SEC Chairman Harvey Pitt has informed the NASD and NYSE that they should not deny California investors a forum to dispute claims with brokers.
Pitt told the exchanges in a letter dated Sept. 5 that they have to "immediately" provide California investors access to arbitration panels in the state or some other forum to dispute claims.
"However inappropriate you may believe the California legislation to be, there is absolutely no justification for requiring individuals either to go out of state to obtain a hearing they have an absolute right to have or otherwise forgo their rights in arbitration," Pitt wrote in the letter to NYSE Chairman Richard Grasso and NASD Chairman Robert Glauber.
As reported by Registered Rep., the NASD and NYSE sued California in July, seeking an exemption from a new state rule that imposed disclosure requirements on arbitrators. The exchanges argued that it threatened standard practices governing resolution of client-broker disagreements. And since the rule took effect July 1, the NYSE and the NASD have refused to proceed with arbitrations involving California investors.
The disagreement began after state lawmakers wanted more stringent disclosures from securities dispute arbitrators. The idea was to be sure that arbitrators had no conflicts of interest or other interests which might hamper their ability to act impartially as an arbitrator. State lawmakers wrote letters to Pitt, saying the exchanges’ inaction was retaliation for the new rules. Investor disputes with brokers are resolved in arbitrations conducted by the stock exchange.
To read the text of Pitt's letter to the NASD and NYSE Chair's please Click here.
