After the August surge in case filings and the drop back to yearly averages in September and October, we hoped the November numbers from FINRA’s Office of Dispute Resolution (“FINRA-ODR”) would suggest whether the year will finish strongly or with a fizzle. The latest monthly report is now available, and it indicates to us that the latter is in store, with a middling final year-end tally.
Corrections, Surges & Signals
Let's start with an "Errata:" In reviewing the October 2019 FINRA statistical report at SAA 2019-45 (Nov. 27), we wrote: "In 2012, 4,299 new cases were filed; in 2018, the forum took in 4,325 new matters. 2019 will fall in between, begging the question, which way will 2020 go?" We should have written: "In 2012, 4,299 new cases were filed; in 2018, the forum took in 4,325 new matters. 2019 will not approach these two case-filing bookends, begging the question, which way will 2020 go?" Sandwiched between those two bookends are the lower case volume, "quiet" years, a period lulled by a roaring bull market that has quieted the potential claims of many investors and rewarded others with serendipitous gains. The stock market's value soared some 30% in 2019, yet 2019 case-filing numbers at the FINRA arbitration forum have shown signs of strength. They popped in August to 500 for the month and, by October, looked capable of surpassing all five of the annual totals for the bracketed "quiet" years of 2013-2017.
November Signals New Lull
The November new-case statistics, posted by FINRA-ODR just before the holidays, provide the latest indicator: 2019 will not show a recovery in case submissions by customers. FINRA reports 3,454 new matters filed with the arbitration facility during the first eleven months of the year. In October, there had been 317 new matters recorded, bringing the total for ten months to 3,203. The additional 251 cases filed in November now suggest that the year-end tally will be around 3,700. That number falls in the middle of the new-case figures for the quiet years. With the added information that the surge in August was due to a one-off event (see "Stats," SAA 2019-41 (Oct. 30), 2019 appears ready to settle towards the bottom of the quiet pack.
Closed & Cases Pending
We'll sum up the prospects for 2020 when the December 2019 figures are released later in January. As of this writing, total new submissions are down 12% year-over-year, when compared to 2018's 3,937 tally. Dividing the total into customer and intra-industry claims, we find the former totaling 2,184 through November (2,507 in 2018), down 13% Y-O-Y, and the latter reaching 1,270, an 11% decrease from the 1,430 matters recorded through November 2018. Closed cases are up 7% Y-O-Y, with 3,699 cases concluded (3,444 in 2018) and pending or "Open" cases have subsided from earlier in the year to 4,817. That indicates much of the surge from last year has been absorbed and the decline in case inflow has begun to clear the pipeline somewhat. We might expect to see a further reduction in overall turnaround time averages (currently 14.1 months), as case traffic continues to lighten.
The Disappearing Arbitration Award
Speaking of lightening, we note with some dismay the marked shift away from trying cases, especially those brought by customers. Only 16% of all cases are being decided by arbitrators nowadays and that total includes the plethora of expungement cases in the pipeline -- and those have to be tried. Viewing customer-initiated claims solely, we find that percentage dropping to 13%. Many of the concluded cases are likely to be Puerto Rico Bond cases, as they comprise a large portion of FINRA-DR's case inventory. They reportedly settle at a 95%+ rate, so that particular "pig in the python" may be impacting the historically low numbers. When one reviews the particularly high win and recovery rates for the PR bond-related cases, though, and notes the escalating win rates overall for customers (47% vs. 40% Y-O-Y), especially in the higher-dollar cases (57% vs. 42%, All-Public Panels & Y-2-Y), higher-than-normal settlement rates seem almost anomalous. The climate for customers has rarely been better!!
(ed: Another seeming anomaly in the FINRA-ODR statistical report relates to the arbitrator roster numbers. We watched the ranks of Public and Non-Public arbitrators bloom and flourish over the past couple of years, a focused result of aggressive arbitrator recruiting by FINRA-ODR staff. Having almost broken the 8,000 mark earlier in the year, the Neutral Roster total receded to 7,814 (3,668 PAs & 4,146 NPAs) at November's end. There seemed to be a shake-out going on, primarily in the Non-Public ranks. As October registered a lower sum of 7,776 (3,653 & 4,123) than November, it may be that the trendline will return now to the positive.)
