Originally from Alternatives to the High Cost of Litigation

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Access to arbitration in the securities industry’s regulated forum is supposed to be guaranteed to customers with brokerage accounts and to employees of broker-dealers under Financial Industry Regulatory Authority Inc. Rules 12200 and 13200.

U.S. federal circuit courts, however, currently are split on whether, under general contract interpretation principles, FINRA member firms can circumvent their duty to arbitrate by inserting forum selection clauses into their customer and employment agreements.

FINRA, the largest self-regulatory organization (SRO) in the securities industry, recently took action to obviate the circuit split.

This article describes FINRA’s Regulatory Notice (RN) 16-25 (July 22, 2016) (available at http://bit.ly/2b8I84J). The notice reminds member firms that they have a duty to submit to arbitration in the FINRA forum at the demand of a customer or an employee.