The Financial Industry Regulatory Authority yesterday announced that it will launch a two-year pilot program this fall that aims to give investors a broader choice when selecting a panel to arbitrate a dispute.

The pilot program comes as investor advocates and the securities industry have begun an incipient battle over the benefits of arbitration. Critics say that investors suffer when they are forced into so-called pre-dispute arbitration agreements that most brokerage firms require clients to sign before buying or selling securities. A bill in Congress would ban such agreements.

But industry groups have lauded the benefits of such agreements because they believe that securities arbitration is fairer, faster, and less expensive for investors than litigation. The Securities Industry and Financial Markets Association has said that the pending legislation could impact the more than 111 million outstanding brokerage accounts in the United States, the vast majority of which include such agreements.

Under the pilot program, some investors making arbitration claims will be able to choose a panel made up of three public arbitrators instead of two public arbitrators and one non-public arbitrator, as is currently the norm, the self-regulator said in a statement.

Six firms - Merrill Lynch & Co., Citi, UBS, Wachovia Securities, Morgan Stanley, and Charles Schwab & Co. - have volunteered to participate in the pilot. The first five will contribute 40 arbitration cases each per year and Schwab will refer 10. Only the investor making the arbitration claim can elect to participate in the pilot. The pilot program will be available beginning Oct. 6.

FINRA said that it will evaluate the program according to a number of criteria, including the percentage of investors who opt into it and the percentage of investors who choose an all-public panel after opting in. FINRA will compare the results of pilot and non-pilot investors' cases, including the percentage of cases that settle prior to the panel making an award.

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