FINRA - Arbitration & Mediation - Mediation: An Alternate Path

FINRA Mediation Rules and procedures provide parties with a process to settle disputes themselves. As a not-for-profit organization, FINRA has administered securities arbitration cases for more than 30 years. Today, FINRA Dispute Resolution administers over 90 percent of all securities arbitrations in America.

FINRA Dispute Resolution developed a mediation program to provide additional dispute resolution options for parties. The goal of the mediation program is to provide public customers, member firms, and associated persons with another effective way to resolve their disputes.

Mediation is non-binding negotiation facilitated by an experienced and independent neutral. Mediation allows the parties an opportunity to resolve their disputes quickly in an informal setting. The resulting settlements often save the parties substantial time and expense.

This brochure, FINRA Mediation: An Alternate Path To Resolving Securities Disputes, introduces individuals and firms, investors and investment professionals to FINRA Dispute Resolution's Mediation Program and to the many benefits of mediation.

Overview

What Is Mediation And How Does Mediation Differ From Arbitration?

Mediation is an informal, voluntary process in which an impartial person, trained in facilitation and negotiation techniques, helps the parties reach a mutually acceptable resolution. What distinguishes mediation from other forms of dispute resolution—principally, arbitration and litigation—is that the mediator does not impose a solution but rather works with the parties to create their own solution. Mediated solutions often include relief not available in arbitration or litigation.

Mediation is flexible and creative. The actual process varies from case to case depending largely on the parties' needs and the mediator's style. Usually, the parties meet to discuss the issues face-to-face. The mediator helps the discussions remain focused and productive. Then, the mediator may hold private caucuses with each party separately, and will carry messages—clarifications, questions, proposals, offers, and counter offers—back and forth between them. The mediator uses the private caucus and other techniques to facilitate the negotiation.

Mediation is non-binding. The emphasis is on fashioning a solution satisfactory to all. However, if the parties cannot negotiate an acceptable settlement, they may still benefit from the process by narrowing the issues to be arbitrated or litigated.

A Comparison of Mediation and Arbitration

Mediation		Arbitration
•	Expedited negotiation	•	Adjudication
•	Parties control the outcome.	•	Arbitrators control the outcome.
•	Mediator has no power to decide. Settlement only with party approval.	•	Arbitrator is given power to decide. Final and binding decision.
•	Exchange of information is voluntary and is often limited. Parties exchange information that will assist in reaching a resolution.	•	Often extensive discovery is required.
•	Mediator helps the parties define and understand the issues and each side's interests.	•	Arbitrator listens to facts and evidence and renders an award.
•	Parties vent feelings, tell story, engage in creative problem-solving.	•	Parties present case, testify under oath.
•	Process is informal. Parties are active participants.	•	Process is formal. Attorneys control party participation.
•	Joint and private meetings between individual parties and their counsel.	•	Evidentiary hearings. No private communication with the arbitrator.
•	Outcome based on needs of parties.	•	Decision based on facts, evidence, and law.
•	Result is mutually satisfactory—A relationship may be maintained or created.	•	Result is win/lose award—Relationships are often lost.
•	Low cost.	•	More expensive than mediation, but less expensive than traditional litigation.
•	Private and confidential.	•	Private (but decisions are publicly available).

The Mediator's Role

The mediator assists and guides the parties toward their own solution by helping them to define the important issues and understand each other's interests. The mediator focuses each side on the crucial factors necessary for settlement and on the consequences of not settling. The mediator does not decide the outcome of the case and cannot compel the parties to settle.

The mediator can defuse hostile attitudes and remedy miscommunications. The mediator is a mirror of reality, who can help soften or eliminate extreme negotiating positions. Through the mediator, parties assess weaknesses in their own case and recognize potential strengths of the other side. The parties can more clearly view matters previously distorted by anger and emotion.

FINRA mediators are knowledgeable in the subject matter of the controversies. Within the privacy of the caucus, mediators can help each party analyze the strengths and weaknesses of its complete case. Most significantly, the mediator can explore creative and innovative solutions that the parties—caught up in adversarial negotiations—might never contemplate.

Who Are The Mediators?

FINRA mediators are independent neutrals, not employees of FINRA Dispute Resolution. They are carefully screened and represent a cross-section of people, diverse in culture, profession, and background. Many have extensive knowledge of securities law and industry practices.

Many FINRA mediators are also arbitrators with training and experience in resolving securities matters. However, the skills required for each role are unique, and the two neutral pools are separate and distinct. NASD rules prohibit an individual from serving as both a mediator and arbitrator on the same case.

FINRA Dispute Resolution staff and our Mediation Committee vigorously scrutinize each applicant against demanding qualification criteria. To qualify as a FINRA mediator, an individual must submit four letters of reference from parties who have observed the applicant's mediation technique. Formal mediator training and experience as a mediator are additional requirements of service.

All parties must agree to the selection before a mediator is assigned to a case. Either side can stop the mediation process if dissatisfied with the mediator.

Benefits of Mediation

Control—Mediation belongs to the parties. The disputing parties control the process, scheduling, costs, and outcome of the dispute.
Less Adversarial—The mediation process is informal. It is less confrontational than arbitration or litigation.
Preserves Options—Parties can enter into mediation without jeopardizing their option to arbitrate or litigate.
Swift Settlement—Most mediations are successfully concluded in a single day. Since mediation can be scheduled soon after a dispute arises, parties reach settlement much earlier than in arbitration or litigation. Many mediations conclude before a formal arbitration claim is filed.
Lower Cost —Mediation usually entails lower legal and preparatory costs, there is minimal interruption of business or personal life, lost productivity is kept to a minimum, and the fees and expenses of mediation are modest.
Preservation Of Business Relationships—By reaching an early resolution with minimal financial or other strain on either party, the chances for preserving business relationships are greatly enhanced.
Protects Privacy—Mediation offers greater confidentiality than arbitration.
Creative Solutions—Mediators help the parties craft creative solutions.
Low Risk—Settlement potential is high. The case proceeds quickly. The cost is modest and there are benefits even if a settlement is not reached.|

How Successful Is Mediation?

Historically, parties settle most business disputes submitted to mediation. Mediation experts attribute this to the parties' control over the process, costs, and outcome. The parties approach the process with confidence, leading to successful resolutions. Approximately 80 percent of the cases in the FINRA Mediation Program settle within a few weeks to a few months of the parties' formal agreement to mediate.

Mediation is valuable even when the parties do not reach full settlement. Sometimes parts of a dispute are resolved in mediation, leaving fewer or less extreme differences to be resolved in arbitration or litigation. Gaining agreement on collateral issues can translate into significant savings of time and money for everyone involved.

The mediation process improves communications, narrows outstanding issues, defuses emotions, and defines areas of agreement. Through the mediation process, the parties and their representatives also learn where to focus their energies should arbitration or litigation become necessary. Therefore the parties' future dispute resolution efforts become more efficient.

The Mediation Process

Initiating Mediation

Parties may mediate before filing a formal claim or pleading in arbitration. Mediation can also be initiated at any stage of the arbitration process.

When the matter involves an arbitration before FINRA Dispute Resolution, the mediation process will run separately from the arbitration case. The arbitration case continues concurrently unless the parties agree otherwise.

Mediating parties with a case in arbitration may choose not to have the processes run concurrently. If no arbitration hearing dates have been scheduled, parties can agree to make their arbitration inactive until the mediation is concluded. If arbitration hearing dates have been scheduled, parties can agree to adjourn the hearing dates, and will not be assessed a hearing adjournment fee if they mediate using FINRA Dispute Resolution.

The parties may submit all or some of the issues in dispute to FINRA mediation. They may mediate selected substantive issues or disputes over such procedural issues as the extent, nature, and schedule of discovery.

When one party expresses an interest in mediation, FINRA Dispute Resolution will contact the other party or parties, explain the mediation process, and answer any questions. FINRA Dispute Resolution staff (see a list of Dispute Resolution Offices) is trained to explain the benefits of mediation and to help bring all parties to the table. The mediation process begins as soon as all parties agree.

FINRA Dispute Resolution staff will ask each party to sign a Mediation Submission Agreement where the parties agree to abide by the NASD Mediation Rules. Prospective parties should carefully read the Mediation Rules as well as this pamphlet.

Selecting the Mediator

After conferring with the parties, FINRA Dispute Resolution will propose a list of neutrals consistent with the parties' needs from its roster of experienced mediators. The list is accompanied by a complete profile of each mediator. The parties may select their mediator from that list or ask for additional lists. The parties may also choose a mediator not on the list or from outside the FINRA roster. Any mediator is subject to the approval of all parties to the dispute.

Mediator Disclosures

FINRA Dispute Resolution will provide information on each mediator's employment, education, training, credentials, and rates. Mediators must disclose any relationship that may affect impartiality or create an appearance of partiality or bias. Mediators are governed by Rules 12408 and 13408 of the Code of Arbitration Procedure, and the Standards of Conduct for Mediators developed by the American Bar Association, the Society of Professionals in Dispute Resolution, and the American Arbitration Association.

Scheduling Mediation

The FINRA Dispute Resolution staff works with the mediator and the parties to select a mutually convenient date and location for the mediation. Subject to the availability of the participants, the first session can be scheduled in a matter of days or weeks. Meetings are conducted in person, by telephone, video conference, or any other method agreeable to the parties and the mediator. When available, FINRA Dispute Resolution provides meeting facilities at no charge. The parties will be responsible for room rental charges incurred at non-FINRA Dispute Resolution locations.

Submissions to The Mediator

Before mediation sessions begin, the mediator generally asks the parties to submit information they feel will help the mediator understand the dispute and their respective positions and interests. Before the parties gather, some mediators contact each side separately to ask clarifying questions or to review case logistics.

Unless a party instructs otherwise, all material, information, and other communications with the mediator are kept confidential by the mediator. At the conclusion of the mediation process, the mediator will either destroy these materials or return them to the party who provided them.

The Mediation Session

A mediation typically consists of a joint session involving all participants as well as separate private sessions between the mediator and each party.

The joint session may start with an opening statement by the mediator. The mediator explains the framework of the session, encourages active participation, and reminds all parties of the shared goal of resolving the conflict and of the confidentiality of the settlement negotiations. In the joint session, the mediator gives each party the opportunity to make a presentation and asks for a commitment by all participants to work hard toward resolution.

Party presentations generally address facts, liability, and damages, as well as background information, key issues, and needs. The tone is one of respectful communication. Each presentation is directed to the mediator and to the other side. Participants do not provide sworn testimony and are not subject to cross-examination. The mediator may ask clarifying questions at the conclusion of the presentations.

The second stage of the mediation may then involve meetings, or "caucuses," held by the mediator privately and separately with each party. Caucuses are confidential so that each party can be open and candid about the case. Only if a participant grants permission will the mediator reveal information disclosed in these private sessions. This gives the mediator the opportunity to help the parties examine strengths and weaknesses of the case, analyze risks objectively, and develop options for resolution. The mediator explores each party's needs and underlying interests in resolving the dispute. Through a series of caucuses, the mediator can compare settlement expectations, facilitate the exchange of settlement offers, and help the parties reach common ground.

It is critical to the success of any mediation process that all individuals with authority to resolve the dispute attend the mediation session. The failure to bring parties or representatives with authority to settle will hamper the efficiency of mediation.

Under NASD Mediation Rules neither the parties nor the mediator may disclose anything said during the mediation in any other proceeding, unless authorized by all other parties or compelled by law. No verbatim or other record is made of mediation sessions.

Negotiation of Settlement

Throughout the mediation process, the mediator will help the parties negotiate effectively. Efforts to reach a settlement through mediation will continue until: (a) the parties agree to a resolution and execute a written settlement; (b) the parties conclude that further efforts to mediate the dispute would be futile and declare the negotiations at an impasse; or (c) any party or the mediator withdraws from the mediation process for any reason.

The Written Settlement

When a mutually acceptable resolution is reached, the parties will draft a document detailing all terms of the settlement. Parties save time and expense by signing a memorandum of understanding of essential terms at the close of the mediation. When all parties agree to its terms, the parties sign and execute the written settlement. Once the settlement agreement is signed, it is final and binding on the parties.

When Settlement Is Not Reached

Most parties express satisfaction with the mediation process even when they do not reach full settlement. Proper preparation for the mediation session readies the parties for the arbitration. During the mediation process the parties and their representatives gain a better understanding of their case. This, in turn, helps them focus on the necessary next steps. Further, the mediation process moves very quickly and does not delay the ultimate resolution. Finally, by the end of a single day of mediation, the improved lines of communication often place the parties in a better position to settle the case at a later stage.

The FINRA Dispute Resolution mediation administrative filing fee becomes due when all parties to the dispute agree to mediate.

Mediation Fees

Administrative Filing Fees

The fee schedule is listed below. The filing fees vary based on the amount in controversy in the case (all damages sought exclusive of attorneys' fees, interest and expenses). Filing fees are lower if the case involves an arbitration currently pending at FINRA Dispute Resolution.

Cases Filed Directly in Mediation
Amount in Controversy	Customer and Associated Person Fee	Member Fee

$.01-$25,000	$ 50	$150
$25,000.01-$100,000	$150	$300
Over $100,000	$300	$500

Cases Initially Filed in Arbitration
Amount in Controversy	Customer and Associated Person Fee	Member Fee

$.01-$25,000	$ 0	$ 0
$25,000.01-$100,000	$100	$150
Over $100,000	$250	$500

Mediator Fees And Expenses

The parties are responsible for the mediator's fees and expenses, including the mediator's travel. Parties share these charges equally unless they agree otherwise.

Mediator Fees
When the parties select their mediator, the parties and the mediator agree upon an hourly rate for the mediator's services. The parties pay the mediator this hourly rate for time spent conducting the mediation session, either by phone or in person. Mediators may also charge for preparation and travel time.
Mediator Fees For Small Claims
Many mediators on FINRA Dispute Resolution's roster have agreed to reduce their hourly rates for cases with an amount in controversy of $25,000 or less. FINRA Dispute Resolution staff can assist parties in selecting a neutral who charges reduced rates in small claims.
Expenses
Expenses incurred by the mediator in connection with the case are also the responsibility of the parties. These expenses might include travel, parking, telephone, and postage. The parties also pay for meeting room rental fees at non-FINRA facilities. Expenses are shared equally by the parties unless they agree otherwise.

FINRA Dispute Resolution requires mediating parties to submit a Mediation Session Deposit, covering the anticipated fees for the mediator's time and expenses. FINRA Dispute Resolution staff estimates the deposit based on the size and complexity of the case, the number of parties involved, and the mediator's rate. Each party must submit its share of the deposit when the Mediation Submission Agreement is signed and before mediation begins.

If the parties need more of the mediator's time than is covered by the Mediation Deposit, additional time is billed at the rate agreed to by the mediator and the parties.

Refunds

Administrative Filing Fees
Once all parties to the dispute have agreed to mediate, administrative filing fees are not refunded.
Mediator Fees
After paying the mediator for his or her work and expenses, FINRA Dispute Resolution will refund any unused portion of the Mediator Deposit or apply it to outstanding FINRA arbitration balances.
Arbitration Fees
If the matter involves a pending FINRA arbitration, any arbitration case fee refunds shall be made according to the refund provisions of the Code of Arbitration Procedure.

Conclusion

We encourage parties and their representatives to consider the FINRA Mediation Program for all securities disputes. Any party to a securities-related dispute can indicate an interest in mediation by calling or writing the nearest FINRA Mediation Offices and Hearing Locations. Trained staff members in each office will answer questions and provide guidance.

You should also carefully read the NASD Mediation Rules. This pamphlet is not a substitute for those Rules.