The Securities and Exchange Commission (SEC) has approved new rules that will enable the Financial Industry Regulatory Association (FINRA) to move promissory note disputes more quickly through arbitration and perhaps provide a reduction in costs for both the brokerage firms and individual brokers.
In Regulatory Notice 09-48, FINRA announced that the new procedures, effective September 14, 2009, allow parties to select a single arbitrator from the roster of those who are approved to hear statutory discrimination claims. FINRA noted that these arbitrators are uniquely qualified to hear such cases, given their expertise in the area of employment law and related disputes. All cases filed after the effective date will be subject to the new rule and amendments.
To accomplish these expedited procedures, FINRA has amended its Rules 13214 and 13600 of the Code of Arbitration Procedure for Industry Disputes and has also adopted new FINRA Rule 13806.
Specifically, these changes enable a streamlining of cases in which there are no allegations by the firms or associated persons other than a promissory note dispute, since these are straightforward contracts with few evidentiary documents.
The new rules will not only expedite these cases, but will also reduce expenses for all parties while ensuring that procedural safeguards remain in place. Depending upon the circumstances, including the amount in controversy, either one arbitrator or a panel will decide the cases.
Briefly summarized, the new rules provide as follows:
- If the associated person does not file an answer, simplified discovery procedures apply and, regardless of the amount in controversy, a single arbitrator will render an award based on the pleadings and other materials submitted by the parties.
- If the associated person files an answer (but does not seek any additional relief or assert any counterclaims or third party claims), regular discovery procedures will apply and, regardless of the amount in controversy, the single arbitrator will hold a hearing.
- If the associated person files a counterclaim or third party claim, then regular discovery procedures will apply and the number of arbitrators will be based on the amount of the counterclaim or third party claim.
- If the counterclaim and/or third party claim is not more than $100,000, exclusive of interest and expenses, the Director will appoint a single public arbitrator from the roster of arbitrators approved to hear statutory discrimination claims.
- If the counterclaim and/or third party claim is more than $100,000, then the Director will appoint a three-arbitrator panel comprised of one public arbitrator from the roster of arbitrators approved to hear statutory discrimination claims who would serve as chairperson, one arbitrator from the public roster and one arbitrator from the non-public roster.
- If the counterclaim or third party claim is filed after the single arbitrator is appointed, and a three-arbitrator panel is required, the Director will retain the appointed arbitrator as chair and appoint two additional arbitrators (one public and one non-public arbitrator) to the panel.
Related Web Resources
To learn more about FINRA and the many services and resources provided for brokers and investors visit www.finra.org.
Gusrae, Kaplan, Bruno and Nusbaum has significant experience in representing both brokerage firms and brokers in a wide variety of matters. Please feel free to contact our firm at any time for a consultation or to discuss representation.
