Part 5: FINRA Dispute Resolution Task Force: Enhancing Securities Dispute Resolution One Recommendation At A Time: Small Claims and Mediation.

By: Alexandra Hughes, Spring 2016 Graduate Research Assistant

alexhughesSmall Claims

FINRA Rule 12800 provides simplified arbitration procedures for claims of $50,000 or less. The purpose of simplified arbitration is to provide small claims claimants with a faster and less expensive avenue to recoup damages. However, this faster and less expensive process doesn’t guarantee satisfaction. In fact, the task force found claimants who participated in the simplified arbitration process were the least satisfied group of users of FINRA’s arbitration forum. The task force found such dissatisfaction for small claims claimants may be the result of:

  • Lower win rates for small case claimants—only 37% of small claims are won on the papers and only 34% of small claims are won at hearings
  • Many claimants being pro se and may having an unrealistic view of their case and their chances of recovering in arbitration
  • Successful claimants losing large percentages of their recovery to fees and costs
  • 43% of claimants choosing to present their claim on the papers and forgoing the opportunity to have a hearing, meaning the claimant does not have the opportunity to tell their story in person to the arbitrator and the arbitrator cannot assess the credibility of the parties
  • Small claims awards having no explanation, which leaves the claimant wondering why they didn’t receive certain damages

Acknowledging the need to improve satisfaction rates of small claims claimants in FINRA arbitration, the task force recommended that FINRA consider adopting an intermediate approach. This intermediate approach would allow the claimant and respondent to appear before an arbitrator (whether in person, phone, or video conference), ask and answer questions posed by the arbitrator, explain their positions and argue their case, and respond to the positions of the opposing side. This approach would fill an intermediate niche because it would be more than a claim on the papers but less than a full hearing. Essentially, this approach would enable the oft dissatisfied claimant the opportunity to have personal contact with the arbitrator without incurring the time and expense which often accompanies a full hearing. In recommending this intermediate approach, the task force discussed the need to have a time limit, so that arbitrators could hear several cases in the course of the same day. In recommending the intermediate approach, the task force presented only a framework and left much of the substance of the new approach to the expertise of FINRA’s NAMC. For example, the task force discussed allowing fact witnesses to be present at the intermediate approach appearance but did not answer whether fact witnesses could be cross examined, submit additional documents, or be compelled to attend.


Mediation is an alternative to arbitration—think of mediation like arbitration’s informal cousin who just wants the parties to settle and be on their way. Arbitration is an adjudication. This means the parties present evidence and a third party (the arbitrator) decides what, if any, award either party is entitled to. Mediation, on the other hand, is an opportunity for the parties to meet voluntarily and informally with a mediator, who helps the parties negotiate, so that an agreeable settlement can be reached. For an explanation of the differences between mediation and arbitration, visit FINRA’s website.

FINRA’s mediation forum has been incredibly successful—over 80% of cases brought to mediation are settled. However, FINRA’s mediation forum has been significantly underutilized. In order to encourage use of FINRA’s mediation forum, the task force recommended:

  • An automatic mediation process for all cases filed unless one party explicitly opts out.
  • Financial incentives for parties who resolve their case through mediation. Specifically, the task force developed a framework that refunds parties portions of their FINRA arbitration fees and mediation fees (if mediated through FINRA) depending on how early the parties are able to settle. The proposed framework is laid out below.


Timing of Settlement % of Fees Refunded to the Parties
Pre-Answer 100% of FINRA Arbitration Fee and 100% of Mediation Fee
Pre-List Selection 80% of FINRA Arbitration Fee and 80% of Mediation Fee
Pre-IPHC (Initial Pre Hearing Conference) 65% of FINRA Arbitration Fee and 65% of Mediation Fee
Pre-Discovery Cut Off 50% of FINRA Arbitration Fee and 50% of Mediation Fee
Pre-20 Day Exchange Parties are not required to pay postponement fee or pay arbitrators for reserving their time.


  • Training: (1) Formal, mandatory, continuing education program for new mediators and voluntary continuing education program for all mediators; (2) More Mediation Months; and; (3) Formal mentoring program
  • Increasing the racial and gender diversity of mediators
  • Special Mediator Rosters, which would encourage mediator expertise by allowing mediators with expertise in a specific area to be listed on special rosters
  • Training mediators about alternative forms of mediation, such as med-arb, arb-med, and ENE
  • Continued participation of FINRA mediators in the mediator self-assessment program

The full task force report is available online.