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FINRA Submits Proposed Rule Changes To Clarify Offsetting Awards (SR-FINRA-2016-015)

By Jessica L. Mackaness of Shustak Reynolds & Partners, P.C. posted on Tuesday, May 10, 2016.

Jessica L. Mackaness

Jessica L. Mackaness

Senior Associate

FINRA has recently filed proposed rule changes that provide much-needed clarification to how arbitration awards resulting in both sides paying money should be handled. 

Currently, when arbitrators order opposing parties to pay each other monetary damages, it’s not clear whether both sides must pay the full amount, even if a large amount of those payments offset each other.  This can cause a number of issues.  For example, there is a risk that the party ordered to pay the higher amount does indeed pay the entire amount, but the other party refuses or is unable to pay the lower amount – so the first party is stuck with the full bill without being given the advantage of the offset.  This lack of clarity has resulted in parties asking arbitrators to revise such awards after a case has closed or in post-award litigation, which has unnecessarily caused further delay in payments of arbitration awards.

FINRA’s proposal would change Rule 12904 of the Code of Arbitration Procedure for Customer Disputes and Rule 13904 of the Code of Arbitration Procedure for Industry Disputes to provide that “absent specification to the contrary in an award, when arbitrators order opposing parties to pay each other damages, the monetary awards shall offset, and the party that owes the larger amount shall pay the net difference.”

Thus, the proposal builds in a simple, effective way to handle payments in cases involving awards of monetary damages on both sides:  the party ordered to pay the higher amount need only pay the net difference.   

If the SEC approves the rule change, FINRA will announce the effective date of the proposed rule change in a Regulatory Notice to be published no later than 60 days following the SEC’s approval.  The effective date of the rule change will then be no later than 30 days following publication of that Regulatory Notice.  

The full text of the proposed rule change (SR-FINRA-2016-015) is available on FINRA’s website.  Shustak Reynolds & Partners, P.C.’s California FINRA lawyers and securities lawyers focus on the securities industry and matters affecting broker-dealers, registered representatives and the financial services sector.  Contact us today for a free consultation. 

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