Vanderbilt Law Review

First Page



Securities arbitration' is now ascendant as a favored device for resolving disputes between broker-dealers and their customers, and much of this recent status derives from a series of United States Supreme Court decisions.' Culminating in Shearson/American Express,Inc. v. McMahon and Rodriguez de Quijas v. Shearson/American Ex-press, Inc., these decisions have ended the reign of certain restrictive judicial decisions that previously governed the availability of arbitration under the Federal Arbitration Act (FAA or Arbitration Act) Accordingly, such developments presage a greatly expanded use of arbitration as a future means of resolving disputes between broker-dealers and customers." Indeed, since the Supreme Court placed its imprimatur on the arbitration process, the arbitral forum already has become the likely, and in some instances the mandated, situs of deliberative proceedings on such conflicts." Logically, the focus of the debate and inquiry on the general subject of brokerage agreement dispute resolution must turn to the nature of this specific process.

Given the prominence that securities arbitration is likely to enjoy in the future, probing questions must be asked now regarding the effectiveness, basic fairness, and even legality of the procedures that effectuate it. Underscoring the importance of such inquiry are certain basic facts about securities arbitration in America today. First, this dispute resolution process is most often administered by organizations affiliated with, and indeed part of, the securities industry; and second, the process is predictably preferred by that industry to traditional litigation. Unquestionably, then, the inquiry must begin by addressing the circumstances under which a customer elects or agrees to have disputes resolved through arbitration, and continue through the hearing, final award, and any subsequent judicial challenges.