In the securities markets, arbitration of broker-dealer disputes has long been used as an alternative to the courts because it is fair, and because it is a faster and more economical means of resolving disputes than court-based litigation. There are certain federal and state laws which govern the conduct of an arbitration proceeding generally, and detailed procedural rules (set forth by the Financial Industry Regulatory Authority) that govern the conduct of securities arbitration proceedings.

In general, and in the securities industry, the parties agree to arbitrate pursuant to a written pre-dispute arbitration agreement (PDAA) that the parties enter into prior to any dispute arising.

The Dodd-Frank Act empowers the SEC to restrict or prohibit the use of PDAAs in customer contracts if it finds that such limitations are in the public interests and for the protection of investors.