SEC Approves FINRA Arbitration Fees, SRO Proposes Rule For CARDS

The U.S. Securities and Exchange Commission has approved a Financial Industry Regulatory Authority Inc. proposal to up the pay for arbitrators. The rule change will increase how much it will cost to file securities arbitration claims, as well as processing fees, surcharge, and hearing session fees for bigger cases.

The changes would only impact claims involving over $250,000, with fees per hearing session going up by $100 to $300 depending on how big the claim. Filing fees would go up 10% to 25%, again depending on the claim’s size.

FINRA has not upped its fees since 1999. Under the proposed rule, arbitrators of these larger cases would get paid $300 for every hearing session, while the chairman would get another $125 a day. With the proposal, the self-regulatory organization would be bringing in $4 million to $5.6 million annually.

For the most part, the securities industry has supported the proposal, which should hopefully improve the quality of the arbitration process at FINRA. The regulator said arbitrators have regularly complained about how much they were paid, even skipping or postponing their duties when other opportunities that paid more arose. The SRO is hoping the new fees will enhance its arbitration recruiting efforts.

Also, FINRA has just issued new guidelines for a proposed computerized method to keep track of transactions and balances in brokerage accounts. The system, known as CARDS, for the Comprehensive Automated Risk Data System, is supposed to allow the regulator to identify and quickly deal with suspect activity and high-risk areas that it can’t easily detect under its current programs for examination and surveillance.

CARDS would go into effect via two stages. The first one would mandate that clearing and carrying firms periodically turn in automated, standardized data about their records and books related to securities accounts, including those that they clear. Stage two would require fully disclosed introducing firms to turn in specific data elements that are account profile-related to FINRA. Customers’ personally identifiable information would not be included among this information.

CARDS will ultimately speed up the detection process via automation. With this system, the regulator hopes to be able to run computerized analytic checks at the over 4,000 broker-dealers it oversees. Some have expressed worry that CARDS and similar systems could make it easy for data thieves to access information about what investors are holding.

Commentators have until December 1 to chime in. The CARDS proposal is an update of an initial proposal that FINRA put out last year.

The regulator says that CARDS will cost between $8 million to $12 million over three years to develop its systems and technology. Costs to certain brokers to develop the system could run from $390K to $8.33 million. Brokers had expressed worry that the new system could be too expensive for them.

SEC signs off on Finra arbitration fee increases, Investment News, September 30, 2014

FINRA Solicits Comment on Proposed Rule to Implement CARDS, FINRA, September 30, 2014

SEC News: Regulator to Review Rule Change on New Hire Background Checks, Prepares Mutual Fund Regulations, and is Defendant of Oxfam America Lawsuit, Institutional Investor Securities Blog, September 20, 2014

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud, Stockbroker Fraud Blog, September 19, 2014

FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks, Stockbroker Fraud Blog, September 13, 2014