Investing into stocks and bonds (as well as more complex instruments) is a classic way of saving by investing, considered by millions of investors from all around the world as being the most feasible and secure way of long-term wealth planning. And, non-surprisingly, many of these investors prefer to invest on the U.S. regulated market.

To gain access to stock exchanges and to bring their own investment decisions to life, one needs to engage a licensed entity – brokerage firm. And notwithstanding availability of local brokers and their services on both local and foreign markets, many prefer to access U.S. markets via U.S. brokerages.

Now imagine a situation: a non-U.S. resident retail investor wants to transfer securities bought via a U.S. broker and held on that investor’s securities account opened with that broker onto another account (or even into another jurisdiction). Imagine further that the broker (or, in this context, the depository) refuses to execute the transfer order. What recourses shall the investor have?


FINRA Administrative Proceedings

The functions of protecting investors and ensuring market integrity are performed by FINRA – a U.S. government authorized non-profit organization, which oversees broker-dealers. Within this mandate, FINRA is entitled to initiate disciplinary actions against broker-dealers and impose sanctions, such as fines, suspension of activity, etc. Like any other administrative proceedings, those disciplinary actions can be initiated both as a result of FINRA’s monitoring of the market and upon a complaint of a third party (including retail investors).

In other words, an individual investor, which considers that his or her rights have been violated in the result of actions or inaction of a market participant, can file a complaint with FINRA. FINRA's official website allows investors to file the compliant online. Moreover, such filings are free of charge and investors can attach any proof of their broker’s misconduct. Based on the complaint, FINRA initiates disciplinary action and resolves whether any sanctions should be applied to the broker or not.

Therefore, filing a complaint with FINRA has several advantages. First, the fact that no money is charged makes this type of action the most cost-effective. Second, thanks to the simple online form for filing of complaints, one can perform necessary actions in shortest timeframes and without engaging services of U.S. licensed attorneys.

At the same time, investors choosing to file an administrative complaint with FINRA shall bear in mind that FINRA’s disciplinary actions are administrative proceedings, which implies legal relations between FINRA, as the regulator, and the broker supposedly engaged in a misconduct. The investor filing the complaint shall in no event be a party to such proceedings. Of course, in case FINRA finds that the action or inaction of the broker, against which the complaint has been filed, constitutes a violation of applicable laws and regulations, the broker will be ordered to fix the situation. However, that will be the only possible positive outcome for the investor. Without a formal litigation (please see the next part of this note), no investor shall be entitled to compensation of losses or any other monetary contribution.


FINRA Dispute Resolution Forum

As to classic ways of dispute resolution – with formal engagement of all parties to the dispute, FINRA suggests two options – mediation and arbitration.

In case the parties choose meditation, a mediator with deep industry knowledge is appointed. Using his/her knowledge and expertise, the mediator leads the negotiations between the parties and does his/her best to achieve a mutually acceptable settlement for the parties. Like disciplinary complaints, claims for mediation can also be submitted online. FINRA will communicate the submission to the other party and seek their agreement to mediation. What is important to note, is that the mediator is not authorized to adopt any binding resolution. In any event, mediation settlement shall be reached upon agreement of both parties.

On the other hand, any award rendered by arbitral panel shall be final and binding. To start arbitral proceedings, an investor shall submit to the panel a statement of claim.[1] After receiving the respondent’s counterclaim and the cross claims of the parties, the tribunal shall decide in which form the case will be considered. Depending on the complexity of a particular case, the panel may decide to either hold hearings on the merits of the case or to render the award based on parties’ pleadings and written submissions (“paper cases”).

The average timing for a consideration of a dispute (starting from submission of the statement of claim until the award is rendered) by FINRA arbitral panel is 16 months. As to costs, fees shall be applicable for almost all actions (e. g. submission of statement of claim, each hearing, etc.). The amount of fees shall differ depending on the size of the claim (for instance, in case the amount of claim is from $.01 to $1,000, filing fand hearing session fees be will be $50 each, in case the amount of claim is from $1,000.01 to $2,500 filing fee will be $75 and hearing session fee will be $125, etc.).[2] However, please note that in the award the panel may order the losing party to reimburse to the winning party part or all of the costs incurred. 


How can we help?

Our lawyers have extensive experience in both local and foreign securities markets, including FINRA proceedings. Do not hesitate to get in touch with us in case you need legal assistance in this field.


[1] This also can be done online. Moreover, submission of any supporting documents and payment of applicable fees can be done online, too.

[2] Please see applicable fees here. Please also note that to ensure higher chance of winning the case (especially because brokers and brokerage firms are represented by advanced legal teams), investors are recommended to hire a lawyer specializing in securities regulation and litigation.