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Securities Arbitration - What is it?

This is the second in a series of posts regarding securities arbitration.

The first question many clients ask when they are told that their dispute is going to be handled in arbitration is what does that mean. Simply put, arbitration is a private method of resolving disputes that is outside of a traditional court system. Early on arbitration was created as an alternative to having disputes handled in a public court. As originally conceived, the arbitration process was viewed as a faster, private and, perhaps most importantly, a more economical process than going to court. As the law has developed, many of the decisions and awards rendered in an arbitration proceeding can now be enforced in the state and federal court systems.

In the context of securities arbitration, the process is governed by one of many self regulating organizations. One such organization is known as FINRA, which often handles arbitrations related to claims against stock brokers or financial advisors. According to U.S. securities law, every entity or individual that offers securities or security products for sale must be a member of one or more of these self regulating organizations. These organizations have created rules and put systems in place that provide for the orderly administration and management of arbitration matters.

In the case of FINRA arbitrations, the disputes are heard by either one or three arbitrators depending upon the amount of the claim. According to the rules established, the arbitrators have broad discretion in deciding whatever issues might come about in the context of the arbitration. For example, the arbitrators will be called upon to make legal rules related to statutes of limitation as well as make rulings regarding disputed facts. The arbitrators look to the rules that have been established by the self regulating organizations and to federal and state law for guidance in coming to a decision. After reaching the decision the arbitrators issue either an award or other holding which can then be enforced, if necessary, in either a state or federal court.

If you would like additional information see the securities arbitration section of our website.

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