The Financial Industry Regulatory Authority or FINRA is the product of a merger of two self-regulatory organizations, the New York Stock Exchange (the “NYSE”) and the National Association of Securities Dealers, Inc. (the “NASD”), also known as NASD Regulation, Inc. SEC Release No. 34-56145 (July 26, 2007).
FINRA has the authority to exercise comprehensive oversight over all securities firms that do business with the public and has the authority to, inter alia, create and enforce rules for its members in order to provide regulatory oversight of all securities firms that do business with the public.
Among FINRA’s stated purposes are to encourage and promote among members observance of federal and state securities laws; [t]o investigate and adjust grievances between the public and members and between members; and [t]o adopt, administer, and enforce rules of fair practice.
Upon joining FINRA, a member organization agrees to comply with FINRA’s rules, including
FINRA Rule 12200 which provides that Parties must arbitrate a dispute under the Code if:
Arbitration under the Code is either: (1) Required by a written agreement, or (2) Requested by the customer; and The dispute is between a customer and a member or associated person of a member; and The dispute arises in connection with the business activities of the member or the associated person, except disputes involving the insurance business activities of a member that is also an insurance company.
“These Rules are contractual in nature and are binding on its members.”
Most, if not all new accounts forms with customers with respect to disputes, require that instead of filing lawsuit in a court, all disputes by be filed in arbitration before FINRA, which administers the arbitration forum.
Following the Supreme Courts holding in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987), pre-dispute contracts to arbitrate securities claims are strictly enforceable. Any such claims against brokerage firms or their agents, including claims for punitive damages available under state law, are subject to arbitration in accordance with the Code of Arbitration Procedure.
Courts have long held that because of the liberal policy of promoting arbitration, all doubts of arbitrability are to be resolved in favor of arbitration. Some courts have also held that a party may even be bound by arbitration absent a signature on an agreement.
The arbitration of disputes with broker/dealers has long been used as an alternative to the courts because it is devised as a prompt and inexpensive means of resolving complicated issues. There are certain laws governing the conduct of an arbitration proceeding that must be considered by those planning to use arbitration to resolve the dispute. Most importantly, perhaps, is the fact that an arbitration award is final and binding, subject to review by a court only on a very limited basis. Parties should recognize, too, that in choosing arbitration as a means of resolving a dispute, they generally give up their right to pursue the matter through the courts.
In arbitration, however, as stated in the Arbitrators’ Manual, “Equity is justice in that it goes beyond the written law. And it is equitable to prefer arbitration to the law court, for the arbitrator keeps equity in view, whereas the judge looks only to the law, and the reason why arbitrators were appointed was that equity might prevail.”
The FINRA Director of Arbitration decides which of FINRA’s hearing locations will be the hearing location for the arbitration based upon the closest hearing location to the customer’s residence at the time of the events giving rise to the dispute, unless the hearing location closest to the customer’s residence is in a different state, otherwise the customer may request a hearing location in the customer’s state of residence at the time of the events giving rise to the dispute.
FINRA Hearing Locations
FINRA offers hearing locations in every region of the country. In the Northeast region, FINRA offers hearing locations in Albany, NY; Augusta, ME; Boston, MA; Buffalo, NY; Hartford, CT; London, England; Manchester, NH; Montpelier, VT; New York, NY; Newark, NJ; Philadelphia, PA; Providence, RI; Syracuse NY. In the Western Region, FINRA offers hearing locations in lbuquerque, NM; Anchorage, AK; Boise, ID; Cheyenne, WY; Denver, CO; Helena, MT; Honolulu, HI; Las Vegas, NV; Los Angeles, CA; Phoenix, AZ; Portland, OR; Reno, NV; Salt Lake City, UT; San Diego, CA; San Francisco, CA; Seattle, WA. In the Southeast Region, FINRA offers hearing locations in Atlanta, GA; Baltimore, MD; Birmingham, AL; Boca Raton, FL; Charlotte, NC; Columbia, SC; Jackson, MS; Jacksonville, FL; Little Rock, AR; Memphis, TN; Miami, FL; Nashville, TN; New Orleans, LA; Norfolk, VA; Orlando, FL; Raleigh, NC; Richmond, VA; San Juan, PR; Tampa, FL; Washington, DC; Wilmington, DE. In the Midwest Region FINRA offers hearing locations in Bismarck, ND; Charleston, WV; Chicago, IL; Cincinnati, OH; Cleveland, OH; Columbus, OH; Dallas, TX; Des Moines, IA; Detroit, MI; Houston, TX; Indianapolis, IN; Kansas City, MO; Louisville, KY; Milwaukee, WI; Minneapolis, MN; Oklahoma City, OK; Omaha, NE; Pittsburgh, PA; Rapid City, SD; St. Louis, MO; Wichita, KS.