Mediation is a method for resolving disputes between investors and their stockbrokers that is less confrontational and less expensive than arbitration or litigation. In mediation, resolution of the dispute is achieved through agreement of the parties rather than through imposition of a decision by an arbitrator or a judge or jury. The range of available solutions in mediation is broader than in arbitration or litigation. Unlike arbitration or litigation in which one side will win and the other side will lose, parties who agree to mediate a dispute are not bound to any result upon which they do not agree.

Mediation also differs from arbitration in several other important respects:

• A mediator has no power to decide the outcome of a dispute while an arbitrator has the power to make a final decision binding on the parties;
• In mediation, the exchange of information between the parties is limited but voluntary while in arbitration, discovery may be ordered;
• While a mediator facilitates agreement and understandings between the parties, an arbitrator receives evidence and decides the dispute in favor of one side or the other;
• Parties in mediation may engage in constructive problem-solving while parties in arbitration may be restricted in the manner and substance of their presentations;
• Mediation is a less formal process that allows active participation by the parties while arbitration is a more formal process is which participation may be through attorneys only;
• Mediation is a private process that may remain confidential while arbitrators' decisions are available to the public; and
• The less formal mediation process is less expensive than arbitration.

The National Association of Securities Dealers has pre-screened mediators that the organization considers neutral and independent rather than employed by the Association. Such mediators are expected to have training and experience in securities matters.

Mediation may take place before making a formal claim to be resolved in arbitration. Mediation may also begin during an arbitration proceeding and may cover some but not all of the issues being arbitrated. While arbitrators may also serve as mediators, National Association of Securities Dealers rules bar a mediator from also serving as an arbitrator in the same case in the event of an unsuccessful mediation.

Mediation is likely to consist of confidential submissions to the mediator, informal presentations not under oath by the parties to the mediator in a joint mediation session, and additional private sessions between the mediator and separate parties to explore possible solutions. If the parties with the mediator's assistance are able to resolve their differences, a memorandum of understanding is prepared and a settlement agreement is drafted. A settlement agreement signed by the parties then will be final and binding.

Copyright 2009 LexisNexis, a division of Reed Elsevier Inc.