Neutral Corner - April 2004

Arbitrators and Orders of Confidentiality*

"Arbitrators must consider all aspects of an arbitration to be confidential." This is the instruction given to arbitrators in The Arbitrator's Manual compiled by members of the Securities Industry Conference on Arbitration (SICA). While the statement is certainly true, it is important that arbitrators not misinterpret its intended meaning. Its purpose is to encourage arbitrators to respect the privacy of the parties before whom they serve, being careful not to casually divulge information obtained during the course of the proceeding. For this reason, the instruction in The Arbitrator's Manual goes on to state: "records of the arbitration hearing should not be provided by the arbitrators to nonparties". The instruction is designed to remind arbitrators of their ethical responsibility not to personally disclose the details of arbitration proceedings.

There have been instances, however, where arbitrators have misinterpreted the above instruction and have ordered that all matters pertaining to the dispute be kept confidential by everyone involved - including the parties. While blanket orders of confidentiality in arbitration might be acceptable if all parties agree, they should be the exception, not the rule. The NASD staff, and the arbitrators on its Roster, are ethically obligated to keep confidential information obtained in an arbitration. However, parties are generally free to disclose details of their own proceeding as they see fit.

The issue of confidentiality also arises in the context of discovery. As stated in NASD Dispute Resolution's Discovery Guide: "If a party objects to document production on grounds of privacy or confidentiality, the arbitrator(s) or one of the parties may suggest a stipulation between the parties that the document(s) in question will not be disclosed or used in any manner outside of the arbitration of the particular case, or the arbitrator(s) may issue a confidentiality order." In cases where it is appropriate, ideally the parties will agree on a confidentiality agreement, as described above. This relieves the arbitrator from having to decide whether to issue a confidentiality order that may not be acceptable to all parties involved.

In some instances, the parties will not agree as to what is and is not confidential. A ruling that documents are confidential may impose burdens and limitations on the receiving party, such as requiring special handling or limiting the ability of the party to discuss the documents with witnesses and others who may assist in developing the case. Likewise, such a ruling may keep regulatory officials from learning of conduct in violations of statutes and rules. Thus, confidentiality orders should not be granted without a serious and case-by-case consideration of the issues. When deliberating contested requests for confidentiality orders, the arbitrators must consider the competing interests of the parties.

The arbitrators should bear in mind that the party asserting confidentiality has the burden of establishing that the documents in question legitimately require confidential treatment. In considering questions about confidentiality, the arbitrator should consider such factors as:

  1. Is the information so personal that disclosure would constitute an unwarranted invasion of personal privacy (e.g., an individual's social security number, tax return, or medical information)?
  2. Is there a real threat of injury attendant to disclosure of the information?
  3. Is the information proprietary containing confidential business plans and procedures or a trade secret?
  4. Are there essential competing interests at stake that require confidential treatment of certain portions of the proceedings?
  5. Is the information already public (e.g., has it previously been published or produced without confidentiality) or is it already in the public domain?
  6. Would an excessively broad confidentiality order be against the public interest in disclosure? Keep in mind that securities arbitration is highly regulated by the Securities and Exchange Commission. The former SEC Director of Enforcement, William R. McLucas, has stated: "[P]rivate [securities] actions will continue to be essential to the maintenance of proper investor protection."
  7. Are there first amendment or other issues which might be raised by excessive restrictions on the ability of parties to comment freely upon matters in which they are involved?
  8. Would an unduly extensive confidentiality order impair the ability of counsel to represent other clients?

Arbitrators should not routinely designate all discovery as confidential. Where confidentiality is appropriate, bear in mind that it should generally be accomplished in the least restrictive manner.

These are just some of the questions that an arbitrator must consider before issuing a confidentiality order that has not been agreed to by all parties to an arbitration proceeding.

* The above article was jointly written by members of the Neutral Roster Subcommittee of the National Arbitration and Mediation Committee (NAMC), a Committee of the NASD Dispute Resolution Board.

Important Messages

Midwest Regional Director

We're delighted to announce that effective March 15, 2004 Scott Carfello became the new Regional Director of our Midwest Regional Office in Chicago. Mr. Carfello had a long and distinguished career at the American Arbitration Association (AAA). Most recently, he served as District Vice President for the AAA Midwest Region, where he managed the Chicago Regional Office and the business development activities of the Kansas City, Minneapolis, and St. Louis offices. While at AAA, Scott served as liaison to the American Bar Association and was Recording Secretary to the ABA/AMA/AAA Commission on Health Care Dispute Resolution. In 1986, he began his career in dispute resolution as a case administrator in the AAA Chicago Regional Office, and was subsequently promoted to Regional Director of that office.

Scott is a graduate of John Marshall Law School (JD) and Illinois State University (BS). He is an attorney admitted to practice in Illinois, and is an Adjunct Professor of Law at John Marshall Law School. He is a member of several bar and professional associations, and is an experienced speaker and writer. Please join us in welcoming Scott to NASD Dispute Resolution.

Arbitrator Recruitment

The success of arbitration depends on the quality of its arbitrators. In February 2004, NASD sent a Member Alert to recruit qualified arbitrator candidates who are currently working in the securities industry. Additionally, NASD Dispute Resolution is committed to recruiting candidates from the public sector, such as accountants, attorneys, investors, or educators.

The recruitment of new arbitrators is especially important because NASD plans to establish new hearing locations during the next two years in the following 16 states: Alabama, Iowa, Kansas, South Carolina, Delaware, Rhode Island, Idaho, Maine, Mississippi, Montana, North Dakota, South Dakota, New Hampshire, Vermont, West Virginia, and Wyoming. At the present time, NASD conducts hearings in 51 locations in the United States and abroad.

If you know bright, qualified, and committed individuals who might be willing to serve as arbitrators, please encourage them to apply.

Chairperson Selection

In March 2004, NASD filed with the SEC a proposed amendment to NASD Rule 10308 (SR-NASD-2004-039). The proposal will reduce the time parties have to select a Chairperson after they are notified of the presiding arbitrators on their case--from 15 to 5 days.

NASD believes that the proposal will make Chairperson selection process more efficient and allow earlier scheduling of the Initial Prehearing Conference. At the same time, the proposal will provide parties with adequate time to agree on a Chairperson, since parties fail to agree on a Chairperson almost 80 per cent of the time under the current 15-day time frame. NASD also indicated in the rule filing that staff will grant parties additional time to agree on a Chairperson if they request an extension of time for this purpose.

SICA Report to SEC

In October 2003, the Securities Industry Conference on Arbitration (SICA) issued its Twelfth Report (Report) to the Securities and Exchange Commission (SEC). SICA, which consists of investor, broker-dealer, and self-regulatory organization representatives, meets regularly to initiate or review securities dispute resolution rules and policies in the interest of forum constituents. The SICA Report includes recent SICA initiatives, composite arbitration statistics for each sponsoring forum, and the History of SICA.

Chairperson Training

NASD Dispute Resolution offers Online Arbitrator Training for Chairpersons. Since this training includes new and useful information, we encourage you to take the course. It is available on our Web site 24 hours a day, seven days a week. To access and register for the program, please use the online enrollment form on our Web site at The cost of the training is $100. Participants have one month to complete the course after enrollment and must receive a passing grade of 80 percent on the final exam in order to be made available for service as an arbitrator.

Comments and Feedback

The Neutral Corner welcomes your comments, feedback, or questions on the material presented in this publication or on other arbitration and mediation issues. The Neutral Corner also invites readers to submit articles on important issues of law and procedure relating to mediation, arbitration, or other alternative dispute resolution processes.

Please send your article to the Department of Neutral Management, The Neutral Corner, NASD Dispute Resolution, One Liberty Plaza, 165 Broadway, 27th Floor, New York, New York 10006.


Linda D. Fienberg
NASD Dispute Resolution

George H. Friedman
Executive Vice President
NASD Dispute Resolution

Kenneth L. Andrichik
Senior Vice President
Mediation & Business Strategies

Jean I. Feeney
Vice President & Chief Counsel

Dorothy Popp
Associate Vice President,
Director of Operations

Richard W. Berry
Associate Vice President &
Director, Case Administration 

Barbara L. Brady
Associate Vice President &
Director, Neutral Management

Elizabeth R. Clancy
Vice President &
Regional Director, Northeast Region

Judith Hale Norris
Vice President &
Regional Director, Western Region

Rose Schindler
Associate Vice President &
Regional Director, Southeast Region

Shari Sturm
Regional Director,
Mid-Atlantic Region

Scott Carfello
Regional Director,
Midwest Region

NASD Dispute Resolution Offices

Northeast Region
One Liberty Plaza
165 Broadway
27th Floor
New York, NY 10006
(212) 858-4400
Fax: (212) 858-4429

Mid-Atlantic Region
1735 K Street, NW
Washington, DC 20006
(202) 728-8958
Fax: (202) 728-6952

Southeast Region
Boca Center Tower 1
5200 Town Center Circle
Second Floor
Boca Raton, FL 33486
(561) 416-0277
Fax: (561) 416-2267

Western Region
300 S. Grand Avenue
Suite 900
Los Angeles, CA 90071
(213) 613-2680
Fax: (213) 613-2677

Midwest Region
10 S. LaSalle Street
Suite 1110
Chicago, IL 60603-1002
(312) 899-4440
Fax: (312) 236-9239