Arbitration is a contractual process to resolve disputes between parties in a private forum. Typically, brokerage firms and customers will enter into a contractual agreement before the customer opens their brokerage account. Most agreements include a provision which compels the parties to resolve certain disputes through arbitration rather than a judicial proceeding such as a lawsuit in a state or federal court.
The arbitration process is not public and imposes significant restrictions on a parties’ ability to conduct discovery, such as document requests and depositions. Parties also lose the benefit of procedural and due process mechanisms such as appellate review.
In arbitration, a person or group of person is appointed to serve as the arbitration panel. The arbitrators hear the arguments and review the evidence of all sides and then decides how the matter should be resolved. Arbitrators are not required to be attorneys. Finally, arbitration awards issued by arbitration panels are subject to review by a court only on a very limited basis.
