Press Releases

Release Date: February 6, 2008
Contact:
Jeannie Bunton, (202) 962-7356, jbunton@sifma.org

SIFMA Questions Middling Results, Flawed Process Of SICA Survey

Washington, D.C., February 6, 2008 – The Securities Industry and Financial Markets Association (SIFMA) issued the following statement regarding the “Perceptions of Fairness” survey report, released today by the Securities Industry Conference on Arbitration (SICA).  SIFMA is the sole industry member of SICA.

“This survey offers a mixed bag of findings,” said Ira Hammerman, senior managing director and general counsel of SIFMA.  “It’s hard to know what to conclude when so few people responded, and of those who did, the large majority admitted they had no arbitration hearing experience, but proceeded to answer questions as if they did.” 

Added Hammerman, “Poor process controls also resulted in at least 1,500 participants receiving two or more copies of the survey.  As a result, we are left with a survey whose results are middling, questionable and thus, unlikely to lead us to greater truths.” 

SIFMA’s analysis of the SICA survey shows:

Few responders; even fewer with hearing experience. 

Only about 10% (approximately 3,100 out of nearly 30,000 persons who recently participated in a customer-member arbitration) responded.  Overall, 44% of survey responders were customers, and the rest were firms, brokers, and lawyers. Only about 1,300 (4.3%) had cases proceed to an arbitration award following a hearing; only about 530 (1.8%) were customers.  The large majority (58%) of survey responders never took their cases to a decision following an arbitration hearing.  Instead, their cases either settled (39%), or were decided based on the papers, dismissed, or withdrawn before hearing. 

Approximately 90% of individuals failed to respond to the survey.  The survey recognizes this problem – which it calls “nonresponse bias” – which further undercuts the validity of any conclusions that may be drawn from the survey.

Overall mixed results.  The survey shows that securities arbitration continues to function well in several key areas:  Survey participants agreed that: arbitrators listened to them; arbitrators were competent to handle the dispute and understand the issues in the case; and the process allowed them to obtain necessary information for hearing. 

Simultaneously, the survey concludes that, “survey participants’ perceptions of securities arbitration are nuanced, complex and resist summary categorization.”  The survey found that most participants “have positive perceptions” of securities arbitration procedures.  Yet, no group of participants was completely satisfied with the outcomes of their arbitrations.  While customers, on the one hand, felt they were not fully compensated for their losses, securities firms, on the other hand, felt that customer awards were overly generous.  The fact that both sides were somewhat dissatisfied with the outcome is a good indication that the system is taking a balanced approach and producing results that are within an acceptable range of fairness.

Other surveys show a fair, unbiased system.  A 1999 survey analyzing perceptions of fairness of securities arbitration concluded that 93.49% of the individuals surveyed – 54% of whom were customers – found that their case was “handled fairly and without bias.”  Similarly, in a 2001 survey, 85% of those surveyed agreed that their cases were handled fairly and without bias.  The SICA survey, however, paints a more equivocal picture of perceptions. 

In October, SIFMA, in conjunction with its Compliance and Legal Division, released a white paper demonstrating the compelling benefits to investors and the overall fairness of securities arbitration, based upon three decades of strict regulatory oversight and ever-expanding procedural protections.  SIFMA’s findings are supported by the most current, objective, statistical data.  The SICA survey, on the other hand, attempts to analyze fairness by individuals’ subjective views about the alleged inefficiency of arbitration, and the alleged bias of arbitrators.  SIFMA’s white paper demonstrates that such subjective perceptions are simply faulty and out of touch with the objective reality.  Focusing only on the objective data, SIFMA’s study finds: 

·        Arbitration cases are resolved 40% faster than court cases, saving investors time and money

·      The last two years of data confirm that investors fare as well with an industry arbitrator on their panel as without

·       Investors’ claims are more likely to be heard on the merits: 20% of arbitration claims are decided by arbitrators vs. only 1.5% of civil claims in court that are heard by a decision-maker (judge or jury)

·       25% of all claims are for less than $10,000, a sum for which litigation is usually not cost effective

 The full content of the white paper can be found at the following link:

http://www.sifma.org/regulatory/pdf/arbitration-white-paper.pdf

SIFMA’s full analysis of the SICA survey can be found at the following link:

http://www.sifma.org/regulatory/pdf/Guide-Fair-Securities-Arbitration.pdf

Link to full report:

http://www.law.pace.edu/files/finalreporttosica.pdf

 

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The Securities Industry and Financial Markets Association brings together the shared interests of more than 650 securities firms, banks and asset managers. SIFMA's mission is to promote policies and practices that work to expand and perfect markets, foster the development of new products and services and create efficiencies for member firms, while preserving and enhancing the public's trust and confidence in the markets and the industry. SIFMA works to represent its members’ interests locally and globally. It has offices in New York, Washington D.C., and London and its associated firm, the Asia Securities Industry and Financial Markets Association, is based in Hong Kong.