SECURITIES ARBITRATION FAQs
Table of Contents:
What is Arbitration?
What disputes are eligible for arbitration?
Who are the
Can I be
represented by an attorney?
How is arbitration
Happens After the Claim is Filed?
Can I Challenge
Challenges For Cause?
How Do I
Prepare For A Hearing?
How Are the
How Are the Parties Notified Of A Decision?
What is arbitration?
Arbitration is a method of
having a dispute between two or more parties resolved by
impartial persons who are knowledgeable in the areas in
controversy. Those persons are called arbitrators.
Arbitration of broker/dealer disputes has long been used
as an alternative to the courts because it is 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.
What disputes are eligible for
In considering whether to initiate
arbitration, it is important to keep in mind that,
generally, a public customer has a right to require a
broker/dealer to submit for arbitration only disputes
relating to or arising out of the business activities of
When deciding where to file your
claim, you should determine which self-regulatory
organization (SRO) supervises the markets where the
transaction occurred or the securities are listed. The
Uniform Code provides that an SRO may, with the consent
of the claimant, refer a case to the appropriate forum
where the transaction occurred or the securities are
listed. An additional factor to be noted is that a
controversy is not eligible for submission to
arbitration if six or more years have elapsed from the
date of the event giving rise to the dispute. The
arbitrators also may dismiss a claim barred by shorter
applicable state or federal statutes of limitations. If
there is a question about the statute of limitations,
you should consult an attorney.
Even after a customer has signed the
agreement to arbitrate, the customer may request either
the sponsoring organization or the arbitrators to permit
that customer to proceed with his or her claim in court.
The customer should be aware, however, that in most
cases the sponsoring organization and the arbitrators
will retain jurisdiction and proceed with the
A newly adopted section of the Uniform
Code states that a claim submitted as a class action
shall not be eligible for arbitration. The rule also
sets forth the circumstances where a claim encompassed
by a putative or certified class action may or may not
be eligible to be filed in arbitration. For further
guidance you should refer to the rule and discuss its
application to a particular case with the staff of the
SRO where you intend to file your claim.
Who are the Arbitrators?
Arbitrators are impartial persons who
are knowledgeable in the areas in controversy. Each
sponsoring organization maintains a roster of
individuals whose professional qualifications and
experience qualify them for service as arbitrators. The
arbitrators are not employees of the sponsoring
organization and they, not the sponsoring organization,
will decide your dispute. The arbitrators do, however,
receive an honorarium from the SROs.
The Director of Arbitration will
appoint a panel, usually consisting of one or three
arbitrators. Unless a customer elects otherwise, the
majority of the members of such panels are individuals
referred to as "public arbitrators" who are neither
associated with nor employed by a broker/dealer or
securities industry organization.
The Director of Arbitration will
inform the parties of the names and business
affiliations of the selected arbitrators, their
employment histories for the last 10 years, as well as
any conflict information disclosed pursuant to the
Uniform Code. Some parties are interested in previous
awards issued by prospective arbitrators. Each
sponsoring organization has developed procedures to make
available information on public customer awards issued
since May 1989.
Can I be represented by an
Parties have an absolute right to be
represented by an attorney and may do so at any stage of
the arbitration. Parties should be aware that, even if
they do not elect to be represented by counsel, the
other party may have an attorney, and they can assume
that broker/dealers will be represented by an attorney.
Any party represented by counsel
should notify the Director of Arbitration of the
counsel's name and address either in the Statement of
Claim or the Statement of Answer or by a separate
written notice. After such notification, communications
concerning the case will be addressed to the counsel.
The sponsoring organizations cannot
recommend or provide counsel in the arbitration nor can
employees of that organization provide legal advice.
Parties who do not have counsel and wish to be
represented may want to contact the local bar
association for a referral.
How is arbitration begun?
To begin arbitration, the prospective
claimant must do the following:
(1) Statement of Claim - File
with the Director of Arbitration a typewritten or
printed document stating the claim. This document should
set forth the details of the dispute, including all
relevant dates and names, in a clear, concise, and
chronological fashion and should conclude by indicating
what relief (e.g., money damages in a specific amount,
performance of a particular agreement, interest, etc.)
is requested. The claimant should attach copies of
documents and supporting materials as exhibits to the
Statement of Claim. The claimant should provide
sufficient copies for each party, the arbitrators, and
the self-regulatory organization.
(2) Small-Claims Procedures -
If the amount of the claim is $10,000 or less, the claim
will be processed under the Simplified Arbitration
Procedures. In public customer disputes, unless the
public customer requests a hearing, the claim will be
decided solely on the basis of reading the parties'
submissions. The arbitrator, however, also may request a
hearing or require a party to submit additional
documentation. Parties may ask to submit additional
documents to an arbitrator who is deciding the case
without a hearing.
(3) Service of Pleadings -
After the initial Statement of Claim is served by the
Director of Arbitration, it is each party's
responsibility to provide every other party directly
with any further pleadings, motions, or correspondence.
In addition, it is each party's responsibility to
simultaneously provide sufficient copies directly to the
sponsoring SRO for the arbitrators and its files.
Service of the filings and correspondence on the
sponsoring SRO and the other parties should be made on
the same date and by the same means (i.e., via overnight
mail, facsimile, etc.)
(4) Counsel - State whether
the claimant will be represented by an attorney and, if
so, the attorney's name, address, and telephone number.
(5) Location - State where
the claimant wants the case to be heard and the reasons
for that choice. The actual decision as to place of
hearing is made by the Director of Arbitration.
Arbitrators can be empaneled in many of the major urban
areas throughout the country, but consideration
generally will be given to a number of factors,
including the convenience of the parties, the
availability of necessary records or witnesses, and the
availability of qualified arbitrators. Generally, in
public customer cases, the hearing location is close to
where the customer resided when the dispute arose
regardless of a predispute agreement to the contrary.
(6) Complex Cases - In
appropriate cases, parties may request special services
such as mediation, findings of facts and conclusions of
law, expedited hearings, and the appointment of
arbitrators with special qualifications. Parties seeking
special or additional services should advise the
sponsoring SRO at the earliest time possible. Additional
fees may be charged for these services. In many complex
cases, the parties may desire block scheduling of
hearing dates. To the greatest extent possible, such
cases will be scheduled in three day blocks.
(7) Arbitrators - The
proposed panel will be composed of a majority of persons
from outside the securities industry. If a public
customer would like a panel consisting of a majority of
arbitrators from the securities industry, he or she
should indicate that preference in writing when filing
(8) Submission Agreement -
Complete and return three signed and notarized copies of
the Submission Agreement provided by the sponsoring
organization. By signing the Submission Agreement, the
claimant agrees to submit the dispute to arbitration and
to abide by the decision (the "award") of the
arbitrators. The claimant also agrees to be bound by the
decision of the arbitrators with regard to any
counterclaim (a claim against the claimant) permitted
under these procedures that may be brought by an
opposing party. Once a Submission Agreement has been
signed, the procedures and timing set out in the Uniform
Code become operative and binding. Generally, parties
may not withdraw the Submission Agreement and Claim
without the consent of either the other parties or the
(9) Filing Fees and Deposits
- Include a check or money order made payable to the
sponsoring organization for the appropriate
non-refundable filing fee and hearing session deposit.
Where multiple hearing sessions are scheduled or
conducted the arbitrators are authorized to require
additional hearing session deposits by one or more
parties. Additional deposits also may be required to be
made for prehearing conferences with an arbitrator and
for the postponement of a scheduled hearing date after
the arbitrators have been selected. The arbitrators will
determine in the final award if these deposits will be
returned or assessed to another party. See the
arbitration rules of the sponsoring SRO for the
definition of a hearing session, as well as the
appropriate fee and deposit.
(10) Disclosure of Arbitration
Award - At some sponsoring organizations, public
customers must state in writing whether they either
permit or decline to permit the inclusion of their names
in the public version of the award.
(11) Incomplete Filing of a Claim
- A filing may be returned if it does not comport with
the rules. The Statement of Claim, with exhibits,
Submission Agreement, and non-refundable filing fee and
hearing session deposit should be submitted to the
Director of Arbitration of the sponsoring organization
at the address listed at the end of this pamphlet. All
pleadings, correspondence, and exhibits after the claim
is served must be sent to all parties directly with
sufficient additional copies sent to the Director of
Arbitration for the arbitrators and for the Arbitration
What Happens After the Claim
Once the Statement of Claim has been
received, the Director of Arbitration will send it to
the opposing party (the "respondent"). Any member (e.g.,
brokerage houses) of an organization listed in the
Services Directory may be a party in an arbitration
proceeding. Similarly, an employee and/or representative
of any such member also may be named as a party.
Following the receipt of the claim,
the respondent has 20 calendar days in the case of a
small-claim arbitration and 20 business days in all
other arbitrations to provide an answer, unless an
extension of time has been granted by the Director of
Arbitration. It is within the discretion of the Director
of Arbitration to grant such extensions even over the
objection of a party. However, the Director of
Arbitration will consider the objection when determining
the length of the extension.
The respondent may assert a related
counterclaim as part of its answer, or may file a claim
against a third party; that is, a claim against another
person who may bear responsibility for any of the
alleged damages. Generally, a claim is considered to be
related if it pertains to the customer's account at the
broker/dealer. In support of its defense or
counterclaim, the respondent should attach copies of
documents and supporting materials to its answer.
The respondent also should send to
each party an executed Submission Agreement and a copy
of the respondent's answer and any counterclaim. The
respondent's executed Submission Agreement and answer
shall also be filed with the Director of Arbitration,
with additional copies for the arbitrator(s) along with
any deposit required under the Schedule of Fees. On
receipt of an answer containing a counterclaim, the
claimant has 10 calendar days in the case of a
small-claim arbitration and 10 business days in all
other arbitrations to file a reply to any counterclaim.
The claimant also should send to each party a copy of
the reply to a counterclaim. The reply also shall be
filed with the Director of Arbitration with additional
copies for the arbitrators.
Service on a party may be effected by
mail or other means of delivery. Filing with the
Director of Arbitration should be made on the same date
and by the same means as service on a party.
The Director of Arbitration will
appoint, as appropriate, an arbitrator or panel of
arbitrators. The Director of Arbitration will notify the
parties of the names, current affiliations, and 10
years' business histories of the proposed arbitrators.
In addition, parties will be informed of any information
disclosed pursuant to the Uniform Code and the Code of
Ethics for Arbitrators by any arbitrator. The
arbitrators will be informed of the names of the parties
to the dispute, counsel, witnesses, and the nature of
the issues raised. If any arbitrator determines that he
or she cannot render a fair and impartial award, the
Director of Arbitration will appoint a substitute
In a small claim, if the arbitrator
believes the controversy is such that additional
expertise is needed, he or she can direct that an
arbitration panel be formed with two additional
arbitrators. The majority of this panel will be from the
public. The arbitrator also may request that a hearing
be held or that additional documentation be provided.
Can I Challenge An Arbitrator?
A party has an absolute right to
request that one arbitrator on the panel be replaced
without giving a reason for the request. This is called
a peremptory challenge. This right may be exercised by
filing a written notice of a challenge with the Director
of Arbitration within the time period set in the rules.
A party should supplement his or her written notice with
a telephone call to the sponsoring organization. The
Director of Arbitration may grant additional peremptory
challenges if the interests of justice would be served.
In addition, each party is entitled to an unlimited
number of challenges for cause.
Challenges For Cause?
Pursuant to the Code, an
arbitrator is required to disclose any direct or
indirect financial or personal interest in the outcome
of the arbitration as well as any existing or past
financial, business, professional, family, or social
relationships that are likely to affect impartiality.
Persons requested to serve as arbitrators should
disclose any such relationships that they have with any
party or its counsel, or with any individual whom they
have been told or have reason to believe will be a
They should also disclose any such relationship
involving members of their families or their current
employers, partners, or business associates. Pursuant to
the Code, arbitrators are requested to make reasonable
efforts to identify these relationships. In addition,
parties should advise the Director of Arbitration if
they are aware of any similar relationships involving a
party, counsel, or a potential witness that are likely
to affect the impartiality of any arbitrator(s).
A challenge for cause to a particular arbitrator will be
granted where it is reasonable to infer an absence of
impartiality, the presence of bias, or, the existence of
some interest on the part of the arbitrator in the
outcome of the arbitration as it affects one of the
parties. The interest or bias should be direct,
definite, and capable of reasonable demonstration,
rather than remote, or speculative. The following,
though not exhaustive, are examples of circumstances
where a challenge for cause would be granted.
Opinion and Bias
Arbitrator has a
firm opinion or belief as to the subject of an
action for which she/he is an arbitrator.
Arbitrator has a
personal bias toward a party.
Business or Personal
Arbitrator is or was
related by blood or marriage to any party, its
attorneys, or witnesses.
Arbitrator is or was
guardian or ward, conservator or conservatee, master
or servant, employer or clerk, principal or agent,
or debtor or creditor of either a party or an
officer of a corporation which is a party.
Arbitrator is the parent, spouse, or child of one
who is related as above described.
Arbitrator is a member
of any party's family, a business partner of any
party, a surety or guarantor of the obligations of
any party, or is currently a bondholder or
shareholder of any corporate party.
Previous or Current
Arbitrator is adverse
to a party, its attorneys, or witnesses, or has
complained against or been accused by any of them in
another action, instituted or resolved during the
past five years.
Arbitrator or any
member, shareholder, or associate of her or his law
firm has been in the relation of attorney or client
with, or adverse to, any party within three years of
the filing of the arbitration claim.
that she/he has, individually or as a fiduciary, or
her/his spouse or minor child residing in her/his
household has a financial interest in the subject
matter in controversy or in a party to the
arbitration proceeding, or any other interest that
could be substantially affected by the outcome of
the arbitration proceedings.
Each arbitrator must swear
or affirm to render a fair and just award based on the
documents and evidence presented by the parties. Also,
no party should attempt to communicate directly with any
of the arbitrators. Such communication may render the
decision of the arbitrator invalid. Any communication
for the arbitrators must be addressed through the
Director of Arbitration.
How Do I
Prepare For A Hearing?
Parties must make every
effort to prepare the case in advance of the hearing so
that it may be resolved promptly and justly. Preparation
includes arranging for witnesses and documentary
evidence to be available for presentation to the
arbitrators at the hearing.
The parties shall, at least 10 calendar days prior to
the first scheduled hearing date, serve on each other
copies of documents (including graphs, charts, and
recordings) they intend to present at the hearing and
identify witnesses they intend to present at the
hearing. Failure to comply with this requirement may
result in the arbitrators excluding any document not
exchanged or witnesses not identified. Arbitrators will
consider such action at the request of a party. If all
parties agree, they may submit exhibits in addition to
those in the Statement of Claim to the Director of
Arbitration for forwarding to the arbitrators prior to
The sponsoring organizations cannot recommend or provide
counsel in the arbitration nor can employees of that
organization provide legal advice. Parties who do not
have counsel and wish to be represented may want to
contact the local bar association for a referral.
Each party is to bring sufficient copies of any
documents it intends to introduce as evidence at the
hearings for each arbitrator and for the files of the
The parties should cooperate in the voluntary exchange
of documents and information to expedite the
arbitration. Any request for documents or other
information should be specific, relate to the matter in
controversy, and afford the party to whom the request is
made a reasonable period of time to respond without
interfering with the time set for the hearing. Document
production and information exchange is to be
accomplished within the time set forth in the Uniform
On the written request of a party or an arbitrator or at
the discretion of the Director of Arbitration, a
prehearing conference will be scheduled. The Director of
Arbitration will set the time and place of a prehearing
conference and appoint either a staff person or an
arbitrator to preside. The prehearing conference may be
held by telephone, by written submission, or in person.
Under the rules, there are time tables for parties
either to produce requested information or to object to
the production requests.
If a prehearing conference without an arbitrator does
not resolve the outstanding issues, those
information-request disputes or issues will be referred
to a single arbitrator prior to the first hearing. Where
possible, each party should submit to the SRO in advance
of the prehearing conference a concise outline of the
outstanding issues to be resolved by the single
arbitrator. The single arbitrator has the authority to
issue subpoenas, direct appearances of witnesses and
production of documents, set deadlines for compliance,
and issue other rulings that would expedite the
arbitration proceedings or enable a party to prepare its
To the extent possible, testimony and documentary
evidence should be exchanged voluntarily by the parties
without the use of subpoenas. If a subpoena is
necessary, the arbitrators and any counsel of record
have such power of subpoena as may be provided by the
law of the state where the hearing will be held or by
the Federal Arbitration Act.
All parties must be given a copy of the subpoena on its
issuance. If a party has an attorney, the attorney
should answer all questions concerning subpoenas.
Parties without attorneys may request that the Director
of Arbitration ask the arbitrators to issue a subpoena.
The request should be in writing, should set forth why
the subpoena is necessary and what efforts the
requesting party made to obtain the appearance of
witnesses and the production of documents without the
use of the subpoena, and should include a copy of the
subpoena which the arbitrators are requested to issue.
If the arbitrators issue a subpoena, the requesting
party has the obligation of serving the subpoena on the
opposing party and bearing the costs involved as
provided by law of the state where the hearing will be
held or by federal law. The requesting party may need to
employ the services of a professional process server to
actually serve the subpoena.
The procedures for the issuance and service of subpoenas
vary. Parties may, therefore, wish to consult with an
attorney to insure that legal requirements in the
applicable jurisdiction are satisfied.
In addition to the subpoena process, in some instances
the arbitrators have the power to direct the appearance
of persons employed in the securities industry and the
production of records in the possession or control of
such persons. If the parties request the arbitrators to
use this power, they may be required to bear all
reasonable expenses in connection with such appearance
or production. All such requests should be made in
advance of the hearing.
One final thought should be kept in mind when preparing
for a hearing. The arbitrators are experienced and
knowledgeable individuals. They appreciate a clear
presentation of the case, free from repetition and
How Are the
The Director of
Arbitration schedules the date of the hearing. The
parties will be notified in writing of the date and
location of the initial hearing at least eight business
days in advance. A verbatim record is kept of the
proceedings. A party that elects to have the record
transcribed shall bear the cost of such transcript
unless the arbitrators direct otherwise.
At the hearing, the parties must present their
respective cases by testimony and documentary evidence
to the arbitrators. Claimants should document carefully
the issues involved and their proof of damages, and
explain to the arbitrators how much in money damages is
being claimed and how they arrived at that figure. All
hearings will be conducted by the arbitrators in the
manner they determine will most expeditiously permit
full presentation of the evidence and arguments of the
Generally, the following
procedures will be observed:
Each party will be
given an opportunity to make a brief opening
statement, that is, a brief outline of the issues
involved and what facts that party intends to prove.
A party may waive the opening statement.
The claimant will
present facts to the arbitrators including relevant
documents and testimony to establish and prove his
or her claim.
The respondent will
present his or her case in the same manner as the
claimant. Witnesses and parties who testify will be
sworn and are subject to cross examination by the
opposing side and questioning by the arbitrators.
The opposing party may object to any evidence prior
to its receipt by the arbitrators. Parties should
bring sufficient copies of documents for each of the
arbitrators, other parties, and the representative
of the sponsoring organization. It is inappropriate
to "testify" when questioning a witness, and a party
may object if another party does that. A party may
offer an affidavit in lieu of the live testimony of
a witness. This may or may not be allowed by the
arbitrators. Parties should be prepared to explain
why a witness cannot come to the hearing and to
explain whether the other party had an opportunity
to examine the witness. A party should be prepared
to bring the witness if the affidavit is not
Any counterclaim or other
matter may be presented in the same way.
Parties may present
rebuttal evidence if appropriate.
Closing statements may
be presented and consist generally of final
arguments by the parties and brief summations of the
testimony and other evidence introduced at the
hearing. A party should refer only to evidence
already in the record and not use the closing
statement as an opportunity to present new evidence.
A party may waive a closing statement.
The parties are to
leave together at the end of the hearing.
The arbitrators may
proceed with a case even if a party does not appear
Are the Parties Notified Of A Decision?
When the arbitrators have
reached their decision and have signed an award, copies
will be mailed to the parties. The award shall be in
writing and signed by a majority of the arbitrators. The
award may be entered by the prevailing party as a
judgment in any court of competent jurisdiction.
Arbitrators shall endeavor to render an award within 30
business days from the date the record is closed. The
Director of Arbitration shall endeavor to serve a copy
of the award: (i) by registered or certified mail upon
all parties, or their counsel; or (ii) by personally
serving the award upon the parties; or (iii) by filing
or delivering the award as authorized by law.
The award will contain the names of the parties, the
names of counsel, if any, the dates the claim was filed
and the award was rendered, the number and dates of the
hearing sessions, the location of the hearings, a
summary of the issues including the type(s) of any
security or product in controversy, the damages and
other relief requested, the damages and other relief
awarded, a statement of any other issues resolved, the
names of the arbitrators, and the signatures of the
arbitrators concurring in the award. In addition, all
awards must be paid within 30 days of receipt unless a
motion to vacate has been filed in court. Awards will
also bear interest if they are not paid within thirty
days of receipt, if the award is the subject of a motion
to vacate that is denied or as specified by the
The awards will be made publicly available. Arbitrators
are not required to write opinions or provide reasons
for the award. A party, however, may request an opinion.
This request should be made no later than the hearing
date. Some sponsoring organizations delete from the
public version of awards information that identifies
either the arbitrators or the parties. The decision of
the arbitrators is final; that is, the decision is
subject to review by a court only on a very limited
Important: It should be kept in mind that the
arbitrators' decision will be based solely and
exclusively on the documents and related material
provided by the parties to a dispute. In the case of a
hearing, the decision will be based on both the
documents and testimony presented at the hearing. It is
therefore important that a party's case be carefully and
thoroughly prepared. As noted, this may be done either
with or without the assistance of counsel. Such
preparation will ensure that all relevant facts and
evidence will be presented by the parties and, thus,
considered by the arbitrators. Arbitrators are not
allowed to reconsider a decision because new evidence
has been found after the award was rendered.
In addition, it is the responsibility of the parties to
submit briefs for any novel theories of recovery and/or
requests for special damages. In some cases, arbitrators
may require even parties without lawyers to support
their claims by reference to the relevant law.