The Financial Industry Regulatory Authority (FINRA) has just launched a pilot program specifically designed for large arbitration cases involving claims of $10 million or more, though it can be used in any case, regardless of size. The program enables parties to customize the administrative process and allows them to bypass certain FINRA arbitration rules. In order to be eligible, all parties will have to agree to participate in the program, to be represented by counsel, and to pay for any additional costs of the program – which happen to include an additional $1000.00 surcharge for each separately represented party, payable to FINRA.
The way we read the announcement, FINRA has simply decided that for a price, it’s willing to surrender much of its authority over how arbitration will be handled. For instance, the parties can agree to have interrogatories and depositions, to hire non-FINRA arbitrators, to create their own procedures for exchanging information, and to use any facilities they choose for a hearing. So, you ask, why not just skip the middleman and avoid paying FINRA? Because you can’t. FINRA’s a monopoly and it wants a cut.
Our view of this program? Because it requires agreement by all parties, it will almost never be used.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA. Hugh is rated AV® Preeminent™ by Martindale-Hubbell®.
He obtained a business degree in Finance from the University of Texas at Austin in 1989, and is a 1994 graduate of Case Western Reserve University School of Law, where he was a member of the Order of the Barristers and received both the American Jurisprudence Award, (National Mock Trial) in 1993 and the Jonathan M. Ault Mock Trial Prize for 1993-1994.