Electronic Discovery in FINRA Arbitration

On Behalf of | Mar 10, 2015 | Firm News

Many view discovery as an onerous process involving the production of hundreds, if not thousands of pages of documents. This view is harmful to the process of securities arbitration – it discourages potential claimants from bringing valid claims and may lead practitioners to accept unfavorable settlements to avoid costs. FINRA addresses these issues by including electronic discovery in their Rules. FINRA’s Discovery Guide[i] provides:

· Encouraging Agreement – The parties are encouraged to discuss the forms in which they intend to produce documents (hard copy production or electronic production in its original format or some other format) and, whenever possible, agree to the forms of production.

· Format of Electronic Discovery – Parties must produce electronic files in a reasonably usable format – the format in which a party ordinarily maintains a document or a converted format that does not make it more difficult or burdensome for the requesting party to use during a proceeding.

· Guideline for Arbitrators Arbitrators should consider the totality of the circumstances including, among other matters, whether the electronic files are in a reasonably usable format.

FINRA has described the elements of “reasonably usable format” to include appearance, searchability, metadata and maneuverability and defines these elements:

1. Appearance – Often, converting a document from its “native format” (the form in which the electronic file was created) to a hard copy or static format will not affect the appearance of the document. The conversion can exclude portions of the native file, such as particular columns from spreadsheets or speaker’s notes from a PowerPoint presentation.

2. Searchability – Converting a native file may affect the searchability of the document. If a party prints a Word document and produces it in hard copy form, the document is not electronically searchable.


3. Metadata – Converting a native file may also affect the availability of metadata. Metadata describes how, when and by whom electronically stored information (“ESI”) was collected, created, accessed or modified and how it is formatted. An e-mail contains many pieces of metadata, such as the date and time it was sent and information about who sent it and who received it.


4. Maneuverability – Converting a native file into another format may affect the maneuverability of a document – the party’s ability to manipulate data using the native application. An Excel spreadsheet in its native format can be sorted and filtered for data and the user can examine embedded formulas and references.

Cost or Burden of Production

Experienced practitioners have found that discovery cost issues have been reduced with the production of documents by electronic means (i.e., on computer disks and as attachments to e-mails). However, electronic discovery has also expanded the scope and types of documents to be produced, leading to larger document requests and opposition to such requests.

The question that FINRA arbitrators should ask in determining contested discovery requests is this: Are the documents relevant or likely to lead to relevant evidence? The FINRA Arbitrator Guide provides:


· Cost – A party may object to producing a document that is on the FINRA Discovery List because of the cost or burden of production. If the party demonstrates that the cost or burden is disproportionate to the need for the document, the arbitrators should determine if the document is relevant or likely to lead to relevant evidence.


Relevance – If arbitrators determine that the document is relevant or likely to lead to relevant evidence, they should consider whether there are alternatives that can lessen the impact, such as narrowing the time frame or scope of an item on the Discovery Lists, determining whether another document can provide the same information or ordering a different form of production.

[i] FINRA’s Discovery Guide can be viewed at

http://www.finra.org/web/groups/arbitrationmediation/@arbmed/@arbtors/documents/arbmed/p123494.pdf and FINRA’s filing with the SEC with regard to electronic discovery and product cases can be viewed at http://www.finra.org/Industry/Regulation/RuleFilings/2013/P273522 .