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What if the Broker-dealer cannot pay my award in a FINRA arbitration?

By Sean Sweeney on December 02, 2013

balls around the earthThousands of claims are brought each year by investors and brokers against Broker-dealers in FINRA arbitrations. There are many complaints about the fairness of the process and the forum, however, all of that aside, most awards get paid.  If a Broker-Dealer does not pay its award, it can lose its license to trade. Most awards are paid, but not all; if investors and stockbrokers are going to be forced to litigate their disputes in the very forum that the broker-dealers fund, it might be time that FINRA requires the broker dealers to carry insurance to ensure all awards can be paid.

That new requirement for insurance is precisely what the Wall Street Journal reports that according to Susan Axelrod, FINRA's executive vice president of regulatory operations, indicated FINRA is considering. While the brokerage firms are incentivized to pay the damages that are awarded against them in a FINRA Arbitration, or risk losing their license, this does not guarantee a wronged investor that there will be funds available to pay the judgment. As the rule currently stands, brokerage firms are not required to carry any kind of insurance to pay these awards. The Wall Street Journal reports that in 2011 (the most recent figures released by FINRA), more than $51 million of the over $450 million in arbitration awards that year had not been paid.

While the vast majority of awards from FINRA arbitrations are paid, requiring insurance would be a good step forward in further ensuring that investors and stockbroker employees are protected.

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Milwaukee Office

320 E Buffalo St
Ste 611
Milwaukee, WI 53202

Open Today 8:00am - 5:00pm

Open Saturday and Sunday for calls and emails.

More Info Directions (414) 755-5020