July 25, 2007
The NASD's proposal to set a maximum limit of $50,000 in income earned from the securities industry before an arbitrator is no longer classified as a "public arbitrator" is unacceptable. There should be a zero-tolerance threshhold.
That is, in an arbitration forum that many believe already is a biased and unfair system, "public arbitrators" should have no affiliation with or derive any beneficial interest from the securities industry. Indeed, as it stands now, NASD arbitration panels already contain one arbitrator who is affiliated with the securities industry, which is the root of at least some of the accusations of bias on the part of the NASD arbitration process. As such, "public arbitrators" should derive no income whatsoever from the securities industry. Otherwise, the scales will be tipped even further in favor of industry parties in customer/industry arbitration disputes.
Fifty thousdand dollars is a substantial amount of money to earn from a single source, and shows a significant connection to the industry. Public arbitrators should be truly public and free from any perceived bias toward the securities industry. And on that note, the existence of even one member of the securities industry on an NASD arbitation panel that is presiding over a customer/industry dispute is offensive. Having even one "non-public" (read industry) arbitrator creates a significant concern that customers of brokerage firms will never have a truly neutral/unbiased arbitration panel hearing and ruling on their disputes. Such a system is akin to a medical malpractice plaintiff having to try their case to a jury that contains medical professionals or in front of a judge who is a medical doctor.
Furthermore, without a trustworthy method to police the income threshold that the NASD proposes, anything less than a zero-income threshold would subject the threshold to abuse. (Even the zero-income threshold requires some level of trust on the arbitrators' disclosures, but I believe would be as easily taken advantage of.)