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Securities Arbitration Center

Arbitration is a dispute resolution process, which is an alternative to the traditional lawsuit in court. Rather than have a matter decided by a judge and jury, participants to an arbitration proceeding have their dispute resolved by impartial persons who are knowledgeable in the areas in controversy. Those persons are called arbitrators.

Although arbitration and mediation have existed as dispute resolution mechanisms for well over 200 years, it was not until the decision of the United States Supreme Court, in Shearson v. MacMahon, 482 U.S. 220 (1987) that arbitration became the most widely used means of resolving disputes in the securities industry. Arbitration of securities broker-dealer disputes has long been used as an alternative to the courts because it is a prompt and inexpensive means of resolving complicated issues.

There are specific laws which govern the conduct of an arbitration proceeding from both the federal government and the various states. One of the most important legal aspects of arbitration is that arbitration awards are final and binding, subject to review by a court only on a very limited basis. Parties should recognize, too, that in choosing arbitration as a means of resolving a dispute, they generally give up their right to pursue the matter through the courts.

The advantage of giving up your right to go to court however, is that the arbitration process is more efficient, more cost-effective, and at least as fair as, a court proceeding. Where a trial in court might take 4 to 6 years from start to finish, securities arbitrations can be completed in less than a year, at less than 1/2 the cost. Customers win more than half the time, which is consistent with court proceedings.

Arbitration, while being styled a "businessman's" method of resolving disputes, is governed by state and federal law, as well as by the rules of the arbitration forum itself. A host of disputes can, and do, arise, regarding the location of the hearings, the composition of the panels, which disputes can be arbitrated, what discovery can be obtained, and other disputes.

Most states have provisions in their civil practice rules for arbitration, which provide a basic framework for the arbitration and due process considerations, as well as procedures for confirmation of an arbitrators award, a procedure which gives an arbitration award the force and effect of a judgment after a trial in a court. Many states have adopted the Uniform Arbitration Act, although some states, most notably New York, have specific and individual rules for oversight of arbitrations. New York's arbitration statute is contained in Article 75 of the New York CPLR. The Federal Arbitration Act is located at 9 USC Sec. 1, et. seq..

For more information on arbitration itself, visit The American Arbitration Association. An excellent resource for securities arbitration information in particular is SECLaw.com , in its Securities Arbitration Information Center .


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