What is Arbitration?

Arbitration is a mechanism for resolving disputes between investors and brokers, It is a way to resolve disputes outside the courts. The dispute will be decided by one or more persons they are ‘arbitrators’, ‘arbiters’, or ‘arbitral tribunal’. It is overseen by the Financial Industry Regulatory Authority, and the decisions are final and binding. This is distinct from mediation, in which parties negotiate to reach a voluntary settlement, and decisions are not binding unless all parties agree to them.
It can be either voluntary or mandatory and can be either binding or non-binding. Non-binding arbitration is similar to mediation in that a decision cannot be imposed on the parties. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbiter remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

Arbitration

Advantages of Arbitration

  • It is faster than litigation in court.
  • Arbitral proceedings and an arbitral award are generally non-public and can be made confidential.
  • In arbitral proceedings, the language of arbitration may be chosen, whereas in judicial proceedings the official language of the country of the competent court will be automatically applied.
  • In most legal systems there are very limited avenues for appeal of an arbitral award, which is sometimes an advantage because it limits the duration of the dispute and any associated liability.

Disadvantages

  • If the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case.
  • There are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned.
  • Although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays.
  • In some legal systems, arbitration awards have fewer enforcement options than judgments; although in the United States arbitration awards are enforced in the same manner as court judgments and have the same effect.
  • Unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to “confirm” an award.

Principal Characteristics

  • It is consensual.
  • The parties choose the arbitrators.
  • Arbitration is neutral.
  • Arbitration is a confidential procedure.
  • The decision of the arbitral tribunal is final and easy to enforce.

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