FINRA Rule 2268: Disclosures, Prohibited Terms, and Class Actions

FINRA Rule 2268 governs the predispute arbitration agreements that broker-dealers ask customers to sign when they open an account. It does three things: it requires the firm to place specific highlighted warnings in front of you before the arbitration clause, it controls how the agreement is signed and delivered, and it forbids certain clauses that would cut into your rights, including class action waivers and damage caps.¹

What the Agreement Must Disclose

Immediately before the arbitration clause, the firm has to put a highlighted set of disclosures in outline form. These are the warnings FINRA considers essential for a customer to understand what arbitration means compared with going to court.²

The agreement must tell you:

All parties give up the right to sue each other in court and the right to a jury trial, except where the arbitration forum’s rules allow otherwise.
Arbitration awards are generally final, and courts rarely modify or overturn them.
Discovery is more limited than in court, so obtaining documents and witness statements works differently.
Arbitrators are not required to explain the reasons for their award unless all parties jointly request an explained decision at least 20 days before the first scheduled hearing.
A minority of the arbitrators on your panel may be people affiliated with the securities industry.
The arbitration forum may impose time limits for filing a claim, and if a claim is not eligible for arbitration it may still be brought in court.
The rules of the arbitration forum, including any future amendments, are incorporated into the agreement.

All seven have to appear together, highlighted, right before the arbitration clause itself.²

How the Firm Must Present and Deliver the Agreement

Right above the signature line, a separate highlighted statement has to tell you that the document contains an arbitration clause and identify the specific page and paragraph where that clause appears. The point is that you cannot sign the arbitration provision without being alerted to it, even when it sits inside a thick stack of account paperwork.²

After you sign, the firm has 30 days to give you a copy of the signed agreement. You have to acknowledge receipt, either by signing the agreement itself or by signing a separate receipt. The rule doesn’t specify paper versus electronic delivery, so either works as long as the acknowledgment is documented.²

Getting a Copy Later

If you ask the firm for a copy of your arbitration agreement after account opening, it has 10 business days to send you one. If the firm no longer has the agreement on file, it has to tell you that in the same 10 business days. You can also ask for the names and contact information of every arbitration forum where you could file a claim under the agreement, and the firm has to provide that.²

Disputes often surface years after an account is opened, and most customers no longer have the original paperwork by then. The 10-day rule keeps a firm from running the clock while a disagreement escalates.

What the Agreement Cannot Contain

Rule 2268 draws hard lines on the content side. An arbitration agreement cannot include any provision that:²

Conflicts with the rules of FINRA or any other self-regulatory organization.
Restricts your ability to file a claim in arbitration, or in court where the forum’s rules permit court filing.
Limits the arbitrators’ authority to award any type of relief they think is appropriate, including any clause that caps damages or bars particular remedies.

Statutes of Limitations

A firm cannot use the arbitration agreement to shorten or lengthen the legal deadline for bringing a claim, and it cannot shift the decision on whether a deadline has passed away from the arbitrators to a court. If the statute gives you three years, the agreement cannot quietly cut that to one.¹

Hearing Location

The agreement cannot dictate where the arbitration hearing takes place. Under FINRA’s rules, the Director of Dispute Resolution Services picks the location, and any clause that tries to override that choice violates Rule 2268.¹

The Class Action Carve-Out

Every arbitration agreement has to make clear that the firm will not force class action participants into arbitration. Specifically, the firm cannot enforce the arbitration agreement against a customer who has started a class action in court or who is a member of a putative or certified class that has not been dismissed.²

The agreement must state that the firm will not enforce arbitration against a class member until one of three things happens:

The court denies class certification.
The class is decertified.
The court excludes the customer from the class.

The practical effect is that class action waivers are off the table. Any language that would keep you from joining or participating in a class action lawsuit violates Rule 2268.¹

What Happens When a Firm Doesn’t Comply

A firm that ignores these requirements faces two problems. FINRA can bring disciplinary action for the rule violation. And a customer holding a non-compliant agreement has grounds to challenge its enforceability, arguing that an agreement missing the required disclosures or carrying a prohibited provision should not force them into arbitration.¹

If your brokerage firm’s arbitration agreement looks like it falls short of Rule 2268, you can file a complaint with FINRA through its investor complaint process.³