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Using FINRA arbitration to resolve a securities dispute

When a securities dispute arises, the two parties do not necessarily have to take the case to court. Instead of litigation, they may choose arbitration. 

The Financial Industry Regulatory Authority, Inc., or FINRA, regulates and enforces stock exchange operations, and the private corporation also oversees dispute resolution in the form of arbitration.

How does the FINRA arbitration process work?

Arbitration involves proceedings similar to going to court, although they do not have the same formality. The results of arbitration are just as binding as a court ruling, too. Where a party may appeal a court decision in litigation, arbitration allows a challenge in a court of law.

One to three arbitrators determine the case outcome, rather than a judge. The parties involved in the dispute choose the arbitrators. Then they file pleadings, submit evidence, argue their cases and receive a decision. This may or may not result in an award in the form of monetary or non-monetary relief.

The statute of limitations for this type of case is six years from the time the events occurred that led to the dispute.

What are the benefits of arbitration?

Many parties prefer arbitration because of the privacy the process provides. In court, all documentation filed becomes available to the public, but documentation submitted during the arbitration process is private. 

Just like in a court case, the speed with which a case moves to resolution depends on a number of factors. However, arbitration is typically much faster than litigation. It may take 14 to 16 months for parties to receive a decision.

Who can file an arbitration case?

An investor dispute may qualify to use FINRA arbitration if the case also involves an entity registered with FINRA, such as a broker or brokerage firm. An investor dispute may also involve two individuals. Entities or individuals registered with FINRA may also use arbitration when the dispute involves only industry parties. For example, two brokerages may use arbitration, or two brokers, or a broker and a brokerage firm.

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