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New York Stock Exchange; An Introduction to Its Arbitration and Mediation Programs
ike a sailboat alongside a tanker ship, New York Stock Exchange (NYSE) arbitration and mediation programs continue to co-exist with competing programs at the National Association of Securities Dealers (NASD). Although the NASD boasts of its being the forum of choice for resolving securities disputes, the NYSE does have some advantages for and investors seeking to recover their investment losses.
Let's outline four advantages. First, the NYSE generally resolves disputes faster. In 2001, 6,915 cases were filed at the NASD, versus 780 cases filed at the NYSE. Those figures reflect a 24% increase at the NASD and a 41% increase at the NYSE. Most of that increase is due to an increase in claims filed by customers to recover their investment losses, which accounted for 514 of the total.
While the NASD has a much larger arbitration and mediation staff to service the claims filed at the NASD, the NYSE's smaller caseload does allow it to claim victory with respect to the time that the average case takes to close. In 2001, it took just 11 months to close a case at the NYSE, versus 13 months at the NASD. This is due in large part to the NYSE's serving claims upon the defendants (respondents in arbitration parlance) within five days of receipt on average and scheduling arbitration hearing dates when the respondents' answer is received or due.
The second advantage is that the NYSE continues to allow the parties in an arbitration to choose among alternative methods of selecting arbitrators. The NASD has implemented random list selection as the method of choosing arbitrators, in which 15 names of arbitrators are generated for rankings by the parties. The NYSE allows this method as well as two other methods. They are party agreement and enhanced list selection. Party agreement, as the term suggests, involves the parties selecting their own arbitrators or a process by which arbitrators will be selected. Enhanced list selection is a hybrid of list selection and NYSE staff selection.
The third advantage of NYSE arbitration is that, with the larger cases ($250,000 or more in alleged damages), the parties receive a prompt administrative conference. The conference is scheduled for 90 days after service of the arbitration claim. Further, there is no cost if the parties agree to have the staff conduct the conference, as opposed to the chairperson of the arbitration panel. The conference results in expediting the arbitration process, including expediting discovery of documents and information as well as expediting the hearing.
The fourth and greatest advantage is that, with the larger cases ($250,000 or more in alleged damages with customer claims and $500,000 or more in damages with securities industry member claims), the NYSE requires mediation before arbitration. Readers know how much I favor mediation. The NYSE mandatory mediation program provides that the Exchange will pay up to $500 of the mediator's fee for a single mediation session (one day). NYSE mediation statistics are encouraging, with 69% of customer claims settling, and 40% of industry claims settling in 2001. Though not as favorable as the NASD mediation statistics (79% success rate), the NYSE success rates are respectable given the mandatory nature or the program.
Overall, investors should consider the Exchange in filing claims to recover their investment losses. It may not be the biggest, but for some claims it may be the best.
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James J. Eccleston is a securities attorney, representing investors as well as brokers and brokerage firms nationwide in arbitration, litigation and regulatory matters. He is an equity partner with the law firm Shaheen, Novoselsky, Staat & Filipowski. He is a past co-chair of the Chicago Bar Association's Securities Law Committee, a past chair of its Financial and Investment Services Committee, a registered investment advisor and a licensed securities principal of the National Association of Securities Dealers (NASD). He can be reached at 312-621-4400. Articles, alerts, market and economic data may be found on his website, www.FinancialCounsel.com.
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Sponsored by James J. Eccleston. This Web site contains material of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
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