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FINRA Dispute Resolution
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Last Updated: 8/23/07
FINRA Dispute Resolution Fact Sheet |
Overview
- The FINRA Dispute Resolution (FINRA DR) forum is dedicated to facilitating the efficient resolution of monetary, business, and employment disputes through arbitration and mediation services.
- FINRA DR operates the largest securities dispute resolution forum in the world, annually administering over 3,100 arbitrations and numerous mediations through its network of four regional offices located in Boca Raton, Chicago, Los Angeles, and New York, and headquarters departments in New York City and Washington, D.C.
- FINRA DR facilitates the efficient resolution of monetary, business, and employment disputes by holding both mediation sessions and arbitration hearings in 73 cities - at least one in each state, the District of Columbia, Puerto Rico, and London.
- FINRA DR is a wholly owned subsidiary of FINRA, the leading private-sector provider of financial regulatory services.
- FINRA DR is subject to Securities and Exchange Commission (SEC) oversight that includes periodic inspections, approval of rule and procedural changes, and review of investor complaints.
- The types of disputes administered by FINRA DR are:
- Investor v. Broker-Dealer, Associated Person (for example, unsuitable recommendations, breach of fiduciary duty, fraud, churning, and failure to supervise);
- Broker-Dealer v. Broker-Dealer (for example, trading disputes, raiding or breach of contract); and
- Associated Person (Employee) v. Broker-Dealer (for example, employment disputes, compensation, discrimination, or wrongful termination).
FINRA Arbitrators and Mediators
- FINRA DR maintains a diverse roster of approximately 6,000 arbitrators and 1,000 mediators who are carefully selected from a broad cross-section of professions and backgrounds. Arbitrators are not FINRA employees.
- Arbitrators are classified as "public" or "non-public"
- Arbitrators must complete comprehensive training and pass a written test. Arbitrators may also take specialized continuing-education courses online.
- FINRA DR conducts a background check of all applicants. FINRA DR also systematically reviews the quality of the arbitration roster through the use of party, peer, and staff evaluations.
- Parties chose arbitrators through a random computer selection system:
- Panel appointed based on parties' choices from three random, computer generated lists of eight names.
- For investor cases involving more than $50,000, parties will receive one list of public arbitrators, one list of chair qualified public arbitrators, and one list of non-public arbitrators.
- Parties receive extensive background information for each potential arbitrator along with a list of all past awards rendered by the arbitrator (award documents are available free of charge on FINRA DR's Web Site).
- Parties then pare down the list by eliminating some arbitrators' names if desired and ranking those left in order of preference; based on the parties' choices three arbitrators are appointed (for investor cases-two public, one non-public) for cases involving more than $50,000, and one public arbitrator for smaller investor claims.
The Process
Below are the steps involved in an arbitration case.
For a more detailed narrative explanation of the arbitration process, see the Tour of the Dispute Resolution Process.
The Arbitration Award
On average, the award is served within 20 business days of the conclusion of a case. It contains parties' names and representatives; a summary of issues raised in pleadings; the arbitrators' names; the date and location of the hearings; and the arbitrators' rulings.
- Arbitration is final and binding. Arbitrators evaluate the evidence and arguments presented and reach a final and binding decision. Awards are only subject to court review on a very limited basis.
- Arbitrators may make referrals to FINRA Enforcement for regulatory review of the claim or of other activity discovered during the hearing.
- FINRA tracks award payment, and staff may initiate suspension proceedings against an industry party who fails to comply with an award.
- All awards are publicly available online.
General Arbitration Statistics
- The allegations most often cited in arbitration claims are: breach of fiduciary duty; negligence; misrepresentation; unsuitability; breach of contract; and failure to supervise.
- The types of securities most often cited in claims are: common stock; mutual funds; annuities; options; corporate bonds; limited partnerships; certificates of deposit.
- About 68% of cases are filed by investors.
- Arbitrators decide about 25 to 30% of all cases
- The remaining 70 to 75% are resolved by other means: (direct settlement; mediation; withdrawal; etc.).
- Arbitration cases, on average, take about 13 to 16 months to conclude. Cases that go to hearing take slightly longer but settled cases are generally resolved more quickly. Smaller cases decided on the papers without a hearing are usually resolved within 5 to 7 months
- For the most recent figures, see the statistical charts updated monthly.
A Timeline of Significant Initiatives
To meet the needs of a changing and diverse caseload and maintain its position as the largest, most effective securities dispute resolution forum, FINRA DR continually adjusts its rules and procedures. Below are highlights of some recent developments, accomplishments, and rule filings:
- 1995: Established the first mediation program
- 1996: Ruder Task Force report released; NASD began implementing recommended changes
- 1998: Implemented Neutral List Selection System (NLSS) which allowed the parties, for the first time, to have direct input into the arbitrator selection process
- 1999: Implemented Discovery Guide to aid parties and arbitrators in the discovery process
- 1999 - Present: Launched Annual focus groups to gather feedback from constituents on targeted areas of the process
- 2000: Began project to revise and simplify Customer, Industry, and Mediation Codes
- 2000: Launched Dispute Resolution Web Site
- 2002: Began expanding service into new hearing locations
- 2002: Streamlined arbitration process adopted for claimants filing against defaulting, suspended, or terminated industry respondents
- 2002: Amended Rule 10301 to prohibit a firm that has been terminated, suspended, or barred from the NASD, or that is otherwise defunct, from enforcing a predispute arbitration agreement against a customer in the NASD arbitration forum
- 2002: Published dispute resolution materials in Spanish on web site
- 2003: Revised the arbitrator application to raise the standards for acceptance to the roster
- 2003: Started arbitrator background verification checks as to all new applicants to the arbitrator roster
- 2003 - 4: Filed revised and simplified Customer, Industry, and Mediation Codes with the SEC
- 2004: Amended Rules 10308 and 10312 of the Code regarding arbitrator classification changes. This amendment 'raises the bar' on who qualifies as a public arbitrator by excluding individuals with even minor or indirect ties to the securities industry from serving as public arbitrators in NASD arbitrations. The amendment was approved by the SEC on April 16, 2004 and became effective on July 19, 2004
- 2004: Implemented expedited proceedings for elderly or seriously ill parties on June 7, 2004
- 2004 - 5: Implemented rule change to the method used by the Neutral List Selection System to select arbitrators from "rotational" to "random"
- 2003 - 5: Implemented a comprehensive plan to offer hearing services in all fifty states
- 2003 - 5: Opened our arbitration and mediation location in London and implemented amendments to 10315 and IM-10104 of the Code which allow a hearing to occur in a foreign hearing location, and allows the director to authorize a higher or additional honorarium for the use of a foreign hearing location
- 2005 - 6: Implemented the Business Process Redesign. Under the new process, we have substantially reduced processing times under our control, and improved efficiency and flexibility
- 2005 - 6: Implemented an online version of the party arbitrator evaluation forms
- 2006: Rule change approved to allow digital-electronic recording of arbitration hearings (as an alternative to analog tape recording)
- 2006: Implemented Rule change to modify the classification of a "public arbitrator" to further ensure that individuals with significant ties to the securities industry do not serve as public arbitrators
- 2006: Converted the forum's basic arbitrator training program into an online format
- 2007: Released an online training course on the revised Code. First course of its kind to be offered to the general public
- 2007: Established NASD's own arbitration awards online database (AAO)
- 2007: Filed enhanced arbitrator classification rules with the SEC that further refine who may serve as a public arbitrator
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