Wednesday, September 16, 2009

NASAA Pushes to Abolish Mandatory Arbitration

I really am not picking on them, but one more part of today's NASAA story.

The organization of state securities regulators have also
raised the "mandatory arbitration is not fair" refrain again. The NASAA incoming president, Denise Voight Crawford is pushing to end mandatory arbitration in the securities industry. Since mandatory arbitration in the securities industry is a creation of the regulators, it is an interesting position for a regulator to take.

Keep in mind, it is the NASD that created mandatory arbitration in the brokerage industry, without a word of protest from the state regulators for some 30 years that brokers have been forced to arbitrate disputes with customers and their employers. The use of arbitration clauses in customer agreements followed the NASD's lead, and individual brokers, as well as customers, are forced to arbitrate their disputes with the firms and each other.

Various publications are quoting the incoming NASAA president as saying “The harmful effects of mandatory arbitration have been well-documented in numerous studies. Both houses of Congress have responded with legislation that would prohibit the use of mandatory arbitration clauses in a wide range of consumer services, including securities. No further studies are necessary.”

I am not sure what studies she is referring to. Sure, there are plenty of studies about the harmful effects of mandagory arbitration in consumer contracts and credit card contracts, but I am not aware of any study that has shown harmful effects of securities arbitration, which is a completely different and highly regulated process.

But that brings us back around to the original problem. If mandatory arbitration is so awful, why do the securities regulators continue to force brokerage firm employees to arbitrate their disputes with their customers and their employers? Is the NASAA taking the position that the FINRA rule requiring brokers and firms to arbitrate with customers and each other should be abolished?  More>>>

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