The Securities and Exchange Commission has published for comment FINRA’s proposed amendments to the Codes of Arbitration Procedure governing how arbitrators are appointed when a panel cannot be filled from the parties’ ranked lists or when an arbitrator leaves a case after appointment. Exchange Act Release No. 34-106183 (August 25, 2026), 91 Fed. Reg. 55,637 (August 28, 2026) (File No. SR-FINRA-2026-017). The proposal would amend FINRA Rules 12402, 12403, 13406 and 13411 to eliminate forced appointments from a randomly extended list and to make FINRA’s voluntary Short List Option the default method for selecting replacement arbitrators. Comments are due on or before September 18, 2026. Broker-dealers, associated persons and their counsel are affected in every FINRA arbitration, and the proposal also reaches funding portals and capital acquisition brokers, whose rule sets incorporate the affected rules by reference.
Extended list appointments, and why parties dislike them
FINRA’s Dispute Resolution Services forum draws arbitrator lists at random through a program called the list selection algorithm. FINRA Rules 12400, 13400. In a customer case heard by three arbitrators, the parties receive lists of 10 chairperson-eligible, 15 public and 10 non-public arbitrators, strike four, six and all 10 respectively, rank whoever remains, and the Director appoints from the combined rankings. FINRA Rules 12403(a)(1), 12403(c).
That process breaks down when the combined lists run out. Under the current rules the Director then extends the list — generates additional names at random — and the parties must accept the appointment. FINRA Rules 12402(f), 12403(e), 13406(c). A party who objects has one route: a challenge for cause, which requires a reasonable inference of bias, lack of impartiality, or a direct or indirect interest in the outcome, definite and capable of reasonable demonstration rather than remote or speculative. FINRA Rules 12407(a), 13410(a). FINRA reports that extended list appointments have proved unpopular for exactly that reason, and its own practice has drifted away from them: rather than impose one, DRS now offers a fresh randomly generated list if the parties will agree to take it.
New lists would replace forced appointments at initial panel selection
The proposal would end that drift by writing the practice into the rules. When no arbitrators remain available on the combined lists to fill an initial panel, the algorithm would generate a new list of the required classification, and the parties would strike and rank it with the same rights they exercised the first time. Proposed FINRA Rules 12402(f)(2), 12403(e)(2)(A), (e)(3)(C)(i), 13406(c). Parties would no longer need to reach agreement to avoid an extended list appointment, because it would no longer be the default.
The Short List Option becomes the default, and gets larger
The more consequential change concerns replacement after a panel is seated — the arbitrator who withdraws, becomes unavailable, or is removed weeks before a hearing. FINRA introduced the Short List Option as a voluntary program to give parties a say. As it currently operates, every party must agree to use it, the algorithm generates three replacements prescreened for availability, and each side strikes one name and ranks the rest. David E. Robbins, Securities Arbitration Procedure Manual § 10-4 (Matthew Bender 2025). If any party declines, the Director appoints at random.
The proposal would codify the option, make it the default rather than an opt-in, and size the list to the hearing calendar. Proposed FINRA Rules 12402(h)(1), 12403(g)(1), 13411(f)(1). Parties would receive five arbitrators if a hearing is more than 20 days out; three if a hearing falls between 10 and 20 days out; five if a hearing is fewer than 10 days away and the parties agree to postpone it; and five if hearings have concluded but no award has issued. Where no hearing dates are scheduled, the parties would instead receive a full new list. Proposed FINRA Rules 12402(g)(1), 12403(f)(1), 13411(a).
On a list of five, each side strikes two and ranks the remainder, with no more than five days to return the ranked list through the Party Portal; on a list of three, each side strikes one and has two days. Proposed FINRA Rules 12402(h)(3), 12403(g)(3), 13411(f)(3). A side that misses the deadline is treated as having no strikes and no preferences — silence is not neutral, it is forfeiture. Parties taking the postponement route may be assessed fees under FINRA Rules 12214(a)(5), 12601(b)(2), 13214(a)(5) and 13601(b)(2), and must give the Director at least four sets of mutually agreed hearing dates.
Two changes therefore land together: the default shifts from random appointment to party selection, and the list grows from three names to five in most circumstances. For a respondent firm, that is meaningfully more control over who decides the case.
When the short list would not be available
The proposal also codifies when parties do not get a short list, and this is where firms in multi-party cases should read closely. The option would be unavailable where all parties agree to proceed with the remaining arbitrators in a three-arbitrator case; where a hearing falls within 10 days of the arbitrator’s departure and the parties do not agree to postpone; where multiple separately represented claimants, or multiple separately represented respondents, do not agree to submit one joint ranking list; and where a third-party respondent reaches no agreement with either side on a joint list. It is also unavailable in straight-in expungement requests filed on or after October 16, 2023, which have their own panel rules. FINRA Rules 13805, 13806.
The multi-party exclusions are not marginal. FINRA reports that configurations with multiple separately represented parties on one side occur in 16 percent of the cases it sampled. Co-respondents who cannot agree on a single ranked list surrender the short list and revert to the next-ranked available arbitrator, or to a random extended list appointment if none remains. Proposed FINRA Rules 12402(g)(3)–(4), 12403(f)(3)–(4), 13411(c). Counsel for jointly named respondents should settle in advance whether they will rank together.
What the replacement arbitrator must do
FINRA would codify what it now expects informally. A replacement arbitrator must review the case record immediately after appointment — listening to recordings of hearings already held or reading transcripts, and reviewing admitted exhibits — and must execute FINRA’s oath before deciding anything or attending a session. FINRA would pay $300 for every four hours or less of reasonable review time. Proposed FINRA Rules 12402(i), 12403(h), 13411(g). The rules would also confirm that a replacement may decide pending motions and that remaining sessions proceed with the replacement seated.
Scale, timing and the September 18 deadline
The proposal touches a narrow slice of appointments with outsized consequences for the cases in it. Of 30,395 arbitrator appointments across 12,596 cases filed and closed between 2020 and 2025, FINRA calculates that 10 percent followed a panel that could not be filled from the combined lists or the replacement of a seated arbitrator. Forced extended list appointments accounted for 1 percent — 342 in six years. The reform is not about volume. It is about the cases where a party would otherwise be handed a decision-maker it had no part in choosing and could dislodge only by proving bias.
FINRA grounds the proposal in Section 15A(b)(6) of the Exchange Act, 15 U.S.C. § 78o-3(b)(6) (2018). The Commission must approve, disapprove, or institute disapproval proceedings within 45 days of publication, extendable to 90 days. If approved, FINRA will announce the effective date by Regulatory Notice. Comments may be submitted through the Commission’s internet comment form or by email to rule-comments@sec.gov, referencing File No. SR-FINRA-2026-017, on or before September 18, 2026.
For more information. If you have questions about arbitrator selection under the FINRA Codes, replacement of a seated arbitrator in a pending matter, or whether to submit a comment letter, contact Evans Law, PC.