Securities Arbitration Explained

Securities arbitration is the legal process by which many disputes between customers and their brokerage firms are resolved. Arbitration is an alternative to traditional litigation, which takes place in a courthouse before a judge and/or jury.

When a person goes to arbitration, he or she is giving up, nor surrendering, the right to have a dispute heard by normal court or jury.

As a general rule, arbitrations may only be used as an alternative to litigation if the parties agree to arbitration or if they have a contract requiring them to arbitrate. Most securities arbitrations take place under the control of the National Association of Securities Dealers (NASD) because it has rules requiring members to arbitrate customer complaints upon request.

All stockbrokers and brokerage firms should be NASD members and most securities arbitration claims involve allegations of broker-dealer wrongdoing. Because of NASD, as a customer, you may require your broker to resolve any dispute you have with them in arbitration even if you do not have a specific agreement regarding arbitration. From Findlaw.com.

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