What is FINRA Arbitration?

FINRA Arbitration is a process that is designed to be fair, efficient, and impartial. It is an alternative to litigation, which can be expensive and time-consuming.

Who can use FINRA Arbitration?

Investors, securities professionals, and Broker-Dealers can use FINRA Arbitration to resolve legal disputes. Some common customer disputes include:

• Unauthorized trading: If you believe that your broker has made unauthorized trades in your account.

• Unsuitable investments: If you believe that your broker has recommended unsuitable investments for you.

• Misrepresentation: If you believe that your broker has made misrepresentations to you.

• Breach of contract: If you believe that your broker has breached a contract with you.

Intra-Industry disputes can include include:

• Promissory note disputes;

• Employment matters;

• Restraining orders;

• tortious interference of business relationships. 

How does FINRA Arbitration work?

Here are the basic steps in a FINRA Arbitration proceeding:

1. File a demand for arbitration. You must file a demand for arbitration with FINRA within the time limit specified in the FINRA rulebook.

2. Choose an arbitrator. You and the respondent (the broker or brokerage firm) will each choose one arbitrator from a panel of FINRA-approved arbitrators. The two arbitrators will then choose a third arbitrator to serve as the chair of the arbitration panel.

3. Pre-hearing discovery. The parties may conduct discovery, which is the process of collecting information from the other party. Discovery can include requests for documents, interrogatories, and depositions.

4. Hearing. The arbitration hearing will be held in person or by video conference. The arbitrators will hear evidence from both sides and then deliberate.

5. Award. The arbitrators will issue an award that will resolve the dispute. The award will be final and binding on both parties.

What are the benefits of FINRA Arbitration?

There are several benefits to using FINRA Arbitration to resolve disputes:

• It is a fair and impartial process. FINRA Arbitration is conducted by a panel of three arbitrators who are selected from a pool of FINRA-approved arbitrators. The arbitrators are trained to be fair and impartial, and they are required to follow FINRA's Code of Arbitration Procedure.

• It is an efficient and less expensive process than litigation. FINRA Arbitration proceedings are typically shorter and less expensive than court proceedings. This is because FINRA Arbitration is conducted by a panel of arbitrators, rather than a judge and jury.

• It is confidential. The proceedings are confidential, which means that the transcripts of the hearings and the awards are not publicly available.

• Disputes generally are resolved within 18 months. FINRA arbitration is viewed as a preferred alternative to the courts because it is considered a prompt and inexpensive means of resolving complicated securities and employment related issues. 

What are the drawbacks of FINRA Arbitration?

There are a few drawbacks to using FINRA Arbitration:

• The arbitrators are not bound by the rules of evidence. This means that the arbitrators can consider evidence that would not be admissible in court.

• The arbitrators do not have the same powers as a judge. For example, arbitrators cannot hold an individual in order contempt of court.

• The awards are generally not appealable. Once an award is issued, it is final and binding on both parties. There is only limited circumstances in which an arbitration award may be vacated. 

Overall, FINRA Arbitration is a valuable resource for investors who have disputes with their brokers or brokerage firms. It is a fair, efficient, and confidential process that can help investors resolve their disputes in a timely and cost-effective manner.

Here are some additional resources on FINRA Arbitration:

• FINRA Arbitration Website: https://www.finra.org/arbitration-mediation

• FINRA Arbitration Guide for Investors: https://www.finra.org/arbitration-mediation/arbitrators-guide

• FINRA Arbitration Frequently Asked Questions: https://www.finra.org/arbitration-mediation/become-arbitrator-frequently-asked-questions-faq