Subject: File No. SR-FINRA-2013-003
From: William S Shepherd
Affiliation: Shepherd Smith Edwards and Kantas, LLP

February 7, 2013

Is securities arbitration "fair"? This is a question of both law and perception for the SEC.

The purpose of this letter is to provide the Securities and Exchange Commission (SEC) with comments on the above referenced proposed rule change filed by the Financial Industry Regulatory Authority, Inc. (FINRA) on January 4, 2013.

In 1990, I founded a firm, now with eight attorneys, which primarily represents investors in disputes with members of the securities industry. Since that time, our firm has been involved in approximately a thousand securities cases, mostly in securities arbitration.

Based on my experience, the proposed revision to the FINRA Code of Arbitration Procedure (Code) to remove individuals who are associated with both hedge funds and mutual funds from being classified as public arbitrators is absolutely necessary.

Meanwhile, proposed revisions to that Code to impose a two (2) year period of time to pass before prior industry-related individuals could be classified as public arbitrators, fails the "fairness" test. If ever, at least five (5) years should pass before such persons could be classified as public arbitrators. The reality is that "bias" simply does not leave us quickly and can often last a lifetime.

As you know, securities arbitration was for decades disfavored by courts nationwide until, in 1987, the courts became satisfied that the process had become "fair." At that time, a number of arbitration forums could be chosen by investors to resolve their disputes, including the American Arbitration Association (AAA). This is no longer the case and FINRA has a virtual monopoly.

In fact, there has been a constant struggle over the past 25 years to attempt to overcome both the perception, and often the reality, that securities arbitration forums are in many ways not "fair" to the investing public. In fact, the SEC was recently charged by Congress with the responsibility to determine whether the securities arbitration process is both legally and perceptively "fair" to investors.

A maxim of party representation in legal disputes is that who will decide a dispute is a huge part of the battle. Yet, a preceding question is who makes the rules to determine who will decide the dispute.

Because FINRA - the securities industry itself and not the very public investors the SEC is charged with protecting - makes such rules, the SEC should lean heavily toward approving any rule change which in any way could meet both legal and perceptive requirements of fairness to investors. Meanwhile, the SEC should "lean into the wind" whenever such rule changes might fail either the legal or perceptive requirement of "fairness" to investors.