The Arbitration Agreement - Chapter 3 - Securities Arbitration: Practice and Forms - Second Edition
W. Reece Bader
Burton W. Wiand
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Originally from Securities Arbitration: Practice and Forms - Second Edition
§ 3.01 Introduction
Disputes between broker–dealers and their customers are inevitable and unavoidable. Anticipating such disputes, the Financial Industry Regulatory Authority (FINRA) requires brokers to adhere to its rules incorporating arbitration provisions into agreements between members and customers. In prior days each self-regulatory organization had its own arbitration rules; for the most part all of these rule are now contained in the procedures established by FINRA.
Arbitration is the strongly favored method of dispute resolution as a matter of public policy. The Federal Arbitration Act (FAA) was established to promote that public policy and in doing so applies to most securities-related disputes. Section 2 of the FAA states:
A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . or the refusal to perform the whole or any part thereof, or the refusal to perform that whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such contract . . . or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
The starting point for determining a party’s right to arbitrate begins with the arbitration contract itself. The analysis begins with the determination of the existence of a valid contract between the parties. The contract may be implied from the rules and regulations of FINRA, in the case of intra-industry disputes between FINRA members and employees, or may be explicitly stated in a customer agreement between a FINRA member and its retail customer.
The next step is to determine whether the claim is within the scope of the arbitration agreement. Claims within the realm of arbitrability are wide ranging, varying from common-law claims to statutory claims depending upon the wording of the agreement and the forum in which the agreement is being interpreted.
The final step in the analysis is to determine whether the right to arbitrate the claim has been waived. For example, if a party’s delay in bringing a claim prejudices the opposing party, the party bringing the claim may lose the right to arbitrate the claim. This chapter addresses all of these steps in the analysis.