Securities arbitration has become the most often used method of resolving disputes in the securities industry. Since the late 1970’s, FINRA and its predecessors have required brokerage firms and stock brokers into securities arbitration to resolve their disputes with each other, and with their customers. That requirement led to brokerage firms requiring, through their customer agreements, their customers to arbitrate their disputes.
After much litigation, and a decision by the United States Supreme Court, those arbitration agreements, known as “pre-dispute arbitration clauses” are valid and enforceable. Today, mandatory arbitration clauses in other industries are being attacked by a variety of consumer groups, as being unfair to consumers, biased in favor of whatever industry is using the process, and a host of other allegations.
Securities arbitrations are substantially different than other consumer arbitration procedures. While there are some issues with the process, the process bears no resemblence to the one being discussed by the anti-mandatory arbitration advocates.
Securities lawyer Mark Astarita has represented parties in over 600 securities arbitrations. The process works well for most cases, and is at least as fair as going to court. According to FINRA statistics, approximately 50% of all investor claims settle without a hearing, and investors receive compensation in half of the case. Assuming that the settlements were “wins” for the investors, that translates to a 75% “win” rate for investors.
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- SDNY Defines Customer under FINRA Rule 12200
- Overview of the Securities Arbitration Process
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