What is a predispute arbitration clause?

Virtually every securities brokerage firm will provide you with a standard new account form with a clause that requires you to pursue any grievance through arbitration proceedings instead of the court system.

How does arbitration work?

Arbitration is just like a trial except instead of a judge and jury you get a panel of one to three arbitrators which act as both judge and jury. They hear and weigh the arguments and evidence of both sides of a case, then render a binding decision. The arbitrators generally include at least one “industry” person and two non-industry. Unlike court proceedings, arbitration usually doesn’t involve depositions, motions, or appeals.

Who conducts the arbitration proceedings?

The three main forums for resolving securities arbitration disputes are:
The American Arbitration Association
The New York Stock Exchange
The National Association of Securities Dealers, Inc.

How much will it cost to file a Statement of Claim in an arbitration proceeding?

Each forum charges its own filing, administrative and hearing fees. The greater the amount of your claim, the greater your filing and administrative fees will be. If the case settles, a portion of this fee may be returned.

What are my odds of "winning" a case?

According to the Securities Arbitration Commentator, a periodical publication which has studied the statistics of securities arbitration cases, 80% of all customer cases settle in favor of the investor prior to the rendering of an arbitration award. Over half of the remaining 20% that do not settle prior to arbitration result in an award to the customer.

Is it worth all the time and trouble?

It’s up to you. Consider that you’ll be asked to come up with copies of your financial records and tax returns. There are also other questions about your background and experience that must be answered. You must decide if you want the broker to get away with his or her conduct and the way he or she treated you.