Novel issues of arbitrator conflicts of interest in securities arbitration cannot be redressed fully by the current rules of procedure at the self-regulatory organizations (SROs) such as the NASD (National Association of Securities Dealers) and the NYSE (New York Stock Exchange). Just some of these issues include:

Inadequate disclosure by arbitrators and a party’s right to challenge arbitrator appointment by the forum in securities arbitration or commodities arbitration cases;

The ability of a party to have an arbitrator removed in the event the arbitrator refuses to provide relevant information pertaining to his or her background, experience and potential conflicts of interest or bias; and

Whether an arbitrator should be appointed in securities arbitration where there are claims of his or her misconduct pending in court proceedings.

We have proposed that the Uniform Code of Arbitration for securities arbitration be revised to require the arbitration forum to disqualify or remove any arbitrator who does not provide disclosure of information requested by a party as to their background, experience, any information regarding potential conflicts and as to the appearance of bias.

We also have advocated securities arbitration Code amendments that would require disqualification from appointment of any arbitrator who is either currently being investigated by an SRO for prior arbitrator impropriety or is the subject of a court proceeding alleging arbitrator impropriety in a prior arbitration case.

The failure of the forum to screen appointed arbitrators adequately when the parties cannot reach agreement in the arbitrator selection phase is a continuing problem at the SROs, and increases the potential for conflict or bias that may affect adversely the outcome of the case. In the past week in one of our cases, after the parties were able to select only one of three arbitrators the forum appointed the remaining two panelists. One had significant ties or former ties to two of the broker dealers being sued in the case. In addition, the appointment by the forum did not comport with the forum’s own rules on who is qualified to sit as an “appointed” industry arbitrator. Adequate screening by the forum would have uncovered this most basic of conflicts and the lack of qualification, obviating the need for the parties to challenge the appointment and incur additional expense and delay in the process.

At stake: the integrity of the arbitration process and the protection of the investors who utilize securities arbitration to redress their grievances.