Arbitrators also award money--sometimes millions of dollars--with little or no explanation.
Many think this custom merits change.
In a recent survey of independent broker-dealers, nearly three out of four respondents either agreed or strongly agreed that awards should be explained (even as they overwhelmingly supported securities arbitration as an effective way of resolving disputes).
Explanations would help the industry and clients understand what kind of conduct is acceptable, says David Bellaire, general counsel for the Financial Services Institute, an Atlanta-based independent B-D trade group that sponsored the survey. The transparency would also show a greater sense of fairness in the process, he says.
In 2005, there was a proposal to require arbitrators to explain awards at the request of customers or brokers involved in industry disputes. Some financial services companies, including Charles Schwab & Co. Inc., argued against it, saying it would make the process more costly and less efficient, among other reasons, according to comment letters.
The current practice is "a matter of custom and expectation" that has evolved over the years, says Thomas Stipanowich, a dispute resolution expert at Pepperdine University School of Law in Malibu, Calif. He says it is common among arbitration forums for a range of industries, but a shift toward better explained awards may be coming.
Copyright © 2010 Dow Jones & Company Inc.