Chapter 12.3, Problem 4R

To determine

To evaluate: the comparison between mediation and arbitration.

Explanation of Solution

A type of alternative conflict resolution, in which the parties concerned carry their conflict to a neutral third party who assists them in finding a settlement, is called mediation. Mediation is usually non-binding, unless the parties consent to a settlement that results.

Arbitration is a conflict resolution process between investors and brokers, or between brokers. The Financial Industry Regulatory Authority (FINRA) regulates this, and the rulings are final and binding. Arbitration is different from mediation, where parties meet to arrive at a negotiated settlement, and agreements are not binding until both parties consent.