New FINRA Simplified Arbitration "Special Proceeding" Rule goes into effect today (September 17, 2018)


New FINRA Simplified Arbitration "Special Proceeding" Rule 
goes into effect today (September 17, 2018)

Simplified Arbitration can be a great cost-effective way to resolve your dispute for only about $350 in FINRA fees.

If a customer or financial services employee has a dispute with a FINRA registered firm and the alleged damages are $50,000 or less, excluding interest and expenses, the claimant can bring a claim under FINRA’s Simplified Arbitration Rules.  These cases are decided by one arbitrator.

A claimant in these cases has three options:

Option 1: a claimant can choose to have no hearing.  These cases are “decided on the papers,” meaning the arbitrator will render his or her decision based upon the written papers filed by the parties.  This option may appeal to many customers or employees who find testifying at an arbitration too stressful.   The parties can still request—and fight over—documents from each other in discovery.  The arbitrator will resolve all discovery disputes.  This is the most cost-effective option, but some feel that it does not allow a claimant to “have their day in court.” 

Option 2: a claimant can request a full hearing with a single arbitrator.  If a hearing is requested, it is generally held in person and is subject to the regular arbitration provisions including all rules relating to prehearings and hearings.  There is no limit to how many days it can take or the total amount of fees that can be charged.  This option can quickly become expensive.   

NEW Option 3: a claimant can choose to bring a “Special Proceeding.”  This option was designed to strike a balance between keeping costs in check, but still allowing a claimant to have their day in court.    The Special Proceeding is subject to the regular arbitration rules but with certain limitations.  According to FINRA, these conditions are intended to ensure that the parties have an opportunity to present their case to an arbitrator in a convenient and cost-effective manner that is less demanding that a regular hearing.  Specifically:


  • A Special Proceeding is held by telephone unless the parties agree to another method of appearance;
  • the claimants, collectively, are limited to two hours to present their case(s) and half hour for any rebuttal and closing statement, exclusive of questions from the arbitrator and responses to such questions;
  • the respondents, collectively, are limited to two hours to present their case and half hour for any rebuttal and closing statement, exclusive of questions from the arbitrator and responses to such questions;
  •  notwithstanding the above conditions, the arbitrator would have the discretion to cede his or her allotted time to the parties;
  • in no event could a Special Proceeding exceed two hearing sessions [usually morning and afternoon on the same day], exclusive of prehearing conferences, to be completed in one day;
  • the parties will not be permitted to question the opposing parties’ witnesses;
  • the Customer Code provides that the customer could not call the opposing party, a current or former associated person of a member party, or a current or former employee of a member party as a witness, and members and associated persons [brokers] could not call the customer of a member party as a witness; and
  • the Industry Code [for disputes between financial services employees and their employers] provides that members and associated persons could not call an opposing party as a witness

These three options will allow claimants in both customer and industry disputes to more tailor their arbitrations to their needs.  For more information, see FINRA Regulatory Notice 18-21 or call my office for a consult.



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