March 24, 2008
I am a Texas attorney who practices primarily in the area of securities arbitration. Most of that practice is devoted to representing customers against brokerage firms. For the last several years, SRO arbitration, which was sold to Congress, the Regulators and the Courts as a fast, fair and efficient means of resolving securities disputes has become more and more like traditional litigation, without the necessary procedural safegards. The most obvious trend has been the ever increasing use of dispositive motions, such as motions to dismiss. Such motions attempt to take what is, at its core, an equitable forum, and turn it into a legal forum with hyper-technical pleading and evidentiary requirements. This, along with other abusive practices, has resulted in an increasingly unfair process.
This is best seen in the "win" rates for FINRA arbitrations. When I first entered this practice area, around 7 or 8 years ago, the win rate for customers in (then NASD NYSE) arbitration was between 50% and 60%. That indicated to most of those outside the practice area that it must be a fair forum as a wronged customer had around a 50% chance of winning. Since then, virtually each time this same statistic has been released, it has gone down. Most recently, the customer "win" rate has slipped to roughly 1/3. That means that almost 2/3 of the customers recieve nothing (with the remainder often getting only a small portion of their losses).
There is little question that this historic fall in customer "win" rates is largely due to the increased use, and acceptance, of dispositive motions in FINRA arbitration. The proposed rule, while not perfect, seeks to help resolve some of that problem. As a result, I support the proposed FINRA rule and ask that the SEC push it forward as soon as possible.