Broker Disputes Law

A large number of people in the U.S. trade in the stock market. They buy and sell shares, bonds and other financial instruments. For each of these transactions, they require a broker. But often, disputes arise between the two parties – the broker and the customer. In the U.S., most broker - customer agreements contain a clause whereby both parties waive their right to go to court in the event of any disagreement.

Most of such disputes are resolved by the Financial Industry Regulator Authority (FINRA), a non-governmental organization. Its predecessor was the National Association of Securities Dealers (NASD).

Broker Disputes Law Under FINRA

FINRA regulates trading of the following: equities, bonds, security futures and options. They wield authority over more than 5000 brokerage houses. It should be noted that FINRA is not the only Self Regulatory Organization (SRO) and there are many others. Brokers who do not come under the ambit of any other SRO have to be members of the FINRA.


In 2011, FINRA had more than 2800 industry panelists and more than 3500 non-industry panelists as arbitrators. According to the Code of Arbitration Procedure under the broker disputes law, if the dispute between the customer and the broker is for more than $100,000, the case will be decided by three panelists. One of them will be from the industry unless the customer wishes otherwise. Also, there will be one no- industry analyst and one non-industry chairperson. For amounts less than $100,000, generally there is only one arbitrator.

Disputes are not always between brokers and customers. Often, disagreements arise between employees and brokers. When such matters go to FINRA, the disputes will be heard by a panel of 3 arbitrators, all from the industry.

Advantages of the Broker Disputes Law

  • Disputes are resolved in shorter periods of time at FINRA as compared to courts.
  • The costs incurred in such arbitration are also less than the amount that would have to be spent on a court case.
  • The focus is not on technicalities but on equity and fairness.

But there are many who feel that the broker disputes law under FINRA works against the customer and that arbitrators are reluctant to punish large brokerage houses.

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