5 Things You Did Not Know About FINRA: #5 FINRA Resolves Disputes

By: Alexandra Hughes, Fall 2015 Student Intern

Finally, FINRA resolves disputes between customers and firms and/or individual brokers as well as disputes involving only industry parties through arbitration or mediation. Assuming eligibility, arbitration generally poses a “faster, cheaper, and less complex” approach to solving securities disputes than does litigation. Mediation is an alternative to arbitration, and often runs concurrently with a filed statement of claim in FINRA arbitration. Mediation allows the parties to reach and sign a settlement agreement, rather than presenting evidence to an arbitrator and being bound by an arbitration decision. Although mediation is a voluntary process, it is much faster than arbitration. The Investor Advocacy Clinic represents investors in FINRA arbitration and mediation.

A general outline of the arbitration process is as follows:

  1. Filing a statement of claim. A claimant’s filing of a statement of claim initiates arbitration. The statement of claim includes relevant facts, causes of action, and relief requested.
  2. Answering a claim. The respondent responds to the statement of claim by filing an answer. The answer includes relevant facts, defenses to the statement of claim, counterclaims, and relief requested.
  3. Selecting an arbitrator. Parties receive lists of potential arbitrators and rank arbitrators. Parties select the arbitrator or panel of arbitrators (depending on the amount of the claim) to hear the case.
  4. Prehearing conferences. A prehearing conference helps the parties schedule hearing dates, establish discovery deadlines, and resolve other preliminary issues.
  5. Discovery. In the discovery phase, parties exchange documents and information to prepare for the hearing.
  6. Hearings. At the hearing, the parties present their cases and the arbitrator or panel listens to the evidence presented. The parties may call witnesses at the hearing.
  7. Decisions and Awards. After the arbitrator or panel has heard the evidence presented at the hearing, a written decision or award will be rendered which binds the parties. The award may be appealed in certain circumstances to a district court.