Since the very beginnings of stock and bond trading in the United States, the securities industry has used arbitration to resolve disputes among industry participants. Despite securities arbitration’s deep roots in American history, most descriptions of its background and use begin with the Supreme Court’s 1987 watershed decision in Shearson/American Express, Inc. v. McMahon, in which the Court held that claims arising under the Securities and Exchange Act of 1934 (Exchange Act) were arbitrable. Two years later, in Rodriguez de Quijas v. Shearson/American Express, Inc., the Court held that claims arising under the Securities Act of 1933 (Securities Act)6 also were arbitrable. The Court’s comfort level with securities arbitration in both cases was enhanced by the substantial oversight of the arbitration forum and its procedures exercised by the Securities and Exchange Commission (SEC).
The Historical Basis of Securities Arbitration as an Investor Protection Mechanism
Jill Gross