A guide to the FINRA arbitration process

The Financial Industry Regulatory Authority was established to provide some protection to investors while holding broker-dealers to ethical standards. One way FINRA does so is through the use of arbitration to resolve disputes.

The arbitration process differs from traditional litigation in that an impartial third-party listens to the arguments presented by both sides. After each side has made their case, the arbitrator will hand down a binding decision. One to three arbitrators serve on a FINRA panel.

An overview of how an arbitration proceeds

A FINRA arbitration hearing consists of several steps, including:

• Making a statement of claim: One party will get the ball rolling by making a statement of claim. This will involve a summary of the dispute, identify the other parties, and state a request for relief. FINRA will serve notice on the other parties named in the statement.
• Response: After the other parties have been served with notice of the statement of claim, they are given 45 days to respond to the allegations made in the claim.
• Selection of arbitrators: FINRA will give each party a list of available arbitrators. The parties may choose who they wish to hear their case. You or the other party may object to the selection of an arbitrator. However, objections must be reasonable.
• Prehearing: A prehearing conference is necessary to set dates for the hearings and to establish deadlines for evidence discovery, among other motions.
• The hearing: Everything up to this point will culminate in the hearing. A hearing is much like a courtroom trial. You and the other side will present evidence. You can call witnesses to testify. You can also make an opening and closing statement.

When the hearing has concluded, the arbitrators will take time to review the case before reaching a decision. They must do so within 30 days. Keep in mind that these decisions are binding. However, there are a few circumstances where you may be able to challenge a decision.

You can also put a stop to the arbitration process at any time if you and other parties can agree to a settlement.