July 24, 2014
Secretary
U.S. Securities and Exchange Commission
rule-comments@sec.gov
Re: Comments on SR-FINRA-2014-028, Proposed Rule Change Relating to Definitions of Non-Public Arbitrator and Public Arbitrator
Dear Secretary:
Thank you for the opportunity to comment on the proposed rule changes concerning the definitions of non-public and public arbitrators. My comments are directed primarily to proposed new Rules 12100(p)(3), 12100(u)(3) and 12100(u)(7).
After more than 20 years as an NASD/FINRA public arbitrator, under the new Rules, I would suddenly become a non-public arbitrator. This would occur because my law firm and I have likely devoted 20% or more of our professional time to serving parties in investment disputes, and we have done so for the most part on behalf of investors. Put another way, because we have represented what most people would call the “investing public,” I would now, ironically, become a “non-public” arbitrator.
I believe that arbitrators like me have been generally understood by everybody in the business as someone who is not in the business. My view has always been that our status as industry outsiders is what made arbitrators like me “public” rather than “non-public.”
I share the concerns of commenter Richard A. Stephens that the motivation for this change seems suspect, apparently based on one out of 45 comments received earlier on the proposed rule changes. Stephens comment letter, July 6, 2014, at p. 6. I support Mr. Stephens’s proposed changes to the proposed changes, but I could also envision a more candid set of changes given FINRA’s stated rationale for the change: “By expanding the scope of the non-public arbitrator definition, parties would have a greater ability to address their own perceptions of bias through the use of their unlimited strikes on the non-public arbitrator list.” SEC Release No. 34-72491 at § II.1 (79 Federal Register 128 at 38081.) Given the rationale of “address[ing parties’] perceptions of bias”, why not create three categories of arbitrators, something like: (1) arbitrators with no apparent bias, (2) arbitrators with possible industry bias, and (3) arbitrators with possible investor bias. Each party could pick one arbitrator from each pool. Wouldn’t that serve the stated goal even better?
Perhaps, but the category names do not exactly inspire confidence so I am not seriously proposing them. Rather, my point is 1)to express my agreement with the Commission’s stated rationale for the Rule changes that perception of fairness on the part of the public is an important priority for our arbitration process, and 2) to express my disagreement with a Rule change that would thwart that rationale by burying professionals who represent the investing public in the industry non-public side. It will make selection of a balanced panel more difficult, which increases the risk of imbalanced decisions, and a consequent decline in public confidence.
I respectfully oppose the changes and support Mr. Stephens’s counterproposals.
Thank you.
Gary N. Hardiman