Vanderbilt Law Review


Guy Nelson

First Page



When an individual investor opens an account with a securities broker, the customer often must sign a standard-form contract as a precondition of conducting business with the broker. This non- negotiable contract, referred to as a Customer Agreement, generally contains an arbitration clause under which the parties agree to submit any future disputes to arbitration conducted by one of the securities industry's self-regulatory organizations ("SROs"). Proceedings initiated under the broad and inclusive arbitration clause are subject to the arbitration guidelines established by the SROs, a group which includes all the major stock exchanges. Virtually all brokers are members of an SRO. The National Association of Securities Dealers ("NASD"), the leading SRO, conducts between eighty- five and ninety percent of all customer-broker arbitrations.

Although the parties to a securities dispute usually submit to SRO arbitration in accordance with the terms of the agreement, some parties resist arbitration. The resisting party (usually the securities broker) typically turns to the courts for an initial ruling on whether the arbitration must proceed. Meanwhile, the party that initially submitted its claim to arbitration (usually the customer) tends to resist resolution of the issue by the courts, arguing that the arbitrators themselves should decide whether arbitration is the appropriate means of resolving the dispute. The question in these cases thus becomes whether courts or arbitrators should decide if a particular dispute is arbitrable. This is referred to as the arbitrability question. In response to this threshold inquiry, the Exchange; The Boston Stock Exchange; The Chicago Board Options Exchange, Inc.; Cincinnati Stock Exchange; Midwest Stock Exchange; Municipal Securities Rulemaking Board; National Association of Securities Dealers, Inc.; The New York Stock Exchange, Inc.; New York Mercantile Exchange; National Futures Association; Pacific Stock Exchange; and Philadelphia Stock Exchange." GRANT, supra note 1, at 135. See infra notes 122-40 and accompanying text for a discussion of SROs, their self-enforcement of securities laws, and SEC oversight.