1. INTRODUCTION: THE ORIGIN, PURPOSE AND DOMINANCE OF FINRA ARBITRATION
Compelling arbitration by statute is not yet a feature of the arbitration environment in the United States. There is an industry sector, however, and a government regulatory body that have developed an arbitration regime that is, in effect, mandatory in the event of disputes. The industry sector is broker-dealers of securities, and the regulatory body is “FINRA”―the Financial Industry Regulatory Authority. FINRA arbitration opens a window on what may be useful, and perhaps less useful, in a mandatory arbitration program.
FINRA is an independent not-for-profit regulator of securities brokers and dealers doing business in the United States. It originates from the Securities Exchange Act of 1934, which espoused the principle of self-regulation of member-owned securities exchanges and brokerdealer associations under the supervision of the Securities and Exchange Commission (“SEC”). FINRA was formed in 2007 through the consolidation of two precursor organisations―the National Association of Securities Dealers (“NASD”) and the New York Stock Exchange Member Regulation.1
FINRA’s primary mission is to regulate its members who do business with the public in the United States, to protect investors, and uphold the integrity of the markets.2 FINRA issues and enforces its own rules governing the activities of more than 4,190 member securities firms with approximately 634,950 brokers; it monitors equity trading on all of the main NYSE and NASDAQ exchanges, and regulates the over-the-counter (OTC) securities markets.3
Its ability to self-regulate the securities markets requires two main ingredients: (1) a shared interest among members of the club in having fair and orderly markets; and (2) a sufficient monopoly to make the threat of expulsion from the club deterrent enough to ensure compliance with its rules and decisions.4