McMahon Turns Twenty: The Regulation of Fairness in Securities Arbitration

Abstract:     
In light of the twentieth anniversary of the Supreme Court's decision in Shearson v. McMahon enforcing a pre-dispute arbitration clause in a brokerage customer's account agreement, the author revisits the assumptions of the McMahon Court supporting its conclusion that arbitration is fair to investors. The article first explores the various sources of law, including the Federal Arbitration Act, which could require fairness in securities arbitration. The article then examines the Securities and Exchange Commission's oversight of securities arbitration, particularly in the last ten years. The article concludes that the SEC sufficiently regulates the fairness of securities arbitration, and thus the McMahon paradigm appears to be working.

Number of Pages in PDF File: 28

Keywords: arbitration, securities arbitration, arbitration fairness, McMahon

JEL Classification: K22, K10

Accepted Paper Series