SEC Approves New Discovery Guide for FINRA Arbitration

After more than six years in development, and hundreds of public comment letters on two different proposed versions, the SEC approved a revised Discovery Guide applicable to customer cases in FINRA securities arbitration. FINRA is one of the few arbitration forums mandating automatic production of “presumptively discoverable” documents and information in arbitrations brought by customers against their brokers and brokerage firms. In 1999, FINRA’s predecessor, NASD, created the original fourteen separate claim-specific lists of presumptively discoverable material, in the oft-cited Notice to Members 99-90. After a few years of experience with the lists, both customer and industry counsel sought reform, as both sides perceived the lists either too broad or too limiting, depending on the category and the client. Balancing the parties’ needs for relevant documents with the burdens of production proved challenging for FINRA. Its first attempt at reform was met with considerable criticism from both customers’ and brokerage firm lawyers. Last summer, it proposed another version of a revised Discovery Guide which simplifies the fourteen lists to two: documents that customers must approve in all cases and documents that industry parties must produce in all cases. Beyond those items discoverable in all customer cases, FINRA leaves arbitrators with considerable discretion to decide discovery disputes revolving around requests for documents not specifically identified on the lists.

Anticipating criticism and unanticipated consequences of the revised Discovery Guide from the outset of its implementation, FINRA committed to establishing a Discovery Task Force six months after the new Guide is in effect to review how it is working. The 55 comment letters to this version already filed and FINRA’s response letter to those comments already provide plenty of work for the Task Force to tackle. While FINRA’s six-year effort to address parties’ frustrations with the old Guide is laudable, it ultimately may prove impossible to create a new Guide that satisfies all of its constituencies.

The SEC’s approval order appears on its website here, and it will be published in the Federal Register shortly.

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