FINRA Arbitration Basics

Most securities complaints are not decided in court, but rather in binding arbitration before a Financial Industry Regulatory Authority (FINRA) panel. A means of resolving disputes without mediation or litigation, arbitration brings a case before a panel of one or three arbitrations selected by the parties in question. An arbitration panel carefully reads the pleadings filed by each party, hears arguments, examines documentary and/or testimonial evidence, then makes a decision, referred to as an “award.” The award is final and binding. Unless a party successfully challenges an award in court within a statutory time period, they must comply with it, and may be subject to sanction if they do not. In general, arbitration is confidential and the associated documents are not available to the public. Should an award be granted at the end of arbitration, however, it will be posted in the FINRA Awards Online database, which is accessible to the public.

Though individual cases vary, arbitration generally conforms to these basic characteristics:

Time

An arbitration claim typically takes slightly more than a year to complete — from the filing of the claim to the granting of an award. This length can vary according to the number of parties, the number of witnesses, the intricateness of the case, the amount of discovery, and the parties’ schedules.

Price

The cost of arbitration varies by case as well, and is affected by factors including: the amount of the claim, the number of sessions, the number of motions for discovery, and postponements. FINRA has made information on its fees publicly available.

Eligible cases

In order to be eligible for arbitration before FINRA, cases must meet the following criteria:

  • Investor disputes: The case concerns an investor and a person or entity registered with FINRA — an investor and a broker, for instance, or an investor and a firm — and is filed within 6 years of the events being disputed.
  • Disputes between industry parties: The case concerns individuals or entities registered with FINRA — two brokerage firms, for instance, or a broker and a firm — and is filed within 6 years of the events being disputed.
Required arbitration

Brokers or firms are required to arbitrate at FINRA if the following criteria are met:

  • The dispute concerns securities business activity conducted by a broker or a firm;
  • The dispute is between firms, firms and brokers, or brokers.

A firm or broker must arbitrate before a FINRA panel if an investor requests such; an exception is if the dispute involves issues of employment discrimination, unless the parties in question mutually agree to arbitrate such.

Resolution

As with anything, the potential results of an arbitration claim vary with each case. In some cases, the arbitrators render judgment; in others, the parties settle or seek mediation. Investors often seek monetary or non-monetary relief, and in many cases the losing party might pay for the administrative costs of arbitration.

Legal representation

Investors pursuing arbitration should seriously consider hiring an experienced securities attorney to represent them during the arbitration process, especially if their opposing party is likely to have counsel. Though you can often find legal representation through law school securities clinics, many securities fraud attorneys will not charge you upfront for their services, instead operating on a contingency basis — that is, they only receive money if you win the claim.

For more information

FINRA has detailed explanations of each step of the arbitration process on its website

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