Table of Contents
SERIES 7 | FINANCIAL REGULATION COURSES
FINRA Rule 2268 — Requirements When Using Predispute Arbitration Agreements for Customer Accounts — establishes the mandatory content, disclosure, and structural requirements that govern every predispute arbitration agreement used by a FINRA member firm in connection with a customer account — requiring that any predispute arbitration clause be highlighted and preceded by a specific mandatory disclosure statement, mandating that customers receive a copy of the executed agreement within thirty days of signing, prohibiting agreements from containing conditions that limit or contradict FINRA rules or limit the ability of parties to file claims or arbitrators to make awards, prohibiting class action waivers from being enforced during pending class litigation, and requiring that all agreements preserve the customer's right to participate in court class actions until class certification is denied or the class is decertified — creating the comprehensive protective framework that governs how member firms may use arbitration clauses to resolve future disputes with their customers.
Predispute arbitration agreements — clauses included in customer account agreements before any dispute arises that commit the customer to resolving future disputes through arbitration rather than through court litigation — are pervasive in the securities industry. The vast majority of retail brokerage account agreements include mandatory arbitration clauses that require customers to bring virtually all disputes against their broker-dealer through FINRA's arbitration forum rather than through state or federal courts. FINRA operates the largest securities dispute resolution forum in the United States — and Rule 2268 ensures that the predispute agreements that channel customers into that forum meet minimum standards of transparency, fairness, and preservation of customer rights.
Rule 2268 was last amended effective December 5, 2011 — though its substantive content reflects rulemaking dating to 1989. Regulatory Notice 21-16 issued April 2021 provided comprehensive recent guidance on compliance issues identified in examinations — specifically addressing the prohibition on class action waivers in customer agreements. Regulatory Notice 26-06 issued March 2, 2026 in the context of punitive damages guidance reconfirmed that Rule 2268(d) prohibits agreements from including any condition limiting arbitrators' ability to make any award.
Rule 2268(a) establishes the first and most visible requirement — any predispute arbitration clause must be highlighted — making it visually distinct from surrounding contract text — and must be immediately preceded by a mandatory disclosure statement in outline form that tells the customer in plain language exactly what they are agreeing to.
The mandatory preceding disclosure contains seven specific statements that together provide customers with a comprehensive understanding of the nature of arbitration before they sign the agreement. These seven statements parallel — but are not identical to — the nine statements required by FINRA Rule 2263 for the associated person Form U4 disclosure, reflecting the related but distinct contexts of customer and industry arbitration.
The first statement is the fundamental waiver — all parties to this agreement are giving up the right to sue each other in court including the right to a trial by jury except as provided by the rules of the arbitration forum in which a claim is filed. This is the single most important piece of information the customer needs to understand — by signing the agreement they are committing to resolve future disputes through arbitration rather than through courts.
The second statement addresses finality — arbitration awards are generally final and binding and a party's ability to have a court reverse or modify an arbitration award is very limited. Unlike court judgments that can be appealed through the court system arbitration awards can only be challenged on very narrow grounds — this finality is both a feature and a limitation that customers must understand before agreeing.
The third statement addresses limited discovery — the ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings. This limitation can significantly affect a claimant's ability to build their case — particularly in disputes involving complex financial products or systemic misconduct where documentary evidence held by the firm is critical.
The fourth statement addresses the explained decision exception — the arbitrators do not have to explain the reasons for their award unless in an eligible case a joint request for an explained decision has been submitted by all parties to the panel at least twenty days prior to the first scheduled hearing date. The absence of mandatory reasoned decisions makes it harder to assess whether arbitrators correctly applied relevant law.
The fifth statement addresses arbitrator composition — the panel of arbitrators may include a minority of arbitrators who were or are affiliated with the securities industry. Rule 2268 uses more precise language than Rule 2263 on this point — specifying a minority rather than simply noting the possibility of industry-affiliated arbitrators.
The sixth statement addresses time limits — the rules of some arbitration forums may impose time limits for bringing a claim in arbitration and in some cases a claim that is ineligible for arbitration may be brought in court. FINRA's six-year eligibility rule — which bars claims arising from events more than six years before the arbitration claim is filed — is the most directly relevant time limit for customers to understand.
The seventh statement addresses rule incorporation — the rules of the arbitration forum in which the claim is filed and any amendments thereto shall be incorporated into the agreement. This incorporation by reference ensures that the complete FINRA Code of Arbitration Procedure for Customer Disputes governs the arbitration regardless of whether the customer agreement itself addresses every procedural detail.
Rule 2268(b) establishes two additional mechanics of the disclosure framework — a highlighted signature-area warning and the obligation to provide the customer with a signed copy of the agreement.
Rule 2268(b)(1) requires that immediately preceding any signature line or other place for indicating agreement there must be a highlighted statement that the agreement contains a predispute arbitration clause — and that this statement also indicates at what page and paragraph the arbitration clause is located. This proximity-to-signature requirement ensures that the customer encounters the arbitration clause alert at the exact moment they are about to commit to the agreement — preventing the customer from signing without any awareness of the arbitration clause even if they did not read the entire document.
Rule 2268(b)(2) requires that within thirty days of signing the customer must be given a copy of the agreement containing the arbitration clause — and the customer must acknowledge receipt of that copy either on the agreement itself or on a separate document. The copy and acknowledgment requirement creates a documented record that the customer received their copy of the agreement — and provides the customer with the document they will need to reference if a dispute arises and they need to determine what arbitration rights and obligations apply to them.
Rule 2268(c) establishes two ongoing customer service obligations that apply throughout the life of the customer relationship.
Rule 2268(c)(1) requires that the member provide a customer with a copy of any predispute arbitration clause or customer agreement executed between them within ten business days of receiving the customer's request — or must inform the customer that no copy is available. If the customer requests a copy before the thirty-day delivery under Rule 2268(b)(2) has occurred the firm must provide it by the earlier of the ten-business-day request response deadline or the thirty-day automatic delivery deadline.
Rule 2268(c)(2) requires that upon a customer's request the member provide the customer with the names of and information about how to contact or obtain the rules of all arbitration forums in which a claim may be filed under the agreement. This forum information requirement ensures that customers know which arbitration forum or forums their agreement designates — giving them the ability to research the applicable rules before a dispute arises rather than only after.
Rule 2268(d) is the most protective provision of the rule — establishing four categories of conditions that no predispute arbitration agreement may include, creating absolute prohibitions that protect customers regardless of what the firm's customer agreement says.
No predispute arbitration agreement may include any condition that limits or contradicts the rules of any self-regulatory organisation. This prohibition prevents firms from using their customer agreements to override the protections that FINRA's arbitration rules provide — including the procedural protections of the FINRA Code of Arbitration Procedure for Customer Disputes, the filing fees that FINRA charges, the arbitrator selection process, and any other aspect of the FINRA arbitration framework. A customer agreement that purports to vary from FINRA's arbitration rules in a way that disadvantages customers is void to the extent of the conflict.
No predispute arbitration agreement may include any condition that limits the ability of a party to file any claim in arbitration. Member firms cannot use their customer agreements to restrict the types of claims customers can bring in arbitration — customers retain the full right to bring any claim eligible for FINRA arbitration regardless of what the agreement says.
No predispute arbitration agreement may include any condition that limits the ability of a party to file any claim in court that is permitted to be filed in court under the rules of the applicable forum. Where FINRA's rules or applicable law permit certain claims to be brought in court — such as employment discrimination claims and whistleblower claims that are excluded from mandatory FINRA arbitration — customer agreements cannot override those court access rights.
No predispute arbitration agreement may include any condition that limits the ability of arbitrators to make any award. This prohibition — reconfirmed in Regulatory Notice 26-06 in the context of punitive damages — prevents firms from including provisions in their customer agreements that would preclude arbitrators from awarding punitive damages, attorneys' fees, or other remedies within the scope of FINRA arbitration. Arbitrators retain their full remedial authority regardless of what the customer agreement says.
Rule 2268(e) addresses the situation where a customer files a court complaint containing both claims that are subject to the predispute arbitration agreement and claims that are not — establishing a rule that prevents firms from selectively compelling arbitration of the claims they prefer to arbitrate while allowing court litigation to proceed on other claims.
If a customer files a complaint in court against a member that contains both arbitrable and non-arbitrable claims the member may seek to compel arbitration of the arbitrable claims. However — and this is the critical protection — if the member seeks to compel arbitration of the arbitrable claims the member must agree to arbitrate all of the claims contained in the complaint if the customer so requests.
This all-or-nothing compulsion rule prevents the strategic use of arbitration clauses to fragment customer disputes in ways that disadvantage customers — forcing customers to simultaneously litigate some claims in court and arbitrate others at the firm's election. If the firm wants to move claims to arbitration it must accept arbitration of the entire dispute at the customer's option.
Rule 2268(f) establishes one of the most practically significant protections in the rule — the mandatory class action forbearance provision that all customer agreements must include.
All agreements must include a statement that no person shall bring a putative or certified class action to arbitration and no firm may seek to enforce any predispute arbitration agreement against any person who has initiated in court a putative class action or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action — until the class certification is denied, the class is decertified, or the customer is excluded from the class by the court.
This provision — which tracks FINRA Rule 12204 in the Code of Arbitration Procedure for Customer Disputes — reflects FINRA's and the SEC's determination that class actions are better handled by courts and that investors should not be prevented from participating in class litigation by predispute arbitration agreements they signed before the class action arose.
The practical consequence is that a customer who is a member of a pending securities class action against a broker-dealer cannot be forced into individual arbitration while the class action is pending — the predispute arbitration agreement is effectively suspended as to those class claims until the class action concludes. Regulatory Notice 21-16 identified specific compliance failures where some firms' customer agreements included class action waiver language that violated this prohibition — requiring prompt remediation.
Rule 2268 and FINRA Rule 2263 are companion rules governing predispute arbitration disclosure in parallel contexts — Rule 2268 governing customer account agreements and Rule 2263 governing the Form U4 signing disclosure for associated persons.
The parallel structure of the two rules reflects FINRA's determination that both customers — who agree to arbitrate disputes with their broker-dealers through account agreements — and associated persons — who agree to arbitrate disputes with their firms and customers through the Form U4 — deserve comprehensive and specific disclosure of what arbitration means before they are bound by predispute arbitration commitments.
The key differences between the two rules reflect the different contexts — Rule 2268 applies to firm-initiated contractual arbitration clauses in customer agreements while Rule 2263 applies to the regulatory Form U4 signing process for industry professionals. Rule 2268's prohibited conditions in paragraph (d) have no direct parallel in Rule 2263 because associated persons signing the Form U4 are not in the same contractual negotiation position as customers — the Form U4 clause is a regulatory requirement rather than a commercial contract term.
FINRA Rule 2268 is tested on the Series 7 and Series 65 examinations in the context of predispute arbitration agreements, required disclosures to customers, prohibited conditions, and class action protections.
The key points to retain are these.
FINRA Rule 2268 — Requirements When Using Predispute Arbitration Agreements for Customer Accounts — requires that any predispute arbitration clause be highlighted and immediately preceded by a mandatory seven-statement disclosure in outline form — covering the waiver of court rights, finality of awards, limited discovery, no mandatory explained decisions, minority of industry-affiliated arbitrators possible, time limits, and incorporation of forum rules. Immediately before any signature line a highlighted statement must indicate the agreement contains a predispute arbitration clause and its location.
Within thirty days of signing the customer must receive a copy of the agreement and must acknowledge receipt. Upon request a copy must be provided within ten business days and forum information must be provided upon request. Four conditions are absolutely prohibited in any predispute arbitration agreement — conditions that limit or contradict SRO rules, limit the ability to file claims in arbitration, limit the ability to file claims in court where permitted, or limit arbitrators' ability to make any award — including punitive damages as confirmed by Regulatory Notice 26-06 issued March 2, 2026.
If a member seeks to compel arbitration of some claims in a court complaint it must agree to arbitrate all claims if the customer requests. All agreements must include the class action forbearance provision — no predispute arbitration agreement may be enforced against a member of a pending putative class action until class certification is denied, the class is decertified, or the customer is excluded from the class. Class action waiver language violating this provision must be removed — Regulatory Notice 21-16 identified this as a specific compliance concern.
