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SEC Considers Ending Rules Compelling Arbitration for Securities and Investment Disputes

Sunday, April, 28, 2013


SEC Commissioner Luis Aguilar, in a speech at an North American Securities Administrators Association (NASAA) conference this past week in Washington, clearly stated his advice to end mandatory arbitration practices for resolving investment disputes between investors and brokers. “I believe the commission needs to be proactive in this important area,” said the Commissioner. “We need to support investor choice.”

Stating that removing mandatory arbitration rules would increase investor protection and “add more teeth to our federal securities laws,” Mr. Aguilar was among 17 other speakers of the North American Securities Administrators Association Inc. conference, as meetings were conducted with lawmakers.  All speakers relayed the same message: if an investor has a dispute with his or her broker, that investor should have the choice to settle the dispute in court. 

The Securities and Exchange Commission has been given the authority under the Dodd-Frank financial reform law to limit or end mandatory arbitration for investors and investment advisors.  However, the SEC has not yet dealt with the issue head-on.  However, according to NASAA spokesman, Bob Wester, “The time is ripe for the commission to act under [Dodd-Frank] to protect the investing public and prevent the further abuse of forced arbitration contracts. This is at the forefront of our agenda.”

Currently, most contracts between brokers and investors include an arbitration clause that must be signed prior to any dispute even taking place.  Investment advisers are also including them in many of their contracts with clients.  It is a practice that has seen controversy lately, particularly after a FINRA panel ruled that The Charles Schwab Corporation could not use its arbitration agreements to keep clients from filing class action suits. 

A. Heath Abshure, the Arkansas Securities Commissioner and President of NASAA also spoke on the issue at the NASAA conference, stating that “Arbitration has increasingly become the sole forum available to an aggrieved investor. Part of investor protection is ensuring civil remedies for investors, and one size does not always fit all when it comes to remedies.”