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How does the arbitration process work?

Arbitration is a creature of contract. Two important U.S. Supreme Court decisions affirmed the public customer’s right and obligation to arbitrate “any and all” disputes as typically required by the industry standard forms of customer cash or margin agreements.

Arbitration procedures had been adopted by all of the major securities self-regulatory organizations (“SROs”), and with the merger of the National Association of Securities Dealers (“NASD”) and New York Stock Exchange “NYSE”, the vast majority of these cases are now handled by the Financial Industry Regulatory Authority ("FINRA").  These procedures have evolved substantially over the last 25 or so years, and are increasingly complex.

A claim is initiated by the filing of the Statement of Claim which is similar to a complaint in federal or state court, but with some important differences. The most important difference is that the Statement is, or should be, more factually detailed than a “Notice” type complaint in another forum because the arbitrators actually read them. FINRA is responsible for serving the Statement of Claim and the Respondents have 40 days from service of the Statement of Claim to file a Statement of Answer.  Attorney play an important role during the pleadings stage and unrepresented parties would have a difficult time drafting or responding to pleadings in any large or complex case.

Discovery in arbitration is limited and generally depositions and interrogatories are not permitted. Each party is entitled to make Requests for Information and Documents which are less broad than that permitted by most federal or state procedural laws. The type of information and documents requested or to be requested vary from case to case, and experienced counsel familiar with the process and case types are a distinct advantage to the parties.

Arbitrators are chosen by a variety of methods, and the parties have access to a fair amount of information about the arbitrators’ backgrounds as well as the parties can, and should, involve themselves in the selection process. At a minimum parties can strike arbitrations from the proposed list and they can indicate preferences or priorities to ensure the fairest possible panel.  There are strict time limits applicable to the selection process, however, and experienced counsel is invaluable at this stage both in terms of the deadlines as well as in selecting the best possible panel.

Hearing dates are scheduled with the panel on days when all parties confirm their availability. Hearings are generally scheduled in cities nearest the customer’s home at the time the Claim arose.

Awards are rendered generally within 30 days of the hearing and mailed to the parties. All awards must be paid then within 30 days.

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