What is arbitration?

Arbitration is a private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments. Arbitration is different from mediation because the neutral arbitrator has the authority to make a decision about the dispute. The arbitration process is similar to a trial in that the parties make opening statements and present evidence to the arbitrator.

Virtually every brokerage company in the country includes what is referred to as an “Arbitration Provision” on the back of the forms you sign on the day you open your account. Generally this provision provides that if you have a dispute over your account, you waive your right to go to court and agree to arbitrate before either the FPCA (formerly NASD) or one of the exchanges, like the NYCSE.
Arbitration is generally faster and less costly than court litigation. Most arbitration panels are comprised of 3 members. Two are deemed public and one industry (generally a current or retired broker). At the final hearing, after your case is presented and after the defense has presented their case, the arbitration panel will make a determination if you are entitled to any recovery, and if so, how much.