Wednesday, January 24, 2007

SEC Approves New NASD Arbitration Code

The NASD announced today that its new and improved arbitration and mediation code have been approved by the NASD. The new code adds some new rules, and reoganizes the code intothree parts: the Customer Code, the Industry Code, and the Mediation Code. The organization of the code as always been a source of confusion for new entrants to the field, and the NASD hopes that maintaining separate codes eliminates confusion regarding which rules apply to which disputes. To make it easier to find specific rules, the code is now organized to follow the sequential order of a typical arbitration.

The new code also makes it mandatory that parties must produce (or formally object to producing) documents requested in the discovery process. In addition, the code codifies the ability of arbitrators to sanction parties for non-compliance with the discovery rules or orders of the panel. Collectively, these changes should significantly reduce the number of discovery disputes in NASD arbitrations involving customer disputes. The new rules also establish uniform procedures for filing, responding to and ruling on motions in NASD arbitrations.

There is also a change to arbitrator selection. In a customer arbitration, the parties will receive three randomly generated lists - a public arbitrator list, a public chair-qualified arbitrator list and a non-public arbitrator list, each containing eight names. Gone will be the practice of striking all of the names on the list - parties will be able to only strike four of the eight names on the list. The list is also now generated randomly, rather than rotationally.

The new arbitrator selection process goes into effect immediately, for any case where arbitrators have not yet been selected We predict some problems with the new procedure, specifically the ability to only strike 4 of the 8 proposed arbitrators. Claimant's attorneys are going to have a problem when 5 former inhouse counsel show up on that industry list, and the defense side will have a similar problem when 5 PIABA attorneys show up on the public arbitrator list.

The reality is that arbitrator selection is undoubtedly an overblown "controversy." Arbitrators are professionals in their "other" life, and while we all bring our own experience to the process, in the end, the decision making process should be fair. We have all had experiences with apparently bad or prejudiced arbitrators, but those are extremely rare - if they exist at all.

The new code as approved is not at the NASD web site as of today, but they promise that it will be availalbe at the site, and in hard copy for those who request it.
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