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The Securities Industry:
The securities industry uses a pre-dispute arbitration agreement. In the agreement the parties agree that if a dispute arises they will arbitrate the dispute.
Arbitration is a dispute resolution process. Rather than have a matter decided by a judge and jury, participants to an arbitration have their dispute resolved by impartial persons who are knowledgeable in the area.
Arbitration of broker-dealer disputes is used as an alternative to the courts.
Arbitration is governed by the rules of the arbitration forum.
Arbitration is generally confidential, and documents submitted in arbitration are not publicly-available. Securities arbitrations are filed with the Financial Industry Regulatory Authority (“FINRA”).
How long does an arbitration case proceed?
An arbitration claim takes between 11-16 months to complete. The time varies, and is affected by many factors: the number of parties and witnesses, the complexity of the issues, the volume of discovery and the schedules of the parties and arbitrators.
Expedition of Cases.
Various state statutes provide for expedited trials affecting seniors or ill persons. FINRA recognized this. FINRA has implemented various measures to expedite arbitration proceedings in matters involving seniors or ill persons.
FINRA Dispute Resolution completes the arbitrator selection process, schedules the initial pre-hearing conference, serve the award.
Prehearing Conference (IPHC), and serve the final award as quickly as possible.
FINRA causes its arbitrators to be sensitive to the needs of seniors or seriously ill parties.
Costs of the Arbitration:
Cost of an arbitration case varies. The amount of the filing fee is affected by the amount of the claim, the number of hearing sessions, number of discovery motions, and postponements.
Filing Fees for Claims Filed by Customers, Associated Persons and Other Non-Members
Amount of Claim
$.01 to $1,000
$1,000.01 to $2,500
$2,500.01 to $5,000
$5,000.01 to $10,000
$10,000.01 to $25,000
$25,000.01 to $50,000
$50,000.01 to $100,000
$100,000.01 to $500,000
$500,000.01 to $1 million
$1 million to $5 million
Over $5 million
The Eligible Claims:
Eligible Arbitration cases can be heard at FINRA if:
- If an individual or entity registered with FINRA is involved.
- The claim is commenced within 6 years from the time of the event.
The Statement of Claim:
The arbitration commences with a party filing a Statement of Claim with FINRA.
The Statement of Claim sets forth details of the dispute.
The Statement of Answer:
A Respondent answers an arbitration claim by Answering the Statement of Claim. A Respondent must file with FINRA an answer within 45 days of receipt of the Statement of Claim.
The Arbitrator Selection:
For claims of $50,000 or less, FINRA will appoint one arbitrator and the claim for claims of $50,000 or less. This claim will be subject to the simplified arbitration. For claims of more than $50,000 and up to $100,000, the parties will select and FINRA will appoint one arbitrator. For claims of more than $100,000, the parties will select three arbitrators.
The Cases Decided by Three Arbitrators:
For claims of more than $100,000 or for unspecified or non-monetary claims, the parties will select and FINRA will appoint three arbitrators. Three list are involved FINRA will send the parties three lists. One list has 10 chair-qualified public arbitrators, one with 10 public arbitrators, and one with 10 non-public arbitrators. Each party may strike up to four arbitrators on each of the chair-qualified public list and up to four of the arbitrators from the public list. leaving six arbitrator names.
If none of the remaining arbitrators on the public list are available, FINRA will appoint the next highest-ranked arbitrator appearing on the chair-qualified public list to complete the panel. If none of the remaining arbitrators on the chair-qualified public list are available to serve.
The Prehearing Conferences:
Prior to the hearing, the arbitrators and parties meet telephonically to schedule hearing dates.
The Initial Prehearing Conference:
FINRA schedules the Initial Prehearing Conference (IPHC). The IPHC is the first time that the parties and arbitrators meet to set the schedule for the case. The arbitration panel will schedule evidentiary hearing dates, establish discovery deadlines, set briefing and motion deadlines, determine whether mediation is desirable, and address other preliminary matters.
Discovery is the exchange of documents and information for the hearing.
The Discovery Process:
The discovery process permits the parties to obtain facts and information from other parties to the arbitration in order to support their own case and prepare for the hearing.
Objection to Discovery:
A party can object to a discovery request if it asks the party to provide documentation and information that a party believes is overly burdensome, not relevant to the case, or involves confidential or privileged information.
A Motion to Compel Discovery:
If the parties do agree t agree on their own how to resolve a discovery dispute, then the party seeking additional documents or information can make a motion to compel the opposing party to produce the requested documents.
A subpoena is a legal document that compels a person or an entity to show up at the specified date, time and place to testify under oath.
An Order of Production or Appearance without Subpoenas:
If a broker or brokerage firm that is a FINRA member has access to information that a party believes is relevant to the case, the panel can order the production of documents or appearance of witnesses upon a motion of a party without the use of subpoenas.
The parties and arbitrators meet in person to conduct the hearing in which the parties present arguments and evidence in support of their respective cases.
A Record of the Hearings:
FINRA digitally records all hearings; it is digital recording is the official record of the proceeding,
The Elements of a Hearing:
The Testimony and Evidence
During the arbitration hearing, a Claimant seeks to prove the claims that are alleged in the Statement of Claim. Respondents try to establish any defenses to those claims and seek to prove counterclaims.
Arbitrators accept two types of proof: oral testimony by witnesses and documentary evidence. Parties are required to inform the other party or parties of witnesses they intend to call and provide copies of any documents or other materials that they plan to use at the hearing. Also, parties need to arrange for witnesses and all documentary evidence to be available for presentation at the hearing.
The arbitrators open the hearing by reading from a script prepared by FINRA to cover all issuess. Each party then gives an opening statement outlining what it intends to prove during the hearing. All parties will be present in the room with the arbitrators
The Direct and Cross Examination:
Each Claimant then calls witnesses to testify on his or her behalf as to facts in the witnesses’ personal knowledge. Each Claimant may ask expert witnesses who have specialized training or knowledge to testify as to their opinion on a technical matter.
Each Respondent may ask questions of Claimant’s witnesses, or independent witnesses, during cross examination.
The Parties may offer into the record as exhibits any documents they would like the arbitrators to consider as evidence.
The Decision & Awards
After the conclusion of the hearing, the arbitrators deliberate the facts of the case and render a written decision called an award.
At closing the record, the arbitration panel considers all of the evidence and decides what relief the Claimant is entitled to, if any.
In a three-arbitrator panel, an award is based on the vote of a majority of the arbitrators; a unanimous decision is not required.
The Arbitration Award:
Awards must be in writing, but arbitrators are not required to write opinions or provide explanations or reasons for their decision. The panel will issue an award within 30 business days from the date the record is closed.