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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Investor Grievances and Arbitration

A client disputes a trade executed by his broker on the exchange and wants to file for arbitration. Which of the following best describes the nature of an arbitration award under the exchange mechanism?

An arbitration award under the exchange mechanism is binding on both parties, but it can be appealed to the appellate arbitration panel and thereafter challenged in court as per law. It is neither merely advisory nor absolutely final, and it does not bind only the broker.

  1. AIt is binding on the parties, subject to the right of appeal to the appellate arbitration panel and thereafter to courts as per lawCorrect
  2. BIt is merely advisory and either party may ignore it
  3. CIt is final and cannot be challenged anywhere
  4. DIt is binding only on the broker, never on the client

Explanation

Arbitration awards are binding on the parties, but the framework permits appeal to an appellate arbitration panel, and further challenge in court under the Arbitration and Conciliation Act. They are not advisory, not unchallengeable, and bind both sides.

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