What is FINRA arbitration?

FINRA arbitration is a method of resolving disputes between investors and brokerage firms or financial advisors outside the court system. It involves a neutral third party, an arbitrator, who reviews the case and makes a binding decision.

Why choose arbitration over litigation?

Arbitration is typically faster, less formal, and more cost-effective than litigation. It also provides a final resolution to disputes, with limited grounds for appeal. Most relationships with financial advisors are formalized by entering into a contract which contains a dispute resolution clause. Nationally, most dispute resolution clauses provide for FINRA arbitration.

Who can file a FINRA arbitration claim?

Investors, brokerage firms, and financial advisors can file a FINRA arbitration claim if they have a dispute related to securities or investment activities. FINRA arbitration is normally the forum for disputes among registered persons, brokerage firms and the public customer clients of the firms.

How do I start the FINRA arbitration process?

To start the arbitration process, Bakhtiari & Harrison will file a Statement of Claim with FINRA, detailing the nature of the dispute, the parties involved, and the relief sought.

What is a Statement of Claim?

A Statement of Claim is a written document submitted by the claimant outlining the facts of the dispute, legal claims, and the desired outcome.

What happens after filing the Statement of Claim?

After filing, the respondent has 45 days to answer the Statement of Claim. The answer must address the claims and may include counterclaims or other relief sought.

What fees are involved in FINRA arbitration?

Fees include filing fees, hearing session fees, and possibly member surcharges or process fees, depending on the specifics of the case.

Can I represent myself in FINRA arbitration?

Yes, you can represent yourself, but many choose to hire an attorney with experience in securities arbitration due to the complexity of the process. Investors and industry professionals who choose to represent themselves do so at a substantial disadvantage, Wall Street firms typically retain experienced professional counsel to represent their interests.

How are arbitrators selected?

Arbitrators are selected through the Neutral List Selection System (NLSS), which provides a list of potential arbitrators. Both parties rank and strike names to agree on a panel.

What qualifications do FINRA arbitrators have?

FINRA arbitrators include attorneys, accountants, financial professionals, and public members who have undergone training and meet FINRA’s qualification standards.

How long does the arbitration process take?

The process typically takes 12-18 months from filing to the final award, but this can vary based on case complexity and scheduling. Preference may be given to investors that are seriously ill or elderly.

What is a prehearing conference?

A prehearing conference is a meeting between the parties and the arbitrators to discuss procedural issues, set a schedule, and address preliminary matters including final FINRA arbitration hearing dates.

What is discovery in arbitration?

Discovery is the exchange of documents and information between the parties to prepare for the hearing. It is more limited than in litigation.

What happens during the arbitration hearing?

During the hearing, both sides present evidence, call witnesses, and make arguments. The arbitrators then deliberate and render a decision.

Is the arbitration hearing open to the public?

No, arbitration hearings are private and confidential. Only the parties, their representatives, and the arbitrators may attend.

Can I settle my case before the hearing?

Yes, parties can settle at any time before the arbitrators render a decision, often through negotiation or mediation.

What is mediation in the context of FINRA arbitration?

Mediation is a voluntary process where a neutral mediator helps the parties negotiate a settlement. It is separate from arbitration and non-binding.

What happens if I lose in arbitration?

If you lose, the arbitrator’s decision is final and binding. There are limited grounds for challenging the award in court.

Can I appeal an arbitration decision?

Generally, you cannot appeal an arbitration decision. However, you can seek to vacate the award on very narrow grounds, such as arbitrator misconduct.

What types of disputes are resolved through FINRA arbitration?

Disputes include claims of fraud, breach of fiduciary duty, negligence, breach of contract, and other issues related to securities and investments.

How are damages determined in arbitration?

Damages are determined based on the evidence presented, including financial records, expert testimony, and the specifics of the case.

Can arbitrators award attorney’s fees?

Arbitrators can award attorney’s fees if provided for by law, contract, or if both parties request it.

How do I enforce an arbitration award?

An arbitration award can be enforced in court through a confirmation process, making it a judgment that can be collected.

What is expungement in FINRA arbitration?

Expungement is the process of removing information from a broker’s record on the Central Registration Depository (CRD) system. It is only granted under specific conditions.

What are the grounds for vacating an arbitration award?

Grounds for vacating an award include arbitrator bias, fraud, corruption, or misconduct, as well as exceeding their powers.

Are arbitration awards public?

Yes, arbitration awards are published on FINRA’s website, providing transparency and access to past decisions.

What is the role of the Office of Dispute Resolution?

The Office of Dispute Resolution administers arbitration and mediation cases, ensuring that the process runs smoothly and efficiently.

What is a Simplified Arbitration?

Simplified Arbitration is for cases involving claims of $50,000 or less, allowing for a quicker and less expensive resolution without a hearing.

Can I request an expedited hearing?

Yes, in certain circumstances, such as elderly or seriously ill parties, you can request an expedited hearing.

What is the role of an arbitrator?

An arbitrator acts as a neutral decision-maker, reviewing evidence, hearing testimony, and issuing a binding decision on the dispute.

How do I prepare for an arbitration hearing?

Preparation involves gathering evidence, preparing witnesses, and developing a clear case strategy to present to the arbitrators.

What types of evidence are admissible in arbitration?

Evidence can include documents, emails, financial records, expert reports, and witness testimony, subject to the arbitrators’ discretion.

Can I request documents from the other party?

Yes, through the discovery process, you can request relevant documents and information from the other party to support your case.

How does FINRA handle conflicts of interest with arbitrators?

FINRA requires arbitrators to disclose any potential conflicts of interest, and parties can object to arbitrators they believe are biased.

What happens if a party does not comply with discovery?

If a party does not comply, the other party can file a motion to compel, asking the arbitrators to order compliance and possibly impose sanctions.

What is a motion in arbitration?

A motion is a formal request for the arbitrators to make a ruling on a specific issue, such as compelling discovery or dismissing a claim.

Can I request interim relief in arbitration?

Yes, you can request interim relief, such as temporary restraining orders or injunctions, to preserve the status quo pending the final decision.

How are hearing locations determined?

Hearing locations are typically determined by the location of the claimant unless both parties agree to a different venue.

What is a telephonic or virtual hearing?

Telephonic or virtual hearings are conducted via phone or video conference, allowing parties to participate remotely.

How are arbitration awards paid?

Awards are typically paid by the losing party within 30 days of the decision, unless otherwise specified by the arbitrators.

What if the losing party does not pay the award?

If the losing party does not pay, you can seek enforcement through the courts, turning the award into a legally enforceable judgment.

Are there any limits on the types of claims I can bring in arbitration?

FINRA arbitration covers a broad range of claims related to securities, but there are some statutory and regulatory limits on certain types of claims.

Can I bring a class action in FINRA arbitration?

No, class actions are not permitted in FINRA arbitration. However, you can join other claimants in a single arbitration if the claims are similar.

What is the role of expert witnesses in arbitration?

Expert witnesses can provide specialized knowledge and opinions to help explain complex financial issues to the arbitrators.

How are hearing dates scheduled?

Hearing dates are scheduled based on availability of the parties and arbitrators, with consideration for the complexity of the case.

Can I request a different arbitrator if I believe one is biased?

Yes, you can challenge an arbitrator if you believe they have a conflict of interest or bias that affects their impartiality.

What is a “chairperson” in a FINRA arbitration panel?

The chairperson is the lead arbitrator who manages the procedural aspects of the case and ensures the hearing runs smoothly.

How does FINRA ensure fairness in arbitration?

FINRA has rules and procedures in place to ensure a fair and impartial process, including arbitrator training and disclosure requirements.

How do I learn more about the FINRA arbitration process?

For more information, you can visit FINRA’s website, contact their Office of Dispute Resolution, or consult with experienced attorneys like those at Bakhtiari & Harrison.

How can Bakhtiari & Harrison help with FINRA arbitration?

Bakhtiari & Harrison can assist with filing claims, responding, selecting arbitrators, discovery, hearings, and ensuring the best possible outcome through skilled representation and strategic advice.

What is Portfolio Margin?

For experienced traders looking to maximize capital efficiency, portfolio margin can be a game-changer. By calculating margin based on the overall risk of a portfolio rather than individual positions, this approach can significantly lower margin requirements and increase buying power. However, increased leverage also means increased responsibility.

Table of Contents

Let’s explore how portfolio margin works, what makes it different from traditional margin, and how to use it wisely in your trading strategy.

What Is Portfolio Margin?

Portfolio margin is a risk-based margining system that evaluates an account’s potential losses using real-time pricing models and stress tests. Instead of setting fixed margin requirements per position, it evaluates the combined risk of all positions held. This can lead to lower margin requirements, especially when positions offset one another.

To qualify, an account generally needs a minimum equity balance of $125,000 and approval for advanced options strategies, including uncovered options. Applicants are usually required to pass a test assessing their knowledge of options and margin risk.

Portfolio Margin vs. Traditional Margin

Traditional margin accounts use set rules, such as requiring 50% of a stock’s value to be held in margin. In contrast, portfolio margin calculates potential losses across a range of market moves using an options pricing model.

For example, if a stock is trading at $50 and 100 shares are held, the traditional margin requirement would be $2,500. Under portfolio margin, the requirement is based on the theoretical loss if the stock drops 15%. In this case, that would result in a $750 margin requirement, allowing for more efficient use of capital.

The Stress Test Behind Portfolio Margin

Portfolio margin relies on a stress test model that simulates price movements—typically plus or minus 15% for individual equities. The model calculates the theoretical profit and loss for each position at multiple points within that range. The margin requirement is based on the largest projected loss across all those scenarios.

If a portfolio includes positions that hedge each other, such as a long stock paired with a short call, the net risk could be lower than the sum of individual risks. As a result, the portfolio margin requirement could be significantly reduced compared to traditional margin.

Real-World Examples of Portfolio Margin

Short Put Example

A trader sells a 120 naked put for $0.80 on a stock trading at $125. The traditional margin requirement might be around $2,000. Under portfolio margin, the estimated requirement would be about $1,350, based on the theoretical loss if the stock drops 15% to $106.25.

Covered Call Example

A trader buys 100 shares of a stock at $41.35 and sells a 44 call for $0.35. The traditional margin requirement would be $2,032.50, factoring in 50% of the stock’s value minus the call premium. Under portfolio margin, the requirement could be closer to $590, based on the loss from a 15% price drop.

Key Considerations for Portfolio Margin

Portfolio margin can enhance capital efficiency and trading flexibility, but it also carries increased risk. Margin deficiencies must be addressed within a shorter time frame, sometimes as quickly as the same day, depending on market conditions. Accounts with concentrated risk in a single security may face higher requirements than those with diversified positions.

It’s important to understand that while margin can amplify gains, it also magnifies losses. Traders should fully understand how margin works, including maintenance requirements and the potential for liquidation without notice.

Eligibility and Risk Awareness

To apply for portfolio margin, a trader typically needs a minimum account value of $125,000, approval for advanced options trading strategies, and a strong understanding of margin mechanics. Qualification exams are designed to verify the trader’s ability to manage higher levels of risk.

Portfolio margin allows for more strategic flexibility, but it requires careful planning, regular monitoring, and a solid grasp of how risk behaves under various market conditions.

Importance of FINRA Lawyers at Bakhtiari & Harrison

Obtaining a thorough evaluation of legal options is vital for anyone navigating complex legal matters, especially in arbitration cases. Engaging a qualified FINRA lawyer from Bakhtiari & Harrison is advised. Investment firms and brokers often have experienced legal counsel familiar with arbitration rules.

Deciding to retain FINRA lawyers after a dispute arises is one of the most crucial decisions a litigant can make. The focus at Bakhtiari & Harrison is to deliver client-centric solutions tailored to individual needs. Effective legal evaluation mitigates litigation risks and provides informed guidance on the best courses of action. FINRA lawyers protect the rights of consumers.

A securities arbitration attorney has in-depth knowledge of securities laws and industry practices, crucial for the case outcome. An experienced attorney can assess the merits of a case and guide clients through FINRA arbitration procedures. These attorneys gather evidence and prepare compelling arguments to present before the arbitration panel.

FINRA lawyers at Bakhtiari & Harrison has built a stellar reputation as a premier law firm focusing on investment fraud and securities law. Their commitment to excellence and rigorous advocacy has earned them respect among clients and peers alike, including FINRA arbitrators and broker-dealer counsel across the state. This esteemed standing is a testament to their extensive experience and dedication to client success in complex financial matters.

Having experienced counsel increases the likelihood of a favorable outcome in securities disputes. FINRA lawyers at Bakhtiari & Harrison aid in negotiating settlements to protect client interests. If you have suffered losses in the stock market due to investment fraud, contact us for a free consultation.