NASAA Calls for Voluntary Securities Arbitration System

On December 12, The North American Securities Administrators Association told the Senate Judiciary Constitution Subcommittee says that it is calling for a voluntary securities arbitration system. NASAA also approves of the proposed Arbitration Fairness Act (S. 1782).

NASAA says that right now, nearly every broker-dealer has to include a pre-dispute arbitration provision in its customer agreements that says public investors must submit any disputes with a firm and its associates to an arbitrator.

Illinois Secretary of State and Illinois Securities Director Tanya Solov says that mandatory arbitration is unfair to investors and that the securities arbitration system should be voluntary. Currently, arbitration panels are made up of one mandatory securities industry representative and public arbitrators that may have connections to the securities industry.

She expressed the concern that even though independent arbitrators are supposed to be conflict-free and therefore qualified to make a decision about a conflict, these arbitrators can’t help but bring their own experiences and training to the panel. Solov also called for FINRA to revise its statistics about arbitration outcome. She said that just because an investor recouped a small amount of his or her losses, this didn’t necessarily constitute a win for him or her.

Congressional Research Service says that the legislation, introduced on January 12, would:

• Make no predispute arbitration deal enforceable or valid if arbitration of “(1) an employment, consumer, or franchise dispute, or (2) a dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power is required”

• Allow a court, instead of an arbitrator, to determine an agreement’s enforceability or validity.

• Render arbitration provisions in collective bargaining agreements from this S. 1782, the Arbitration Fairness Act of 2007 exempt.

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Related Web Resources:

North American Securities Administrators Association

S. 1782, the Arbitration Fairness Act of 2007 (PDF)

Congressional Research Service