USE OF ADR TO RESOLVE DISPUTES IN THE SECURITIES INDUSTRY
This research paper discusses the use of alternative dispute resolution (ADR) techniques to resolve disputes, principally those between investors and retail stock brokerage firms, in the American securities industry. ADR initially developed slowly in the 20th century in common law jurisdictions as a cost effective alternative to litigation as the courts overcame their initial reluctance to accept an alternative dispute resolution forum and to recognize the enforceability of private pre-dispute arbitration agreements ("PDAAs"). Because of the congestion in the civil courts, ADR in a number of forms is very much in vogue in a variety of contexts. In the securities industry, ADR, primarily arbitration, has emerged since the mid to late 1980s as the principal vehicle for resolving disputes involving investors and brokerage firms. Today a number of issues face the parties involved in securities-related disputes, the self-regulating organizations ("SROs") under whose auspices such disputes are decided, the Securities and Exchange Commission and federal and state courts, in attempting to achieve a proper balance between the interests of the investor public and the industry and to improve the effectiveness and fairness of securities arbitration.
ADR takes many forms, including negotiation, mini-trials and other forms of early neutral evaluation, mediation, conventional arbitration and variants of arbitration, such as 'high-low, 'baseball' and 'night baseball' arbitration. All these devices have as their common denominator the attempt to resolve disputes in forums other than the courts through processes other than litigation. The longest-standing and most enduring form of ADR is arbitration, "a system --set up by agreement of the parties-- to appoint an impartial third party who hears [the] dispute and makes a binding determination upon the facts, the applicable law and the cont...