Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, August 16, 2010

What is the Future of Securities Arbitration Post Dodd-Frank?

On August 11 I was a panelist at the PLI-Securities Arbitration 2010 program held in New York City, an annual event that reviews recent developments in FINRA's arbitration rules and practice, as well as updates on judicial developments.  The concluding panel, in particular, was of great interest, as it dealt with the Future of Securities Arbitration.  The various panelists offered their predictions on the future of mandatory securities arbitration since the SEC now has explicit authority, under section 921 of Dodd-Frank, to prohibit predispute arbitration agreements with respect to federal securities claims and claims based on SRO rules.  Linda Fienberg, the head of FINRA Dispute Resolution, stated that FINRA will fight to maintain FINRA Rule 12200, which gives customers the right to demand arbitration of their claims (even in the absence of a PDAA), because of the protection it provides investors.  She also expressed the following concerns if the SEC bans mandatory securities arbitration:

  • years of litigation if the SEC takes action
  • higher costs and long delays for investors if the FINRA forum does not remain an option for them
  • viability of small claims if FINRA arbitration is not an option
  • the impact on investors' ability to collect arbitration awards (FINRA requires broker-dealers and RRs to pay awards as a condition of remaining in the industry)
  • bifurcation of claims, if some investors' claims go to court and others to arbitration

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