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One Step Closer To Single SRO?
Big Board Arbitration Rule Could Push More Biz to NASD
WALL STREET LETTER
By J.S.
August 14, 2006

The New York Stock Exchange's proposal that only one arbitrator hear cases involving up to $200,000 in losses has stirred up ire as well as speculation that perhaps the Big Board wants to dump its arb business. Under current NYSE rules, cases over $25,000 are to be heard by a panel of three arbitrators, two of which are "public" – meaning culled from the public sector – and one from the industry.

The upshot, lawyers say, may be that more claims will be brought before the NASD instead. Current rules provide investors with a choice of the two venues for arbitration. More than 90% of arb cases each year are venues for arbitration. More than 90% of arb cases each year are already heard before the NASD. If the new rule is approved, NYSE arbitration hearings could be cut almost in half. Claims of between $25,000 and $200,000 have increased to 44.3% of cases in 2005 from 31.8% in 2002.

Another impetus for dropping the arb department may be the review being undertaken by the Securities and Exchange Commission to determine whether SROs, such as the NYSE, should continue regulating brokerages at all. A single arbitrator is one of the alternative structures being considered by the SEC.

There have been discussions between NYSE and NASD officials to combine their operations (WSL, 2/10). They have said they will have a solution to the redundancies in their rules by year end. The SEC is expected to propose new SRO rules by that time as well (WSL, 9/30).

"I would never file a claim to be decided by one arbitrator," said Jacob Zamansky, of Zamansky and Associates, who represents investors against the industry. Robert Banks, Jr., president of the Public Investors Arbitration Bar Association, had similar reservations. "In order for the NYSE proposal to be fair, the single arbitrator must be free of industry ties, but under current rules, arbitrators classified as "public" are not always truly public," he said.

NYSE, last week, said the change would reduce costs and result in reduced fees in certain cases, as well as provide investors with faster processing and a more timely decision. It could not be determined how much it costs NYSE Reg to run the arbitration department. An NYSE spokesman, in response to a query about shutting down the arb department, referred to the official statement above. Once filed, the rule will be open for public review and comment.

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