Prehearing Matters - Chapter 7 - Securities Arbitration: Practice and Forms - Second Edition

The FINRA Neutral List Selection System (NLSS), implemented by the NASD in November 1998, and substantially revised in 2004 and 2008, allows the parties to an arbitration a significant amount of control over who will hear their claim. The NLSS software generates lists of arbitrators for each party in a neutral, random process.

The software selects arbitrators by sorting through four basic factors: classification as a public or non-public arbitrator; geographic location of the hearing; any conflict that may exist with a party; and the arbitrator’s placement in the rotation of panelists. At the parties’ request, expertise in the subject matter may be added to the selection criteria.

The NLSS selects panelists by rotation. The system will generate three lists of arbitrators for three-arbitrator cases — public, non-public, and FINRA chairperson arbitrators. The system will generate a single list of public arbitrators for one-arbitrator cases. It will generate the chairperson list first. Arbitrators in this group who were not selected for the chairperson list will be eligible for the public list. Accordingly, once selected (either by the software or staff selection in certain cases), the arbitrator’s name goes to the bottom of the appropriate list. This occurs even if the panelist is stricken from the panel or if the matter is settled. However, if not selected due to lack of requested expertise or conflict, the arbitrator’s name stays on top of the rotation to be selected for a future matter.

FINRA has recently amended the rule on the classification of public and non-public arbitrators. Under the amendments, persons employed in the financial industry for any period of time are permanently classified as non-public arbitrators. This includes persons associated mutual funds and hedge funds, and persons associated with an investment advisor. It also bans the public-arbitrator classification for any person who represented investors or the financial industry as at least 20 percent of their of their business until after a five-year cooling-off period. This includes attorneys, accountants, and other professionals.