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.

Best Execution Obligation: Definition, In Practice, Examples, & FAQs

When dealing with financial markets, the concept of “best execution” is paramount for broker-dealers and is mandated by regulatory authorities like the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

This delves into the intricate details of the best execution obligation, examining its definition, practical application, various examples, and answering frequently asked questions to aid investors in understanding when a broker may fail to meet these critical standards.

What is the Best Execution Obligation?

The best execution obligation requires broker-dealers to execute client orders at the most favorable terms under prevailing market conditions. This duty stems from the common law duty of loyalty and care that a broker owes to its clients and specific regulatory requirements set forth by the SEC and enforced by FINRA. According to SEC Rule 606, broker-dealers must disclose their order routing practices, while FINRA Rule 5310 provides comprehensive guidance on ensuring best execution.

The Best Execution Process in Practice

Understanding how orders are placed and filled can help investors see how best execution is applied in real-time trading scenarios. Here’s an insight into different methods:

Orders to the Floor: This traditional method involves sending orders to the floor of a stock exchange, where floor brokers execute them. These brokers must use their judgment and expertise to get the best price in a manual, often hectic environment.
Orders to a Market Maker: Market makers are entities ready to buy and sell a particular stock regularly and continuously at a publicly quoted price. When a broker sends an order to a market maker, that market maker is responsible for providing the best execution by balancing supply and demand through their inventory.
Electronic Communications Networks (ECN): ECNs automatically match buy and sell orders at specified prices. by bypassing traditional middlemen, they offer a fast, efficient way to achieve best execution, often at lower costs.
Through Inventory: Brokers may also fill orders from their inventory. This method is used when they possess stocks that match the buy or sell order. While this can lead to faster execution, brokers must ensure that this does not compromise the best possible price for their clients.

Dark Pools: An Overview

Dark pools are private asset trading exchanges designed for trading securities not openly available on public exchanges. Institutional investors often use dark pools to execute large orders without prematurely impacting the market with their trades. While dark pools may help achieve better pricing and discreet trading, they are also subject to best execution requirements, ensuring that clients’ interests are safeguarded even in a less transparent environment.

Examples of Best and Poor Execution

Best Execution: A broker receives a buy order for a stock and checks several venues, finding a price of $10.02 in a public exchange and $10.00 in a dark pool. Opting for the dark pool secures a better price and avoids large-scale market impact.

Poor Execution: A broker repeatedly uses an affiliate market maker for trades, ignoring another market maker offering a consistently better price. This practice might benefit the broker through rebates but fails the client in receiving the best price.

Frequently Asked Questions (FAQs)

What is my broker’s responsibility? Your broker must seek the best execution that is reasonably available for your trades, considering various factors like price, speed, likelihood of execution, and overall cost.
How can I tell if my broker is not fulfilling this obligation? Notice consistent patterns of poor execution compared to real-time data or post-trade analysis. If your trades consistently show worse performance without a reasonable explanation, it might be a sign of neglect.
What steps should I take if I suspect poor execution? Document your trades, compare them with market conditions, and discuss your concerns with your broker. If the issue is not resolved, consider consulting with a legal professional or reporting it to FINRA.
Does this duty apply to all types of orders? Yes, best execution applies to all order types, whether market orders, limit orders, or more complex trades.
What role do electronic trading platforms play? Electronic platforms, like ECNs, can enhance best execution by providing more immediate matching opportunities at competitive prices, especially in highly liquid markets.
Are there tools to help monitor? Yes, many brokers offer tools for performance analysis and real-time trade comparison, which can help you monitor the execution quality of your trades.
How do rebates affect the duty? While brokers may receive rebates for routing orders to specific venues, they must not let these incentives compromise their duty to seek the best terms reasonably available for their clients.
Can I request a change if I’m unhappy with how my orders are handled? Absolutely. You can ask your broker to adjust their routing practices or even change brokers if you consistently experience subpar execution.
What is the significance of dark pools in best execution? Dark pools can offer better pricing opportunities by minimizing market impact, but brokers must justify their use as part of their best execution strategy.
Who enforces the regulation? Both the SEC and FINRA oversee the enforcement of best execution obligations. They ensure compliance through regular audits, fines, and other regulatory measures.

The obligation of best execution is fundamental in maintaining trust in the financial markets and ensuring that investors receive fairtreatment. Investors must understand their rights and the responsibilities of their brokers. For more detailed advice or if you suspect a breach of best execution standards, contact Bakhtiari & Harrison who are well-versed in navigating these complex issues.