11.2 Predispute Agreements, Arbitration Codes, Eligibility, Panels, and Awards
Key Takeaways
Rule 2268 requires highlighted disclosures and prohibits provisions that limit required arbitration rights, contradict FINRA rules, or mislead customers.
Customer disputes use the Customer Code; employment and other industry disputes generally use the Industry Code.
Rule 12206 generally makes claims ineligible when six years have elapsed from the occurrence or event giving rise to the claim, subject to the rule and court issues.
Customer cases of $50,000 or less generally use simplified arbitration; panel size for larger claims follows the Code and party agreements.
Awards are final and binding, subject to narrow judicial review, and monetary awards generally must be paid within 30 days unless a timely motion to vacate is filed.
Predispute Arbitration Agreements
FINRA Rule 2268 permits a customer agreement to require arbitration of future disputes only if the agreement includes the prescribed highlighted disclosures and complies with the rule. The customer must receive a copy, and the clause must be presented clearly. The agreement cannot contradict FINRA rules, restrict an eligible customer's right to pursue a claim in the required forum, limit damages or time periods contrary to the Code, or require the customer to waive a right to bring an allowed class action in court.
A principal should review the executed version, delivery evidence and later amendments. Burying the clause, selecting a distant forum unilaterally, shifting all costs regardless of outcome or adding a judicial-review standard beyond governing law can create enforceability and rule issues.
Codes and Eligibility
The Code of Arbitration Procedure for Customer Disputes generally applies to disputes between customers and members or associated persons. The Industry Code generally applies to disputes within the securities industry, including many employment matters. A single controversy can present both customer and industry claims, so forum staff and the Code determine treatment.
Under Customer Code Rule 12206, a claim generally is not eligible for FINRA arbitration when six years have elapsed from the occurrence or event giving rise to it. The eligibility rule is distinct from a state statute of limitations. A court can decide specified questions, and dismissal from FINRA does not necessarily decide whether another forum remains available.
Claim Size and Panels
| Customer claim amount | General process |
|---|---|
| $50,000 or less, excluding interest and expenses | Simplified arbitration, generally decided on written submissions unless a hearing is requested or required |
| More than $50,000 through $100,000 | Generally one arbitrator unless the parties agree otherwise under the Code |
| More than $100,000 or unspecified nonmonetary claim | Generally three arbitrators unless the parties agree to one |
Customer cases use the Code's public-chair and panel-selection process. Parties receive lists, rank and strike as permitted, challenge conflicts, exchange required documents and attend prehearing conferences. Arbitrators must disclose circumstances that could affect impartiality. A principal should preserve relevant records immediately rather than wait for the discovery deadline.
Hearing and Award
Arbitrators decide claims and defenses, hear evidence, rule on discovery and issue a written award. Formal courtroom evidence rules do not control in the same way, but fairness and the Code do. A party's failure to appear does not guarantee victory; the claimant still must support the claim.
Awards are final and binding. Judicial vacatur is available only on narrow statutory grounds, such as corruption, evident partiality, specified misconduct or arbitrators exceeding their powers. A court does not rehear the merits because one party thinks the panel misunderstood a fact.
A monetary award generally must be paid within 30 days after receipt unless a timely motion to vacate has been filed. Unpaid awards can produce expedited suspension proceedings. Interest and other directions in the award also must be followed.
Supervisory Response
Receipt of a statement of claim triggers preservation, insurer notice, conflict review, reporting analysis and assessment of ongoing customer risk. Settlement does not end the firm's duty to investigate the underlying conduct, report when required, remediate customers and correct supervision.
Discovery and Evidence
FINRA's Discovery Guide identifies presumptively discoverable documents in customer cases, but parties can request additional relevant material and arbitrators decide disputes. The firm should collect from approved and unapproved communication channels, product files, account systems, compensation, supervision and complaint records. A narrow collection limited to the representative's email can miss decisive evidence.
Objections must be specific and supported; delay or incomplete production can produce sanctions. Customer privacy is protected through appropriate orders and handling, not by withholding all account records. Witness preparation should focus on accurate recollection and documents, never coordinated false testimony.
Settlement and Reporting
Authority to settle should be documented among the firm, insurers and counsel. Allocation to an associated person can affect Rule 4530 and Form U4 reporting, so parties cannot choose labels solely to avoid disclosure. After payment, the firm confirms dismissal, retains the agreement, updates regulatory records and completes any customer lookback or discipline.
When multiple respondents are named, the firm should preserve each person's separate defenses and conflicts. Joint representation can become inappropriate if accounts, supervision or settlement allocation place the member and associated person in materially different positions.
A customer seeks FINRA arbitration more than six years after the occurrence giving rise to the claim. What is the general eligibility rule?
It is automatically barred from every court and forum.
It is automatically eligible because arbitration has no time limit.
It is eligible only if the member waives all defenses in writing.
The claim is generally ineligible for FINRA arbitration under Rule 12206, subject to the rule and issues properly decided by a court.
A FINRA panel issues a monetary award and no timely motion to vacate is filed. When is payment generally due?
Only after the prevailing customer requests payment twice.
Within 30 days after receipt of the award.
Within one year of the award.
Whenever the member next files its annual report.
Sections you finish are checked off in the contents.