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June 19, 2000
Request for Comments on Possible Changes to NFA's Arbitration Rules
NFA has resolved futures-related disputes effectively since 1983. NFA's arbitration program is generally more cost-effective, faster, and less formal than civil litigation or other dispute resolution forums. In fact, NFA's arbitration program has emerged as the principal forum for resolving futures disputes, having handled more cases over the last five years than any other forum in the industry.
The vast majority of cases filed in NFA arbitration involve customers, and NFA administers those cases under the Code of Arbitration. NFA also administers claims under its Member Arbitration Rules, which cover disputes between and among Members and Associates.
NFA is constantly striving to improve and enhance its dispute resolution services. NFA also strives to manage changes in the futures industry that could affect our services to ensure that those changes do not disrupt our ability to resolve disputes quickly and efficiently. For example, technological advancements may increase the volume of retail business in the futures industry. If the volume of retail futures business rises, there may be corresponding growth in the number of claims brought by retail customers in NFA arbitration.
As a result of these changes, the Arbitration Department is considering making several modifications to NFA's dispute resolution programs to ensure that our services continue to be prompt and efficient. However, before developing specific rule proposals, NFA believes it would be beneficial to obtain feedback and comments directly from the membership and other interested parties. Therefore, NFA is requesting comments on the proposals discussed below.
a. Increased Dollar Limit for Summary Proceedings
One change NFA is considering involves raising the dollar limit for cases resolved through a summary proceeding, where one arbitrator decides the case based on the parties' written submissions. Currently, NFA's cap for a summary proceeding in a customer case is $10,000, though a party may request an oral hearing within 30 days after the last pleading is due if the claim amount is between $5,000 and $10,000. All other claims are decided by three arbitrators at an oral hearing. The procedure is similar for Member-to-Member cases, though the summary limit is $10,000 without a right to an oral hearing and $20,000 with the option to request a hearing.
During the last few years, summary proceedings have comprised an important part of our caseload. To illustrate, over 1,000 customer cases have been filed at NFA since 1995, and approximately 500 of those cases involved claims of $10,000 or less. Roughly 200 of the cases had claims between $5,000 and $10,000, and oral hearings have been requested in 50 of those cases. Sixty-two Member cases have been filed at NFA since 1995, with 38 of those cases involving claims of $20,000 or less. Five of the cases involved claims between $10,000 and $20,000, where hearings were requested in all but one case.
Raising the limit for summary proceedings benefits NFA and the parties. Summary proceedings are easier for NFA to administer and they move more quickly through the arbitration process, which saves time and money for NFA and the parties. To illustrate, since 1995, NFA processed cases decided through a summary proceeding five months faster than cases requiring an oral hearing. Additionally, the hearing fees for summary proceedings are lower, which reduces the parties' costs.1 This change would also bring our program more in line with other forums' procedures for resolving smaller claims. For example, the dollar limit for a summary proceeding in a customer case at the NASD is $25,000.
NFA is interested in the membership's input relating to this procedure and specifically requests comments on the following:
- Should NFA raise the dollar limit for summary proceedings? Why or why not?
- If NFA raises the summary proceeding limit, what dollar level is appropriate and why?
- If NFA raises the summary proceeding limit, should NFA continue to appoint one arbitrator to summaries? Why or why not?
- Should NFA continue to offer the parties the option of requesting an oral hearing if the claim amount falls into a certain dollar range? Why or why not?
- If NFA continues to offer the option of requesting an oral hearing, please indicate what dollar range is appropriate and explain your recommendation.
b. Having One Arbitrator Decide Cases that Currently Require Three Arbitrators
Another change NFA is considering would give the parties the option of having only one arbitrator hear cases which currently require a hearing before three arbitrators. Presently, customer cases with claims over $10,000 are decided by three arbitrators through an oral hearing. The threshold for a three-arbitrator hearing in Member-to-Member cases is claim amounts over $20,000.
NFA believes that there are several benefits to making this change. Many of our claims are straight-forward and probably could easily be managed by one arbitrator. To illustrate, since January 1995, NFA held oral hearings in 45 cases with claim amounts between $10,000 and $50,000. Only eight of those cases (18 percent) required two or more hearing days.
One-arbitrator hearings are also easier for NFA to administer since there are two less arbitrators for NFA to appoint and two less schedules for NFA to consider when planning the hearing. To illustrate, since January 1995, NFA appointed panels in 63 three-arbitrator cases with claims of more than $10,000 but not more than $20,000. If the ceiling for one arbitrator cases was $20,000, we could have redirected 126 arbitrators to other cases. Likewise, since 1995, NFA appointed panels in 169 three-arbitrator cases with claims of more than $10,000 but not more than $50,000. If the ceiling for one arbitrator cases was $50,000, we could have redirected 338 arbitrators to other cases.
A one arbitrator hearing also saves the claimant money since the fees for a one-arbitrator hearing are less than for a three-arbitrator hearing. The hearing fee is $200 for a one-arbitrator half-day hearing (i.e., lasting less than four hours) and $400 for a full-day hearing (i.e., lasting longer than four hours). In contrast, the fee is $675 for a three-arbitrator half-day hearing and $1,275 for a three-arbitrator full-day hearing.
Additionally, in NASD arbitration, claims under $50,000 are decided by one arbitrator unless the arbitrator requests a three-person panel. Furthermore, the NASD recently launched a two-year pilot program to allow the parties with claims of $50,000.01 to $200,000.00 to have a single arbitrator hear their cases rather than three arbitrators. Like NFA, the NASD is hoping to lower arbitration fees for the parties and expedite the arbitration process.
NFA is seeking input on the following questions which relate to having one arbitrator decide cases that currently require three arbitrators.
- Should NFA raise the ceiling for cases decided by one arbitrator through an oral hearing? Why or why not?
- If NFA raises the dollar limit for a one-arbitrator oral hearing, what dollar level is appropriate? Please explain your recommendation.
- Should the parties be allowed to request an oral hearing before three arbitrators instead of one arbitrator if the claim amount falls into a certain dollar range? Why or why not?
- If NFA gives the parties this option, what claim levels are appropriate? Should NFA adopt a different approach with lower amounts for customer cases than for Member-to-Member cases? Why or why not?
- If NFA gives the parties the option of having a hearing before three arbitrators instead of one arbitrator, should NFA require the party who asks for three arbitrators to pay the additional hearing fees that are required for a three-arbitrator hearing? Please explain your answer.
NFA would appreciate other suggestions that would save the parties' time and money and allow NFA to conserve its arbitrator resources and expedite the arbitration process.
c. Expanding NFA's Mediation Program
NFA has referred over 1,300 cases to mediation since August 1991, when we incorporated mediation into the early stages of the arbitration process. During 1999, we referred almost 130 cases to mediation, with NFA fully subsidizing mediation in all the cases.
NFA's mediation program is successful at achieving settlements and has played a key role in reducing costs for NFA and the parties by increasing the number of settled cases. Before mediation, about one-third of our cases settled. Since then, however, our settlement rate has climbed to almost 70 percent.
NFA is looking in the future to expand our mediation program. Our current mediation option is available once an arbitration Demand has been filed. However, we are considering offering a new mediation service, which would be available to the parties before a Demand is filed. We would refer these disputes to several NFA attorneys who are trained mediators.
Therefore, before we launch this new service, NFA would appreciate your comments on this approach overall and is specifically interested in your response to the following questions:
- Given the fact that NFA's mediation program is currently only available once an arbitration proceeding is initiated, are there any benefits in NFA offering its mediation program in lieu of arbitration? Please explain.
- If NFA offered a pre-arbitration mediation service administered by its in-house mediators, would you be willing to use the program? Please explain.
- Please indicate what you would be willing to pay for this new service and explain your recommendation.
- NFA has found that the parties are more open to mediation when the hearing is imminent. Do you believe this new mediation service would be a successful alternative if there's no upcoming hearing? Please explain your answer.
- If mediation is not successful and the parties wished to utilize NFA's arbitration services, should NFA apply the mediation fee to offset some or all of the arbitration filing fees? Why or why not?
In summary, NFA is considering making several modifications to its dispute resolution programs to ensure that our services continue to be affordable, prompt, and efficient. We would appreciate the membership's input on the proposed changes outlined in this Notice. We also welcome any other suggestions that will improve NFA's dispute resolution services.
Please send your comments to:
National Futures Association
200 West Madison Street
Chicago, Illinois 60606-3447
Phone: (312) 781-1490
Fax: (312) 781-1510
We would appreciate receiving your comments by no later than July 21, 2000.
If you have any questions regarding this Notice or the possible changes, please contact NFA's Arbitration Department at (877) 731-5300.
1 The hearing fee for a summary proceeding is $125. In contrast, the hearing fee for a one-arbitrator oral hearing that lasts less than four hours is $200. For a hearing that lasts longer than four hours, the fee is $400.