S-260                 _______________________________________________

                                                   SENATE BILL NO. 5787

                        _______________________________________________

State of Washington                               51st Legislature                              1989 Regular Session

By Senators Moore, Rasmussen, McMullen, Gaspard, Conner, Warnke and Vognild

Read first time 2/7/89 and referred to Committee on  Financial Institutions & Insurance.

AN ACT Relating to voluntary arbitration of customer-broker disputes; and adding a new section to chapter 21.20 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1.  A new section is added to chapter 21.20 RCW to read as follows:

          (1) It is unlawful for any broker, dealer, or municipal securities dealer to enter into any agreement with a customer to arbitrate future disputes that may arise between the broker, dealer, or municipal securities dealer and the customer unless the agreement is entered into in accordance with procedures prescribed by the director to afford the customer the opportunity to make an informed and voluntary decision to enter into such agreement.

          (a) The director shall adopt rules to carry out the requirements of subsection (1) of this section.  Such rules shall, at a minimum, require:

          (i) Any agreement to arbitrate future disputes shall be on a separate page and shall be separately signed;

          (ii) Any agreement to arbitrate future disputes shall not be made a condition for entry into a customer account agreement, or be used as a basis for any fee differential, or for granting, denying, conditioning, or limiting access to any privilege, benefit, or service to the customer;

          (iii) Any agreement to arbitrate future disputes shall clearly and prominently disclose to the customer, in a form prescribed by the director, such information concerning the consequences of entering into the agreement as the director considers necessary or appropriate to the exercise of an informed and voluntary decision by the customer to enter into such an agreement.

          (b) Any agreement that has been entered into in violation of the rules adopted by the director under this section shall be void.

          (2) Any rules adopted under this section shall provide for the fair, equitable, and expeditious resolution of controversies and disputes between customers and brokers, dealers, or municipal securities dealers or persons associated with brokers, dealers, or municipal securities dealers.  Those rules shall, at a minimum:

          (a) Provide the parties with an adequate right to, and specify the procedures for obtaining and enforcing, timely production of documents and witnesses, and for taking such depositions as the arbitrator deems necessary to the fair, equitable, and expeditious resolution of the dispute;

          (b) Require the arbitrator to present, at the time of rendering any decision, a brief written statement of (i) the reasons for the decision, and (ii) the elements of the award;

          (c) Require the selection, at the time of commencing arbitration proceedings, of an arbitrator, or at the request or with the consent of the customer, a panel of arbitrators.  The arbitrator, or, if a panel is selected, a majority of the arbitrators, may not be, and shall not have been associated with, or substantially engaged in the representation of, a broker, dealer, or municipal securities dealer or any  associated person thereof.  The customer may request an arbitrator or panel of arbitrators who have been such an associated person or who have been so engaged; and

          (d) Provide the customer with reasonable biographical information and the right to challenge the selection of arbitrators.

          (3) (a) Any condition, stipulation, or provision binding any person to waive any substantive or procedural defense, right, or remedy, expressly or impliedly granted, under this title, or under any rule adopted thereunder, shall be void, except as provided in (b) of this subsection.

          (b) Agreements to arbitrate future disputes consistent with this section and the rules adopted are not void.