SEC Approves New FINRA Rule Requiring Arbitrators to Provide Explanation

Under the new rule, parties to an arbitration may require an arbitrator to provide an explanation of decision if the request is made jointly (by both parties) 20 days prior to the first scheduled hearing date. An arbitrator must provide a fact-based award stating the general reason(s) for the arbitrator's decision. However, the rule does not require the arbitrator to include legal authorities and/or damage calculations.

The chairperson required to write the explained decision will receive an additional honorarium of $400 and will allocate the cost to one party or between/among all parties. The 20 day deadline coincides with the time that parties must exchange documents and identify witnesses they intend to present at the hearing. In FINRA's view, this establishes a clear deadline, gives the parties sufficient time to request an explained decision, and provides notice to the arbitrators that an explained decision will be required before the hearing begins.

The new rule is likely an attempt by FINRA to appease a common perception among customers that the arbitration process favors the industry. Although FINRA has conducted studies and published results that tend to discredit the validity of industry favoritism, FINRA maintains that the mere perception of inequity is a concern that they are taking steps to eradicate.


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