What is Arbitration?

Arbitration is a vehicle for resolving disputes, and is an alternative to litigation or mediation. Arbitration consist of panels composed of one or three arbitrators elected by the parties. The arbitrators read all pleadings filed by the parties, they listen to the parties’ respective arguments, they study the evidence, and then they render a decision, called an “award.” The panel’s award is final and binding on the parties. Unless successfully challenged in a court of law within the statutory time period, the parties must abide by the award. Arbitration is typically confidential. Documents submitted in arbitration are not available to the public, unlike court-related filings. However, FINRA will post awards issued at the conclusion of the case on its Arbitration Awards Online Database. That information is publicly available.

The Basics of Arbitration

An arbitration can take a little over a year to complete from the time of the filing of the claim until an award is rendered. The number of parties and witnesses involved, the difficulty of the issues, the volume of discovery, and the schedules of the parties and arbitrators are all factors that may affect the arbitration timeline. View dispute resolution statistics for yearly data.

The cost of arbitrating a claim varies, and may be affected by the amount of the controversy, the number of hearing sessions required, the volume of discovery, and any other postponements. View FINRA’s fees section for more information.

Cases Eligible for Arbitration

Arbitration cases are eligible to be heard in FINRA’s forum provided the following criteria are met:

1. In disputes with investors, the case must (a) involve an investor and an individual or entity registered with FINRA; and (b) be filed within 6 years from the time the dispute occurred.
2. In disputes involving only industry parties, the case must (a) involve an individual or entity registered with FINRA; and (b) be filed within 6 years from the time the dispute occurred.

When is Arbitration Required?

An investor must arbitrate at FINRA if (a) a written agreement includes an arbitration clause; (b) a member of FINRA is involved in the dispute (e.g. a broker and/or brokerage firm); and (c) the securities business of the broker and/or brokerage firm is involved in the dispute.

A broker or a brokerage firm must arbitrate at FINRA if (a) the securities business of the broker and/or brokerage firm is involved in the dispute; and (b) the dispute is between members of FINRA, i.e. brokerage firms, brokerage firms and brokers, or brokers. An exception to the required industry arbitration occurs where a broker’s dispute involves an issue of employment discrimination, including sexual harassment. Such a dispute is not required to be arbitrated unless the parties agree on arbitration.

If an investor requests arbitration, a broker or a brokerage firm must arbitrate using FINRA’s forum.

Resolution of Arbitration

The resolution of arbitration cases vary. While some arbitrations are resolved by the arbitrators, others are concluded by a settlement of the parties or through mediation. In most cases, investors receive either monetary or non-monetary relief, either from an award rendered by the arbitration panel or by settlement of the parties. For more information on how cases resolve and how often customers are awarded damages, view FINRA’s dispute resolution statistics.

Legal Representation

To ensure you have adequate direction and advice, you should consider hiring an attorney to represent you during the arbitration process. Know that if you do not choose to hire counsel, the other parties may hire an attorney. Brokerage firms are typically represented by an attorney.

View FINRA’s arbitration process section for a description of the steps required to complete an arbitration.

To learn more about arbitration, call us at 512-306-8188 or contact us online.