Elements of a Fair and Efficient Securities Arbitration System

In January of 1996, the Arbitration Policy Task Force (“Task Force”) of
the National Association of Securities Dealers, Inc. (“NASD”) delivered to the
NASD Board of Governors its Securities Arbitration Reform Report (“Task Force
Report”). The report presented a series of proposals for improvement of the
securities arbitration system administered by the NASD subject to the oversight of
the Securities and Exchange Commission (“SEC”). The Task Force expressed its
belief that its recommendations would improve the fairness and efficiency of
NASD arbitration. The Report has received both praise and criticism, and the
NASD has sought to implement many of its recommendations.

These comments describe a model for a fair and efficient securities
arbitration system and review the suggestions for improvement to the NASD
system made by the Task Force. Evaluation of the NASD model will be better
accomplished in the context of a set of assumptions regarding the objectives of the
parties to arbitration. Stated generally, the parties to arbitration seek a fair,
relatively speedy, and relatively inexpensive means of resolving disputes. Mutually
agreed binding arbitration replaces judicial means of settling disputes and offers a
dispute resolution system that many argue is superior to litigation.