SENATE BILL REPORT

SB 5787

BYSenators Moore, Rasmussen, McMullen, Gaspard, Conner, Warnke and Vognild

Providing for arbitration of customer-broker disputes.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 24, 1989

Senate Staff:Benson Porter (786-7470)

AS OF FEBRUARY 23, 1989

BACKGROUND:

Individuals purchasing securities or services from a securities firm, broker/dealer, or municipal securities dealer enter into a contract that often contains a predispute arbitration agreement.  Under these agreements, any future disputes between the customer and one of these entities are resolved by an arbitrator or arbitration panel pursuant to the agreement.  The National Association of Securities Dealers, the New York Stock Exchange, and American Arbitration Association have established arbitration procedures that may be followed in the resolution of a dispute.

Some concern has been expressed that the arbitration process is more beneficial to the broker/dealer and that the customer may not be making an informed and voluntary decision when entering such agreements. 

SUMMARY:

The use of predispute arbitration agreements between an individual and any broker, dealer, or municipal securities dealer is declared unlawful unless certain procedures are followed. 

The Director of the Department of Licensing is directed to establish rules to govern the use of predispute arbitration clauses.  Any agreement to arbitrate future disputes must be on a separate page and separately signed.  The agreement also shall contain information concerning the consequences of entering such an agreement and the entry into such an agreement shall not be made as a condition for an individual to establish an account or obtain any other benefits.

Any agreements entered into under this chapter must provide for a fair, equitable, and expeditious resolution of controversies between customers and brokers, dealers, and municipal securities dealers.  Any decision rendered by an arbitrator shall contain a brief written statement of the reasons for the decision and the elements of the award.

The arbitrator or panel of arbitrators, if selected, may not have been associated with or substantially engaged in representation of any broker/dealer, municipal securities dealer, or any associated person thereof.  A customer is allowed to request an arbitrator or panel of arbitrators who have had such an association.  The customer is to be given biographical information concerning the arbitrators and shall have the right to challenge the selection of arbitrators.

Any predispute arbitration agreement in conflict with this chapter shall be considered void.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested