Tuesday, May 24, 2005

California Supreme Court Confirms NASD Rules Preempt State Law

The California Supreme Court has ruled that NASD and NYSE Arbitration Proceedings do not need to conform to California's restrictive rules regarding arbitrations and arbitrator selection.

The California rules, which were designed to address growing concern over private arbitrations, would have thrown securities arbitration into a morass, and would have increased the cost to investors, and the brokerage industry. Securities arbitration is already a regulated process, as the SEC, and ultimately Congress, control the process through their rule making authority. Practitioners were concerned that by allowing individual states to set their own rules, the nationwide system of arbitration that has been put into place would break down, increasing delays and costs to the participants.

The 9th Circuit reached a similar conclusion in March of this year.

NASD Rules Preempt State Law
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