Arbitration in the Securities Industry
This white paper on arbitration in the securities industry was published jointly by SIFMA and the SIFMA Compliance & Legal Society.
Excerpt
Executive Summary
For over three decades, applicable regulations have provided investors with an absolute right to have their disputes arbitrated. Investment firms have gained the same right in return by entering into predispute arbitration agreements with their new customers. Such contracts ensure that both sides are treated fairly and effectuate the public policy in favor of predispute arbitration agreements that has been recognized by both Congress and the United States Supreme Court.
Opponents of predispute arbitration agreements, however, seek neither fairness nor equality; rather, they seek an unfair strategic advantage. They want investors to retain their right to arbitrate as they see fit, but to deprive investment firms of the same right. Equally importantly, they ignore the many unique and attractive features of securities arbitration, some of which include:
• Securities arbitration is faster and less expensive than court-based litigation.
- A 1988 study found that average legal costs were $12,000 less in arbitration than in litigation. Adjusting solely for inflation, average legal costs today are at least $22,000 less in arbitration than in litigation. Given the significant increase in litigation costs since 1988, that gap is most likely substantially wider. More recent studies support this conclusion.
- Cases filed in securities arbitration are resolved, on average, approximately 40 percent faster than cases filed in court.
- Arbitration saves time and money because motion practice and discovery—both of which may be used as expensive delaying tactics—are disfavored and more limited in arbitration versus litigation.
• Securities arbitration is more accessible than court-based litigation.
- Relaxed pleading standards in securities arbitration encourage disputes to be filed. Recent Supreme Court decisions make certain that investors are far more likely to have their claims dismissed in court than in arbitration, where dismissals are rare. Thus, arbitration provides investors a much greater chance to have their “day in court.”
- The statistics bear out this fact. Whereas 20 percent of all arbitration claims are ultimately heard on the merits and decided by arbitrators, only about 1.5 percent of all civil claims in court are decided by a judge or jury.