New Special Proceeding Option for Simplified FINRA Arbitrations

Financial Institutions Law Alert

September 10, 2018

Joel M. Everest

Joel M. Everest




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Financial Institutions

Beginning September 17, 2018, a new “Special Proceeding” option will be available to parties filing simplified FINRA arbitrations (i.e., claims that seek damages of $50,000 or less, exclusive of interest and expenses).

Currently, a party filing a simplified claim can choose to have the case decided either: (1) “on the papers” or (2) through an evidentiary hearing, similar to a standard FINRA arbitration with an in-person hearing including opening statements, direct and cross-examination of witnesses, closing arguments, and as many hearing sessions as necessary.

Parties filing simplified arbitrations will now be given a third option – a “Special Proceeding.” The Special Proceeding is a limited hearing with restrictions that FINRA believes will “ensure that parties have an opportunity to present their case to an arbitrator in a convenient and cost-effective manner that is less demanding than a regular hearing.” See FINRA Regulatory Notice 18-21 (July 23, 2018), http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-18-21.pdf).

The Special Proceeding is conducted telephonically (unless both sides agree to an in-person hearing) with time limits for both sides and – perhaps most significantly – no opportunity to cross-examine the opposing party’s witnesses. Each side is limited to two hours to present its case-in-chief, followed by an additional half hour each for rebuttal/closing argument. Time spent on questions from the arbitrator are excluded from these limits.[1] The arbitrator has discretion to grant the parties additional time, but the hearing must be completed in one day with no more than two hearing sessions. To prevent parties from circumventing the rule against questioning the opposing party’s witnesses, a customer party is prohibited from calling any current or former employee of a member party as his/her own witness, and member parties and associated persons are prohibited from calling any customer as their own witness.  

The Special Proceeding option will be codified at FINRA Rule 12800 for customer cases and Rule 13800 for industry cases.



[1] Like all simplified cases, the Special Proceeding is decided by a single arbitrator.