NYSE Regulation has proposed to reduce the number of arbitrators on cases worth less than $200,000. The regulator only wants one person to sit on those panels, rather than three, in order to increase efficiency.

The NYSE Regulation arbitration process is similar to a court proceeding, in which both sides argue their case before a panel of arbitrators, who then make a ruling. Whatever the decision, the ruling is binding. Normally, the panel is made up of three to five arbitrators depending on the amount of money involved in the case.

The more money is at stake in the case, the more panelists the regulator assigns. Current NYSE Regulation rules dictate that in all cases of a value between $25,000 and $200,000, a three-member panel must be assigned. The regulator believes a one-member panel for these cases will be much more efficient.

“This is not responding to a problem, it’s an effort to look at how we do things and improve on them,” said Daniel Beyda, chief administrative officer at NYSE Regulation.

By switching to a one-member panel, Beyda said it will make things like scheduling hearings and finding panel participants together much easier over the long term.

One attorney, who has 30 years of experience in the arbitration process, agrees that it will be more efficient with one panelist, but thinks the process will lose something by not having a group.

“I think that having three people on a panel takes out the spike of going up and down,” said Matt Farley, a partner in the law firm of DrinkerBiddle. “You have a better chance of three people talking it through and weighing the evidence.”

Another issue Farley has with the proposal is that NYSE Regulation is recommending that a public arbitrator—one who doesn’t come from the industry—be the one that sits on the small-case panels. In the three-person format, one of the panelists must be a member of the industry. That helps provide someone with direct knowledge of the industry, he said.

Under the proposal, that person would not sit on the panel, and Farley believes that some perspective on a case could be lost. NYSE Regulation argued that the process would not be compromised by the change in make-up.

“All arbitrators are trained and mentored and they will provide a transparent description of the facts,” a NYSE Regulation said.

As for the cutoff, Beyda said that there was no scientific method for coming up with the $200,000 limit, but said the level seemed to make sense. Cases in that range take up a significant fraction of the regulator’s overall case load.

For instance, through June 30 of this year, 43 of the 154 cases heard before the NYSE Regulation arbitration panels have been worth $25,000 to $200,000. Last year, 205 of the 463 cases were in that zone, and in 2004, 452 of the 1,000 cases were worth that much.

Farley argues that one-member panels should be reserved for the really small cases of $25,000 to $50,000.

“To me, $200,000 is still a lot of money,” he said. “I don’t understand why they feel 40% of their cases should be settled by just one person.”

The proposal is awaiting approval by the SEC, where it will be open to comment from the industry. Beyda was unsure of how the rule, when it is implemented, would impact that cases that have already been filed.

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