What is Securities Arbitration?
Securities Arbitration is the process by which customer disputes are resolved with respect to the investments they have made through Registered Representatives of the securities industry or their employing Broker/Dealer firms. The majority of public investors typically sign a pre-dispute arbitration clause prior to making any investments. The effect of signing this agreement is that investors waive their right to pursue their claim through the courts. Customers need to be aware that they are waiving these rights when they sign the agreement with the firm, and the courts have upheld the validity of these agreements to arbitrate.
Arbitration will take place in one of the forums indicated in the pre-dispute arbitration agreement. The New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) are most often the neutral forums included in most customer agreements. Although customers are required to submit their claims in one of the listed forums instead of through the courts, bringing their claims in front of an experienced panel of arbitrators with vast experience in the securities industry does have its advantages. First, the arbitration process is streamlined thereby enabling investors to avoid the costly and time consuming court systems. Second, the panel of arbitrators are well versed in all types of securities matters. Compared to an unsophisticated panel of jurors or a judge who is unaware of the nuances of the highly specialized financial services industry, this panel of arbitrators are usually a better audience for the investor to present their claims. Finally, the process is streamlined so that long delays from extensive discovery and other time-consuming tactics typically found in the courts can be avoided in most circumstances.
Investors can expect to have a final resolution of their claim within 9-18 months of filing their claim. The process mirrors the courts in that a claim is filed by the aggrieved party, the firm or Registered Representative typically files an answer to that claim, and parties present their case through the presentation of evidence by way of witnesses, documents and personal testimony. All of the parties will have an opportunity to cross-examine the other side's witnesses and may object to the introduction of evidence, with the decision on its admission to be decided by the panel.
Upon the close of the arbitration hearing, the panel of arbitrators will deliberate before issuing their decision. The panel has 30 days from the close of the hearing to issue their decision, which does not have to have an explanation attached. Just like through the courts, the award issued by the arbitration panel is final and binding and full effect is given to its decisions by the courts.
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