Ch 2 S2 Finra dispute proceures

Question 1

FINRA DISPUTE PROCEDURES

Answer 1

COPY OF THE FINRA MANUAL IN EACH BRANCH
OFFICE OR AVAILABLE FOR ONLINE ACCESS

Question 2

STANDARD COMPLAINT FORM

Answer 2

• if a customer believes there was a violation of
FINRA rules, he can file a Standard Complaint
Fonn; complaint is forwarded to the District
Hearing Panel (formerly known as the District
Business Conduct Committee - DBCC)

• each clearing member must forward any written
customer complaint received by the clearing
member regarding a14n introducing member or
its associated persons to the :

introducing broker-dealer;

introducing member’s DEA; and

customer, acknowledging receipt of the
complaint, and names of the persons to
whom the complaint was forwarded

• once complaint is filed, the Code of Procedure
comes into play
NOTE: if the District Hearing Panel or the
National Adjudicatory Council receives
information that leads either to believe that a
violation has occurred, they, too, can file a
complaint

• to investigate any complaint, FINRA has the
right to:

require member to report orally or in writing
on the matter

investigate the books and records of the
member

• a member cannot refuse FINRA requests, as it
would be subject to FINRA penalties

, FlNRA can compel associated persons and
member fim1s to provide documents, testimony,
and responses in connection with investigations,
complaints, exams, and adjudicatory
proceedings

to ensure data security, FINRA requires that
electronic infonnation submitted be
encrypted; and the data can only be
accessible with a “confidential process or
key” which is sent separately from the
encrypted information itself

Question 3

FINRA DISPUTE PROCEDURES

Penalties for Violations:

Answer 3

censure
fines
suspension
expulsion

Question 4

If FINRA Suspends or Expels

Answer 4

it notifies:
• FINRA membership

• news media through a news release

the member is NOT allowed to be an
associated member with any firm during this
time and thus cannot be paid for transactions
effected during the suspension

• the member is treated as the “public”

note, though, FINRA could modify the
terms of the person’s suspension

• i.e. a supervisory principal might be
suspended for “failure to supervise”
only and, thus, could still be
employed as a registered rep or in a
clerical capacity

• once the suspension is over, that
person can be employed as a
supervisor again

Question 5

FINRA CODE OF PROCEDURE

details the process for handling grievances against
member firms and associated persons

Answer 5

District Hearing Panel receives Standard
Complaint and directs firm to respond in writing
within 25 calendar days

PRE-HEARING CONFERENCE

DISTRICT HEARING PANEL

DISTRICT HEARING PANEL RENDERS A DECISION

MINOR COMPLAINTS

SUMMARY SUSPENSION

Question 6

District Hearing Panel receives Standard
Complaint and directs firm to respond in writing
within 25 calendar days

Answer 6

• if the complaint is amended, the time to answer
is extended for 14 calendar days

• if no answer is received, a second notice is sent,
and a 14 calendar extension is granted

• ifno response is received on 2nd notice,
allegations are assumed to be true

once response is filed. copy is sent to complainant

f illegal activities are occurring, FINRA can issue a
cease and desist order before or after any hearings

Question 7

PRE-HEARING CONFERENCE

Answer 7

held within 21 days of the respondent’s answer
tothecomplaint to consider the actions to be
taken

Question 8

DISTRICT HEARING PANEL

Answer 8

if requested, a hearing ,vith the District Hearing
Panel is scheduled giving at least 28 calendar
days’ notice to prepare

the hearing is held where the member’s principal
office is located

Question 9

DISTRICT HEARING PANEL RENDERS A DECISION

Answer 9

within 60 days, the Panel renders a decision

if it’s not appealed, it is not final until 25
calendar days have elapsed

• if either party is displeased:

1st appeal is to FINRA National
Adjudicatory Council- made within 25
calendar days of decision

• the Council can, on its own, review
the Panel’s decision within 45
calendar days

after National Adjudicatory Council hearing;
2nd appeal is to SEC

last hearing: 3rd appeal is to Federal Court

Possible Penalties:
• censure, suspension, expulsion, and/or
fines

Settlement Offer:
• at any point in the process the
respondent can offer to settle
• the offer must:
• be in writing
• state action that caused the
violation
• state the proposed sanction
• waive all rights
• the FINRA Department of
Enforcement decides if it will accept
the offe

Question 10

MINOR COMPLAINTS • Minor Rules Violation MRV max fine

Answer 10

maximum $2,500 fine

Question 11

SUMMARY SUSPENSION • FINRA can summarily suspend, without a
hearing, any member that is:

Answer 11

suspended or expelled from another SRO; or

experiencing financial and operating
difficulties

• if summary action is taken, the firm may request
a hearing within 7 calendar days of the date of
notification; and the hearing must be held
within 7 days of the written request

Question 12

FINRA CODE OF ARBITRATION
required to settle disputes between

Answer 12

member firm and another member

• member finn and clearing agency
• member firm and associated person
• associated person and associated person

• member firm and customer where the customer
previously signed the arbitration agreement

decisions are not appealable

customer can initiate an arbitration proceeding
against a member

• member cannot compel the customer to have a
dispute settled by arbitration UNLESS the
customer has previously signed a Predispute
Arbitration Agreement

Question 13

FINRA CODE OF ARBITRATION

FINRA SETTLES DISPUTES with members
USING

Answer 13

the CODE OF PROCEDURE!

Question 14

FJNRA CODE OF ARBITRATION

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC

PANEL COMPOSITION

SIMPLIFIED ARBITRATION

STATUTE OF LIMITATIONS

ARBITRATION AWARDS

Answer 14

:-)

Question 15

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC

Answer 15

oversees the appointment of arbitration panels

Question 16

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC

Selection of Arbitrators

Answer 16

individuals inside and outside the industry

anyone can be an arbitrator

Question 17

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC

Selection of Arbitrators
individuals inside and outside the industry
anyone can be an arbitrator

Answer 17

Non-Public Arbitrator

Public Arbitrator

Question 18

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
Selection of Arbitrators

Non-Public Arbitrator is a person who:

Answer 18

within the past 5 years was associated
with a broker-dealer (including Gov’t
and municipal dealers) or
commodities firm;

• is retired from engaging in the
activities in the previous definition;

• is an attorney, accountant, or other
professional who has DEVOTED 20%
OR MORE IN the LAST 2 YEARS to
clients in the first definition; or

is an employee of a financial
institution and effects transactions in
securities or commodities or monitors
compliance of individuals engaged in
these activities
~ Note that immediate family members of
these individuals are also looked at as “nonpublic”
arbitrators
Also Note: once the person has been “out
of the business” forat least5 years. they
are now considered a “public” arbitrator

finally. any person associated with the
industry for at least 20 years is defined as a

“non-public” arbitrator regardless of how
long they have been “out of the business”

Question 19

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
Selection of Arbitrators

Public Arbitrator

Answer 19

any person not engaged in the
activities of a “Non-Public Arbitrator”

Question 20

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
Selection of Arbitrators

PANEL COMPOSITION • If The Claim ls For $100,000 Or More, The
Panel Generally Consists Of 3 Individuals:

Answer 20

Member-To-Member Disputes have a
panel of 3 non-public arbitrators

Associated Person (AP) Disputes (for
instance, between an AP and member; or
AP and AP) have a panel consisting of 1
non-public arbitrator and 2 public
arbitrators;

Customer Disputes have a panel consisting
of 1 non-public arbitrator and 2 public
arbitrators; OR if the customer elects, he can
choose a 3 all-public panel (called the
“Optional All Public Panel Rule”)

Question 21

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC
oversees the appointment of arbitration panels
Selection of Arbitrators

PANEL COMPOSITION

If The Claim ls For Less Than $100,000, The
Panel Generally Consists Of 1 Individual

Answer 21

Intra-Industry Disputes - 1 non-public
arbitrator

AP or Customer Disputes - 1 public
arbitrator

Question 22

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC

SIMPLIFIED ARBITRATION

Answer 22

available for disputes not exceeding $50,000

• claim is filed with the Director of Arbitration
and copy is sent to the firm that is the object of
the claim

• respondent has 45 calendar days to respond
and can specify counterclaims (which must be
answered within another 10 calendar days, after
which a binding decision is rendered)

• decisions are rendered within 30 days from the
date the record is closed

Question 23

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC

STATUTE OF LIMITATIONS

Answer 23

6 year (from the event) statute of limitations for
filing a claim for settlement by arbitration

Question 24

NATIONAL ARBITRATION AND MEDIATION
COMMITTEE - NAMC

ARBITRATION AWARDS

Answer 24

must be paid within 30 days of decision date • if the member finn fails to pay, FINRA will
give 15 days’ notice to the firm, after which it
may suspend or revoke the firm’s registration

Question 25

FIN RA CODE OF MEDIA TJON PROCEDURE
MEDIATION

Answer 25

a voluntary process whereby both parties agree
to try to settle a dispute

an alternative to arbitration and cannot be used
to settle actions taken by:

the FINRA Dept of Enforcement under the
Code of Procedure; or

a court of law
a matter submitted to arbitration can be
submitted to mediation prior to an arbitration
hearing

it is usually cheaper and faster than
arbitration (though if both parties are not in
agreement to the settlement, arbitration can
still occur)

a mediator can come from a FINRA-supplied
list or can be an outside person acceptable to
both parties

this person has NO decision making
authority and cannot compel a settlement