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Arbitration is a method for resolving conflicts between investors and brokers or amongst brokers. The Financial Industry Regulatory Authority (FINRA) in the United States is in charge of it, and the rulings are final and binding.Â
In contrast to mediation, where parties talk to establish a voluntary solution, outcomes in arbitration are not legally binding unless both parties agree to them. Arbitration differs from filing an investor complaint, in which the investor complains about a broker but does not specifically have a dispute with that broker over which the investor is suing for damages.
An investor or broker may file a claim with FINRA detailing the alleged misbehavior and the amount of money they are seeking in damages when they have a specific disagreement with a broker who is registered with FINRA. If the injured party doesn't request otherwise, FINRA will appoint a panel of three financial industry experts who do not work in the securities sector. Although there should be no prejudice, if one of the parties feels that a panel member is biased, they may ask for a change.
In-person hearings are not deemed necessary for disagreements under $50,000; instead, the matter is decided by a single arbitrator after the parties exchange written submissions. The most frequent type of arbitration for disputes between $50,000 and $100,000 is a single arbitrator hearing that takes place in person. In-person hearings with three arbitrators are the norm for disputes over $100,000. A decision can only be made with the support of two out of the three arbitrators. Arbitrators are exempt from giving reasons for their decisions.
An investor or broker may file a claim with FINRA detailing the alleged misbehavior and the amount of money they are seeking in damages when they have a specific disagreement with a broker who is registered with FINRA. If the injured party doesn't request otherwise, FINRA will appoint a panel of three financial industry experts who do not work in the securities sector. Although there should be no prejudice, if one of the parties feels that a panel member is biased, they may ask for a change.
In-person hearings are not deemed necessary for disagreements under $50,000; instead, the matter is decided by a single arbitrator after the parties exchange written submissions. The most frequent type of arbitration for disputes between $50,000 and $100,000 is a single arbitrator hearing that takes place in person. In-person hearings with three arbitrators are the norm for disputes over $100,000. A decision can only be made with the support of two out of the three arbitrators. Arbitrators are exempt from giving reasons for their decisions.
The parties that request arbitration have the option of representing themselves or hiring an attorney. Investors have a decent probability of winning even when representing themselves in arbitration panels because they are typically less formalistic than the court system. Investors who choose to pursue this alternative should be aware that there are costs involved with filing for arbitration, in addition to the time and travel costs required.
The full sum requested in a dispute is not always awarded by arbitration panels. For instance, if a broker is sued by an investor for $38,000, the panel may rule in the investor's favor but only award $10,000.
