Last week, FINRA sought approval from the SEC for a proposed change to the FINRA arbitration rules, under which monetary awards requiring the parties to pay each other damages would be offset, so the party owing the larger award would be required to pay only the net difference. If the arbitrators do not intend monetary awards to be offset, they must specifically say so in the award.
This rule change is intended to remedy the situation in which an arbitration panel awards damages to both the claimant and respondent, but one of the parties cannot, or does not, pay its portion of the award. For example, an arbitration between a broker-dealer and a customer may result in a decision where the customer is awarded a relatively small amount of damages against the broker-dealer, and the broker-dealer is awarded a greater amount of damages against the customer. Under current rules, monetary awards generally must be paid within 30 days. The proposed change would eliminate any uncertainty as to whether the broker-dealer nevertheless is required pay the award in favor of the customer even where the customer failed to pay the larger award in favor of the broker-dealer.
FINRA’s submission to the SEC stated that the lack of clarity under the present rules has led to situations where parties have asked the arbitrators to revise or clarify an award after the case has been closed, as well as post-arbitration litigation in the courts. The proposed change is designed to eliminate the need for further proceedings to clarify whether offset is permissible.
If the SEC approves the proposed change, FINRA will announce the effective date in a Regulatory Notice within 60 days of SEC approval. The effective date will be no later than 30 after publication of the Regulatory Notice.