November 3, 2015
I submit these comments personally, and not as the representative of any institution or organization with whom I may be affiliated.
FINRA is proposing to merge its dispute resolution subsidiary, FINRA Dispute Resolution, Inc. (FINRA Dispute Resolution) into and with its regulatory subsidiary, FINRA Regulation, Inc. (FINRA Regulation). I oppose this merger.
While arbitration can serve important purposes, it is essential that arbitration proceedings be regarded as "fair" by the participants. Time and again participants in FINRA's mandatory arbitration process have complained of shortcomings, including unfair treatment, at the hands of FINRA's arbitrators.
Rather than approve this merger, the U.S. Securities and Exchange Commission should work to remove arbitration from FINRA, altogether. In other words, a truly independent arbitration forum, such as the American Arbitration Association, should be utilized instead. Additionally, the SEC should work to ensure that arbitrators are armed with a fundamental knowledge of the securities laws applicable to disputes, that written decisions be required in all arbitrations, and that appropriate appeals be permitted when the arbitrators' decisions fail to meet requisite standards.
In order to facilitate capital formation, the structure of our capital markets must be such that individual investors can have faith in the rule of law. With FINRA, whose members are broker-dealer firms, in charge of mandatory arbitration, diminished trust in our system of capital markets thereby results. In this era where investment banks and broker-dealers have given us scandal after scandal, and where so many Americans fear to place funds in the capital markets, it is essential that the SEC act to restore fairness, and the perception of fairness, in arbitration proceedings. This can only be done if arbitration is truly independent of the broker-dealer organization known as FINRA.
Thank you. Ron A. Rhoades, JD, CFP(r)