June 2, 2017
Via E-Mail to [email protected]
Jennifer Piorko Mitchell
Vice President and Deputy Corporate Secretary
Office of Corporate Secretary
FINRA
1735 K Street, NW
Washington, DC 20006-1506
Re: Special Notice – Engagement Initiative, dated March 21, 2017 (the “Notice”) SIFMA comment on the transparency of FINRA’s dispute resolution program
Dear Ms. Mitchell:
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to submit this supplemental comment on the Notice. This letter responds specifically to your request for comment on the transparency of FINRA’s dispute resolution program and how FINRA might enhance the forum’s operational transparency.2
A perennial issue with significant transparency implications for the FINRA arbitration forum is that of unpaid arbitration awards. In 2013, for example, there were 225 cases with money damage awards issued in favor of the claimant totaling $257 million; of those cases, 75 awards totaling $62 million went unpaid.3 More recently, in 2015, there were 190 cases with money damage awards in favor of the claimant totaling $203 million; of those cases, 42 awards totaling $26 million went unpaid.
While the data for years 2013 and 2015 are helpful, they raise more questions than they answer about the issue of unpaid awards. For example, it is unclear what percentage or number of these unpaid awards were subsequently satisfied, in whole or in part, through a court action or settlement, which would presumably lower the overall number. It is equally unclear whether the data for years 2013 and 2015 are outliers or are representative of most years. Finally, it is unclear which respondents were responsible for these unpaid awards and whether there is a pattern of these unpaid awards being attributable to a small number of undercapitalized or defunct firms. To gage the scope and magnitude of the unpaid awards issue, we would need the benefit of consistent, year over year data. Finally, the available data does not provide us with any information about the scope or scale of unpaid awards in intra-industry cases.
Accordingly, in order to enhance the transparency and integrity of FINRA’s arbitration forum with respect to unpaid arbitration awards, we offer the following recommendations:
1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
2 Notice, available at http://www.finra.org/sites/default/files/notice_doc_file_ref/Special-Notice-032117.pdf, at 23.
3 Final Report and Recommendations of the FINRA Dispute Resolution Task Force, dated December 16, 2015, available at http://www.finra.org/arbitration-and-mediation/finra-dispute resolution-task-force, at 50. See also PIABA Report on Unpaid Arbitration Awards, dated February 25, 2016, available at https://piaba.org/piaba-newsroom/report-unpaid arbitrationawards-problem-industry-created-problem-industry-must-fix-f.