Structural Barriers to Inclusion in the Securities Arbitrator Pool
63 Pages Posted: 8 Jul 2021 Last revised: 9 Aug 2021
Date Written: August 31, 2020
Critics increasingly challenge mandatory arbitration because the pools from which decisionmakers are selected are neither diverse nor inclusive. Evaluating diversity and inclusion in arbitrator pools is difficult due to the black box nature of mandatory arbitration. This Article evaluates inclusion in arbitrator pools through a case study on securities arbitration. The article relies upon the relatively greater transparency of the Financial Industry Regulatory Authority (FINRA) forum. It begins by describing the unique role that small claims securities arbitration plays in maintaining investor trust and confidence in the securities markets before describing why ensuring that the FINRA arbitrator pool is both diverse and inclusive is necessary for legitimacy. The Article then evaluates the forum’s arbitrator selection protocol and identifies barriers that may prevent newer entrants, who have diversified the arbitrator roster, from presiding over consumer investors’ claims. Using publicly available information, it then evaluates whether newly recruited arbitrators presided over smaller customer claims that concluded after a hearing from 2015 to 2019. The results indicate that only 0.98% of decisions in smaller claim investor cases were rendered by arbitrators who first appeared in FINRA’s awards database after diversity recruitment efforts began in 2015. Though FINRA has diversified its arbitrator roster, few small investors receive the benefit of new entrants. The results illustrate the limits of transparency and the need for additional information to evaluate whether arbitrator pools are inclusive. The Article then formulates interventions to permit evaluation of diversification efforts and eliminate barriers to inclusion in arbitrator pools. The case study and resultant recommendations provide guidance that may serve as best practices for consumer arbitration forums wishing to ensure transparency and inclusion in their arbitrator pools.
Keywords: arbitration, securities, consumer protection, investor, FINRA, dispute resolution, diversity, inclusion, stockbroker, transparency
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