Resources for Investors Representing Themselves in FINRA Arbitrations and Mediations

What is Arbitration?

 

Arbitration is an alternative to litigation in which two or more parties select impartial persons, called arbitrators, to resolve a dispute. FINRA arbitration panels have either one or three arbitrators depending on the amounts of damages claimed. Arbitrators read the parties' pleadings, listen to the witnesses' testimony and parties' arguments and then decide the case. The arbitrators' decision, called an "award," is final and binding.

 

What is Mediation?

 

FINRA also has a mediation program to resolve disputes. It differs from arbitration but as an initial matter, both parties must agree to mediate – FINRA does not require parties to mediate. Mediation is an informal, voluntary process in which a mediator facilitates negotiations between disputing parties. The mediator helps the parties settle the dispute on agreeable terms. Mediation is a voluntary process, so either party can decide to stop at any time. Over 80 percent of mediations end up with a settlement. If the parties do not reach a settlement, you can still file an arbitration case, or, if one was previously filed, request that it continue. You can think of arbitration as presenting your case and having someone else decide it, versus mediation, where someone assists you with negotiating a solution. FINRA's Mediation Program has launched a program that offers parties in arbitration cases with small claims free or low-cost telephone mediation. Participation in the program, which began January 15, 2013, is voluntary and open to cases involving claims of $50,000 or less. You can find more information at: Small Claims Mediation Program.

 

How do I Begin?

 

Investors may file a request to arbitrate or mediate with FINRA when they have a dispute involving the business activities of a brokerage firm or one of its brokers. There are important differences between arbitration or mediation on the one hand and filing an investor complaint on the other. These are independent and unrelated. Investors may also alert FINRA to potentially fraudulent or suspicious activities by brokerage firms or brokers, by using FINRA's Investor Complaint Center. However, if you are seeking money damages, you must file an arbitration or request to mediate. Please note that you can file a complaint with FINRA's Investor Complaint Center, and also file a separate arbitration or mediation case with FINRA Dispute Resolution. You do not need to wait to hear from the Investor Complaint Center before filing your claim.

 

Do I Need an Attorney?

 

FINRA does not require parties to hire attorneys. However, you might consider hiring an attorney to provide direction and advice. If there is a hearing, all parties will have to question witnesses and present their cases. For cases that arbitrators decide on the papers without a hearing, you will be required to prepare written submissions for the arbitrator. Even if you do not hire an attorney, brokerage firms will likely be represented by an attorney. If you cannot afford an attorney, some law schools provide legal representation through securities arbitration clinics. You can find more information at: How to Find an Attorney and Law School Clinics.

 

Tip: FINRA staff is neutral and cannot give legal advice to the parties. However, staff can answer procedural questions.

 

How do I File a Claim to Start an Arbitration?

 

To start an arbitration you must file a statement of claim and Submission Agreement (PDF 30 KB) and pay the required filing fee. The statement of claim describes the history of the dispute, the parties, and the amount of money you are seeking. Your statement of claim may be in the form of a letter and should answer the "Who, What, When, Where, and Why" of the dispute. To determine the filing fee please use FINRA's Arbitration Filing Fee Calculator.

 

If you are experiencing financial difficulties, you can request a waiver of some of the fees. FINRA will require you to send documents to support your request, such as tax returns, bank records, pay stubs or other evidence of financial hardship. If you are unable to provide these documents, you may submit an affidavit attesting to your financial hardship. You can find more information at: Arbitration Fee Waivers.

 

If you are a senior party, or have a serious health issue, you can request an expedited arbitration proceeding, which can reduce the amount of time it takes to complete an arbitration. You can find more information at: Expedited Proceedings for Senior or Seriously Ill Parties.

 

You can find more information at: File a Claim and file online at: Arbitration Online Claim Filing.

 

FINRA Serves Your Claim on the Respondent

 

After you file your claim, we will assign a case administrator to the case, and determine the place of the hearing based on where you lived at the time of the dispute. FINRA provides each respondent (a respondent is a firm or person against whom you've filed your case) with your statement of claim. A respondent has 45 days to answer the statement of claim.

 

Cases Involving $50,000 or Less

 

If you file a claim in which the amount in dispute is $50,000 or less, you and the respondent will select a single arbitrator to decide the case and no hearing will be held unless you request a hearing. The arbitrator will decide the case based only on the papers the parties submit. You can find more information at: Simplified Arbitrations. Arbitrators decide cases on the papers in an average of about 7.1 months and cases with hearings in about 16.6 months.

 

Parties Select Arbitrators

 

Claim SizeIn-Person HearingNo. of ArbitratorsType of Arbitrator
$0 – $50,000 (also known as "Simplified Arbitration")Optional1Public
$50,000.01 – $100,000Required1Public
$100,000.01 and higher or Unspecified damagesRequired3All Public or Two Public and One Non-Public

 

FINRA has two types of arbitrators:

 

  • Arbitrators with no connection to the securities industry are "public arbitrators.
  • Arbitrators with a connection to the securities industry are "non-public arbitrators.

 

In customer cases decided by three arbitrators, FINRA Rule 12403 allows any party to select an all public panel of arbitrators.

 

You can find more information at: Optional All Public Panel Rule.

 

Ranking the Arbitrators

 

FINRA provides identical computer-generated lists of possible arbitrators to both parties. FINRA also provides a detailed report on each arbitrator's background - called a disclosure report. The disclosure report is like a resumé, and includes the arbitrator's employment background, education, and training. It also shows the cases on which the arbitrator has served. You can view and search arbitrators' prior awards at: FINRA Arbitration Awards Online. Both sides are allowed to strike some of the arbitrators on the list and to rank the remaining names in the order they prefer.

 

Tip: You must send all respondents any papers that you send to FINRA, except your list that ranks potential arbitrators.

 

Initial Pre-hearing Conference

 

Once the parties select arbitrators, the arbitrators hold an initial pre-hearing conference with the parties – typically over the telephone. During the call, the arbitrators and parties discuss procedural issues, the mediation alternative, discovery, and scheduling the hearing.

 

Discovery

 

Discovery takes place before the hearing and involves the exchange of documents and information and the identification of witnesses. The Code of Arbitration Procedure requires parties to cooperate to the fullest extent possible in the voluntary exchange of documents and information. Information requests may include questions about your investment history, assets, and income. Investors may request documents from brokerage firms such as account opening documents, research reports, and correspondence.

 

FINRA's Discovery Guide contains guidelines to help parties and arbitrators during discovery. The Discovery Guide includes two document lists: the list of documents that firms and associated persons should generally produce and the list of documents that customers should generally produce. These lists do not apply to claims involving $50,000 or less (Simplified Claims). However, if the parties disagree about discovery, the arbitrator, in his or discretion, may choose to use relevant portions of the lists in Simplified Claims.

 

When considering the document production lists, it is important to note that not all firms have the same business operations model (full service brokerage firms vs. discount brokerage firms) and certain items on the lists may not apply to a particular case when the firm's business model is considered. Likewise, certain items on the customer list may not apply to a particular case depending on the claims asserted. Arbitrators can order the production of documents not on the Lists or order that parties do not have to produce certain documents on the Lists in a particular case. When additional documents are relevant in a particular case, parties can request them. A party may also object to producing a document on a List because of the cost or burden of production, due to lack of relevance, or for other reasons. If parties disagree about discovery, the chairperson will consider the parties' arguments and issue a ruling. FINRA's website contains helpful information about discovery: Discovery.

 

The Hearing

 

The evidentiary hearing follows discovery. At the hearing, each party will present its case to the arbitrators. The parties will question witnesses and present documents to the arbitrators. The claimant makes an opening statement, followed by the respondent's opening statement. Each side will question the witnesses. Both parties can cross-examine any witness, which means that you have the opportunity to ask the witnesses questions. Parties can object to any evidence and the arbitrators will decide if they will accept the evidence. When the parties have finished questioning witnesses and presenting evidence, they will make closing arguments. Closing arguments allows parties an opportunity to summarize what they believe they have proven.

 

Tip: Parties cannot speak with the arbitrators outside of the hearing, either before the hearing, or after they decide your case. Any off the record conversations between a party and an arbitrator, no matter how innocent, could negatively affect the case.

 

This video is an overview of how arbitration is conducted at FINRA: What to Expect. A PDF of the video script is also available at: What to Expect (PDF 95 KB).

 

Award

 

The award states how the arbitrator(s) decided the case. Arbitrators are not required to provide a written explanation for their decision. However, in cases claiming damages of more than $50,000, the arbitrators will be required to provide a written explanation if all the parties request one before the first hearing. In addition to deciding your claim, the arbitrators will decide who is to pay the fees and costs. Depending on the number of hearing sessions, and whether arbitrators issue orders before the hearing, you may receive a bill for fees at the end of the case (regardless of how the arbitrators decide the case or if the parties settle the case). When the arbitrators decide the case, they will also decide which party pays the fees. All parties must abide by the award, unless a party successfully challenges the award in court.

 

Additional Resources