Backed-up SEC won't address mandatory arb any time soon

Walter says other initiatives take priority, including money-market reform

May 20, 2013 @ 4:07 pm

By Mark Schoeff Jr.

SEC
+ Zoom

Although state securities regulators and some lawmakers are pushing the Securities and Exchange commission to end or modify mandatory arbitration clauses in brokerage contracts, the agency won't be taking action on the issue any time soon.

SEC Commissioner Elisse Walter said today that there are too many other mandatory rulemakings that the SEC must address, including provisions in the Dodd-Frank financial reform law and a separate law – the Jumpstart Our Business Startups Act -- that aims to ease securities regulations for small firms.

The Dodd-Frank measure gave the SEC the authority to reform mandatory arbitration, which is included in nearly every brokerage contract.

“It's not going to happen in the next few months or this year because there is so much we have left to do under Dodd-Frank and the JOBS Act – and we have to deal with money market funds and a few other things that by virtue of market interest really are ahead of all of this,” Ms. Walter told an audience at the Financial Industry Regulatory Authority Inc. conference in Washington.

State securities regulators and some lawmakers argue that giving small investors the option of going to court with their claims would be fairer to them. Proponents of arbitration assert that it is the most cost-effective and efficient way to adjudicate claims.

Last week, The Charles Schwab Corp. removed from its client contracts a clause that prevents them from filing class-action suits against the broker.

Finra brought charges against Schwab last year, claiming that the company's arbitration agreement violated its rules that ensure customers can join a court-filed class action case instead of arbitration. But a Finra hearing panel in February ruled in Schwab's favor, saying that the Federal Arbitration Act prevented Finra from enforcing those rules.

Finra appealed the decision to its internal appeals board, the National Adjudicatory Council, where the case is pending and expected to be heard in September.

Although state securities regulators and some lawmakers are pushing the Securities and Exchange commission to end or modify mandatory arbitration clauses in brokerage contracts, the agency won't be taking action on the issue any time soon.

SEC Commissioner Elisse Walter said on Monday that there are too many other mandatory rulemakings that the SEC must address, including provisions from the Dodd-Frank financial reform law and a separate law — the Jumpstart Our Business Startups Act — that aims to ease securities regulations for small firms.

The Dodd-Frank measure gave the SEC the authority to reform mandatory arbitration, which is included in nearly every brokerage contract.

“It's not going to happen in the next few months or this year because there is so much we have left to do under Dodd-Frank and the JOBS Act – and we have to deal with money market funds and a few other things that by virtue of market interest really are ahead of all of this,” Ms. Walter told an audience at the Financial Industry Regulatory Authority Inc. conference in Washington.

State securities regulators and some lawmakers argue that giving small investors the option of going to court with their claims would be fairer to them. Proponents of arbitration assert that industry panels are the most cost-effective and efficient way to adjudicate claims.

Last week, The Charles Schwab Corp. removed from its client contracts a clause that prevents them from filing class-action suits against the broker.

Finra brought charges against Schwab last year, claiming that the company's arbitration agreement violated its rules that ensure customers can join a court-filed class action case instead of arbitration. But a Finra hearing panel in February ruled in Schwab's favor, saying that the Federal Arbitration Act prevented Finra from enforcing those rules.

Finra appealed the decision to its internal appeals board, the National Adjudicatory Council, or NAC, where the case is pending and expected to be heard in September.

Ms. Walter said the SEC should consider the issue at some point.

“I personally do think it's something to take a hard look at,” Ms. Walter said. “I don't know when the commission will be able to find the time to do it.”

0
Comments

What do you think?

Sponsored financial news

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Apr 04

Webcast

Fiduciary rule limbo: How advisors can adapt and deliver no matter where the fiduciary bar is set

Regardless of the uncertain fate of the Department of Labor's fiduciary rule and its provisions, many advisors are finding themselves under increasing pressure to meet a new level of client expectations and potentially answer some awkward... Learn more

Accepted for 1 CE Credit from the CFP Board. Approved for 1 CFA Credit.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print