Pursuant to a congressional request, GAO provided information on issues relating to the arbitration process in the securities industry, focusing on: (1) whether arbitration forums had implemented recommendations made in GAO's 1992 report and whether the changes were effective; (2) how investors fared in award decisions; and (3) the extent to which investors were paid the amounts awarded by arbitration panels.
Recommendations for Executive Action
|United States Securities and Exchange Commission||The Chairman, Securities and Exchange Commission (SEC), should require NASD to adopt procedures for monitoring the payment of arbitration awards. Such procedures should include requesting the parties in an arbitration to notify NASD, by the end of the 30-day payment period, about the payment status of any monetary award, so NASD can begin timely suspension proceedings against nonpaying broker-dealers, as appropriate.|
|United States Securities and Exchange Commission||The Chairman, SEC, should require NASD to develop procedures addressing the problem of unpaid awards caused by failed broker-dealers to help reduce costs and increase options for investors, such as the changes NASD is considering.|
|United States Securities and Exchange Commission||The Chairman, SEC, should work with the SROs to: (1) develop and publicize information to focus investor attention on the possibility of unpaid arbitration awards; and (2) encourage investors to more thoroughly evaluate the backgrounds of broker-dealers and individual brokers with whom they intend to do business.|
|United States Securities and Exchange Commission||The Chairman, SEC, should periodically examine the extent of nonpayment of SRO arbitration awards to determine the effectiveness of actions taken to improve the payment of awards. To the extent unpaid awards remain a problem, the Chairman should establish a process to assess the feasibility of alternative approaches to addressing the problem of unpaid awards.|