This research paper discusses the use of arbitration to resolve disputes involving corporations, especially those between investors and retail securities brokerage firms, in the United States. Arbitration developed slowly in the 20th century in common law jurisdictions as a cost effective alternative to litigation in the courts as the courts overcame their traditional reluctance to accept arbitration and to recognize the enforceability of private pre-dispute arbitration agreements (PDAAs). Because of the congestion in the civil courts and for other reasons, arbitration in a number of forms is very much in vogue in a variety of contexts.
In the securities industry, arbitration has emerged since the mid to late 1980s as the principal vehicle for resolving disputes involving investors and securities brokerage firms. Today, a number of issues face the parties involved in the arbitration of securities-related disputes, including private investors seeking redress for alleged wrongdoing by brokerage firms, the self-regulating industry associations (SROS) under whose auspices such disputes are arbitrated, the Securities and Exchange Commission (SEC) and federal and state courts, as they attempt to achieve a proper balance between the interests of the investing public and the industry and to improve the effectiveness and fairness of securities arbitrations. Overall, the present system of securities arbitration appears to be working fairly well.
One of the principal bodies involved in the arbitration of disputes involving corporations, including securities arbitrations, the American Arbitration Association (AAA), a non-profit organization headquartered in New York City, defines an arbitration as "the voluntary submission of a dispute to an impartial person or persons for final and binding arbitration" (American Arbitration Association, 1992, p. 1). Unless their award is overturned by the courts, binding arbitration is just that--the aw...