By David Hsu, Fall 2016 Student Intern
In July, FINRA issued a regulatory notice entitled Forum Selection Provisions. The most important takeaway for investors is that they always have a right to arbitrate their claim in FINRA, even if the broker attempts to make the investor sign away their right to FINRA arbitration.
FINRA arbitration is often the most accessible form of dispute resolution available to investors. It may be faster than a typical court proceeding and more cost effective. Thus, by denying access to FINRA arbitration, a brokerage firm can discourage investors from pursuing claims for less egregious misconduct.
According to at least one expert, FINRA’s impetus for issuing this notice stems from court decisions in the 2nd Circuit which interpret FINRA’s rule requiring FINRA arbitration to be available to investors as one which can be waived by contract (see, e.g., Credit Suisse Sec. (USA) LLC v. Tracy, 812 F.3d 249, 254 (2d Cir. 2016)). So, at least in Connecticut, New York, and Vermont, courts would enforce a waiver of FINRA arbitration.
FINRA’s regulatory notice serves to remind brokers and investors alike that, regardless of a court’s interpretation of FINRA regulations, member firms are subject to disciplinary action for violations of FINRA rules. This includes a firm requiring an investor to waive their right to FINRA arbitration through the broker agreement.
It is important for an investor to know their rights should a dispute occur with the brokerage firm. Investors would be wise to follow the advice within the regulatory notice and contact FINRA with any questions or concerns.