New Rules for Securities Arbitration
By Mitchell S. Ostwald
After years of debate, the SEC approved the use of a discovery guide in NASD arbitration proceedings involving customer disputes with firms and associated persons. The discovery guide, which includes document production lists, provides guidance to parties and which documents they should exchange without arbitrator intervention, as well as requiring firms to produce documents without being requested by the opposing party.
The NASD is the largest SRO (self-regulatory organization). The New York Stock Exchange, Pacific Stock Exchange and other SRO's have not adopted the discovery guide; however, its impact will be immediately felt. Several commentators have suggested that an arbitration proceeding in another forum (i.e. , NYSE) may result in a document or information request with the NASD discovery guide made as an attachment.
The discovery guide will consist of introductory and instructional text and 14 document production lists. It is intended for use by arbitrators in customer arbitrations only. These lists include two mandatory groups of documents to be produced in all customer cases by firms, as well as by customers. The documents are required to be produced within 30 days after the answer to the statement of claim is filed, and does not require the opposing party to make a request for mandatory documents.
In addition, there are 12 other lists of documents which can be requested by a party. They involve categories which are specific to the facts of the case (for instance, if the matter involves churning (repeat trades designed to create commissions), failure to supervise, misrepresentations or fraud, negligence or breach of fiduciary duty, unauthorized trading or unsuitability. A party can request this information by merely referring the opposing side to the specific list of documents they want. Parties are still free to request documents and information they deem relevant.
In arbitration, discovery disputes have become more numerous and time consuming. Ironically, the same discovery issues repeatedly arise. The discovery guide represents a bold initiative by the NASD to curtail discovery abuses in the future. Of significance is the fact that securities arbitration began as a "non-lawyer" type of tribunal, but now closely resembles discovery practice of state and federal courts. Although recently California has even gone a step further towards eliminating the non-lawyer representation in arbitration proceedings, this represents the NASD's efforts in keeping true to its mandate; an effective dispute forum and a cost-effective and time sensitive tribunal. For practitioners, it's a welcome relief and a bold step towards the elimination of discovery abuses and disputes.
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