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SEC Brief Opposes Arbitration Standards

Courts: The regulatory agency sides with the NYSE and the NASD in their legal dispute with the state over new disclosure rules.

September 20, 2002|From Bloomberg News

The Securities and Exchange Commission sided with the New York Stock Exchange and the National Assn. of Securities Dealers in their court dispute with California authorities over the state's new arbitration disclosure rules.

"Allowing the states to dictate rules in this area will subject the [NYSE and NASD] to a patchwork of regulation," the SEC said in a friend-of-the-court brief filed Thursday in federal court in Oakland. "Only the commission can decide what disclosure and disqualification standards are appropriate for the protection of investors."

The California rules, adopted July 1, would increase opportunities to disqualify arbitrators and vacate arbitration awards. A proposed arbitrator would have to disclose possible conflicts of interest or other matters that could raise doubts about impartiality. The NYSE and NASD sued the California Judicial Council, which makes rules for the state's courts.

The Judicial Council's attorney didn't respond to a request for comment. The council has argued that California's standards are not inconsistent with those of the NYSE and NASD.

The California rules also require disclosure of fees and arbitration awards paid by brokerages named in investor-broker disputes.

The rules could lengthen arbitrations, increase their complexity and raise the cost for participants, the SEC's brief said. Even so, the SEC announced this week that it would study whether California's disclosure rules should be incorporated into national policy.

The NYSE and NASD, which regulate brokers, have refused to proceed with arbitrations involving California investors because of the state's rules, putting several hundred cases on hold.

SEC Chairman Harvey L. Pitt asked the NYSE and NASD this month to provide California investors a forum to dispute claims with brokers, but state officials complained this week that nothing has been done.

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