FINRA announced that the SEC has approved a new rule for FINRA arbitration cases that will allow parties to jointly request a reasoned, or explained, arbitration award, beginning in mid-April 2009. According to the Notice announcing the rules' implementation
An explained decision is a fact-based award stating the general reasons for the arbitrators’ decision.
Parties will be required to submit any joint request for an explained decision at least 20 days before the first scheduled hearing date. The chairperson of the arbitration panel will write the explained decision and will receive an additional honorarium of $400 for doing so.
Currently, arbitration awards are very brief, stating a very short summary of the claimant's claims, a brief statement of the respondent's defenses, the damages sought by the claimants, and any award issued by the panel. There is generally no explanation of why the panel did what it did, based on either the facts, the law, or both. As a result, appeals from arbitration awards are very difficult, and it is very hard to prove that the arbitration panel acted in manifest disregard of the law or abused their discretion in hearing the matter.
Under the new rules, explained awards will only be written if all parties agree. These awards will contain an explanation of the award, but is not required to include legal citations or damages calculations. It will be interesting to see how many explained awards are handed down. My early sense is that the parties will not agree to them in most cases and investors who may often seek the awards, will be opposed on this front by respondents.
