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Flashcards in Chapter 9.9 Deck (19):

FINRA Code of Arbitration

Handles the arbitration of any dispute, claim, or controversy.

**A claim alleging employment discrimination including sexual harassment is not required to be arbitrated but may be arbitrated if the parties involved have agreed to arbitrate.


Who is permitted to issue subpoenas or arbitration orders

Only arbitrators


Simplified Arbitration Procedure

May be used for any dispute, claim, or controversy arising between a public customer and a member involving a dollar amount of $50,000 or less. 1 single arbitrator will be appointed to resolve the matter


Claim is between $50,000 and $100,000

1 arbitrator is appointed unless the parties agree in writing to 3 arbitrators


Claim is more than $100,000 or does not request monetary damages

3 arbitrators are appointed unless the parties agree in writing to 1 arbitrator


Arbitration Panel Composition

Customers in arbitration have the option to choose an all-public panel in all cases with 3 arbitrators. The customers choices include:
-Majority-public panel: The panel is comprised of a chair-qualified public arbitrator, a public arbitrator, and a non-public arbitrator, OR
-Optional All public panel: Allows any party to select an all-public arbitration panel

**Any person who worked in the financial industry for any duration during their careers will always be classified as a "Non-Public Arbitrator"
**Persons who represent investors or the financial industry as a significant part of their business will be classified as a "Non-public Arbitrator" until the person satisfies the cooling off period.
-Persons mus wait one full year after ending an affiliation based on their own activities and
-Two years after ending an affiliation based on someone else's activities


Document requirement in Arbitration

-The parties involved are required to exchange documents that they intend to present in the arbitration hearing at least 20 calendar days prior to the hearing date
-Arbitrators are not required to explain the reason for awards unless, in eligible cases, if there is a joint request by all parties at least 20 days before the first scheduled hearing
-Documents filed with FINRA regarding disputes which contain an individual's SSN, Tax ID, or financial account number must be submitted with those numbers blocked out except for the last 4 digits. If FINRA receives documents where those numbers are not blocked out FINRA will deem the filing to be deficient and require refiling within 30 days from the time the party receives notice. This requirement does not apply to Simplified Arbitration or to documents that the parties exchange with each other or arbitrators at a hearing


The arbitration and mediation rules provide that:

-Parties may represent themselves
-Parties may be represented by an attorney in good standing admitted to practice in any jurisdiction in the U.S.
-Parties may be represented by a person who is not an attorney(unless that person is currently suspended or barred from the securities industry or suspended or bared from the practice of law).

**Promissory note disputes will be resolved by FINRA appointed chair-qualified public arbitrators
**Mediators are neutral persons who guide parties toward a joint solution to resolve their disputes. Generally, mediators are not defined as "industry members" but would be considered "public members"


Pre-dispute Arbitration Agreement

-Arbitration is not required for customer claims unless the customer:
-Has previously signed a pre-dispute arbitration agreement or
-Initiates an arbitration claim
-If a customer signs an arbitration agreement:
-The customer must provide the firm with a signed acknowledgment of receipt of the agreement
-All parties, to the agreement, agree to arbitrate and waive court claims
-Decisions of Arbitrators are final and binding and cannot be appealed
-Upon the request of the customer, member firms are required to provide a copy of the customer's pre-dispute arbitration agreement within 10 business days


When is a controversy not eligible for submission?

If 6 or more years have elapsed from the date of the event giving rise to the dispute


What happens if a member firm does not pay an Arbitration panel award that has be ruled against them?

FINRA can impose a fine, suspend one or more of the member firm's principals, or suspend the firm.

**Inability to pay has been eliminated as a defense for not paying an arbitration award or settlement.


What must a member do if they decide to settle a compliant prior going to arbitration?

The settlement must be disclosed on the RRs U-4 form and be disclosed on the FINRA Brokercheck website


If a client is part of a "class action" they are prohibited from gong to arbitration unless:

-Notice is filed stating the client will not participate in the class action or
-If the client has withdrawn from the class action


Mediator selection

FINRA rules allow that parties to a mediation may select from FINRA's roster or from a source of their own choosing, including a mediator who is not on FINRA's mediator roster. In limited instances, the director of Mediation may assign a mediator


Can member firms require associated persons to waive their right to arbitration in a pre-dispute agreement?



Arbitration award offsets

The code of arbitration provides that when arbitrators order opposing parties to make payments to one another, the monetary awards shall offset and the party assessed the larger amount shall pay the net difference. All monetary awards shall be paid within 30 days of receipt unless a motion to vacate has been filed in a court of competent jurisdiction.


Motions to dismiss in arbitration

-Arbitrators cannot act upon a motion to dismiss prior to the conclusion of the non-moving party's case in chief unless the arbitrators determine that:
-The non-moving party previously released the claim in dispute by a signed settlement or written release
-The moving party was not associated with the account, security or conduct at issue, or
-A claim is not eligible for arbitration because it does not meet the 6-year time limit for submitting a claim
-The full panel of arbitrators must decide a motion to dismiss, and the panel must hold a hearing on the motion unless the parties waive the hearing. If a panel grants a motion to dismiss, the decision must be unanimous, and must be accompanied by a written explanation.
-Arbitrators can also act upon a motion to dismiss a party or claim if they determine that the non-moving party previously brought a claim regarding the same dispute against the same party that was fully and finally adjudicated on the same merits and memorialized in an order, judgment, award or decision.


Party Portal Filing

Parties must used the party portal to file initial statements of claim and to file and serve pleadings and any other documents on the Director of the office of dispute resolution or any other party in most instances unless the customer is a "Pro se customer"


"Pro se customer"

Means a party that is not represented by an attorney or others during an arbitration or mediation.