Arbitration of Broker/dealer Disputes
| Jurisdiction | United States,Federal |
| Citation | Vol. 9 No. 10 Pg. 2108 |
| Pages | 2108 |
| Publication year | 1980 |
1980, October, Pg. 2108. Arbitration of Broker/Dealer Disputes
2108
Although the vast majority of securities transactions take place without any problem, disputes between securities broker/dealers and their customers do occur. The advent, or the increased trading of such securities products as call options, put options and lower-priced speculative securities of development stage companies has provided fertile ground for an increase in the potential number of securities' transaction disputes.
Of particular interest to local investors have been low-priced securities of new energy companies. These securities have been extensively underwritten by Denver-based broker/dealers. Coupled with the merchandizing of higher risk securities which are more likely to spawn disputes, there has been an increase in the number of securities broker/dealers in Colorado and the salesmen employed by them. The staff of the Colorado Division of Securities estimates that the number of salesmen in Colorado has nearly doubled in the past decade to its present level of approximately 9,500.(fn1)
When disputes with a client do arise, it is usually in the broker/dealer's best interest to settle them informally. If a satisfactory settlement is not reached, the customer often seeks legal counsel. The attorney is frequently faced with disputes involving small sums of money, uncorroborated testimony of his client as the primary basis of evidence and the prospect of lengthy litigation, necessitating presentation of complex securities concepts to adjudicators inexperienced in securities matters.
As an alternative to litigation, securities customers and their counsel should consider arbitration. Ten securities self-regulatory bodies, including the eight largest national stock exchanges, recently amended their individual arbitration procedures to conform to the Uniform Arbitration Code developed by the Securities Industry Conference on Arbitration.(fn2) For purposes of a cursory review of the rules governing arbitration, the provisions of the National Association of Securities Dealers, Inc. (NASD) Code of Arbitration Procedure (Code) will be used.(fn3)
In 1979, approximately 200 arbitration cases submitted pursuant to the Code were decided.(fn4) The number of cases in 1980 is expected to reach 300.(fn5) The NASD's Director of Arbitration estimates, however, that only a small minority of the investing public or of the legal community is aware of the arbitration procedure available for disputes with securities broker/dealers.
Effective July 21, 1980, the Code was amended in several significant respects. The Code has been clarified to make certain its application to any dispute with or among broker/dealers not involving any insurance business.(fn6) Examples would be disputes arising between the broker/dealer and its customers, salesmen, subordinated lenders, limited partners or parties to an underwriting agreement...
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