In one of the Securities Arbitration Commentator’s current publications, reference is made to the letter of Richard Ketchum, Chief of the SEC’s Division of Market Regulation at the time, dated September 10, 1987 and the SICA Public Members’ response dated October 9, 1987. There’s a fascinating backstory to these documents, which didn’t just come to light now, more than twenty years later. Indeed, these letters have been in circulation for quite some time in the follow-up to the McMahon decision in June 1987 and to the SEC’s amicus posture in that case backing the brokerage industry. Key aspects of their subject matter were also the focus of our extensive testimony at two hearings in the U.S. Congress in December 1987 and March 1988.

Even prior to these historic hearings, at NASAA’s 70th Annual Conference on Securities Arbitration held in Snowmass, Colorado on August 31 through September 3, 1987, Ted Eppenstein appeared as a panelist and presented comprehensive recommendations for SRO securities arbitration procedure reform which pre-dated both the Ketchum and SICA-PM 1987 correspondence later that fall. Ted’s recommendations were later incorporated into our December 23, 1988 responsive letter to Mr. Ketchum’s.

The Ketchum letter itself was annexed by us as an exhibit to our written testimony to the House Committee on the Judiciary, Subcommittee on Criminal Justice for hearings on civil RICO reform that were held on December 3, 1987; it was also annexed to our written testimony to the House Committee on Energy and Commerce, Subcommittee on Telecommunications and Finance for hearings on securities law reform post-McMahon held on March 31, 1988. In testimony at both hearings, Ted pointed out that the SEC as amicus supported the enforceability of predispute arbitration clauses in McMahon largely on the grounds that its oversight authority could “insure” the fairness of SRO arbitration. The SEC however didn’t advise the Supreme Court at oral argument of the SEC’s then pending 18 month inquiry that would eventually result (just a few months later) in the call for “sweeping proposals for SRO arbitration reform” embodied in the Ketchum letter (Eppenstein Testimony, December 3, 1987 at 22; March 31, 1988 at 24).

Perhaps another little-remembered contemporaneous event from that era was the SEC’s summary rescission of Rule 15c2-2 on October 15, 1987, which obliterated the Commission’s thirty-year record of opposition to predispute arbitration clauses. (SEC Securities Exchange Act Release No. 34-25034, stating perfunctorily, “the rule is no longer appropriate.”) The history of that rule is another fascinating tale in the saga of SRO securities arbitration reform.

It’s been noted that history repeats itself: In this context, it’s been a little over a year since all the then current and emeritus Public Members of SICA sent a comprehensive letter on January 12, 2007 to the SEC (with copies to NASAA and members of Congress) in support of returning the court option to investors and creating a forum for securities arbitration totally independent from the industry to insure that the integrity of the process and the rights of customers are being fully protected. This effort was supported by the North American Securities Administrator’s Association (“NASAA”), which also advocated the elimination of the requirement for an industry arbitrator and barring public arbitrators with significant ties to the industry.

Today, as in 1987, we look to Congress to implement reforms to benefit investors in SRO securities arbitration.