Arbitrators Selection Process
There are three categories of Arbitrators: public chairperson, public panel member, and non-public or industry panel member. The importance of selecting a qualified arbitrator cannot be overstated.
A Public Arbitrator is someone without specific knowledge of the financial industry that may come from a wide array of industries that will essentially use their “common sense” understanding of the situation and rely on their training/life experience in coming to a fair and equitable result.
The industry Arbitrator will usually be an investment professional of some type with a more detailed understanding of securities, commodities and may often times be an attorney.
The selection process, similar to a draft, is governed by FINRA 12404, and allows the parties to look at the potential arbitrator’s resume, qualifications and any industry related commendations. Each side is handed a list with eight (8) possible arbitrators and must pick four (4) acceptable arbitrators while ranking them form highest to lowest in order of preference. In the rare case that the eight are all disqualified, FINRA will use the NLSS (Neutral List Selection System) to fill the vacant post.
According to FINRA Rule 13500 and after the panel is selected, FINRA schedules a telephone conference called the “IPHC” (Initial Pre-Hearing Conference), at a predetermined date requiring attendance by all the parties, their attorneys as well as the panel members.
While this is more of a scheduling exercise with the setting and confirming dates for discovery cutoff, evidence and witness exchange, it also allows both parties to reach an agreement regarding the rules applicable to the particular arbitration, the acceptance of the panel and the identification of all the parties.