Arbitration Procedure


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Nearly every brokerage firm requires you to sign an arbitration agreement when you open an account. Courts have routinely upheld the brokerage firms’ rights to insist on arbitration as the exclusive vehicle to resolve disputes between investors and their brokerage firms. As a result, if you have a dispute concerning your accounts and want to enforce your legal rights, you must use the Financial Industry Regulatory Authority (FINRA) arbitration forum.

FINRA arbitration is similar to the traditional litigation that you are probably most familiar with. An investor, called the “Claimant,” who has been harmed by his or her brokerage firm’s misconduct, works with  an experienced FINRA attorney at our securities fraud law firm to, prepare and file a “Statement of Claim.” This Statement of Claim describes the parties’ backgrounds, provides detailed facts on the dispute and explains the legal basis for why the investor should recover the losses suffered as a result of the brokerage firm’s misconduct.

Next, the brokerage firm, which is referred to as the “Respondent,” files its “Answer.” The Answer typically responds to the factual allegations contained in the Statement of Claim and lays out the legal arguments for why the firm should not be held liable for the Claimant’s losses.

The next stage of the FINRA arbitration process is the selection of arbitrators to hear the claim. FINRA provides a slate of potential arbitrators who have received the required training. Each party ranks the arbitrators and strikes a certain number of arbitrators it will not consent to have on the arbitration panel. FINRA reviews the parties’ rankings and appoints the arbitration panel.  The panel conducts an initial hearing to select hearing dates and set out other deadlines to which the parties must adhere. A link to FINRA’s explanation of the arbitrator selection process can be found here.

The next stage in the arbitration process is the exchange of documents and information called the “discovery process.” The discovery process is governed by a set of guidelines adopted by FINRA. A link to FINRA’s guidelines can be found here. There are certain documents that are mandated to be exchanged in disputes between investors and their brokerage firms. While there can be some flexibility in terms of the scope of what is produced, the FINRA guidance provides a good sense of what an investor can expect from this process. If you retain our securities arbitration firm to bring a FINRA arbitration, we will work with you to help make the discovery process as simple as possible. Potential clients should also be aware that all documents in the discovery process are exchanged under the protection of a strict confidentiality agreement.  This means that not only are the documents handled with care and sensitivity by our firm, but they can never become public through the discovery process. FINRA’s overview of the discovery process can be reviewed here.

After discovery is complete, the case is ready for hearing before the panel of arbitrators. The panel is typically made up of three people who are outside of the securities industry—these individuals could be lawyers, business professionals, professors, etc.

After both sides present the evidence to support their cases, the securities arbitration panel issues an “award” that determines whether the investor will receive all, some or none of his or her losses. Arbitration awards can be successfully appealed only under very limited circumstances, so investors should think of the arbitration award as binding and final. FINRA’s discussion of the hearing process can be found here.

The arbitration process normally takes between a year and fifteen months from start to finish.

For a full guide to the arbitration process from start to finish, see FINRA’s guidance.

To speak with a FINRA arbitration attorney, please contact our office today.