Employment Discrimination:

How Registered Representatives Fare In Discrimination Disputes

HEHS-94-17: Published: Mar 30, 1994. Publicly Released: Apr 1, 1994.

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Pursuant to a congressional request, GAO reviewed the securities industry's use of arbitration to settle employment discrimination disputes between securities firms and their registered representatives, focusing on: (1) cases filed for arbitration at the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD); (2) the nature and outcomes of discrimination cases in which NYSE and NASD arbitrators rendered a decision; (3) the demographic characteristics of NYSE and NASD arbitrators; (4) NYSE and NASD procedures for arbitrating employment disputes and selecting arbitrator pools and panels; and (5) the Securities and Exchange Commission's (SEC) oversight of the industry's arbitration programs.

GAO found that: (1) few registered representatives have filed discrimination suits with NYSE and NASD in recent years; (2) between August 1990 and December 1992, NASD and NYSE decided 18 discrimination cases in which 10 cases resulted in financial awards to the employees; (3) the financial awards were direct compensation for discriminatory practices in only 4 of the cases; (4) most representatives cited age and sex discrimination as the basis for their complaints; (5) although NYSE and NASD do not systematically collect demographic data on their arbitrators, about 89 percent of the NYSE arbitrators are white males averaging 60 years of age; (6) NASD believes that the demographics of its pool of arbitrators resemble that of the NYSE pool; (7) NASD does not have written criteria for excluding arbitrators with histories of disciplinary actions or regulatory infractions, but NYSE has developed written criteria in response to this review; (8) NYSE and NASD have different requirements for disclosure of arbitrators' criminal convictions; (9) NASD and NYSE do not systematically assign arbitrators to cases on the basis of their expertise; (10) SEC does not track and report discrimination complaints, review discrimination cases during its inspection of arbitration programs, have a formal inspection cycle established, or know if the securities industry is fairly and impartially resolving disputes; and (11) SEC plans to establish an inspection cycle and include reviews of employment discrimination cases in its inspections.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Beginning in FY 1996, SEC began to visit SRO at times between on-site inspection visits to determine whether its recommendations were implemented. In some cases, SEC also requested more frequent interim progress reports from SRO.

    Recommendation: SEC should follow up more vigorously on the implementation of its recommendations.

    Agency Affected: United States Securities and Exchange Commission

  2. Status: Closed - Implemented

    Comments: In December 1995, SEC issued an inspection schedule of SRO that outlined plans to inspect some part of NASD annually, NYSE every second year, and other SRO every third year.

    Recommendation: SEC should establish a formal inspection cycle for inspecting SRO arbitration programs.

    Agency Affected: United States Securities and Exchange Commission

  3. Status: Closed - Implemented

    Comments: In October 1995, SEC directed SRO to gather and maintain information on arbitrators' expertise and to use this information when selecting arbitrators to serve on panels for all types of cases.

    Recommendation: SEC should direct SRO to assess and maintain information on arbitrators' expertise and use this information when selecting arbitrators to serve on panels, especially those deciding discrimination disputes.

    Agency Affected: United States Securities and Exchange Commission

  4. Status: Closed - Implemented

    Comments: SEC issued directions to all SRO in October 1995 to implement this recommendation.

    Recommendation: SEC should direct SRO to require all arbitrators to disclose criminal convictions on their arbitrator profiles.

    Agency Affected: United States Securities and Exchange Commission

  5. Status: Closed - Implemented

    Comments: SEC agreed that SRO should exclude persons with significant disciplinary histories from their arbitration pools and directed that SRO establish written criteria and standards on this issue.

    Recommendation: SEC should direct SRO to establish written criteria and standards for excluding from SRO arbitrator pools industry arbitrators who have histories of disciplinary actions or regulatory infractions.

    Agency Affected: United States Securities and Exchange Commission

  6. Status: Closed - Implemented

    Comments: SEC agreed that SRO should be able to readily identify discrimination cases that are part of their arbitration caseloads, and directed SRO to use existing data to track discrimination cases that are filed at and arbitrated by their arbitration departments.

    Recommendation: SEC should direct self-regulatory organizations (SRO) to use existing information systems to track the numbers, types, and outcomes of discrimination cases that are filed at, and arbitrated by, their arbitration departments.

    Agency Affected: United States Securities and Exchange Commission

  7. Status: Closed - Implemented

    Comments: SEC issued guidance to its inspectors to specifically look for arbitrated discrimination cases when they select files to review during their inspections.

    Recommendation: SEC should, when selecting arbitration case files to review during inspections, include those involving discrimination complaints.

    Agency Affected: United States Securities and Exchange Commission

 

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