Disputes that break out between business professionals who handle securities may take different forms. An individual broker may have a dispute with a brokerage firm. Investors may have disagreements with one another over securities or employment issues. While disputing parties involving securities may take their case to court, many cases of this nature instead go to arbitration.
When two parties have a dispute involving a brokerage firm or an individual broker, an investor may file a claim to arbitrate the matter through FINRA. Arbitration has some similarities to a court proceeding, but it is not the same. The FINRA website goes into greater detail about how arbitration works.
Disputing parties have a number of reasons to prefer arbitration. It takes less time and costs less money than going to court. A FINRA arbitration involves a single arbitrator or a panel of three arbitrators listening to the arguments presented by the parties. Like a court trial, the parties will present their evidence, which the arbitrator will consider. Witnesses may also testify at the arbitration.
If a dispute involves a small amount of money, the arbitration may transpire through a simplified process that does not require an in-person hearing. Larger amounts may require a single arbitrator and a hearing. Amounts that top $100,000 will entail a hearing by three arbitrators. In any case, an arbitrator will hand down a decision after considering all the facts involved.
Some people confuse arbitration and mediation, but the two are not the same. Mediation is a less formal process than arbitration. In mediation, parties work with a mediator to mutually come to a solution to their dispute. FINRA does not require parties to mediate their case, but parties may choose mediation before going to arbitration. According to FINRA, over 80% of mediations succeed in arriving at a resolution, which is why many parties attempt mediation first before going to arbitration.