The Financial Industry Regulatory Authority (“FINRA”) operates the largest dispute resolution forum in the securities industry. It oversees the arbitration and mediation of disputes between investors, securities firms and individual registered representatives. It has been one year since FINRA implemented new rules significantly limiting the use of motions to dismiss in arbitration. This article summarizes the new FINRA rules, examines the effect the rules have had on the arbitration process and concludes that these new restrictions — however well intentioned — do not justify either: (i) the increased costs to respondents in defending frivolous claims; or (ii) more importantly, the severe prejudice to respondents’ prehearing rights.

New FINRA Rules

Effective since February 23, 2009, the new FINRA rules limiting motions to dismiss were primarily implemented in response to complaints by claimants that the filing of motions to dismiss resulted in increased costs, undue delay and even intimidation of “less sophisticated” claimants. Ostensibly, the new rules were intended to bolster claimants’ “right to have their claims heard in arbitration” by limiting the respondent’s ability to move for early dismissal of a claim. However, the lack of data collected by FINRA on whether the new rules have served their intended purpose, coupled with increased arbitration filings due to current market conditions, has lead many industry commentators to conclude that the new rules may have done nothing more than increase the time and expense of defending arbitrations for securities firms.

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