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Cardozo Journal of Conflict Resolution

Abstract

When the Supreme Court held over twenty-five years ago that customers could be compelled to arbitrate their federal securities claims against their brokers, the vast majority of financial firms in the U.S. inserted pre-dispute arbitration provisions ("PDAAs") in agreements with their customers requiring them to arbitrate any claims arising out of their brokerage relationship. Since Sheerson/ Am. Express, Inc. v. McMahon, investor advocacy groups, scholars, and legislators have called for Congressional action to eliminate mandatory arbitration in securities cases, but the closest Congress has come to such elimination has been to punt this issue to the Securities and Exchange Commission ("SEC"), which has not yet acted. Instead, building upon the development of a uniform securities arbitration code and other reforms that pre-dated McMahon, ties arbitration code and other reforms that pre-dated McMahon.

Part II of this Article will provide a brief background of the regulatory framework governing the brokerage industry and its use of PDAAs in agreements with customers, and FINRA's limitations on judicial class action waivers. Part III will set forth the facts setting up the conflict between FINRA and Schwab and examine the Schwab OHO Decision. The reasons why the Schwab OHO Decision is flawed and should ultimately be reversed are set forth in Part IV of this Article. Finally, Part V will explore the consequences to investors with small claims should judicial class action waivers ultimately be held enforceable in securities cases, and alternative proposals FINRA can explore to provide avenues for the efficient resolution of investors' claims.

Disciplines

Dispute Resolution and Arbitration | Law | Law and Economics | Legal Remedies | Securities Law

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