Legal Alerts

FINRA Announces Pilot Program For Large Arbitration Cases and Market-Wide Monitoring System



FINRA has now launched a pilot program for arbitrating cases involving claims of $10 million or more.  If all the parties agree to participate, the program will allow the parties to customize the administrative process by, for example, allowing the parties to hire non-FINRA arbitrators for their cases, expand discovery options to include depositions and interrogatories, and expand the choices for facilities to hold the hearings.

Of course the parties will be required to pay for any additional costs associated with these customized choices.  The pilot program was initiated in response to an increase in the number of large cases being filed.  FINRA's stated goal is to increase flexibility and provide more control to the parties.

FINRA will send a letter to solicit participation to the parties filing claims of more than $10 million.


On July 11, 2012, the Securities and Exchange Commission voted to require the national exchanges and the Financial Industry Regulatory Authority (FINRA) to establish a market-wide monitoring system to track and analyze trading activity across all U.S. markets.  The new rule, approved by the SEC in a 3-2 vote, requires that the exchanges and FINRA create and implement a "consolidated audit trail" that would collect and identify every order, cancellation, modification, and trade execution for all exchange-listed equities and options across all U.S. markets.

"A consolidated audit trail that accurately tracks orders throughout their lifecycle and identifies the broker-dealers handling them will provide us with an unprecedented ability to effectively oversee the markets we regulate," said SEC Chairman Mary Schapiro.[1]  The new system is part of the SEC's response to the May 6, 2010, "flash crash" that temporarily erased $862 billion in U.S. equity value.  After the May 6th market disruption, it took a 20-person SEC team three months to collect and process order and transaction data that arrived in different formats from exchanges and brokers.  The SEC hopes that the consolidated audit trail will improve the agency's ability to create timely reconstructions of market events.

According to the SEC, a consolidated audit trail will also result in a reduction of regulatory data production burdens on broker-dealers.  The system will increase the regulators ability to monitor the market in general, thereby reducing the number of ad hoc requests from regulators to broker-dealers.

FINRA and the exchanges must submit their implementation plan within nine months of the new rule's publication in the Federal Register.  In a statement issued after the SEC announced approval of the new rule, FINRA stated that it believe the system to be an important step in enhancing regulators ability to monitor the markets, noting that comprehensive surveillance is "essential to ensuring the overall integrity of the U.S. securities markets and maintaining the confidence of investors in those markets."[2]


[1] Securities and Exchange Commission. SEC Approves New Rule Requiring Consolidated Audit Trial to Monitor and Analyze Trading Activity. Washington D.C., July 11, 2012. 2012-134.
[2] Financial Industry Regulatory Authority. FINRA Statement on Consolidated Audit Trail. Washington D.C., July 11, 2012.

This Legal Update is a periodic publication of Lindquist & Vennum LLP and is intended to provide basic information about new developments in the law.  It should not be construed as legal advice or legal opinion on any specific facts or circumstances.  The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

Search Tips:

You may use the wildcard symbol (*) as a root expander.  A search for "anti*" will find not only "anti", but also "anti-trust", "antique", etc.

Entering two terms together in a search field will behave as though an "OR" is being used.  For example, entering "Antique Motorcars" as a Client Name search will find results with either word in the Client Name.


AND and OR may be used in a search.  Note: they must be capitalized, e.g., "Project AND Finance." 

The + and - sign operators may be used.  The + sign indicates that the term immediately following is required, while the - sign indicates to omit results that contain that term. E.g., "+real -estate" says results must have "real" but not "estate".

To perform an exact phrase search, surround your search phrase with quotation marks.  For example, "Project Finance".

Searches are not case sensitive.