Arbitration Cases Rise

Jan 1, 2002 12:00 PM, By Betsy Riley

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It was a record-breaking year for arbitration cases, according to the National Association of Securities Dealers.

In spite of the fact that investors' overall satisfaction with their brokers sits at 91 percent (see “Confidence Slipping?” page 22), the death of the bull market helped push the number of arbitration cases for 2001 up by 19 percent, to an estimated 6,639, from the prior year, the NASD says. The Securities Industry Association projected an estimated 7,353 arbitration cases for 2001, up from 6,156 cases in 2000.

A spokesman for the SIA says the rise isn't as bad as it appears. What's important, the SIA says, is that the ratio of arbitration filings to the number of transactions has declined since 1995.

“The rate of increase in transactions has outstripped the rate of increase in arbitration cases,” he says. Thus, in 2001, the SIA has projected one arbitration filed for every 141,052 transactions. And while that's a bit worse from last year's one to 153,479 ratio, it's far better than, say, 10 years ago, when there was an average of one arbitration case filed for every 7,999 transactions.

Breach of fiduciary duty was the top complaint, followed by negligence, failure to supervise and misrepresentation. Still, the numbers of those types of cases did not surpass the number filed in the previous year.

The number of churning and unsuitability cases rose over 2000. Margin call disputes were about in line with the year-ago figure and online trading complaints were down to 132 from 214 in 2000.

Common stock was the most common type of security to be involved in arbitration. Next in line were options, mutual funds, corporate bonds, limited partnerships and certificates of deposit.

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