Most securities customers who are involved in arbitration have a negative perception of the process, according to a report to the Securities Industry Conference on Arbitration released today.
State securities regulators immediately seized on the report to demand that the Financial Industry Regulatory Authority and the Securities and Exchange Commission remove mandatory industry representatives from arbitration panels.
The report,
An Empirical Study: Perception of Fairness of Securities Arbitration” was conducted by the Cornell University’s Survey Research Institute, based on more than 3,000 survey responses.
SICA coordinates arbitration rules for securities self-regulatory organizations.
Most participants did not believe that the process was fair to all parties and they were not satisfied with the outcome of their disputes, the survey found.
They wanted an explanation of the awards, and they were split about whether the process is economical.
“Customers have a more negative perception of the process than non-customers,” the report said.
The report surveyed participants on both sides of arbitration cases that took place from 2002 and 2006.
Most respondents did believe the arbitration panel appeared competent to resolve the dispute.
But only 40% of the participants believed the arbitration panel was open-minded.
“The SICA study’s results are disturbing and they support what state regulators have been hearing from investors in their states – investors believe that the arbitration forum they are forced to participate in is rigged against them,” said Massachusetts securities director Bryan Lantagne in a statement issued by NASAA, based in Washington.
“This survey offers a mixed bag of findings,” said Ira Hammerman, general counsel of the Securities Industry and Financial markets Association of Washington and New York, in a statement issued by SIFMA. “It’s hard to know what to conclude when so few people responded, and of those who did, the large majority admitted they had no arbitration hearing experience.”
Responses came back from 13% of the surveys sent out by the Cornell research organization in Ithaca, N.Y.
