The National Association of Securities Dealers plans to change the process it uses to choose panelists for its securities arbitration process.
The NASD wants to implement a "list selection rule" this year that would give parties going to arbitration more say over who will decide their cases, said Kenneth L. Andrichik, an official with NASD Regulation. Mr. Andrichik, a director in the office of dispute resolution, was addressing a group of compliance officials from bank brokerages attending a Bank Securities Association conference here last week.
The NASD arbitration process includes a forum where securities firms and the public can resolve disputes in front of an objective panel drawn from both sides of the market. Complaints brought to arbitration include issues such as "churning" and investor suitability.
The NASD now chooses arbitration panels of three from a roster. The parties going to arbitration can challenge the choice.
Under the proposed rule, the NASD would offer two lists of potential panelists to the parties. One list would contain five members of the securities industry, the other 10 members of the public. The lists would reflect the makeup of NASD arbitration panels, each of which has one industry and two public members.
In an interview several days after his presentation, Mr. Andrichik said the rule change is in response to requests from the securities industry and the public.
"They wanted more input in the arbitration selection process," he said.
The proposed rule has been filed with the Securities and Exchange Commission, Mr. Andrichik said.
In his presentation at the conference, Mr. Andrichik noted that NASD arbitration proceedings have increased since 1987. "Remember 1987?" he asked attendees. "That was the year of the correction."
The NASD heard 1,587 cases in 1986 , 2,886 in 1987, and nearly 4,000 in 1988.
The total was 5,997 last year but is expected to fall to about 4,660 this year.
"Our volume was down in early 1998, and we expected that" because of the bull market then, Mr. Andrichik said.
Asked whether the current market volatility could spawn a rush to arbitration, Mr. Andrichik said, "There's always a correlation. ... Volatility and downturns are forward indicators of our likely caseload."
The cases usually take several months to appear, he said. "We try to be prepared."
