Subject: File No. SR-NASD-2005-032
From: Avery B Goodman
Affiliation: Attorney at Law

July 14, 2005

I have served as both an attorney and an arbitrator in NASD proceedings. By helping the parties understand why arbitrators have made the decision they made, this new rule can be an important step in right direction. However, as written, the new rule is inadequate.

Some people argue that including the rationale behind the amount of damages awarded will result in frivolous appeals. This argument is fundamentally flawed.

First, if there is a mistake, in the interest of justice, it should be corrected. So, if an award is overturned for error, we should applaud that fact, because it means that the parties have been accorded a full measure of justice.

Second, most arbitrators are people of good character. If a mistake is presented, they will want to correct it. All state arbitration statutes provide a process by which mistakes can be presented, directly to the arbitrators, for clarification and correction. There is no need to appeal to a civil court of law.

Third, the only possible appeal would be as to the amount. The fundamental decision as to liability could not be questioned simply because we include the rationale for damages. Thus, the potential for intentional delay and other such mischief is very limited. Unless the calculations are manifestly incorrect, no civil court of law will overturn them. The appeal will still be subject to the same stringent standards that govern overturning arbitration awards in general.

As an arbitrator, even though I was never required to do so, I have often included my rationale for the decision, both in terms of liability and damages. I feel that both parties, regardless of the way the decision has gone, have a right to know. If I am wrong, I invite the parties to petition to correct the award. The last thing we want is people losing the sense that they have been treated fairly. Transparency is critical to that.

It is essential to amend this new rule to require that arbitrators include the rationale behind both the decision on liability, and the amount of damages awarded.