Understanding the Scope and Application of FINRA Rule 12200 in Arbitration Disputes

Are you puzzled by the complexities associated with FINRA Rule 12200 in arbitration disputes? If so, you’re not alone. This rule can significantly impact how these disagreements are resolved within the financial industry.

Haselkorn & Thibaut has over 50 years of experience in the securities industry. Our FINRA lawyers can help you navigate your issues. Call us today for a free consultation.

In this guide, we’ll simplify this intricate rule and help unravel its application and implications for both customers, investors and members. Excited to flex your finance knowledge muscles? Let’s dive in!

Key Takeaways

• FINRA Rule 12200 applies to arbitration disputes in the financial industry and requires member firms to consent to arbitration at a customer’s request.
• Elective arbitration allows customers to choose arbitration as a method of resolving disputes, providing a faster and potentially more cost-effective option compared to going to court.
• Customers can file claims against inactive members and seek resolution through arbitration, ensuring accountability for alleged misconduct or harm caused during their active period.
• If a member firm denies the customer’s request for arbitration, they can pursue their claim in court instead. Class action claims are also allowed under FINRA Rule 12200, providing an efficient way for multiple individuals with similar complaints to join together in one lawsuit against a common defendant.

Overview of FINRA Rule 12200

FINRA Rule 12200 applies to arbitration disputes arising from the business activities of a member or associated person and requires members to consent to arbitration at a customer’s request.

Definition and scope of arbitration disputes

Arbitration disputes are fights that need a solution. They often come up in business deals with a member or person linked to the Financial Industry Regulatory Authority (FINRA). Rule 12200 is used for these fights.

This rule does not work for fights about insurance jobs. It sees a “customer” as anyone who does any business with FINRA, but isn’t a member of it or linked to it. With this rule, if a customer asks, firms have to agree to use arbitration even without any written deal saying so.

But customers can choose not to use arbitration and go to state or federal court instead.

Applicability of the rule to arbitration agreements and FINRA rules

FINRA Rule 12200 applies to arbitration agreements and FINRA rules. This means that if there is an an arbitration agreement or dispute related to the business activities of a member or associated person, the rule comes into play.

It requires member firms to consent to arbitration if a customer requests it, even without a written agreement. However, disputes involving insurance business are not covered under this rule.

It’s important to note that customers can choose whether or not they want to arbitrate their disputes with broker-dealers and have the option of pursuing relief in state or federal court instead.

Key Elements and Implications of Rule 12200

Rule 12200 has several key elements and implications that impact arbitration disputes, including elective, arbitration claims, claims against inactive members, denial of FINRA forum, class action claims, and shareholder derivative actions.

Elective arbitration and its impact on dispute resolution

Elective arbitration refers to the option for parties involved in a dispute to choose arbitration as their method of resolving the disagreement. In the context of FINRA Rule 12200, elective arbitration has a significant impact on dispute resolution.

This rule requires FINRA members to arbitrate disputes at a customer’s request if the disputes arise in connection with their business activities. As a result, customers have the ability to pursue resolutions through arbitration rather than going to court.

This can provide a faster and potentially more cost-effective way of resolving disputes, although it is important to note that customers still have the choice to pursue relief in court if they prefer.

Claims against inactive members

Claims against inactive members refer to disputes or complaints that customers have against a member of FINRA who is no longer active in the securities industry itself. Even if a member is inactive, customers can still file claims and seek resolution through arbitration under FINRA Rule 12200.

This rule ensures that customers have access to a fair and impartial process for resolving their grievances, regardless of whether the member is currently conducting business. Inactive members are still held accountable for any alleged misconduct or harm caused not a broker during their active period.

Denial of FINRA forum

If a member firm refuses to participate in arbitration or denies the customer’s request, FINRA Rule 12200 still applies. The rule allows the customer to pursue their claim in court instead of through the FINRA forum.

This means that even if a firm doesn’t want to go through arbitration, the customer can still seek resolution in a court of law. In this situation, it’s important for customers to be aware of their rights and options if they encounter denial of the FINRA forum.

Class action claims

Class action claims are an important aspect of the customer under FINRA, Rule 12200 in arbitration disputes. Under this rule, customers have the right to bring class action claims against FINRA member firms.

A class action claim allows multiple individuals with similar complaints to join together in a single lawsuit against a common defendant, which can be more efficient and cost-effective than individual arbitrations.

Customers who choose to pursue class action claims must comply with specific procedures outlined by FINRA, including notifying the other members of the potential class and seeking approval from the arbitration panel.

Shareholder derivative actions

Shareholder derivative actions are a type of lawsuit where shareholders sue on behalf of a corporation. These lawsuits aim to protect investors hold directors and officers accountable for their actions that may have harmed the company.

Shareholders can bring these suits if they believe that directors or officers breached their fiduciary duty or engaged in corporate misconduct, such as fraud or mismanagement. In shareholder derivative actions, any recovery obtained goes back to the corporation, not directly to the shareholders who initiated the lawsuit.

FINRA Rule 12200 does not specifically address shareholder derivative actions but focuses more on customer disputes with member firms and associated persons.

Procedures and Time Limits under Rule 12200

– Time limits for initiating arbitration

– Extension of deadlines

– Representation of parties

– Ex parte communications

– Direct communication between parties and arbitrators

– Sanctions

Time limits for initiating arbitration

Under FINRA Rule 12200, there are specific time limits for initiating arbitration in disputes. Once a dispute arises, the party requesting arbitration must do so within a certain timeframe.

This ensures that claims are filed in a timely manner and allows for prompt resolution of the dispute. It’s important to note that these time limits can vary depending on the circumstances of the case and any applicable rules or agreements.

Parties should be aware of these deadlines to ensure they don’t miss out on their opportunity to pursue arbitration for their dispute.

Extension of deadlines

If a party needs more time to complete certain tasks or respond to claims in a FINRA arbitration, they can request an extension of deadlines. This is helpful when there are unexpected delays or challenges in gathering evidence or preparing documents.

The decision to grant an extension lies with the arbitrators, who will consider factors such as the reason for the request and any potential prejudice to the other party. It’s important to note that extensions may not be granted if they would significantly delay the resolution of the dispute.

So parties should carefully plan and manage their time within the given deadlines to ensure timely progress in their arbitration case.

Representation of parties

FINRA Rule 12200 also addresses the representation of parties in arbitration disputes. Both the claimant and respondent have the right to choose their own representatives, such as lawyers or other individuals who will speak on their behalf during the arbitration process.

These representatives play a crucial role in presenting arguments, gathering evidence, and advocating for their clients’ interests. It is important for parties involved in an arbitration dispute to carefully select and work with qualified representatives who understand FINRA rules and procedures.

Ex parte communications

Ex parte communications refer to conversations or interactions between one party involved in a dispute and an arbitrator without the other party’s knowledge or involvement. These types of communications are generally not allowed under FINRA Rule 12200.

The rule aims to ensure fairness and impartiality in the arbitration process by prohibiting private discussions that could influence the outcome of the case. Parties are encouraged to communicate openly and transparently during arbitration, so that all information can be considered and evaluated fairly.

Any ex parte communication that occurs should be reported promptly to FINRA for proper investigation and potential disciplinary action.

Direct communication between parties and arbitrators

Parties involved in a FINRA arbitration have the opportunity to communicate directly with the arbitrators. This means that they can exchange information and present their case without any intermediaries.

Direct communication allows for more efficient and effective resolution of disputes, as it allows parties to clarify any misunderstandings or provide additional evidence directly to the arbitrators.

It is important for parties to take advantage of this opportunity and use it wisely to ensure their arguments are properly understood by the decision-makers.

Sanctions

FINRA Rule 12200 also includes provisions for sanctions. If a party fails to comply with the rules and procedures of arbitration, they may face penalties. These sanctions can range from warnings and fines to more severe consequences like dismissal of their claim or counterclaim.

It is important for all parties involved in a FINRA arbitration to understand and follow the guidelines set forth by the rule to avoid potential sanctions. Parties should be aware that failure to adhere to these rules can have serious implications on the outcome of their case.

Initiating and Responding to Claims

Parties must file and serve documents, including the initial statement of claim and response, in accordance with the procedures outlined in FINRA Rule 12200.

Filing and serving documents

To initiate a claim in a FINRA arbitration, the parties must file and serve certain documents. This includes filing an initial statement of claim that outlines the allegations and any relief sought.

The respondent then has to answer the statement of claim within a specified time period. Counterclaims, cross claims, and third party claims can also be filed if applicable. It is important to note that these pleadings can be amended if necessary.

Additionally, when serving documents, it is essential to ensure proper service on all associated persons involved in the dispute.

Service on associated persons

FINRA Rule 12200 states that when a customer files an arbitration claim, they must serve the associated person or member firm involved in the dispute. This means that the customer needs to notify and provide all necessary documents to the person or firm they are making a claim against.

It’s important for both parties to be aware of this requirement so that they can properly respond and participate in the arbitration process. This rule ensures that everyone involved is given a fair opportunity to present their case and have their voice heard in the resolution of the dispute.

IMPORTANT FACT: Under FINRA Rule 12200, if a customer initiates an arbitration claim, they must serve (notify) the associated person or member firm against whom they have filed the claim.

Initial statement of claim

The initial statement of claim is an important part of the arbitration process under FINRA Rule 12200. It is a document that outlines the customer’s complaint and sets out the basis for their claim against a member or associated person.

This statement should be clear, concise, and provide all relevant details about the dispute. The customer must include specific information such as names of parties involved, dates, amounts in question, and any supporting evidence.

It is crucial for both parties to carefully review and respond to this initial statement in order to proceed with the arbitration process effectively.

Answering the statement of claim

To respond to a statement of claim in a FINRA arbitration, the defendant must provide an answer. This answer should address the allegations made by the claimant and include any applicable defenses.

It’s important for the defendant to carefully review the statement of claim and gather all relevant information before crafting their response. The defendant should state their position clearly and concisely, providing supporting evidence or documentation if available.

They may also assert counterclaims against the claimant if there are additional issues or damages to address. The response must be submitted within specific time limits set by FINRA Rule 12200, so it’s crucial for defendants to act promptly in preparing and filing their answer.

Counterclaims, cross claims, and third party claims

In arbitration disputes, parties may not only file their own claims but also counterclaims, cross claims, and third party claims. Counterclaims are when a respondent files a claim against the original claimant.

Cross claims occur when multiple respondents have disputes with each other in addition to the original claimant’s dispute. Third party claims involve bringing in another person or entity who is not directly involved as a party to the dispute.

These additional types of claims allow for a fuller resolution of all related issues and parties involved in arbitration proceedings.

Amending pleadings

You can change the written statements in a case called “pleadings” if necessary. This is called “amending pleadings.” Both sides have the right to do this. It’s important to follow the rules when amending pleadings, like filing the changes with the arbitration panel and serving them to all parties involved.

Any amendments need to be done promptly, so it’s important not to delay making changes if needed.

Appointment, Disqualification, and Authority of Arbitrators

Arbitrators are appointed through a list selection algorithm and must disclose any potential conflicts of interest. Their authority to interpret the code and make determinations in arbitration disputes is critical for ensuring a fair resolution process.

Discover more about the appointment, disqualification, and authority of arbitrators in FINRA Rule 12200 disputes.

List selection algorithm and arbitrator rosters

Arbitrators are selected from a roster maintained by FINRA using a list selection algorithm. This algorithm randomly generates lists of potential arbitrators for each case, ensuring fairness and impartiality in the process.

The arbitrator rosters consist of individuals who have met certain qualifications, including completing training and passing exams. It is important to note that both parties have the opportunity to strike potential arbitrators from the lists before the final panel is chosen.

This ensures that both sides feel comfortable with the composition and membership of the arbitration panel.

Number of arbitrators

In FINRA arbitration disputes, the number of arbitrators is an important consideration. The Code of Arbitration Procedure allows for a single arbitrator if all parties agree. However, if there is no agreement or the amount in dispute exceeds $100,000, then a panel of three arbitrators will be appointed.

This ensures a fair and balanced decision-making process. It’s worth noting that the director has discretionary authority to appoint more than one arbitrator even if the amount in dispute is less than $100,000.

This provides flexibility to handle complex cases appropriately. The selection of arbitrators ensures impartiality and expertise in resolving disputes within the financial and investment banking industry.

Arbitrator disclosures and recusal

Arbitrator disclosures and recusal are important aspects of the FINRA arbitration process. When an arbitrator is appointed to a case, they have a duty to disclose any potential conflicts of interest or relationships that may affect their ability to be impartial.

This includes disclosing any financial or personal connections with the parties involved in the dispute. Additionally, if during the course of the arbitration process, an arbitrator becomes aware of information that could create a conflict or bias, they must promptly disclose it to all parties.

In certain situations, one or more parties may request for an arbitrator to be disqualified (recused) from hearing the case due to concerns about fairness or impartiality. The reasons for requesting recusal include prior knowledge of the case, relationships with one party that may create bias, or other circumstances that could compromise neutrality.

If such a request is made, FINRA will assess whether there are valid grounds for disqualification and make a determination accordingly.

Director’s discretionary authority

The director has the power to make decisions in arbitration cases. They can disqualify an arbitrator if there are concerns about their impartiality or qualifications. The director also has the authority to interpret and apply the rules of the code.

However, their decision to compel arbitration can be challenged in court if it is found to be unreasonable or against public policy. Overall, the director plays a crucial role in ensuring fair and just arbitration proceedings under FINRA Rule 12200.

Jurisdiction of panel and authority to interpret the code

The jurisdiction of the arbitration panel under FINRA Rule 12200 refers to its authority to hear and decide on disputes that fall within the scope of the rule. The panel has the power to interpret and apply the provisions of the Code of Arbitration Procedure in resolving these disputes.

It is important to note that while FINRA provides guidance and oversight, it does not participate in deciding the award. This means that the arbitrators have full autonomy in making determinations based on their interpretation of the code.

Once an award is issued, all parties involved are legally bound to abide by it.

Determinations of arbitration panel

The arbitration panel is responsible for making determinations in the arbitration process. They have the authority to interpret and apply the FINRA Code of Arbitration Procedure. The panel consists of one or three arbitrators, depending on the case.

Before serving, arbitrators must disclose any potential conflicts of interest that could affect their impartiality. Once appointed, they have jurisdiction over the dispute and can make decisions on issues such as liability, damages, and remedies.

Their determinations are binding on all parties involved in the arbitration, and all parties must abide by their decisions.

Conclusion

In conclusion, understanding the scope and application of FINRA Rule 12200 is crucial in navigating arbitration disputes. This rule ensures that customers have the right to request arbitration for business-related conflicts with member firms or associated persons.

By abiding by this rule, both parties can find a resolution through a fair and regulated process.

FAQs

1. What is FINRA Rule 12200?

FINRA Rule 12200 is a set of rules made by the Financial Industry Regulatory Authority (FINRA). It talks about arbitration disputes related to securities trading.

2. When does FINRA Rule 12200 apply?

Rule 12200 applies when arbitration is requested by parties involved in a dispute. This often happens in securities business, during disagreements over the purchase or sell of securities, compensation payment and money deposit issues.

3. Who can request for arbitration under this rule?

Any customer who does business with a former broker dealer or dealer can ask for claim arbitration if there’s an issue in understanding monies or securities deposited.

4. How do courts interpret FINRA rule 12200?

Courts look at the scope and application of the rule closely but may have different ways of understanding it. They check whether goods or services were bought, before making any decision on compensation agreements based on this rule.

5. Can businesses use this rule to settle disputes regarding securities trading?

Yes, both customers and brokers/dealers can use Claim Arbitration under FINRA Rule 12200 if there’s trouble with buying or selling securities.