Arbitration Forums  |  How to Select Arbitrators  |  Information for Investors
GAO Investor Study Relies on SAC Database

This section provides important background on the securities arbitration field, and resources for additional information - useful for practitioners, investors, students, and anyone who would like an all-encompassing view.

Arbitration Forums

Arbitration awards come from many sources. There are arbitration facilities, which are maintained by various securities exchanges and FINRA (the over-the-counter regulator) and share uniform arbitration rules. Also, three other arbitration providers deserve mention: the National Futures Association, the commodities futures counterpart to FINRA, which does not use SICA (Securities Industry Conference on Arbitration) rules - though they are similar; and the AAA (American Arbitration Association), a non-SRO provider; and JAMS, a more recent entrant to securities arbitration.

FINRA is by far the most active forum; NYSE runs a distant second, and NFA and AAA rank third and fourth in terms of annual filings. The remaining forums, some of which have excellent programs, play only a minor and more local role in securities dispute resolution. SAC is the one source for access to the Arbitration Award Database from the active forums.

How To Select Arbitrators

The Neutral List Selection System, or NLSS, is the selection method used by FINRA. It gives securities arbitration attorneys the ability to do an all-important check on the arbitrators who are candidates or appointees to the panels of their pending cases through disclosure procedures and by reviewing past award history.

The first list contains the names of 24 arbitrators - 16 public and 8 industry. Attorneys are free to make any "peremptory challenges" at this round - to "strike" arbitrators at will for any or no reason at all. One strike from either side removes that arbitrator from the list.

The arbitrators left on the list after both sides have made their peremptory challenges will be appointed to the panel. If more than three arbitrators remain, the panelists will be selected by party rankings; if panel vacancies exist after the challenges have been exercised, up to three new arbitrators will be appointed by the computer system on a random basis. At this juncture, an arbitrator can only be removed by a successful "challenge for cause" – such as a strong financial or personal conflict.

Attorneys check the award history of the arbitrators on the first round quite carefully – many consider this a "due diligence" responsibility to obtain the best panel feasible for their clients. On the second round, any new names on the appointed list require an important close look to unmask any challenges for cause that may not be apparent from the arbitrators' disclosures.

The attorney's job during the arbitration selection phase is considerably facilitated by the availability of past awards.  No matter where the awards are obtained, they should be reviewed for conflicts, for clues to experience and leanings, and for networking opportunities to other professionals who have appeared before the candidate. Not to do this is a serious mistake. When the NLSS process is completed, you will have chosen the "judge and jury" for your case.

The New York Stock Exchange offers a number of alternatives, which the parties, by agreement, can use to select their arbitrators. Absent an agreement, the NYSE will appoint a panel, allowing one peremptory challenge to each side and unlimited challenges for cause. The NYSE also offers access to its past awards, in addition to other disclosures about the candidates – but relevant awards may exist that were decided at the FINRA or other forums. Time is limited for peremptory challenges, after which appointment of the panel becomes final.

For more information on this and other topics within the field of securities arbitration, see our list of Educational Materials & Links.

Information For Investors

If you are an investor who has a dispute with your broker, you have made a smart decision to do your own research to locate and access the resources you need to win your case.

Choosing the right attorney is your first and most important step. The practice of securities arbitration is highly specialized and requires skills, knowledge, and experience. There are relatively few truly qualified advocates in this field. Depending upon the amount in dispute, you may wish to retain counsel – and, if you do, choose carefully.

GAO Investor Study

The U. S. Government Accountability Office, formerly the General Accounting Office, has performed a number of studies of securities arbitration.  How investors fare, and investors' ability to collect their awards when they win are two issues the GAO has analyzed.  SAC is honored to have been selected to aid the GAO in two of its most comprehensive studies of securities/commodities arbitration.

The first study issued in 1992, where the GAO investigated whether a pro-industry bias existed within securities/commodities arbitration. In that study, GAO was asked by Congress to compare arbitration results from thousands of cases to litigation and to the government-operated commodities reparations system. The GAO's extensive statistical compilation and analysis failed to find any quantitative indications of pro-industry bias (though the GAO did suggest some remedial alterations to all forums).

The second study issued in June 2000 and it, too, contains important statistics illuminating many different facets of the securities arbitration process.  These studies are posted on the GAO's website and make valuable reading.  Go to www.gao.gov and search for "securities arbitration."  (GGD-92-74 and GAO/GGD-00-115).

The GAO used SAC's Arbitration Award Database for these two studies; we believe that it is the GAO's primary source of award data. 

SAC data is used regularly in studies conducted by notable financial publications; see News & Views.

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