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Securities industry arbitration: diametrically opposite approaches

Securities industry arbitration is rather young ADR instrument in Ukraine. Though the security industry is one of the spheres that particularly needs its own mechanism of resolution of specific disputes, arbitration in this market is still at the beginning of its development process. Apart from arbitration courts established by several banking associations there are specialized securities market arbitration courts created by self-regulatory organizations and business associations. Since there are no unified practice or resolving particular legal problems, participation of the specialist from the industry as arbitrators is usually highly recommended. The main reason of the involvement of industry arbitrators is that they know the rules and customs of the industry.

 new york stock exchange Securities industry arbitration: diametrically opposite approaches

However, as follows from the results of or analysis of the state of development of securities industry arbitration in countries with highly developed securities market, there is quite opposite situation on those countries. The independence of an arbitrator is considered also in the aspect of independence from the securities industry in general. The awareness of the customs of the market plays here a negative role.

 According to the Investment News a new regulation that would allow investors to choose an all-public arbitration panel in disputes with brokers is being hailed as a step toward making the process fairer — and criticized as a half-step toward giving investors the option of litigation. The Securities and Exchange Commission approved a rule proposed by the Financial Industry Regulatory Authority Inc. that would allow investors involved in FINRA arbitration proceedings to request a panel composed entirely of people with no recent ties to the securities industry. Usually, the three-person person boards consist of two public arbitrators and one from the industry.

The SEC action follows a 27-month pilot program during which FINRA gave certain investors the choice of replacing the industry arbitrator with a public panelist. The rule change, announced last week, does not affect disputes among brokerage firms or between brokers and their firms.

by International Arbitration Team

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  1. Whether you choose arbitration or are required to participate in it, most arbitrations generally use lawsuit-like rules and procedures to resolve claims. NASD arbitrations usually involve a panel of three decision makers or arbitrators. One arbitrator will be a member of the securities industry and the other two will be professionals like lawyers or accountants. During the arbitration, the arbitrators will determine what evidence is heard and then will consider all evidence presented to reach a decision. Because the decision makers already understand the securities industry, most arbitrations usually don’t last as long as jury trial. Most arbitration can be completed in about four days because the parties do not have to spend time educating a jury on securities terminology and regular industry practices. An investor usually receives a decision regarding their arbitration claim from the arbitration panel within thirty days of the arbitration proceeding. Most arbitration awards are promptly paid because of NASD rules and requirements.

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