Define: Securities Dispute Resolution: Selecting Arbitrators

Arbitration is a method used to settle conflicts between individuals or businesses. The individuals responsible for making decisions regarding the dispute are referred to as arbitrators. The number of arbitrators involved in the process depends on the amount of money at stake. These arbitrators may or may not possess knowledge about the securities industry. They are selected from a pool of potential arbitrators, and the parties involved in the dispute have the ability to eliminate those they do not wish to have involved. The arbitrators are compensated by the overseeing organisation of the arbitration process, rather than by the disputing parties. In the event of a conflict of interest, an arbitrator can be removed from the case.

In resolving securities disputes, the number of arbitrators on the arbitration panel is determined by the amount in controversy. Claims of $50,000 or less will have one arbitrator, while claims of more than $50,000 but not exceeding $100,000 will also have one arbitrator unless the parties agree to three arbitrators in writing. Claims exceeding $100,000, unspecified, or non-monetary will have three arbitrators unless the parties agree to one arbitrator in writing. This demonstrates how the amount in controversy dictates the number of arbitrators on the panel.

FINRA has over 6,000 arbitrators, classified as public or non-public. Public arbitrators do not require securities industry knowledge, while non-public arbitrators typically have a background in securities. FINRA mandates that arbitrators have at least five years of business or professional experience and at least two years of college-level education. They come from diverse professions and are independent contractors, not employees of FINRA. Arbitrators receive an honourarium from FINRA for their service and are not paid directly by the parties.

In cases involving complex financial products, parties may opt for arbitrators with a background in securities to ensure they have the necessary expertise. After the respondent’s answer is due, FINRA’s Neutral List Selection System (NLSS) generates lists of potential arbitrators, which are then distributed to the parties for review. Each party may strike arbitrators they do not want within the limits set by FINRA rules and rank the remaining choices. FINRA then appoints the arbitrators for the panel based on the parties’ ranked lists.

Before the first hearing session, an arbitrator may be removed for a conflict of interest. Parties also have the opportunity to challenge appointed arbitrators if they believe the arbitrator is unsuitable due to special circumstances that might affect their impartiality. Arbitrators have a duty to disclose any circumstances that might preclude them from making an objective decision, including any financial interest in the outcome of the arbitration. Failure to disclose such information may result in their removal from the panel.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 25th April 2024.