A Look Inside a Securities Arbitration Hearing

 Just What Happens at an Arbitration?

By Mark J. Astarita, Esq.


Past columns have touched on arbitration hearings, and have raised the question just what happens during an arbitration hearing. The following is an overview of the hearings themselves.

Securities Arbitration Hearing

Almost all securities arbitrations are held pursuant to FINRA rules. It seems that there are a wide variety of ideas on just how these arbitration hearing take place, and there is a substantial misconception regarding the process.

In the past, FINRA arbitrations were carried out by a single arbitrator. Some brokers believe that the arbitrations are conducted with all of the technicalities of a courtroom movie, and others believe that they are in reality informal discussions between the parties and the arbitrators. Neither is true.

Arbitration is Not Mediation

Almost all securities arbitrations are held pursuant to FINRA rules. Arbitration is different than mediation. There are important differences and the two are often confused. Mediation is a third party process in which a neutral third party attempts to facilitate a settlement between two parties who have engaged in a dispute. Mediation in the securities world is not binding.

In contrast, arbitration is a unilateral process in which the parties select an arbitrator or arbitrators who will conduct a hearing, hear testimony and then make a decision. That decision is binding on the parties, with very limited grounds to appeal.

Similar to Court Trials, in a Different Setting

Securities arbitrations are conducted in the same manner that a court trial is held, without some of the formalities. There are opening statements, first by the attorney for the claimant (typically a customer) and then by the respondents (the broker and/or his firm). The openings are followed by introduction of evidence, again, first by the claimant, then by the respondents, rebuttal cases, and closing arguments. While arbitration hearings follow the format of a trial, the setting is quite different. The hearings are typically held in a conference room at the offices of the sponsoring organization, with the parties sitting around a large table, or series of tables pushed together. The arbitrators sit at the head of the table, with the parties and counsel seated on opposite sides.

Tape Recordings Not Stenographers

The hearings are recorded at FINRA by a tape recorder, although a party can arrange for a court reporter, at his own expense, provided he makes a copy of the transcript available to the arbitrators.

Direct Examination

Evidence is introduced through the testimony of witnesses. In the typical customer-broker case, the customer testifies about his relationship with the broker, and, during his testimony, introduces documents which he believes support his case. While the broker’s attorney is not typically permitted to ask questions of the claimant until he finishes his “direct” examination, counsel can interpose objections to the testimony, and is typically permitted to ask questions of the witness regarding documents that he attempts to offer into evidence.

Cross-Examination

Once the claimant’s testimony is completed, the respondent’s attorneys are permitted the opportunity to cross examine the claimant. In the court setting, this cross-examination would be limited to the facts testified during direct. However, in an arbitration, where the parties are hearing each other’s testimony for the first time, the cross-examiner is usually given wide leeway in the scope of his cross examination.

Re-Direct

The claimant’s attorney is then offered the opportunity to “re-direct”, to ask the customer questions again, but this time he is limited to the topics covered by cross-examination. When that is complete, respondents counsel can “re-cross”, again limited to the scope of re-direct, This continues until there are no further questions of the witness.

Additional Witnesses and Documents

The Claimant then calls any other witnesses who support his case. Those witnesses may offer documents into evidence, such as correspondence between the parties, account statements, and similar documents, and the same procedure is followed for each witness – a cross-examination, re-direct, re-cross, etc.

Arbitrator Questions

When all of the respondents’ attorneys have cross-examined the witness, the Arbitrators may ask questions of the witness. Some arbitrators may interrupt the examination of a witness to ask a question, but those are usually to clarify a witnesses answer. There is occasionally the arbitrator who repeatedly interrupts the witness and attorneys, and who starts an entirely new line of questioning, on his own. Fortunately, this conduct is becoming rare, and the arbitrators are cautioned not to actively examine witness by the various arbitration forums. Unfortunately, some still do.

However, at this stage, the arbitrators can ask any questions they may have. The extent of the examination by the arbitrators varies widely, and depends on how extensive the attorneys’ questions were, and the particular arbitrator involved. Some arbitrators seem to ask a great deal of questions, others ask none, regardless of the examination by the attorneys

Additional Evidence, Expert Testimony

The parties are permitted to introduce any evidence, documents or testimonial, that they believe will support their claim or defenses. Expert witnesses may be called, to testify as to calculations of profits or losses, or as to industry standards. Documents, such as tear sheets, time and sales reports, market maker price movement reports, and other documents, are permitted, the only boundary being the relevance of the document

Charts and Summaries

After all sides have produced their witnesses, either or both sides may introduce charts or summaries of the evidence produced. Since charts and summaries are not technically evidence, but merely summaries of evidence, they can be introduced by the attorney, although some arbitration panels will require that they be supported by a witness.

Closing Statements

When all parties have put in their evidence, the attorneys make closing arguments, and the case concludes. Occasionally the parties may want to offer legal briefs, but the decision to accept them is entirely up to the Arbitrators.

Hearing Schedules 

There was a time, in the early days of securities arbitration,  that hearings were scheduled for two consecutive days, months in advance. Today, it is rare arbitration that finishes in 5 days. The scheduling and conduct of the hearings is one of the more annoying parts of the arbitration process.

Despite the mandatory nature of same, the arbitration process is still considered to be a “businessman’s forum” and hearings are scheduled at the convenience of the arbitrators, the parties, and their attorneys. With a minimum of 7 people in attendance, the scheduling of hearings is a problem, since there are 7 different schedules to take into consideration, and all of the parties, including most of the arbitrators, are actively employed. The schedules of the arbitrators, parties, attorneys and witnesses often results in a delay of months before hearings are scheduled.

With two or three breaks during the course of a session, it is not unusual for a “full” day of an arbitration to involve only 5 hours of testimony, or even less. Coupled with the delay in scheduling hearings after the first two sessions, and arguments over documents and discovery often consuming the first day, it is easy to see why arbitrations are taking 6 months or more to complete, with 4 hearing days quickly becoming the norm.

Unfortunately, there is not too much that any of the participants can do to decrease the amount of time it takes to complete an arbitration, except to keep the delays in mind when commencing such a proceeding. The arbitration forums are attempting to address some of the delays, and now schedule “discovery conferences” with the arbitrator or with a member of the arbitration forum staff, well before the hearings to avoid delays because of outstanding discovery issues.

Conduct at the Hearings

The manner and tone of an arbitration hearing depends in large part of the demeanor of the Chairman of the Arbitration Panel, and the attorneys and parties themselves. Additionally, there are variations between offices of the same sponsoring organizations, but this overview should dispel any misconceptions as to how strict, or how laid back, those proceedings are.

The Decision, or “Award”

In theory, in 30 days, the parties are notified of the arbitrators decision by mail. Unfortunately, depending on the office which administers your hearing, the delay in receiving an arbitration award can be as long as 3 months.

While any one who participates in arbitrations with any regularity can find fault with the process, and despite my comments here, arbitrations still remain the most efficient method of resolving most disputes. Hearings are typically held within 9 months of the filing of the statement of claim, and most cases are completed within 16 to 18 months. Compared to the years it takes to get a case to trial in the courts of most major cities, the time savings is a major factor in favor of arbitration, for both claimants and respondents.



Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.


For additional information, contact Securities Arbitration Attorney Mark J. Astarita, Esq., a partner in the law firm of Sallah Astarita & Cox, LLC who represents clients in a wide variety of finance related matters. Mr. Astarita can be contacted by email at mja@sallahlaw.com


The attorneys at Sallah Astarita & Cox, LLC are former SEC Staff Attorneys and brokerage firm counsel, with over 100 years of collective experience. If you have received a subpoena from the SEC, a document request from FINRA, or have a dispute with a brokerage firm, call 212-509-6544 for a free consultation. The firm represents investors and financial professionals nationwide.