Originally from Dispute Resolution Journal

I. INTRODUCTION

Ever since Financial Industry Regulatory Authority (FINRA) began
governing the alternative dispute resolution (ADR) procedures of the
Securities Law disputes, arbitration has been more dominant and
popular among the two ADR methods that FINRA has provided,
mediation and arbitration. Though the popularity of the arbitration has
some advantages, the dominance limits the other method, mediation,
from being employed for its potential benefits. If a systematic reform
enhances the use of the mediation, FINRA and its customers will
benefit from more effective procedures. Therefore, this paper intends
to suggest that adopting a hybrid form of the two existing methods
called Med-Arb is the right systematic application to improve the
FINRA ADR practice to get more out of its mediation implements.

II. ADR IN SECURITIES DISPUTES

A. Regulatory Structure of the U.S. Securities Industry
To understand the legal administration of the U.S. Securities
industry, two institutions must be introduced, FINRA and Securities
and Exchange Commission (SEC). FINRA regulates and authorizes
securities-related ADR practices,1 and SEC oversees FINRA’s
performances.2 In simpler terms, FINRA controls the Securities ADR
practices under the SEC’s oversight.
The U.S. Securities market’s legal structure stems from the SEC.
The SEC is a government institution which monitors and regulates
general operations of the Securities market.3 The U.S. legislature
created the SEC with the Securities Exchange Act of 1934 and
delegated power to govern the market function.