Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, December 21, 2009

SEC Approves Amendments to FINRA Arbitration Rules

On December 18, the SEC approved amendments to the FINRA arbitration rules.  While mostly of a housekeeping nature, the one amendment that could affect investors is a provision that states that customers may be responsible for hearing fees if they file a claim against the broker in response to the broker's claim against them.  As the FINRA notice (09-74) states:

Under the old Code, arbitrators could allocate hearing session fees against any party.
Rule 10332(c)10 of the old Code protected customers from potentially higher forum fees
(now hearing session fees) triggered by amounts sought in industry claims by
prohibiting the arbitrators from assessing forum fees against customers if the industry
claim was dismissed.Moreover, the rule protected customers from higher forum fees by
requiring that the amount of the forum fees be based on the amount awarded to an
industry party and not on the amount of damages requested by the industry claim.
However, Rule 10332(c) also provided that customers could be subject to potential
forum fees based on their own claims for relief in connection with the industry claim.
During the drafting of the Code Revision, FINRA inadvertently omitted from the
corresponding rule in the Customer Code the provision (in old Rule 10332(c)) that
permitted the forumto assess fees against the customer based on the customer’s claim
in an industry dispute. Thus, FINRA has amended Rule 12902(a)(4) to incorporate the
omitted language, which makes it clear to customers that if they file a claim in
connection with a claim filed by a firm, they may be subject to filing fees and hearing
session fees based on their own claim for relief.

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