FINRA operates the largest arbitration forum in the United States for the resolution of disputes between customers and member firms, as well as between brokerage firm employees and their firms. This function had been performed by both NASD and NYSE's regulation committee until their merger in 2007 to form FINRA. Each entity had its own set of rules on arbitration procedures. After its creation, FINRA Dispute Resolution harmonized the prior NYSE and NASD rules.) Virtually all agreements between investors and their stockbrokers include mandatory arbitration agreements, whereby investors (and the brokerage firms) waive their right to trial in a court of law. While arbitration cases are the usual resolution procedure of last resort, class action cases are brought and often permitted to go forward in courts as well, where binding arbitration contracts are sometimes rejected, typically after being ruled unconscionable for directly inflicting high up-front financial costs on consumers. Although the fairness of such mandatory arbitration clauses has been called into question, the
United States Supreme Court has generally upheld both the enforceability and result of these arbitrations, including those that limit the availability of
class actions. However, FINRA rules do not allow member firms to limit customers' right to pursue class actions in court, rather than arbitration. the pool of arbitrators consisted of 4,031 individuals classified by FINRA as public and 4,045 classified as non-public. In 1987, the US Supreme Court ruled in
Shearson/American Express Inc. v. McMahon that clauses mandating
arbitration for disputes under the
Securities Exchange Act of 1934 were enforceable. Three years later, it overturned
Wilko v. Swan completely in
Rodriguez de Quijas v. Shearson/American Express Inc., extending the arbitration requirement to disputes under the
Securities Act of 1933. Thus, many securities disputes are now resolved in arbitration. For disputes over US$100,000 between customers and member firms, the panel that decides the case generally consists of three arbitrators: one industry (or, at the customer's timely discretion non-industry) panelist, one non-industry panelist, and one non-industry chairperson, according to the Code of Arbitration Procedure for Customer Disputes. For disputes between an employee and member firms, all three arbitrators are industry panelists, according to the industry code. For a given case, the two sides are provided separate lists by FINRA of ten local arbitrators for each category from which each party can strike up to four arbitrators and provide a ranking for the rest. Also provided are ten-year biographies and prior award histories for each arbitrator. FINRA will then provide the parties with the panel members by selecting the highest ranked available arbitrator from each category. Smaller claims are decided by one arbitrator and the smallest—claims of up to $50,000—may be decided through a Simplified Arbitration Process, with the arbitrator deciding the case by reviewing all the materials presented by the parties without an in-person hearing. According to FINRA, there were 2,867 new cases filed for arbitration. 240 customer claimant cases had been decided in 2025 and in 28% of those cases, customers were awarded damages. FINRA rules do not require parties to be represented by attorneys. A party may also appear
pro se, or be represented by a non-attorney in arbitration. The third option is not advised, however, since this may be the unauthorized practice of law. Brokerage firms routinely hire attorneys, so a customer who does not can be at a serious disadvantage. One organization whose members specialize in representing customers against brokerage firms in FINRA arbitrations is the Public Investors Arbitration Bar Association (PIABA). In June 2006, Lewis D. Lowenfels, partner at a New York law firm and co-author of the looseleaf treatise
Bromberg and Lowenfels on Securities Fraud and Commodities Fraud, 2d said of the NASD arbitration process: "What started out as a relatively swift and economical process for a public customer claimant to seek justice has evolved into a costly extended adversarial proceeding dominated by trial lawyers and the usual litigation tactics." Perhaps amidst speculation that the
United States Congress was contemplating passing legislation preventing mandatory arbitration clauses, FINRA announced in July 2008 that it would be launching a pilot program to evaluate all-public arbitration panels (thus not requiring an industry arbitrator to be on each panel). In February 2011, FINRA announced that it would be making the program permanent. In that announcement, Richard Ketchum, then-FINRA Chairman and chief executive officer stated, "We believe that giving investors the ability to have an all-public panel will increase public confidence in the fairness of our dispute resolution process." There are those, however, who see valid reasons for including an industry arbitrator on each panel. According to Richard Jackson, a principal at the advisor firm of Schlindwein Associates, LLC "It's probably pretty important to have someone on the panel who has specific industry knowledge and past experience in that field to explain some of the complexities that may be at issue," == See also ==