Notice2026-17549
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Codes of Arbitration Procedure To Make Changes to Certain Provisions Relating to Arbitrator List Selection
Primary source
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Published
August 28, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 166 (Friday, August 28, 2026)</title>
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[Federal Register Volume 91, Number 166 (Friday, August 28, 2026)]
[Notices]
[Pages 55637-55642]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-17549]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106183; File No. SR-FINRA-2026-017]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
the Codes of Arbitration Procedure To Make Changes to Certain
Provisions Relating to Arbitrator List Selection
August 25, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 12, 2026, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend the Code of Arbitration Procedure for
Customer Disputes (``Customer Code'') and the Code of Arbitration
Procedure for Industry Disputes (``Industry Code'') (together,
``Codes'') to make changes to certain provisions relating to arbitrator
list selection.
Specifically, the proposed rule change would amend FINRA Rules
12402 (Cases with One Arbitrator), 12403 (Cases with Three
Arbitrators), 13406 (Appointment of Arbitrators; Discretion to Appoint
Arbitrators Not on List), and 13411 (Replacement of Arbitrators) to
provide parties with greater input into arbitrator selection at initial
panel appointment and when replacing arbitrators after initial panel
appointment.
The text of the proposed rule change is available on FINRA's
website at
[[Page 55638]]
<a href="http://www.finra.org">http://www.finra.org</a> and at the principal office of FINRA.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
I. Overview of FINRA's Arbitrator List Selection Process
Decisions in the FINRA Dispute Resolution Services (``DRS'')
arbitration forum are made by independent arbitrators.\3\ To help
ensure fairness to all parties during arbitrator list selection, FINRA
uses a computer algorithm, known as the ``list selection algorithm,''
to generate lists of arbitrators on a random basis from its rosters of
arbitrators for the selected hearing location.\4\ DRS maintains three
rosters of arbitrators: public arbitrators, non-public arbitrators, and
arbitrators who are eligible to serve as chairperson of a panel.\5\ In
general, a public arbitrator is a person who is otherwise qualified to
serve as an arbitrator and is not disqualified from service as a public
arbitrator due to their current or past ties to the financial
industry.\6\ A non-public arbitrator is a person who is disqualified
from service as a public arbitrator due to their current or previous
association with the financial industry.\7\ An arbitrator is eligible
to serve as a chairperson if they have completed FINRA's chairperson
training and (1) have a law degree and are a member of a bar of at
least one jurisdiction and have served as an arbitrator through award
on at least one arbitration administered by a self-regulatory
organization (``SRO'') in which hearings were held; or (2) have served
as an arbitrator through award on at least three arbitrations
administered by an SRO in which hearings were held.\8\
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\3\ As a neutral administrator of the arbitration forum, DRS
does not participate in the decision-making process by arbitrators.
DRS currently maintains a roster of approximately 8,100 arbitrators.
See FINRA, Arbitration and Mediation, Dispute Resolution Statistics,
<a href="https://www.finra.org/arbitration-mediation/dispute-resolution-statistics">https://www.finra.org/arbitration-mediation/dispute-resolution-statistics</a>; FINRA, Arbitration and Mediation, Become an Arbitrator,
<a href="https://www.finra.org/arbitration-mediation/become-arbitrator">https://www.finra.org/arbitration-mediation/become-arbitrator</a>.
\4\ See FINRA Rules 12400(a) and 13400(a).
\5\ See FINRA Rules 12400(b) and 13400(b).
\6\ See FINRA Rules 12100(aa) and 13100(x).
\7\ See FINRA Rules 12100(t) and 13100(r).
\8\ See FINRA Rules 12400(c) and 13400(c).
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The number and composition of the arbitrator lists that are
generated using the list selection algorithm varies depending on the
nature of the dispute and whether it will be heard by a panel of three
arbitrators or by a single arbitrator. With respect to both customer
disputes with three arbitrators and industry disputes involving
associated persons with three arbitrators,\9\ DRS uses the list
selection algorithm to generate three lists: (1) a list of 10 public
arbitrators from the FINRA chairperson roster (``Chairperson List'');
(2) a list of 15 arbitrators (in customer disputes) or 10 arbitrators
(in industry disputes involving associated persons) from the FINRA
public arbitrator roster (``Public List''); and (3) a list of 10
arbitrators from the FINRA non-public arbitrator roster (``Non-Public
List'').\10\
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\9\ The panel will consist of three arbitrators in both customer
and industry disputes when (1) the amount of the claim is more than
$50,000 but not more than $100,000, exclusive of interest and
expenses, and the parties agree in writing to three arbitrators; or
(2) the amount of the claim is more than $100,000, exclusive of
interest and expenses, is unspecified, or the claim does not request
money damages, unless the parties agree in writing to one
arbitrator. See FINRA Rules 12401 and 13401.
\10\ See FINRA Rules 12403(a)(1) and 13403(b)(2).
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More generally, once the lists of arbitrators are generated,\11\
the Director \12\ sends the lists to the parties.\13\ The parties then
select their arbitrators through a process that involves striking and
ranking the arbitrators on the lists.\14\ For example, with respect to
customer disputes with three arbitrators, each separately represented
party may strike up to four of the arbitrators from the Chairperson
List for any reason. Additionally, each separately represented party
may strike up to six of the arbitrators from the Public List for any
reason. Each separately represented party may also strike up to all 10
arbitrators from the Non-Public List.\15\ Following the striking
process, each separately represented party shall rank all remaining
arbitrators on the lists in order of preference, with a ``1''
indicating the party's first choice, a ``2'' indicating the party's
second choice, and so forth. Each list of arbitrators must be ranked
separately.\16\
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\11\ The list selection algorithm will automatically exclude
arbitrators from the lists based upon current conflicts of interest
identified within the list selection algorithm. See FINRA Rules
12402(b)(2), 12403(a)(4), 13403(a)(4), and 13403(b)(5). In addition,
DRS conducts a review for other conflicts not identified within the
list selection algorithm. See FINRA Rules 12402(b)(3), 12403(a)(5),
13403(a)(5), and 13403(b)(6). If any arbitrators are removed due to
such conflicts, the list selection algorithm is used to generate
replacement arbitrators. See FINRA Rules 12402(b)(3), 12403(a)(5),
13403(a)(5), and 13403(b)(6).
\12\ The term ``Director'' means the Director of DRS. Unless the
Codes provide that the Director may not delegate a specific
function, the term includes FINRA staff to whom the Director has
delegated authority. See FINRA Rules 12100(m) and 13100(m).
\13\ See FINRA Rules 12402(c)(1), 12403(b)(1), and 13403(c)(1).
\14\ See FINRA Rules 12402(d), 12403(c), and 13404.
\15\ See FINRA Rule 12403(c).
\16\ See supra note 15.
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Following the ranking process, the Director consolidates the
parties' rankings to create combined lists for each arbitrator
classification type and appoints the panelists based on the parties'
rankings from the combined lists.\17\ However, there may be no
arbitrators remaining on the combined lists, or if arbitrators remain,
they may be unable or unwilling to serve.\18\ In addition, after panel
appointment, an arbitrator may need to be removed or become unable or
unwilling to serve on the panel.\19\ The proposed rule change would
make changes to the Codes by providing parties with greater input into
arbitrator selection if either of these situations were to occur.\20\
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\17\ See FINRA Rules 12402(e), 12403(d), and 13405. Detailed
information regarding the striking and ranking process is available
on FINRA's website at <a href="https://www.finra.org/arbitration-mediation/about/arbitration-process/arbitrator-selection">https://www.finra.org/arbitration-mediation/about/arbitration-process/arbitrator-selection</a>.
\18\ See FINRA Rules 12402(f), 12403(e), and 13406(c).
\19\ See FINRA Rules 12402(g), 12403(f)-(h), and 13411.
\20\ FINRA notes that the proposed rule change would impact all
members, including members that are funding portals or have elected
to be treated as capital acquisition brokers (``CABs''), given that
the funding portal and CAB rule sets incorporate the impacted FINRA
rules by reference.
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II. Proposed Amendments To List Selection at Initial Panel Appointment
The proposed rule change would revise the process under the Codes
for appointing an arbitrator to an initial panel when the number of
arbitrators available to serve from the combined lists is insufficient
to fill the initial panel.\21\ Currently, the Codes provide that if the
number of arbitrators available to serve from the combined lists is
insufficient to fill an initial panel, the Director will appoint an
arbitrator to complete the panel from
[[Page 55639]]
names generated randomly by the list selection algorithm--a process
referred to as ``extending the list'' or an ``extended list
appointment''--and parties are required to accept this appointment.\22\
Based on FINRA's experience, extended list appointments have proved
unpopular as parties may only challenge these arbitrators for cause,
which limits the parties' role in arbitrator selection.\23\
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\21\ See proposed Rules 12402(f), 12403(e), and 13406(c).
\22\ See FINRA Rules 12402(f), 12403(e), and 13406(c).
\23\ Under FINRA Rules 12407(a) and 13410(a), the Director will
grant a party's request to remove an arbitrator if it is reasonable
to infer, based on information known at the time of the request,
that the arbitrator is biased, lacks impartiality, or has a direct
or indirect interest in the outcome of the arbitration. The interest
or bias must be definite and capable of reasonable demonstration,
rather than remote or speculative. See FINRA, How Parties Select
Arbitrators, <a href="https://www.finra.org/arbitration-mediation/about/arbitration-process/arbitrator-selection">https://www.finra.org/arbitration-mediation/about/arbitration-process/arbitrator-selection</a>.
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Due to parties' concerns about extended list appointments, DRS's
current practice is to provide parties with an opportunity to agree to
receive a new list of arbitrators of the required classification
generated randomly by the list selection algorithm (``new list'')
rather than an extended list appointment. If the parties agree to a new
list, each opposing party (all separately represented claimants
collectively and all separately represented respondents collectively)
strike and rank the arbitrators on the list, and then the Director
combines both sides' ranking lists to select the highest-ranked
arbitrator to fill the panel. As parties often agree to receive a new
list of arbitrators of the required classification to fill an initial
panel rather than an extended list appointment, FINRA is proposing to
replace extended list appointments with new lists under the Codes.\24\
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\24\ See proposed Rules 12402(f)(2), 12403(e)(2)(A),
(e)(3)(C)(i), and 13406(c).
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Thus, under the proposed rule change, when no arbitrators remain
available on the combined lists to fill the initial panel, a new list
of arbitrators would be generated randomly by the list selection
algorithm for the parties to strike and rank in accordance with the
Codes.\25\ Parties would no longer be required to accept an extended
list appointment or agree to a new list of arbitrators to avoid an
extended list appointment. Under the proposed rule change, a new list
of arbitrators of the required classification would be generated
randomly by the list selection algorithm for the parties, with the same
selection and participation rights they exercise during the initial
arbitrator selection process.\26\
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\25\ See supra note 24.
\26\ See supra notes 14-17 and accompanying text.
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III. Proposed Amendments To Replace Arbitrators After Initial Panel
Appointment
Under the Codes, when an arbitrator is removed from an arbitration
case or becomes unable or unwilling to serve after initial panel
appointment, the Director will appoint as a replacement the arbitrator
who is the most highly ranked available arbitrator remaining on the
combined list of the arbitrator classification type.\27\ If that
arbitrator is also unable or unwilling to serve, depending on whether
the case is a customer or industry case and the number of arbitrators
on the panel, the Director will return to the initial list of the
arbitrator classification type and appoint the next highest-ranked
available arbitrator to complete the panel or will make an extended
list appointment.\28\
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\27\ See FINRA Rules 12402(g)(1)-(2), 12403(f)(1)-(2), (g)(1)-
(2), (h)(1)-(2), and 13411(a)-(b).
\28\ See FINRA Rules 12402(g)(1)-(3), 12403(f)(1), (3)-(4),
(g)(1), (3)-(4), (h)(1), (3)-(4), and 13411(a)-(c).
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To provide parties with greater input into selecting replacement
arbitrators after initial panel appointment and to address timing
concerns related to the hearing schedule, DRS introduced a voluntary
program known as the Short List Option.\29\ If the parties agree to the
current voluntary Short List Option, the list selection algorithm
randomly generates a list of potential replacement arbitrators.\30\ The
Director will prescreen the arbitrators on the short list to confirm
their availability for any scheduled hearings and will provide parties
with a list of qualified arbitrators, the number of which varies
depending on the hearing schedule. Each side may strike and rank the
arbitrator names within a prescribed number of days.
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\29\ See FINRA, Short List Option, <a href="https://www.finra.org/arbitration-mediation/rules-case-resources/special-procedures/short-list">https://www.finra.org/arbitration-mediation/rules-case-resources/special-procedures/short-list</a>.
\30\ See supra note 29.
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As the current voluntary Short List Option provides forum
participants with greater input into arbitrator selection when
replacing arbitrators after initial panel appointment and to provide
increased transparency to forum participants regarding the availability
of this program, FINRA is proposing to codify it as the default method
for selecting replacement arbitrators after panel appointment.
A. Proposed Amendments To Codify the Current Voluntary Short List
Option
The proposed rule change would codify the circumstances under which
a short list of arbitrators would be provided to the parties, as well
as the number of listed arbitrators, when replacing arbitrators after
initial panel appointment based on the hearing schedule (``Proposed
Short List Option''): \31\
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\31\ See proposed Rules 12402(h)(1)(A)-(D), 12403(g)(1)(A)-(D),
and 13411(f)(1)(A)-(D).
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(1) a short list of five arbitrators if a hearing is scheduled in
more than 20 days;
(2) a short list of three arbitrators if a hearing is scheduled
between 10 and 20 days;
(3) a short list of five arbitrators if a hearing is scheduled in
fewer than 10 days and the parties agree to postpone the upcoming
hearing; or \32\
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\32\ When a hearing is scheduled in fewer than 10 days and
parties agree to a postponement, parties may be assessed
postponement fees pursuant to FINRA Rules 12214(a)(5), 12601(b)(2),
13214(a)(5), and 13601(b)(2). See proposed FINRA Rules
12402(h)(1)(C)(i), 12403(g)(1)(C)(i), and 13411(f)(1)(C)(i). The
parties would be required to provide the Director with at least four
sets of mutually agreed upon hearing dates to reschedule the
hearings. This requirement would prevent indefinite delays when they
agree to postpone the hearing. See proposed FINRA Rules
12402(h)(1)(C)(ii), 12403(g)(1)(C)(ii), and 13411(f)(1)(C)(ii).
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(4) a short list of five arbitrators if hearings have concluded but
the award has not been issued.
In cases where no hearing dates are scheduled after panel
appointment, the parties would instead receive a new list of
arbitrators of the required classification generated randomly by the
list selection algorithm.\33\ Pursuant to existing FINRA rules, the
parties would strike and rank the arbitrators on the list,\34\ and the
Director would combine both sides' ranking lists to select the highest-
ranked arbitrator to fill the panel.\35\
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\33\ See proposed Rules 12402(g)(1), 12403(f)(1), and 13411(a).
\34\ See supra notes 14-16 and accompanying text.
\35\ See supra note 17 and accompanying text.
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The Director would prescreen arbitrators on the short list to
confirm their availability for scheduled hearings before sending the
short list to the parties.\36\ For a short list of five arbitrators,
each opposing party (all separately represented claimants collectively
and all separately represented respondents collectively) may strike two
arbitrators from the short list for any reason, and shall rank the
remaining arbitrators in order of
[[Page 55640]]
preference.\37\ Parties would have no more than five days after the
date upon which the Director sent the short list to parties to return
their ranked short list via the Party Portal.\38\
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\36\ See proposed Rules 12402(h)(2), 12403(g)(2), and
13411(f)(2).
\37\ See proposed Rules 12402(h)(3)(A), 12403(g)(3)(A), and
13411(f)(3)(A).
\38\ See proposed Rules 12402(h)(3)(A)(ii), 12403(g)(3)(A)(ii),
and 13411(f)(3)(A)(ii). If a party is a pro se customer who opted
out of using the Party Portal pursuant to Rule 12300(a), the party
may return the ranked short list to the Director by first-class
mail, overnight mail service, overnight delivery service, hand
delivery, email or facsimile. See proposed Rules 12402(h)(3)(A)(ii)
and 12403(g)(3)(A)(ii).
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For a short list of three arbitrators, each opposing party (all
separately represented claimants collectively and all separately
represented respondents collectively) may strike one of the arbitrators
from the short list for any reason, and each opposing party shall rank
all remaining arbitrators in order of preference.\39\ Parties would
have no more than two days after the date upon which the Director sent
the short list to parties to return their ranked short list via the
Party Portal.\40\ If a party does not return the ranked short list
within the prescribed timeframe, the Director would proceed as though
the party did not want to strike any arbitrator or have any preferences
among the listed arbitrators.\41\ The Director would appoint the
highest-ranked available arbitrator from the combined rankings.\42\
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\39\ See proposed Rules 12402(h)(3)(B), 12403(g)(3)(B), and
13411(f)(3)(B).
\40\ See proposed Rules 12402(h)(3)(B)(ii), 12403(g)(3)(B)(ii),
and 13411(f)(3)(B)(ii). If a party is a pro se customer who opted
out of using the Party Portal pursuant to Rule 12300(a), the party
may return the ranked short list to the Director by first-class
mail, overnight mail service, overnight delivery service, hand
delivery, email or facsimile. See proposed Rules 12402(h)(3)(B)(ii)
and 12403(g)(3)(B)(ii).
\41\ See proposed Rules 12402(h)(3)(C), 12403(g)(3)(C), and
13411(f)(3)(C). In addition, parties are not required to send a copy
of their ranked short list to the opposing parties. See proposed
Rules 12402(h)(3)(D), 12403(g)(3)(D), and 13411(f)(3)(D).
\42\ See proposed Rules 12402(h)(4), 12403(g)(4), and
13411(f)(4).
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B. Circumstances When Proposed Short List Option Would be Unavailable
The proposed rule change would codify the circumstances under which
the Proposed Short List Option would be unavailable to the parties.
Specifically, the Proposed Short List Option would be unavailable to
the parties if: \43\
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\43\ See proposed Rules 12402(g)(2), 12403(f)(2), and
13411(b)(1)-(5).
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(1) all parties agree in writing to proceed with only the remaining
arbitrators (in disputes with three arbitrators);
(2) a hearing is scheduled in fewer than 10 days of the date the
arbitrator was removed, or became otherwise unable or unwilling to
serve, and all parties do not agree to postpone the hearing dates;
(3) there are multiple claimants that are separately represented
and do not agree to jointly submit one ranking list;
(4) there are multiple respondents that are separately represented
and do not agree to jointly submit one ranking list; or
(5) there is a third party claim in which the third party
respondent does not reach agreement with either the claimant or the
respondent to jointly submit one ranking list.
In addition, the Proposed Short List Option would not be available
to the parties if the case relates to a straight-in expungement request
filed on or after October 16, 2023.\44\
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\44\ See proposed Rule 13411(b)(6). Straight-in expungement
requests must be decided by three public arbitrators who are
eligible for the chairperson roster and have completed enhanced
expungement training and served through award on at least four
customer-initiated arbitrations. The list selection algorithm
randomly selects these arbitrators, and parties requesting
expungement may not strike arbitrators from the panel, agree to
their removal from the panel, or agree to fewer than three
arbitrators on the panel, though they may challenge any arbitrator
selected for cause. See FINRA Rules 13805 and 13806.
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In cases where the parties do not agree to postpone the hearing
dates which are scheduled in fewer than 10 days of the date the
arbitrator was removed, or became otherwise unable or unwilling to
serve, as well as in cases with multiple separately represented
claimants or respondents who do not agree to jointly submit one ranking
list, the Director would appoint as a replacement the arbitrator who is
the next highest-ranked available arbitrator of the required
classification remaining on the combined ranked list at initial panel
appointment.\45\ If there are no available arbitrators of the required
classification on the combined ranked list, the Director would appoint
a replacement arbitrator of the required classification to complete the
panel by randomly generating an appointment using the extended list
process.\46\ This appointment process would be consistent with the
current procedures used when parties do not agree to the current
voluntary Short List Option, thereby maintaining continuity with
existing practice while establishing it as the default method when the
Proposed Short List Option is unavailable.\47\
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\45\ See proposed Rules 12402(g)(3), 12403(f)(3), and 13411(c).
\46\ See proposed Rules 12402(g)(4), 12403(f)(4), and 13411(c).
\47\ See supra notes 45-46.
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C. Replacement Arbitrator Duties and Compensation
To help ensure replacement arbitrators are adequately prepared, the
proposed rule change would expressly codify the current expectation
that immediately following panel appointment, replacement arbitrators
review the case record, including listening to the audio recording(s)
of any hearings that have been held (or reading the transcript, if
available) and reviewing admitted exhibits.\48\ In addition, before
making any decision as a replacement arbitrator or attending a hearing
session, the replacement arbitrator must execute FINRA's arbitrator
oath or affirmation.\49\
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\48\ See proposed Rules 12402(i)(1), 12403(h)(1), and
13411(g)(1).
\49\ See supra note 48.
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The proposed rule change would codify DRS's current practice of
paying replacement arbitrators an honorarium of $300 for every four
hours or less of reasonable time spent listening to audio recordings or
reading transcripts of a hearing that has been held, or reviewing
admitted exhibits, provided that the replacement arbitrator submits
written confirmation in the manner and form required by the
Director.\50\ The proposed rule change would also clarify in the Codes
that replacement arbitrators may decide any pending motions and that
remaining hearing sessions would proceed with the replacement
arbitrator on the panel.\51\
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\50\ See proposed Rules 12402(i)(2), 12403(h)(2), and
13411(g)(2).
\51\ See proposed Rules 12402(i)(1), 12403(h)(1), and
13411(g)(1).
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If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\52\ which requires, among
other things, that FINRA rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.
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\52\ 15 U.S.C. 78o-3(b)(6).
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FINRA believes that the proposed rule change will protect investors
and the public interest by providing parties with greater input into
arbitrator selection at initial panel appointment and when replacing
arbitrators after initial panel appointment. The proposed rule change
will increase the likelihood that parties receive arbitrators of their
choice rather
[[Page 55641]]
than arbitrators randomly generated by the list selection algorithm who
can be challenged solely for cause. In addition, by reducing extended
list appointments, the proposed rule change will provide parties with
greater input over the arbitrator selection process.
The proposed rule change also will protect investors and the public
interest by codifying current practices that DRS has developed to help
ensure it administers cases in a fair and efficient manner. The
proposed rule change to codify DRS's current practice of paying
replacement arbitrators an honorarium of $300 for every four hours or
less of reasonable time spent listening to audio recordings or reading
transcripts of a hearing that has been held, or reviewing admitted
exhibits, provides transparency and recognizes that these arbitrators
must often make themselves available and be prepared to serve on a
panel on short notice. By providing that replacement arbitrators may
decide any pending motions and that remaining hearing sessions will
proceed with the replacement arbitrator, the proposed rule change will
help ensure that proceedings are not unnecessarily delayed.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the economic baseline for the proposed rule change
and its potentially significant economic impacts, including anticipated
costs and benefits, relative to the baseline, and the alternatives
considered in assessing how best to meet FINRA's regulatory objectives.
Regulatory Need
The proposed rule change would address concerns about arbitrator
appointments when the number of arbitrators available to serve from the
combined lists is insufficient to fill the initial panel or when an
arbitrator is removed or becomes unable or unwilling to serve after
initial panel appointment. Currently, parties may be required to accept
either an extended list appointment, reducing their role in the
arbitrator selection process, or previously lower-ranked arbitrators
who reflect a lower combined preference. The proposed rule change would
require parties to select from a new list of arbitrators of the
required classification where circumstances permit, increasing the
number of arbitrators available to parties and enhancing party input
over panel composition. Additionally, the proposed rule change would
codify the current expectation that replacement arbitrators review the
case record and receive compensation for that review.
Economic Baseline
The economic baseline is the current provisions under the Codes
that address arbitrator appointments. The baseline also includes the
current voluntary Short List Option, the utilization rate of the
current voluntary Short List Option, and whether parties may agree on
the method of arbitrator appointment. The proposed rule change is
expected to affect the parties to cases in the forum, their counsel,
and arbitrators.
Arbitrators were appointed in 12,596 cases filed and closed in the
forum from 2020 to 2025 (sample cases), resulting in 30,395 total
arbitrator appointments. Ten percent of appointments were made after
the panel could not be initially filled from the combined lists or to
replace an arbitrator after initial panel appointment. These
appointments would have fallen within the scope of the proposed rule
change and represent 17 percent of sample cases.
Over the full period, parties in sample cases were required to
accept extended list appointments for just one percent of all
appointments (342 appointments): 217 to initially fill panels and 125
to replace arbitrators after initial panel appointment. In addition,
parties accepted previously-ranked arbitrators on the combined lists to
replace arbitrators after initial panel appointment in five percent of
appointments (1,563 appointments). Finally, parties actively selected
arbitrators using new lists or the voluntary Short List Option for four
percent of appointments (1,122 appointments): 286 using new lists to
initially fill panels and 836 using the current voluntary Short List
Option to replace arbitrators after initial panel appointment.
The current voluntary Short List Option cannot be used to replace
arbitrators when there are multiple separately represented parties on
either side of the dispute (claimants, respondents, or third party
respondents joining either side), and the multiple separately
represented parties do not agree to jointly submit one ranking list.
Over the full period, such party configurations occur in 16 percent of
sample cases. Among the 17 percent of sample cases that would have
fallen within the scope of the proposed rule change, one-quarter (or
four percent of all sample cases) have such party configurations.
From July 2025 to December 2025, in 239 cases, DRS offered a new
list to parties to initially fill a panel (21 cases) or the current
voluntary Short List Option to replace arbitrators after initial panel
appointment (218 cases). As of the beginning of March 2026, parties
agreed to a new list or the current voluntary Short List Option in 140
cases (59 percent of 239 cases). Parties did not respond or had not yet
responded to the offered selection methods in the remaining 99
proceedings (41 percent).\53\
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\53\ In proceedings where multiple lists were provided (e.g., at
initial panel appointment and later for replacement arbitrators),
available data does not readily permit determination of which
specific list was accepted. Accordingly, acceptance rates are
reported at the case level.
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Economic Impacts
Where available, the proposed rule change would eliminate the
requirement for all parties to agree to use new lists to fill a panel
at initial panel appointment and the current voluntary Short List
Option to replace an arbitrator following initial panel appointment. As
a result, the proposed rule change would expand the use of new lists
and the Short List Option for arbitrator appointments. This would
increase the number of arbitrators available to parties for selection
and enhance parties' input over panel composition. The expanded use of
new lists and the Short List Option would generally result in different
arbitrator appointments, with fewer extended list appointments or
previously lower-ranked arbitrators. Which arbitrators are ultimately
appointed and whether a party prefers the outcome, however, would
depend on the composition of the new lists or lists under the Short
List Option sent to parties and their preferences.
As the default method, the expanded use of new lists and the Short
List Option to fill vacancies may alter how parties influence
arbitrator selection. For example, by providing new lists of
arbitrators of the required classification to initially fill a panel,
the proposed rule change may give claimants or respondents with more
separately represented parties (each with a full set of strikes)
additional opportunities to use their collectively greater number of
strikes. This may increase their influence over arbitrator selection.
In addition, by making the Short List Option the default method,
the proposed rule change would shift the collective decision-making
power to
[[Page 55642]]
parties who prefer the Short List Option, as those who favor
previously-ranked arbitrators or extended list appointments would have
to reach agreement to use those alternatives.
Parties would incur costs to review the arbitrators on new lists or
lists under the Short List Option and make selections, particularly
when timeframes are compressed. The types of costs parties may incur
depend on how they manage resources to meet deadlines (e.g.,
reallocating resources from other activities or employing additional
staff). Parties that would not have agreed to use new lists or the
Short List Option under the baseline, and are required to use them
under the proposed rule change, would bear these costs involuntarily.
In addition, at initial panel appointment, cases with multiple
separately represented parties (each with a full set of strikes) are
more likely to eliminate too many arbitrators to fill a panel. Parties
in these cases would be more likely to receive new lists and have
delays in completing the initial panel appointment and longer
proceedings. These costs are not attributable to the proposed rule
change when, under the baseline, parties would have voluntarily agreed
to use new lists.
As noted above, the expanded use of new lists and the current
voluntary Short List Option would generally result in different, but
not additional, arbitrator appointments. Arbitrators more likely to be
selected using a new list or the current voluntary Short List Option
may benefit from additional selections. The benefits from additional
selections include experience as well as supplemental income from
serving on panels. The benefits that may accrue to arbitrators are not
new but instead represent transfers from arbitrators who would have
been appointed under the baseline. A potential unintended consequence
is that some arbitrators, such as those with less experience, may have
fewer opportunities to serve if extended list appointments are reduced.
However, the data suggests that extended list appointments under the
baseline represent only one percent of all appointments, limiting
potential impacts on arbitrator opportunity distribution.
Finally, the proposed rule change would codify the current
expectations of parties and the forum that replacement arbitrators
review case records and the expectation by replacement arbitrators of
compensation for that review. Together, this may help ensure that
replacement arbitrators both understand their responsibilities and are
appropriately incentivized to fulfill them following appointment.
Alternatives Considered
Depending on the hearing schedule, FINRA considered providing lists
of more than five arbitrators under the Proposed Short List Option.
This would increase the costs parties incur to review the arbitrators
and make selections under the Proposed Short List Option but would not
materially affect their input over panel composition. FINRA also
considered whether to maintain extended list appointments for initial
panel selections rather than providing new lists. Parties expressed
concerns about the limited role they have in arbitrator selection under
extended list appointments, however, and providing new lists would
address these concerns while maintaining an efficient process.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#156760797038767a7878707b6166556670763b727a63"><span class="__cf_email__" data-cfemail="8bf9fee7eea6e8e4e6e6eee5fff8cbf8eee8a5ece4fd">[email protected]</span></a>. Please include
file number SR-FINRA-2026-017 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-FINRA-2026-017. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the filing will be available for inspection and copying at
the principal office of FINRA. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection.
All submissions should refer to file number SR-FINRA-2026-017 and
should be submitted on or before September 18, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\54\
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\54\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-17549 Filed 8-27-26; 8:45 am]
BILLING CODE 8011-01-P
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