NYSE Reg to Streamline Arbitration: Proposes One Arbitrator for Cases Under $200,000

In an effort to speed up the arbitration process, NYSE Regulation proposed Wednesday that a single public arbitrator decide cases in which compensatory and punitive damages claimed are under $200,000.

In an effort to speed up the arbitration process, NYSE Regulation proposed Wednesday that a single public arbitrator decide cases in which compensatory and punitive damages claimed are under $200,000. Today, only cases with damages claimed under $25,000 are decided by a single public arbitrator; the rest are decided by a panel of three arbitrators, two public and one industry. The rule proposal will be filed with the Securities Exchange Commission for final approval.

“I would expect the SEC will approve this quickly, because there’s a strain on the system when we have to appoint three arbitrators to so many cases,” says securities attorney Theodore Eppenstein, a partner with Eppenstein & Eppenstein in New York.

Between one-third and one-half of NYSE Regulation’s arbitration cases are claims for under $200,000. Through the end of June this year, 43 out of 154 cases arbitrated at the NYSE were claims for between $25,000 and $200,000. Last year, 205 out of 463 cases had damage claims in that range, and in 2004, it was 452 out of 1,000 cases filed.

The arbitration system has been under fire lately for being costly, slow and skewed in favor of the industry. This change should make selecting arbitrators and scheduling hearings easier and faster, particularly cases with multiple hearing sessions, says Daniel Beyda, chief administrative officer, NYSE Regulation.

It could work in the customers’ favor as well, says Eppenstein, who is also a member of the Securities Industry Committee on Arbitration (SICA), a private group that provides mediation services in cases of customer complaints against securities firms. “It’s both good and bad to raise the threshold,” he says. “For customers it should be beneficial, because they don’t have the worry that the industry person will be biased. But the industry would want to have someone from the industry” on the panel, he says.

The Securities Industry Association declined to comment on the rule proposal, and Beyda says he doesn’t expect resistance from broker/dealers. “Our view is we will continue to provide the same level of transparency and fairness that we always have. If anything we’ll just be able to do it more efficiently,” he says.

SICA proposed a slightly different arbitrator selection process in March of this year: Using a single public arbitrator for all cases in which damages claimed are under $100,000, and using one public arbitrator for cases with damages of between $100,000 and $200,000—unless one of the parties decides they would prefer to have three. For all cases over $200,000 it recommended using three arbitrators.

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