This research paper discusses the use in the United States of arbitration to resolve business disputes involving large corporations, including disputes between investors and retail securities brokerage firms, and disputes to which smaller businesses are parties. 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. Large corporations first found arbitration to be an attractive alternative to litigation, but today arbitration is also a very attractive alternative method for resolving small business disputes; however, its appeal may vary depending on the type of business involved, its location and the size and nature of the dispute.
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 secur...