Morgan Stanley was hit recently with a suit involving investors from Idaho and New Hampshire, who called into question a Morgan requirement that all arbitration disputes be settled under New York law.
Though no other major firm specifically requires all arbitrations to be subject to New York law, experts say most cases are handled under those rules anyway.
“The reason most of the firms use New York's laws has to do more with administrative convenience,” says Aegis Frumento, a securities attorney for Duane Morris. “New York has a well-understood system, and it's not remarkably different than would apply anywhere else. It's uniform, and it's predictable.”
A lawyer for one of the Idaho clients says New York laws favor the brokerage industry — a claim seconded by a number of customer advocates. Morgan Stanley had no official comment, but a source inside the company says it is revisiting its arbitration requirements.