submit an article I authored on the proposed rule, "The Camel and the Last Straw or the Frog and the Boiling Water: Pick Your Parable," that was published as the lead article in August in the Securities Arbitration Commentator (see http://www.sec.gov/comments/sr-finra-2014-028/finra2014028-12.pdf). I focus my additional comments on the key items identified in the Commission's October 3rd Order.
ELIMINATION OF THE CURRENT 5-YEAR COOLING OFF PERIOD BY WHICH NON-PUBLIC ARBITRATORS WHO WORKED IN THE INDUSTRY MAY BECOME CLEANSED AND BECOME PUBLIC ARBITRATORS
Arbitrators should not remain non-public forever. These arbitrators should be moved to a "no-mans-land/can't be an arbitrator" status after they are not involved in or with the industry for a number of years.
ALL INDUSTRY EMPLOYEES – REGARDLESS OF CAPACITY – BEING NON-PUBLIC ARBITRATORS
I oppose this concept. In my opinion, this paints with too broad a brush. For example, should a clerical worker be so classified? Better to treat these individuals as the Codes now handle individuals like spouses of brokers, or others disqualified from being public but who don't otherwise qualify as non-public, that is, they cannot be arbitrators. We can't expect the securities industry to accept a non-public roster bloated by arbitrators who don't know the industry.
CLASSIFYING INVESTOR ADVOCATES AS NON-PUBLIC
I cannot fathom how this would further investor protection.
EXTENDING FROM TWO TO FIVE YEARS THE COOLING OFF PERIOD BEFORE PROFESSIONALS REPRESENTING THE INDUSTRY MAY BECOME PUBLIC
I support this aspect of the proposal.
IMPACT ON THE NUMBER OF AVAILABLE PUBLIC ARBITRATORS AND CONDUCTING A MORE EXTENSIVE COST-BENEFIT ANALYSIS
This rule change should not be approved until a comprehensive impact and cost-benefit analysis is performed. With all due respect, FINRAs suggestion to do this after the rule is approved is putting the cart squarely before the horse, and is reminiscent of those members of Congress who promised to read the Affordable Care Act after they voted for it.
GENERAL COMMENTS, SUCH AS WHETHER THE NEWLY-FORMED FINRA ARBITRATION TASK FORCE SHOULD CONSIDER THE PROPOSAL AND THE COMMENTS IT GENERATED
I am troubled by FINRA's disinclination to have the recently-formed Dispute Resolution Task Force evaluate this rule proposal and the comments it generated. The stated mission of this diverse group is to suggest strategies to enhance the transparency, impartiality and efficiency of FINRA's securities dispute resolution forum for all participants. If arbitrator classification doesn't qualify as a topic, I am not sure what does.
As I have previously stated I suggest FINRA go back to the drawing board on this core issue. This one is better right than rushed.