On February 26, 2015, the Securities and Exchange Commission ("SEC") approved
a rule proposed by the Financial Industry Regulatory Authority, Inc. ("FINRA"). The rule, originally proposed by FINRA on June 17, 2014, amends FINRA Rule 12100(p) of the Code of Arbitration Procedure for Customer Disputes and FINRA Rule 13100(p) of the Code of Arbitration Procedure for Industry Disputes defining the term "non-public arbitrator" and FINRA Rule 12100(u) of the Customer Code and FINRA Rule 13100(u) of the Industry Code defining the term "public arbitrator." The proposed rule change was published in the Federal Register for Comment and the SEC received over 300 comment letters in response to the notice of filing. FINRA submitted letters on November 24, 2014 and December 11, 2014. After consideration of the comments, the SEC approved the rule change, limiting the pool of potential public arbitrators. FINRA defines arbitrators as public or non-public based on business and personal affiliations. Under the old definition of nonpublic arbitrator, a person who was currently or was within the last past five years affiliated with the financial industry entity specified in the rule was classified as a nonpublic arbitrator. The rules allowed such arbitrators to be reclassified as public arbitrators five years after ending all of their financial industry affiliations unless they retired before expending substantial further career with a specified financial industry entity or were affiliated for 20 or more years with a specified financial industry entity. Other similar definitional limits allowed other people with connections to the financial industry to later be classified a public arbitrator. Under the new rules, these limitations are severely limited. For example, the new Rule 12100 adds two new categories of financial industry professionals who would be permanently classified as nonpublic: people associated with including registered through a mutual fund or hedge fund and people associated with including registered through an investment advisor. Similarly, the revised version of Rule 12100(p)(2) broadens the application of the current Rule 12100(p)(3) by increasing the look-back period from two years to five years, applying not only to services provided to specified financial industry entities but also to services provided to any persons or entities associated with those specified financial industry entities, and permanently disqualifies from serving as public arbitrator those people who provided specified services for 15 calendar years or more over the course of their careers shortening the old 20 year provision. These and other similar changes will limit the number of public arbitrators. FINRA's rationale for limiting the definition of public arbitrator is concern about the perception that an arbitrator's affiliation with the financial industry could affect that arbitrator's neutrality.
The definition of public and nonpublic arbitrator is particularly important in arbitrations in which the parties select three arbitrators in a customer case. The parties select the panel with a system of strikes and rankings. FINRA allows the parties to strike up to four on the chair qualified public arbitrator list and four on the public arbitrator list, but FINRA gives parties unlimited strikes on the non-public arbitrator list. FINRA hopes
, therefore, that making more potential arbitrators "non-public" will allow people to address concerns about bias using the strike system. What effect the rule-change will have on perception remains to be seen, but it is clear that FINRA (and the SEC through its approval) has further limited what is already a limited pool of public arbitrators. 
The definitions were previously amended in 2013 when the SEC approved FINRA's disqualifying people associated with a mutual fund or hedge fund from serving as public arbitrators. After the 2013 amendment, FINRA agreed to conduct a wholesale review in consultation with the National Arbitration and Mediation Committee.