Summary: As a condition of doing business, stock brokers may require investors to agree to use arbitration rather than the courts to resolve any securities disputes between investors and the firm. Firms may also require such arbitration be done at a forum sponsored by the securities industry. Concerned that industry-sponsored forums may be biased, Congress, state regulators, and investor groups have raised doubts about whether such arbitration is fair to investors. In analyzing results of decisions in arbitration cases at both industry-sponsored and independent forums, GAO found no indication of a pro-industry bias. While GAO's review showed that an investor was no more likely to prevail at an independent forum than in an industry-sponsored forum, it did not directly address the fairness of the arbitration process. GAO's review of arbitration procedures showed that arbitration forums lacked internal controls to provide reasonable assurances concerning either the independence of the arbiters or their competence in arbitrating disputes. Because the independence and experience of arbiters can determine the fairness of decisions, such internal controls are important to maintaining the integrity of arbitration.
