When a customer
establishes a brokerage account it is common that he/she signs a contract with
the brokerage firm agreeing to arbitrate any and all disputes with the
Financial Industry Regulatory Authority ("FINRA") that oversee and regulate the
securities industry. By arbitrating a claim, the customer foregoes the
opportunity to have the same matter decided by a court of law. Arbitration
awards are final and binding.
In arbitration the customer is called the claimant
and the brokerage firm the respondent. One initiates an arbitration claim
against their brokerage firm by submitting a document called Statement of
Claim, which is the complaint. FINRA serves the Statement of Claim to the
respondent and it submits an Answer to the Statement of Claim.
Both sides engage in selecting an arbitration panel
in a rank and strike system. Once an arbitration panel is appointed, generally
a three member panel, an arbitration date is selected. The parties are provided
an opportunity to engage in discovery to gather documents from each other to
help prove or defend their case.
At the arbitration hearing the process is similar to
a trial where parties have opening statements, present and cross exam
witnesses, introduce documents into evidence and have closing arguments. The
arbitration panel renders an award after deliberations.