The Securities Industry Conference on Arbitration (SICA) issued a challenge to the securities industry - let a significant number of cases go to arbitration forums not affiliated with the securities industry, such as J•A•M•S (JAMS) or the American Arbitration Association (AAA), have those organizations administer the arbitrations, look at the results and evaluate the effectiveness of these forums verses industry arbitration forums such as the NASD or NYSE. Seven of the largest retail brokerage firms accepted the challenge.
Commencing on January 24, 2000, customers of Merrill Lynch, Morgan Stanley Dean Witter, PaineWebber, Prudential Securities, Salomon Smith Barney, A.G. Edwards and Raymond James may elect to have their arbitrations heard by a non-industry forum. 100 cases will go to an award by an arbitration panel administered by a non-affiliated forum over the next 24 months. Because 60% to 70% of all cases settle, it is estimated that over 400 cases will go through the program in order to obtain 100 decisions.
Participation by the securities firms is voluntary. However, once the firm agrees to participate, the firm is required to arbitrate at least a specified number of cases to award during the two years of the pilot program. The firm cannot elect which of the cases it will permit to go into the program; only a public customer can do that.
The firms participating, the number of cases that will go to decision and the arbitration forums selected are:
Claims Eligible for Program
Filing the Arbitration Claim
The customer must advise the industry forum of his decision in writing. If he elects to go to the non-affiliated forum, all pleadings, fees and deposits will be returned to the customer. In addition, any applicable statutes of limitations will be tolled for 60 days from the date the customer originally filed with the industry forum. This is to permit the customer adequate time to commence his arbitration at the non-affiliated forum.
Alternatively, customers may file directly with the specified non-affiliated forum. In her statement of claim, the customer must include the name of the industry forum where she would have filed. Whether the statement of claim is filed at an industry forum or non-affiliated forum, the firm will advise if the case is not eligible to participate in the pilot program, or the non-affiliated forum is not one designated by the firm, or one of the parties is not subject to an agreement to arbitrate or is not participating under the pilot program.
The Arbitration Panels
The arbitrators will be selected by the parties pursuant to a list selection method historically used by the AAA and more recently adopted, either for all cases or at the election of the parties, by the NASD and the NYSE. Each party will receive two lists, one containing non-affiliated arbitrators and the other the names of affiliated arbitrators. Each party will have 20 days in which to strike any names and number the remaining names in order of preference.
JAMS requires $25,000 in dispute and the AAA requires $100,000, before the case will qualify for three arbitrators. In the event the claim is for less than these amounts, both parties must agree to proceed with fewer than three arbitrators.
Given the expense of three-arbitrator panels, many in the securities industry have adopted Seth Lipner's belief that numerous disputes in arbitration should be resolved by one arbitrator. This would save time and money by making the hearing easier to schedule and by lowering the cost involved in the arbitration. Several have voiced the opinion that the parties may be willing to agree to a single arbitrator after the panel has been established and the chair chosen. At that juncture, both parties will know who the single arbitrator will be (namely the Chair) and may be comfortable in having him or her decide the case
SICA has prepared special submission forms and evaluation forms for use in this program.
All the participants, industry forums, non-industry forums and firms have agreed to actively cooperate in an effort to make the program a success. The only ingredient left to come is the public customer.
* Stephen G. Sneeringer is Senior Vice President & Counsel, A.G. Edwards & Sons, Inc. and a member of SAC's Board of Editors. As the former Chair of the Securities Industry Association's Subcommittee on Securities Arbitration, Mr. Sneeringer was a participant in formulating the Program which is the subject of this article.
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