SEC Announces Policy on Issuer-Investor Arbitration

The US Securities and Exchange Commission (SEC) recently made an important policy announcement regarding the handling of issuer-investor disputes through arbitration. On September 17, 2025, the SEC clarified that the presence of a mandatory arbitration provision between issuers and investors would not affect decisions on accelerating the effectiveness of registration statements under the Securities Act of 1933. This announcement solidified the SEC’s stance in favor of arbitration as an alternative method of dispute resolution.

The SEC’s policy statement aligns with longstanding federal support for arbitration, as outlined in the Federal Arbitration Act (FAA) of 1925 and Supreme Court decisions emphasizing the enforcement of arbitration agreements. This pro-arbitration policy is rooted in the FAA and takes precedence over state laws that may impede mandatory arbitration provisions in issuers’ governance documents. The balancing act between federal and state laws in this regard may lead to future legal challenges, especially in states like Delaware with laws that restrict arbitration of investor claims.

The SEC’s policy statement also clarified that issuers are free to choose between mandatory litigation or arbitration of issuer-investor disputes, as long as they provide adequate disclosure of their chosen method. Corporate counsel must ensure that any arbitration provisions comply with the FAA and relevant state laws to avoid legal complications. The complexity of drafting arbitration clauses highlights the need for a deep understanding of evolving laws regarding enforceability and the waiver of class action procedures.

With a significant percentage of non-domestic issuers in the US stock markets, the SEC’s policy on arbitration may attract more foreign companies to offer securities in the US. Unlike US court judgments, arbitration awards involving foreign parties are enforceable in numerous countries due to international conventions. However, the impact of arbitration on litigation behaviors, settlement rates, and overall dispute resolution dynamics in securities cases remains uncertain.

Despite the potential benefits and challenges of arbitration, legal firms like Dentons remain equipped to handle securities disputes and provide guidance on compliance considerations. As a leading firm in US securities litigation and arbitration, Dentons offers expertise in navigating the complexities of issuer-investor disputes and ensures that clients are well-prepared to address any legal challenges that may arise.