The Securities and Exchange Commission on Thursday approved amendments to FINRA rules to increase the number of arbitrators on the public arbitrator list that FINRA sends to parties during the arbitration panel selection process from 10 to 15.

The amendments – made to FINRA Rule 12403 (Cases with Three Arbitrators) of the Code of Arbitration Procedure for Customer Disputes (Customer Code) – also increase the number of “strikes” to the public arbitrator list from four to six, so that the proportion of strikes is the same under the amended rule as it is under the current rule, according to FINRA.

FINRA allows parties to participate in selecting the arbitrators who serve on their cases. Parties select their arbitration panel from computer-generated lists of arbitrators that FINRA sends them. When parties collectively strike all of the nonpublic arbitrators from the list, FINRA fills all three panel seats from the two 10-person lists of public arbitrators.

The amendments will become effective for all arbitrator lists FINRA sends to parties on or after Jan. 3, 2017, for panel selection in customer cases with three arbitrators.

FINRA says it amended the two rules because it believes that “parties should have a greater choice of public arbitrators during the panel selection process.”

Under FINRA Rule 12403(a), in customer cases with three arbitrators, FINRA sends the parties three lists: a list of 10 chair-qualified public arbitrators, a list of 10 public arbitrators and a list of 10 nonpublic arbitrators.

As FINRA explains, the parties select their panel through a process of striking and ranking the arbitrators on the lists.

Under Rule 12403(c)(2), each party is allowed to strike up to four arbitrators on the chair-qualified public list and four arbitrators on the public list.

At least six names must remain on each list, FINRA states.

However, Rule 12403(c)(1) provides for unlimited strikes on the nonpublic list so that any party may select a panel of all public arbitrators in a customer case.

Under FINRA’s Customer Code rule, when parties collectively strike all of the arbitrators appearing on the nonpublic list, FINRA returns to the public list to select the next highest ranked available arbitrator to fill the seat.

If no public arbitrators remain available to fill the vacancy, FINRA returns to the chair-qualified public list to select the next highest ranked public chair. In doing so, there is a likelihood that FINRA will appoint an arbitrator who the parties accepted, but who is ranked lower on the public or chair-qualified public lists.

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