NASD Files Arbitration Rule Amendment to Give Investors Greater Flexibility in Settling Disputes with Suspended, Expelled or Out-of-Business Firms
Amy E. Hyland (202) 728-8304
Washington, D.C. — The National Association of Securities Dealers, Inc. (NASD®) today filed a proposed amendment that would prevent a firm that has been suspended, expelled or is out of business from enforcing pre-dispute arbitration agreements with customers, therefore permitting those customers to take their claims to court under very limited circumstances. This rule would only apply to those disputes in the NASD Dispute Resolution forum. Most U.S. brokerage firms require customers to sign a pre-dispute arbitration agreement, which binds a customer to arbitrate a financial dispute, instead of going to court.
"This proposed amendment will give investors increased flexibility to seek remedies against defunct firms, in special circumstances," said Linda Fienberg, President of NASD Dispute Resolution, Inc. "NASD Dispute Resolution's mission is to provide a fair and efficient forum for the resolution of disputes for all parties. Our reputation for fairness is based on making sure that cases are heard impartially, and that every effort is made to see that any damages a claimant wins will be paid. By going to court, investors can obtain a preliminary judgment, such as an immediate asset freeze, that is not available in arbitration."
NASD Dispute Resolution has filed this amendment to the NASD Code of Arbitration Procedure with the Securities and Exchange Commission (SEC) in response to a 1998 General Accounting Office report released last July, which found that a substantial percentage of arbitration awards against firms with a terminated or suspended membership went unpaid. The amendment filed with the SEC will only apply to customers of firms that no longer have NASD membership status. In addition, last fall NASD Dispute Resolution instituted a system of monitoring and tracking compliance with arbitration awards by members and associated persons. When customers receive a monetary award in an arbitration, NASD Dispute Resolution now requires firms and associated persons to certify in writing that they have complied with the award and made payment within 30 days.
NASD Dispute Resolution advises investors to check out the background of a broker or firm, before making an investment. Investors can conduct this research by using the NASD Public Disclosure Program.
NASD Dispute ResolutionSM is the nation's largest securities industry dispute resolution forum, handling over 90 percent of all securities-related disputes through arbitration and/or mediation. NASD Dispute Resolution, NASD Regulation, Inc., and the American Stock Exchange® are subsidiaries of the National Association of Securities Dealers, Inc., the largest securities industry self-regulatory organization in the United States.