The often-cloistered stock market business could be in for some tumult.

One of the oddities of the securities industry is that nearly all employees, from stock brokers to traders, right up to top-flight investment bankers, sign binding arbitration clauses with brokerages.

The U-4 forms required by the National Association of Securities Dealders specifiy that in employer disputes and certain disciplinary matters, the NASD shall serve as arbitrator. The industry-financed NASD provides three-person panels to resolve disputes or customer complaints against brokers.

But last week, the Securities and Exchange Commission ruled that U-4 forms do not compel employment discrimination cases based on race, sex or age into arbitration. With the ruling effective in 1999, such employees have a green light for discrimination lawsuits.

In some regards, the arrangement of binding arbitration, while perhaps too cozy, makes sense. Many disputes between employees and brokerages, or customers, are technical and financial. The slow-moving civil courts may be a difficult forum in which to resolve such financial issues.

But few ever contended that the NASD was an ideal body for resolving complaints about racial discrimination, or sexual harassment, which is legally considered a form of employment discrimination. Women's groups, in particular, have criticized a male-dominated arbitration system for squelching harassment complaints.

Recognizing this, and the fact that U-4 forms merely say that employment disputes will be settled in arbitration rather than explicitly stating that employees have given up their rights to jury trial in discrimination matters the SEC made last week's ruling.

However, there may yet be a way to avoid a flood of lawsuits, said David Bartholomew, partner at Long Beach-based Keesal, Young & Logan, a preeminent securities-industry defense firm. He agrees that existing U-4 forms are not valid to compel employees into arbitration on discrimination matters. But the forms can be reworded, said Bartholomew.

"As it stands, if an employment contract, or U-4, makes it explicit that an employee is consenting to binding arbitration, even in discrimination matters, then those contracts will stand up," said Bartholomew, citing certain U.S. Supreme Court cases.

Last week, NASD spokeswoman Nancy Conlon concurred with Bartholomew that newly worded U-4 forms could effectively reestablish the status quo despite the decision by the SEC to change matters.

The SEC ruling is too recent to result in action by most brokerages, and industry officials reached last week had no substantive comment. The NASD is taking a wait-and-see attitude. "I don't think all of them will do that (merely reword U-4 forms), but some of them will," Conlon said. "It will be up to the employees to sign those (reworded) forms, or not."

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