Rethinking Financial Securities: On the need for an alternative dispute resolution reform within the securities industry
The internet represents a dynamic interface for the transmission of information, which only goes to show the trappings of rigid and static [legal] systems. Such was the case of the 2021 GameStop phenomenon, wherein FINRA failed to arbitrate and perform dispute resolution. It is for this reason that we need to rethink financial securities and to develop a robust alternative dispute resolution framework for the securities industry. This paper analyzes the historical evolution and inception of FINRA and its main procedures and functions. We then study FINRA’s independence in light of the GameStop r/WallStreetBets. We come to the conclusion that FINRA faces a fundamental conflict of interest, being funded by the same group of businesses whose function it is to regulate. The solution would therefore to be the liberation of FINRA’s arbitration department from FINRA itself, as an ad-hoc case-by-case [regular] arbitration style dispute resolution. Parties would have the right to select the arbitrator of their choice, whom would together choose a third arbitrator to preside over the tribunal.
By following this model, FINRA’s arbitration would be liberated from the mercy of broker-dealer firms’ money, since arbitrators would no longer depend on the fees paid by these institutions as their wages. Decisions would be more independent, fairer to the average trader, and more equitable. Such a small change could lead to the needed revolution in the securities industry, and the world could finally see the birth of a second big market: the small traders’ market. People like the subscribers of WallStreetBets deserve to have a chance and deserve to receive justice when a wrong is committed by a trader-broker. This is because our proposed solution addresses a core imbalance in the conflict of interests – we see that implementing our solution would be a better way to administer justice inside the institution.
