INSTRUCTOR DISCUSSION NOTES:
Who Watches the Watchers?

1. Why do you think that it's difficult to create an effective monitoring mechanism to identify conflicts of interest?

The costs of effective monitoring probably outweigh the benefits from identifying conflicts of interest. That is, the amounts being arbitrated may not cover oversight expenses.

2. Would an effective monitoring system involve a new panel at the NASD Dispute Resolution, vetting every arbitrator profile it receives-in other words, an ethics board to watch the watchers?

Not necessarily. It may simply be a system in which individuals are given more incentive to self-identify conflicts of interest.

3. If more effective monitoring is necessary, what would such a plan look like? Discuss this with your classmates.

Answers vary. Focus on making sure individuals have the incentive to be as forthcoming as possible.

Multiple Choice/True False Questions

1. True/False. According to the article, no effective monitoring mechanism identifies conflicts of interest among potential arbitrators.

ANS . True

2. According to the article, what has happened as a result of the use of arbitration panels?
  1. More cases have been won by securities dealers than by investors.
  2. Fewer cases have been won by investors.
  3. Time from dispute to resolution has fallen.
  4. All of the above.
ANS . d

3. In industrial organization theory, monitoring mechanisms typically encourage individuals to model ideal behaviors so that those being monitored learn from the experience. How would this be reflected in a more effective arbitration monitoring program?
  1. Potential arbitrators identify all known conflicts of interest.
  2. Potential arbitrators individually recuse themselves in the presence of a conflict.
  3. Potential arbitrators act in their own best interests.
  4. A and B
ANS . d

©2007  South-Western.  All Rights Reserved   webmaster  |   DISCLAIMER