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NEW FINRA RULE REQUIRES EXPLAINED DECISION

On February 4, 2009, the SEC approved FINRA’s proposed rule change to amend arbitrator rules relating to arbitration decisions. The new rule requires arbitrators to provide a written explanation of their decisions upon a joint request of the parties.

Key provisions of the new rule include:

• Parties must jointly request an explained decision;
• Parties must submit their request for an explained decision 20 days before the first scheduled hearing date;
• The Chairperson must write the explained decision;
• The explained decision will be "fact-based," stating the general reasons for the decision;
• The Chairperson will receive $400 honorarium for writing the decision; and
• The honorarium cost will be allocated between the parties.

 The new rule does not allow parties to request an explained decision when (1) the arbitration proceedings are simple and decided solely upon the pleadings and evidence filed by the parties, or (2) the arbitration is conducted under a default proceeding.   While the new rule still gives arbitrators discretion to decide whether to write an explained decision at their own initiative or upon the request of one party, they are not required to draft an explained decision unless both parties agree.

 

A primary purpose behind the new rule is to address investors’ concerns that they are unable to understand the rationale behind arbitration awards absent explanation. Since application of the rule requires both investor and industry party consent, only time will tell if the new rule will have any impact.*

 

*Special thanks to Shirley Munson for her assistance with preparing this article.

Full post as published by OverRegd - Securities Regulation and Litigation Blog on February 20, 2009 (boomark / email).