What is FINRA?

FINRA is the acronym for the Financial Industry Regulatory Authority (formerly known as the National Association of Securities Dealers, or NASD). FINRA is an independent regulator for all securities firms doing business in the US. Its stated mission is to "protect America's investors by making sure the securities industry operates fairly and honestly.

FINRA is the largest independent regulator for securities firms, overseeing approximately 4,525 brokerage firms, 163,580 branch offices and 633,390 registered securities representatives.

FINRA also strives to educate investors to enable them to better navigate the investment landscape. Investors are encouraged to visit their website (www.finra.org) for to find information, warnings, and other alerts involving regulatory issues.

Why Arbitration?

Disputes between investors and their brokers are almost always handled before FINRA, instead of in civil court. When an investor opens an account with a firm or professional who is a FINRA registered representative, he or she signs an agreement stating that all disputes between the parties will be handled through binding arbitration. FINRA provides the forum for those arbitrations.

How is an Arbitration Filed?

Arbitration is governed by the FINRA Code of Arbitration Procedure for Customer Disputes (the "Code"). It begins by filing the Statement of Claim, a document which details the facts of the dispute and the amount of damages incurred. The person filing the Statement of Claim is referred to as the "Claimant(s);" the securities firm or professional is termed "Respondent(s)."

FINRA charges a filing fee for administering the arbitration. The amount of the fee depends on the amount of damages alleged.

Once the Statement of Claim is filed, either one or three arbitrators are assigned to the case, depending on the amount of damages alleged. Where the damage claim is over $100,000, a three arbitrator panel is appointed. For cases where the damage claim is less than $100,000 a single arbitrator is usually appointed.

What is the arbitration hearing like?

Arbitration hearings are scheduled early on in the dispute resolution process and are generally scheduled for one to four days. The hearings proceed much like a trial in that there are opening and closing arguments, examination of witnesses, and the introduction of evidence.

The hearing is presided over by a panel of arbitrators who make rulings during the course of the trial on issues of relevance, propriety, etc. – much like one would see in a civil court trial.

How will I learn the results of my arbitration?

Result time varies. Arbitrators aim to publish their decisions within 30 days of the conclusion of the hearing but are not required to do so.

When the decision has been made, the arbitrators send their decision to the parties and it is published on FINRA's website.

Unlike a civil case, there is generally no discussion accompanying the arbitrator's findings. Instead, the decision only lists only the basic information of the case – the parties, damage amounts alleged, investments involved, and similar tidbits. Overwhelmingly, there is no discussion as to why the panel found as it did. Instead, the decision simply states which party has prevailed and the amount of damages awarded, if any.

Can I appeal an unfavorable award?

Arbitration awards are overturned only in the rarest of circumstances. Grounds for appealing an arbitration award are generally based in some type of fraud or error in procedure or jurisdiction – for example, where an arbitrator abuses his authority. Awards will not be overturned where the decision is simply unfavorable.

What is the discovery process like?

In order to increase efficiency and reduce discovery disputes, FINRA has produced a Discovery Guide which is used in every arbitration. The Guide includes several Document Production Lists which detail all information that generally must be produced by each party.

In disputes between customers and FINRA members, the Document Production Lists themselves are not too long (19 requests) but the amount of information they request can be voluminous. Moreover, parties may be able to request additional information from each other that is not covered by the Discovery Guide.

Collecting all the required information can be time consuming, but it is important to be extremely thorough. FINRA just released a new Discovery Guide in May. The former version of the Guide (still applicable to those arbitrations filed before May 16, 2011) had one main Document Production List applicable to all customer disputes and then also had separate sub-lists for each individual claim alleged. This format was extremely repetitive and, thus, duplicative when it came to document production. The new Guide is streamlined and has only one list for the customer to respond to. However, although the new guide is much more efficient in terms of organization, it likely will not reduce the overall amount of production that is required.

To see the Lists and the type of information they seek, the Discovery Guide is available on FINRA's website.