Code of Arbitration

FINRA’s Code of Arbitration Procedure provides parties with a forum to resolve disputes. Most claims submitted to arbitration are financial in nature, although other claims may be submitted. Arbitration provides a cost-effective alternative to dispute resolution and many disputes will be resolved much sooner than they otherwise may have been in court. All industry members are required to settle all disputes through arbitration.  A public customer, however, must agree in writing to settle any dispute through arbitration. When a customer opens an account with a broker dealer, the broker dealer will often have the customer sign a customer agreement, although not required by industry standards. The customer agreement usually contains a pre-dispute arbitration cause where the customer agrees to settle any dispute that may arise in arbitration rather than in court.

The Arbitration Process

Arbitration begins when an aggrieved party, known as the claimant, files a statement of claim, along with a submission agreement with FINRA. The party alleged to have caused the claimant harm is known as the respondent and must respond to the statement of claim within 45 calendar days. The response must include all defense points and counter claims. Dispute resolution through arbitration is available for matters involving:

  • Member vs. member
  • Bank vs. member
  • Member vs. bank
  • Member vs. registered representative
  • Registered representative vs. member
  • Customer vs. member
  • Member vs. customer

Simplified Arbitration

Simplified arbitration is available for disputes involving amounts in dispute of $50,000 or less. Simplified arbitration provides no opportunity for a hearing. Parties submit their case in writing only. One arbitrator reviews the case and renders a decision. For amounts that exceed $50,000, a hearing must be held.

Larger Disputes

Larger disputes will be submitted to a panel of up to three arbitrators to render a decision on the matter. A hearing will take place and evidence and testimony will be presented to the panel. The number of arbitrators must always be odd, so the panel will be made up of one or three arbitrators from both the public and the industry. Disputes over $100,000 will have a panel of three arbitrators unless both parties agree to have only one hear the case

Awards Under Arbitration

Awards under arbitration are final and binding; there is no appeal. If a monetary payment has been awarded, the party required to pay has 30 days to comply with the decision. A member or a registered representative, who fails to pay an award under arbitration, is subject to suspension. All pending arbitrations and arbitrations settled where the award was $10,000 in favor of the customer are all disclosed to the public through FINRA’s Public Disclosure Program. 

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