Most investor arbitrations take place under the rules of FINRA (formerly known as NASD), though the New York Stock Exchange , the American Arbitration Association , and other organizations also sponsor arbitrations. The FINRA Dispute Resolution website has publications that describe the arbitration process, including its training manual for arbitrators, which is a valuable resource. You can also get a copy of FINRA's Code of Arbitration Procedure, which is posted at their website as part of the NASD Manual starting at section 10000. In addition, FINRA publishes its training manual for arbitrators, which is a valuable resource.

Under the rules of FINRA you or your representative first file a statement of claim, which contains a description of your claims and the facts that support them, together with a document submitting your claims to arbitration, filing fees, and a hearing deposit. Depending on the size of the claim, and the preference of the investor, the claim can be decided on the papers, by one arbitrator, or by a panel of three arbitrators, one of whom is always a stockbroker or other member of the securities industry. Most arbitrations are conducted by a panel of three arbitrators.

Once you have filed your claim, FINRA will attempt to serve it on the defendants, who have 45 days to file their responses. After that, the parties usually draft and serve each other with requests for information and documents that are relevant to the case.

At some point, FINRA sends information about potential panelists to the parties, who have the right to request copies of any previous awards that have been rendered by the proposed arbitrators or view them online. The parties then have a chance to strike the arbitrators they don't like and rank the rest. If FINRA can put together a panel from the arbitrators who have not been struck by a party, it does, in order of average rankings. If it needs to propose one or more additional arbitrators to fill out the panel, it will send their names and information to the parties, but it will only entertain challenges of the additional panelists for cause . Then the parties agree on a chair if they can. If not, FINRA selects the chair.

If, before the hearing on the merits, any disputes arise, or a party requests a ruling on a motion, the chair of the panel or the entire panel may hold one or more prehearing conferences, usually by conference telephone call.

Finally, one or more hearing dates are scheduled, usually about a year or a year and a half after the claim is filed. The hearing is usually held at the hearing location of FINRA that is closest to the residence of the customer. The arbitrators, the parties, their lawyers or other representatives, and sometimes a member of the FINRA's staff, sit around a table with a tape recorder on it. The parties or their lawyers will usually have submitted briefs containing their factual and legal arguments before the hearing..

After any prehearing motions are decided, the parties or their representatives make opening statements, and the claimant puts on his case by calling witnesses, testifying himself, and offering exhibits. As in a trial, all the parties have the right to cross-examine each other's witnesses and, with the permission of the panel, conduct redirect examination. In addition, the panelists may ask their own questions. While the panel does not have to follow the rules of evidence, they sometimes do. After the claimant is finished presenting his or her case, the respondents have their turn. Then all parties have a chance to make closing arguments.

The hearing can take anywhere from one day to several weeks. Sometimes it is adjourned for a period of several weeks or months so that it can be completed. When it is over, the parties go home, and FINRA sends them copies of the written award.

If the investor wins an award, the member firm or associated person must pay it promptly or face disciplinary action. Awards by other forums can be enforced by petitioning a court to convert them into judgments and then enforcing the judgment using the same procedures as for any other judgment.

DISCLAIMER: Vincent DiCarlo, who authored and maintained this site, has entered government service and, as of September 1, 2008, is no longer engaged in the private practice of law.  Therefore, this site is no longer being maintained,  may not be accurate, and should not be relied upon.  It is not now and was not ever intended as legal advice.  It is being provided for historical purposes, and for the benefit of those lawyers who are capable of independently verifying the information and judging the opinions in it, and then reaching their own conclusions.  You are strongly advised to consult qualified legal counsel before adopting any of the ideas or suggestions in this material, which may or may not be applicable in your jurisdiction or to your specific situation, and may no longer be accurate or prudent in any case.  The opinions and statements at this site were solely those of the author.  They were not and are not those of, nor were they nor are they made on behalf of, any agency of government or anyone else.

Copyright © 1998-2008 Vincent DiCarlo