As an investor, you know you are taking some risks, but you expect your broker to play by the rules. If you need to take legal action against an individual or firm, court litigation is not the only option.
Arbitration is an alternative method for dispute resolution. For many people, it is preferable, as it is less costly and may take less time than going through the court process.
Overview of arbitration
The Financial Industry Regulatory Authority is an organization that oversees securities regulation. It offers investors methods to deal with violators, and arbitration is one option. The two opposing parties appear before an arbitration panel made of up to three neutral arbitrators. Each side presents their arguments and evidence, and the panel makes a final decision based on the information. This award is binding, and all documents presented during the hearing are confidential.
Eligible arbitration cases are disputes that involve investors and those that involve only industry parties. There is an arbitration requirement for investors if there is a written agreement to use arbitration, if the dispute involves a broker or firm or if the dispute is with an FINRA member.
According to FindLaw, the arbitration process starts when the investor files a claim to FINRA, which outlines the parties involved, the complaint and requested remedies. FINRA then submits the claim to the named parties, who must respond with facts and defenses within 45 days.
Each party selects the arbitrators, and each party can also object to any of the choices based on various reasons. At a prehearing conference, the arbitrators and parties set discovery deadlines and schedule dates for the hearings. After the hearings, the arbitration panel has up to 30 business days to decide on the final reward. From start to finish, you can usually expect the process to last for a few months.