Broker-dealer customers typically arerequired by contract with their broker-dealers t
Notably, broker-dealer customers typically arerequired by contract with their broker-dealers to arbitrate any eligible dispute against abroker-dealer and its associated persons upon demand through the FINRA arbitrationforum;602 and FINRA rules require broker-dealers to arbitrate with their customers(whether or not there is a pre-dispute arbitration clause) and prescribe the content andformat of pre-dispute arbitration clauses in customer agreements.
Advisory clients may have disputes arbitrated through a pre-dispute or post-dispute agreement regarding a resolution forum
By contrast, advisory clients may elect to have disputes arbitrated either through a pre-dispute or post-disputeagreement regarding a resolution forum, but there are no regulatory requirements for the content and format of arbitration clauses in advisory agreements (although in practice,advisers whose agreements include such clauses generally follow the FINRA model) andthe procedures and fees that will be applied to such forum.603 Broker-dealer customershave private rights of action for damages under certain provisions of the Exchange Act.By contrast, advisory clients have a very limited private right of action under theAdvisers Act that enables clients to seek to void an investment adviser's contract andobtain restitution of fees paid.604 Both broker-dealer customers and advisory clients haveprivate rights of action for damages under Exchange Act Section 10(b) and Rule 10b-5 orapplicable state law.
Gap in regulation
Several commenters noted that the lack of a specialized arbitration forum for allinvestors may constitute a gap in regulation.605 Such commenters stated that aspecialized arbitration forum has a number of benefits for investors, including: (1) theability to make decisions based on equity that are not necessarily required by law;606 (2) itis generally less costly and more cost effective, efficient, and accessible (relaxed rules ofevidence and fewer barriers to entry) than litigation;607 (3) it is tailored to the industrystaffed with individuals that are knowledgeable about the industry, its products and bestpractices.
Agreements that requirecustomers to arbitrate disputes
Nevertheless, during the Dodd-Frank Act legislative process, concerns wereraised regarding mandatory-pre-dispute arbitration, including costs and limited groundsfor appeal, among others.609 Dodd-Frank Act Section 921 amends the Exchange Act andthe Advisers Act to provide the Commission with the authority to promulgate rules thatprohibit or impose conditions or limitations on the use of agreements that requirecustomers to arbitrate disputes, if it finds that such prohibition, imposition of conditions,or limitations, would be in the public interest and for the protection of investors.
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8921 W Sahara Ave.
Las Vegas, NV
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