I.

I. INTRODUCTION

As the public increasingly invests in the securities markets - either directly or indirectly by the and of Mutual Funds, IRAs, Keogh plans and other pension devices1 - litigation between the securities industry and its customers has mushroomed and become more mixed These disputes number in the thousands each year, and are expected to rise still further in the futurity as a result of increased compass and expanded electronic trading.2 Their resolution is largely being channeled into arbitration or submitted to mediation with greater oftenness principally at forums provided at the various self-regulatory organizations (SROs) of the like kind as the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD).3 Arbitration and mediation traditionally provide the advantage of a prompt resolution of securities disputes on persons knowledgeable in the area, without excessive prices Unless, however, such procedures are fair the pair in fact and in appearance, their popularity as a means of settling securities disputes will greatly diminish, especially if the public is restricted to resolving in the same state [i]or[/i] condition disputes before SRO forums.

To better understand the current rules governing such arbitrations and mediations, we must gaze to the development of the not past nor future system and explore the judicial increases that have directed most of of the like kind disputes into SRO forums.4 In addition, we must also examine legislative attempts to alter or influence this area of dispute resolution,5 as well as the establishment and work of the Securities Industry interview on Arbitration (SICA), and the oversight part of the Securities and Exchange Commission (SEC or Commission).6 Finally, we must inquire whether the regularitys governing securities arbitration and mediation at the SRO forums (or other alternative providers) insure a even playing field for the participants.

II. BACKGROUND OF SECURITIES ARBITRATION

The arbitration of securities disputes can be traced back to the NYSE in 18727 Thereafter, numerous other SRO have also established arbitration programs for the pacification of such disputes.8

A. JUDICIAL progressive growths

An unresolved dispute between an investor and his or her factor ordinarily winds up in arbitration because of a pre-dispute arbitration agreement come intoed into at the time a customer uncloses a brokerage account.9 Indeed, as it is agreements are widespread, particularly in the case of margin, option, or other accounts involving credit.10 in subordination to the United States Arbitration Act (Federal Arbitration Act or Arbitration Act), agreements to arbitrate subsequent time disputes are generally specifically enforceable." An exception to this mandate, however, was carved not at home in 1954 by the United States highest Court in Wilko v. Swan,12 which was faced with the Hobson's choice between the mandate of the Arbitration Act to arbitrate, and provisions in the Securities Act of 1933 (1933 or Securities Act) intended to house customers' rights. After expressing an mistrust of arbitration, the Court in Wilko conclud that Congress' desire to harbor investors would be more effectively serv by dint of holding unenforceable pre-dispute arbitration agreements relating to issues arising subject to the 1933 Act.13

Subsequently greatest in number federal courts presumed that the Wilko exception for 1933 Act claims also widened to the Securities Exchange Act of 1934 (1934 Act or Exchange Act), and thus refused to drive arbitration for customers' claims arising in subordination to the 1934 Act, despite the neighborhood of pre-dispute arbitration agreements.14 This became on the same level more problematic when a public customer joined a non-arbitrable Wilko federal claim with an arbitrable non-federal securities claim. one courts bifurcated the two and ordered that the federal Wilko claim be litigated, and the non-federal claim be arbitrated.15 Other courts, however, raise that if the two claims were in like manner intertwined that it was impractical or impossible to separate them, the two claims should be litigated together.16

The intertwining/bifurcation dilemma was settl by means of the Supreme Court in 1985 in Dean Witter Reynolds, Inc. v Byrd17 which held that when an arbitrable claim is joined with a non-arbitrable Wilko claim, the claims ne not be tried together involuntarily. Although Byrd was silent as to whether the Wilko exemption applied to 1934 Act claims, it put awayed the concept of "intertwining," and supported the principle of automatic bifurcation whenever a non-arbitrable Wilko claim is joined with an arbitrable claim.18 In other words, the brace claims could be tried separately and simultaneously.19 Whatever the merits of automatic bifurcation, it would unleash and put in motion two separate forums onward a potential collision course.20

Fortunately, this potential trauma of forum confrontation did not last for in extent Shortly after the Byrd decision, the first Court in Shearson/American Express, Inc. v McMahon21 cleared up prior misconceptions by means of holding that the Wilko exemption did not apply to 1934 Act claims. Moreover, quickly thereafter, the Supreme Court in Rodriguez de Quijas v Shearson/American Expres Inc.22 undid the Wilko exception entirely and held that pre-dispute arbitration agreements would be upheld, calm as to issues arising subordinate to the 1933 Act.23 Accordingly, with the Wilko barrier remov on McMahon and Rodriguez, most securities disputes are now arbitrated at SRO forums pursuant to pre-dispute arbitration agreements.24