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FINRA Takes ‘First Step’ to Improve Arbitrator Selection Process

The Financial Industry Regulatory Authority is seeking approval from the Securities and Exchange Commission to provide greater transparency and consistency regarding arbitrator list selection.

In a rule filing with the SEC, FINRA has proposed to change references in the Codes of Arbitration Procedure from the Neutral List Selection System to the list selection algorithm.

“This is FINRA’s first step in improving its transparency in the arbitrator selection process,” Michael Edmiston, president of the Public Investors Advocate Bar Association, or PIABA, told ThinkAdvisor Thursday in an interview. “I believe this is the initial effort to make the selection of arbitrator process easier to understand for all users.”

As FINRA explains, from November 1998 until October 2006, the Neutral List Selection System “was the computer system that generated lists of arbitrators from FINRA Dispute Resolution Services’ rosters of arbitrators for the selected hearing location for each arbitration proceeding.”

In October 2006, DRS replaced the NLSS with the Mediation and Arbitration Tracking and Retrieval Interactive Case System (MATRICS).

As a result, “all of the information contained in the NLSS was transferred to MATRICS such that MATRICS now contains the list selection algorithm DRS uses to generate lists of arbitrators from its rosters of arbitrators,” FINRA states. “However, the Codes refer to the NLSS as a computer system that governs arbitrator list selection in the DRS arbitration forum.”

FINRA is proposing to update the Codes “by making technical, non-substantive changes to remove references to the NLSS from those rules describing arbitrator list selection and instead refer to the ‘list selection algorithm.’”



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