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<xTITLE>FINRA DRS Posts Stats Thru Third Quarter: Still No 'COVID Crash' Surge in Customer Arbitration Claims, But New Case Filings Eclipse Customer Claims</xTITLE>

FINRA DRS Posts Stats Thru Third Quarter: Still No 'COVID Crash' Surge in Customer Arbitration Claims, But New Case Filings Eclipse Customer Claims

by George Friedman
November 2020 George Friedman

This article first appeared on Securities Arbitration Alert (SAA), here.

FINRA Dispute Resolution Services (“DRS”) posted case statistics through September, with some surprising trends.

The headlines are: 1) while overall arbitration filings through the third quarter are still up, customer claims remain way down but have recovered slightly; 2) industry disputes remain up significantly and now for the first time ever exceed customer arbitration filings; and 3) pending cases are piling up, but there’s been some improvement.

COVID-19’s Impact: A Tale of Two Caseloads …

We had thought that by now customer claims would be reflecting a surge in COVID-fueled arbitration filings, but that’s not (yet) the case. Overall, 3,157 arbitrations have been filed this year, up 9% from 2019. Customer claims had been down 19% through August; now they’re down 16%. The 194 customer cases filed in September is above the prior monthly average of 169.9, so perhaps we are seeing the beginning of a COVID-19 bump. Time will tell. While customer claims remain down significantly despite a strong September, industry disputes are way up (plus 56%) and for the first time ever constitute more than half (51%) of all new filings. Almost every employment-related industry dispute claim category is up -- especially libel or slander generally or on Form U-5s and promissory notes -- which is not surprising given the COVID-related industry upheaval. But we have a different theory on what’s behind the industry case filing increase…

Industry Cases Surged in September

We expect that the industry case filing surge was fueled in large part by a flurry of “under-the-wire” expungement requests ahead of the mid-September effective date of expungement fee increases. As we’ve said before, however, we unfortunately aren’t able to verify that because FINRA-DRS does not break out expungement claims in its (otherwise) comprehensive monthly statistical reports. Nonetheless, we know this: industry claims had been up 43% through August; now they’re up 56%, with an impressive 306 cases filed in September (well above the monthly average of 162.3 through August). While monthly case filing tallies for September across the board beat the average for the prior eight months of 2020, the industry number is staggering. In our view, no matter how one slices it, the surge is being driven mostly by industry arbitration filings, as the chart below demonstrates:

  Cum Aug Cum Sept Increase 8 Mo Avg
Total 2,657 3,157 500 332.1
Customer 1,359 1,553 194 169.9
Industry 1,298 1,604 306 162.3

… And More Virtual Hearings …

What are some other apparent COVID-19 impacts? The stat on how cases close reveals that only 13% of cases are resolved by Award, which is not surprising with in-person hearings being suspended for several months through the end of this year. For years that figure was about 20%. Speaking of virtual hearings, this stat shows that 60 cases had one or more hearings conducted via Zoom (26 customer and 34 industry). Also, there were 86 joint motions for virtual hearings (24 customer and 62 industry cases). Another discernable pandemic impact is on the mediation caseload, which stands at 306 cases, down 30%. That these numbers are down is not surprising, since mediations are in large part tied to customer arbitration filings. The settlement rate remains a relatively high 83%, but it’s a bit less than earlier this year.

A Dent in the Pending Cases Backlog

We said in SAA 2020-27 (Jul. 22): “Looks to us like the pending cases count is going up, most likely because parties in a number of cases are awaiting resumption of in-person hearings.” We tested out that theory after the June stats come out and again after the latest info was posted. The chart below seems to bear out our theory, with pending cases standing at 5,392, an increase of  611 since March. However, we note that September shows a decrease of 23 pending cases.

Month Open cases Change Cum. Increase
Mar            4,781 - -
Apr            4,824 43 43
May            4,897 73 116
June            4,958 61 177
July            5,062 104 281
Aug            5,415 353 634
Sep            5,392 -23 611

Odds and Ends

There are now 7,985 DRS arbitrators, 3,755 public and 4,230 non-public; these figures are up slightly across the board. Last, overall arbitration turnaround times were 14.9 months, with hearing cases taking 14.2 months.

(ed: *As we’ve said many times before, while there is no sustained pandemic-induced surge in customer disputes, such claims usually take a while to develop. If past is prologue, customer cases will surge starting with next month’s stats. Either that, or we’re wrong. Of course, the industry case filing surge is already here. **We’re pretty sure that intra-industry filings have never exceeded customer claims, as do some securities arbitration luminaries we queried who have a combined 100+ years of experience. We invite readers to inform us otherwise by email to



George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA dispute resolution forum in particular.

He is former Executive Vice President - Dispute Resolution of the Financial Industry Regulatory Authority (“FINRA”), a position he held through January 2013. He held the same title at NASD, which consolidated with NYSE Member Regulation to form FINRA in 2007. In this capacity, he was in overall charge of FINRA's dispute resolution program, carried out by the company's four regional offices and 72 hearing locations in the United States and abroad, 200 employees, and an annual budget of $50 million. He also served as Secretary of the Securities Industry Conference on Arbitration. He has been referred to by the U.S. Court of Appeals—4th Circuit as a “leading arbitration expert.” He is a member of the American Arbitration Association's National Roster of Neutrals.

Mr. Friedman is an Adjunct Professor of Law at Fordham Law School, where he has taught a course on alternative dispute resolution since 1996. He is Chairman of the Board of Directors of Arbitration Resolution Services, Inc. of Coral Springs, Florida. Arbitration Resolution Services is an innovative online arbitration services company facilitating an affordable alternative to costly courtroom litigation and in-person arbitration for resolving Business-to-Business, Business-to-Individual, and Vehicle and Property Damage disputes. ARS is unique in that its entire process can be completed online through the company website.

In his extensive dispute resolution career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He joined NASD in 1998 as Senior Vice President of NASD's Dispute Resolution Division, and was named Executive Vice President in 2002.

Mr. Friedman received a B.A. in Political Science from Queens College, and a Juris Doctor from Rutgers Law School - Newark, where he was an editor of the Law Review. He is admitted to the New York and New Jersey Bars and the United States Supreme Court, and is a Certified Regulatory and Compliance Professional. Mr. Friedman is a member of the Securities Experts Roundtable, and of several bar associations. He is past chair of the Committee on Alternative Dispute Resolution of the New York County Lawyers Association. He is a member of the Banking Advisory Committee of Bergen (NJ) Community College.

Mr. Friedman has lectured extensively on the subject of alternative dispute resolution, and has the distinction of being one of the architects of the American Arbitration Association’s Due Process Fairness Protocols for both employment arbitration and health care dispute resolution, and assisted in creating the Consumer Due Process Protocol. He has published often, with articles appearing in the Securities Arbitration Commentator, the ABA's Dispute Resolution Magazine, the New York Law Journal, the Rutgers Law Review, and the National Law Journal. He has blogs at Arbitration Resolution Services, Inc., the Securities Arbitration Commentator, and the World Future Society, among others.

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