Mandatory Arbitration in the Securities Industry
II. The Law concerning Arbitration in the Securities Industry
(a) Bifurcation of arbitrable and nonarbitrable claims
(c) Challenges to arbitration agreement
III. The Case Against Mandatory Arbitration in the Securities Industry
A. The mandatory pre-dispute arbitration clause
B. The composition of the arbitration panel
C. The arbitrariness and finality of arbitration decisions
D. The uncertainty of punitive damage awards in arbitration
IV. Possible Alternatives or Solution to the Problems
A. Allow concurrent jurisdiction between state and federal courts
B. Expand composition of the arbitration panel
Mandatory Arbitration in the Securities Industry
This paper will discuss the use of arbitration to settle disputes in the securities industry, particularly those between investors and brokers. The thesis of this paper is that mandatory arbitration in the securities industry is unfair to investors, since it generally favors the brokers. The first part of the paper will describe the law governing arbitration in the securities industry. The second part of the paper will discuss why mandatory arbitration is unfair to investors. The last part of the paper will present some possible reforms for, and alternatives to, mandatory arbitration.
The Law Governing Arbitration in the Securities Industry
The use of arbitration to settle disputes in the securities industry has existed since the late Nineteenth Century. The first recorded use of arbitration occurred in 1872 and involved the New York Stock Exchange. From that point forward, the industry showed a desire for making arbitration the preferred method of settling disputes. However, the U.S. Supreme Court did not share this enthusiasm. In 1953, it refused to enforce a predispute agreement to compel arbitration of a claim under Section 12(2) of the Securities Act of 1933. The Court reasoned that Co...