It is common for brokerage firms and their registered representatives to seek the assistance of legal counsel to defend themselves in FINRA arbitration cases as FINRA arbitration is usually quicker compared to Court litigation. Customers may also choose to retain counsel. Arbitrators and arbitration panels read the pleadings, listen to arguments, study the documentary and testimonial evidence, and make decisions. The decisions, called awards, are final and binding.

Process and Guide

FINRA arbitration is an alternative to litigation in which two or more parties select an impartial third party, an arbitrator, to decide their dispute. Arbitrators make final, binding decisions known as awards. An award can include monetary damages, disgorgement, specific performance and injunctions. It is also less expensive and simpler than going to court. In addition, a decision by an arbitrator can preclude you from filing the same dispute in court.

The process begins when an investor files a Statement of Claim with FINRA that identifies the wrongdoing, details the claim and seeks relief such as actual monetary damages. Investors are charged a filing fee that varies by the amount of their claim. The investor’s financial advisor and brokerage firm must then file a Statement of Answer.

Once both sides have submitted their lists of arbitrator preferences, FINRA selects a panel of three arbitrators. If either party strikes all the names on the non-public list, FINRA will use only public arbitrators to select the panel. A FINRA staff member will host the virtual hearing, but the panel may elect to retain this function if they feel comfortable doing so. FINRA will also provide technical support during the hearing. 

Arbitration Fees

When someone files a Statement of Claim, they are required to pay an arbitration filing fee. The amount of this fee varies depending on the damages that are being sought. Claimants can request a waiver based on financial hardship if they cannot afford the fee. At the end of the case, arbitrators decide how to allocate these costs between the parties. At the start of the case, a party must also submit an initial hearing session deposit with FINRA Dispute Resolution Services (DRS). This deposit is refundable when the matter is settled or withdrawn before the first scheduled hearing session other than a pre-hearing conference. Other fees may be assessed at various points in the process. FINRA offers a calculator to help filers estimate their costs and, if necessary, request a fee waiver. Arbitrator-appointed fees include hearing session fees, motion-related fees and contested subpoena fees. In addition, the parties must pay joint and several payments, which is a share of the total cost of the arbitration. An impartial mediator helps disputing parties reach a mutually agreeable solution to their dispute during mediation. FINRA offers mediation as an option to parties to any arbitration dispute, whether or not the conflicts have been arbitrated. Arbitration is typically the default option for resolving a dispute unless both parties agree to mediate.

Discovery

FINRA’s rules provide for a discovery process that helps the parties obtain information about each other and potential witnesses. The parties may request documents and data from one another, produce them independently or with a subpoena, and participate in depositions. Parties must abide by the FINRA discovery rules, and a party’s failure to do so may result in sanctions. FINRA provides the Discovery Guide for customer cases, which outlines documents the parties must exchange without arbitrator or staff intervention. When a dispute arises between an investor and a broker-dealer or individual registered representative, the investor files a Statement of Claim with FINRA. Once the claimant and respondent have been identified, an arbitrator or a group of arbitrators is appointed to listen to the case and make a ruling. The arbitrators’ decisions are binding and may award the claimant damages based on the facts of the case.

Before a case is heard, the arbitrator or arbitration panel will hold a pre-hearing conference to discuss issues and schedules for the hearing. The meeting also allows the arbitrator or arbitration panel to set deadlines for the parties to complete discovery, if necessary. The pre-hearing conference is usually held by telephone but can be stored in person. If a hearing is conducted remotely, a FINRA staff member will serve as the “Host” for the meeting and manage all technical aspects of the session.

Hearings

Arbitration is faster and less costly than taking a case to trial. However, a well-seasoned attorney is critical to the success of your case. Investors file a statement of claim with FINRA that identifies the parties and wrongdoing and the type and amount of relief sought (which could include actual monetary damages or injunctions). The wrongdoers—financial advisors and brokerage firms—have 45 days to answer the claims in a Statement of Answer. If the case is appropriate for arbitration, a computer system, NLSS, will select a three-arbitrator panel. The parties then rank the arbitrators on each list in order of preference. The NLSS program then determines the arbitrator from each available list to serve as chairperson of the arbitration.

A pre-hearing conference is often held to schedule discovery and other preliminary matters. The panel may also set interim dates for other hearings during this call. The panel also sets a date for a final hearing and may hear arguments on issues such as motions and discovery disputes. For virtual hearings, a FINRA Dispute Resolution Services staff member will serve as the host, or if the arbitrators prefer, they can choose to be the host. In addition, a FINRA staff member is available during the virtual hearing for technical support.

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