Simplified Arbitration

FINRA administers two types of arbitrations through its Dispute Resolution Services program:

• Customer Disputes: These arbitrations involve disputes between a customer and a FINRA-member broker-dealer or a registered representative of the broker-dealer. The arbitration proceedings are governed by the Code of Arbitration Procedure for Customer Disputes.
• Industry Disputes: These arbitrations involve industry disputes between a FINRA-member broker-dealer and a registered representative (broker) or vice versa. These intra-industry disputes are governed by the Code of Arbitration Procedure for Industry Disputes.

Under both the Customer Code and the Industry Code, disputes can be separated into two claims based on size:

• Larger claims involving money damages over $50,000 are decided by a panel of one to three arbitrators and require an in-person arbitration hearing.
• Smaller claims involving money damages of $50,000 or less are decided by a single arbitrator and do not require an in-person arbitration hearing. These smaller claim arbitrations are automatically governed by FINRA’s “simplified arbitration” rules.

Under FINRA Rule 12800 for customer disputes and FINRA Rule 13800 for industry disputes, arbitrations involving money damages of $50,000 or less are administered under simplified arbitration before FINRA. These arbitrations are adjudicated by a single arbitrator and may be entirely decided on the pleadings and written materials submitted by the parties (aka “on the papers”) unless the customer or claimant requests an arbitration hearing.

It is important to note that a customer may request a hearing under the Customer Code, regardless of whether the customer is a claimant or respondent. However, under the Industry Code, only the claimant may request a hearing.

Simplified arbitrations are a cost-effective method to submit smaller dollar amount disputes and avoid some of the fees associated with more comprehensive arbitration proceedings, such as fees associated with an initial prehearing conference or other prehearing conferences.

Simplified arbitration differs from standard FINRA arbitrations in the following key areas:

• Single Arbitrator: A single public arbitrator decides arbitrations administered under this rule. Unless the parties agree otherwise, the arbitrator is appointed from the FINRA chairperson roster. Claims of more than $100,000 are decided by a panel of three arbitrators.
• Discovery: Document Production Lists under Rule 12506, used in standard FINRA arbitrations involving customer disputes, do not apply to simplified arbitrations. Although the arbitrator may at their discretion choose to use portions of the Document Production Lists, the goal is to make discovery less burdensome, more streamlined and remain consistent with the expedited nature of simplified arbitration.
• Hearings:
  • Option 1 or default option: A single arbitrator renders a decision or award based on the parties’ pleadings and other written materials submitted by the parties.
  • Option 2: A full hearing with a single arbitrator. If the customer requests a hearing, the customer must select between the below hearing options.
    • In-person hearings: Apply the Code’s regular provisions relating to prehearing conferences and final evidentiary hearings, including all fee provisions.
    • Special Proceedings: Apply the Code’s regular provisions relating to prehearing conferences and final evidentiary hearings, including all fee provisions; however, the hearing is not held in person. Instead, the hearing is held by telephone unless the parties agree otherwise. The rule also has other caveats regarding time limits each party has to present their case and imposes limits on the questioning of opposing parties’ witnesses.

The Iorio Altamirano LLP legal team has represented investors in FINRA arbitration hearings. If you believe you have suffered investment losses of $50,000 or less, a simplified arbitration claim may be an appropriate course of action. Contact our stockbroker fraud attorneys for a confidential and free consultation today.