Going public is a defining milestone for any company. It offers access to capital, enhanced brand visibility, and the potential for accelerated growth. At the same time, however, a public investor base exposes a business to new layers of legal, regulatory, and investor scrutiny. For executives, general counsel, and boards of directors, one of the most significant risks flowing from issuing securities to the public is the potential for disputes under the federal securities laws—ranging from claims of misrepresentation in the offering process itself to violations of the securities laws while subsequently operating as a public company. The SEC’s new policy removes one of the hurdles to public companies opting for issuer-investor mandatory arbitration. Leading arbitration organizations—such as the American Arbitration Association (AAA), its international division, the International Centre for Dispute Resolution (ICDR), and JAMS—are uniquely positioned to help businesses take advantage of this new opportunity. 

What Changed at the SEC?

On September 17, 2025, the SEC voted to implement a significant policy shift. Specifically, after reviewing recent case law developments, the Commission stated: “we believe that the inability to proceed in a judicial forum as a result of an issuer-investor mandatory arbitration provision would not violate the anti-waiver provisions of the Federal securities statutes.”

The Commission further stated that, in light of that interpretation, “the presence of a provision requiring arbitration of investor claims arising under the Federal securities laws will not impact decisions regarding whether to accelerate the effectiveness of a registration statement.” 

In practical terms, it is difficult, if not impossible, to issue public securities without the SEC accelerating effectiveness.

This means that companies registering securities with the SEC in connection with their initial public offering are now free to adopt mandatory issuer-investor arbitration clauses in their organizational documents without fear that such provisions will delay or prevent approval of their IPO registration statements. Similarly, companies that are already public may now also take steps to adopt such mandatory arbitration provisions going forward without fear of effectively foreclosing future access to new securities offerings. 

The policy formally took effect on September 19, 2025. Because this was a change in policy rather than in regulation, the SEC was able to implement it swiftly, without going through the lengthy notice-and-comment rulemaking process typically required for new regulations.

Specifically, in the context of public offerings, including IPOs, the SEC has essentially adopted a neutral stance toward the inclusion of arbitration provisions when considering accelerated review of registration documents. The agency is not endorsing or opposing the use of arbitration—it is simply removing a practical barrier that once existed. At the same time, the SEC has made clear that disclosure will remain critical. If an issuer adopts a mandatory arbitration clause, the SEC staff will carefully consider whether the disclosures about arbitration in the registration statement are adequate, balanced, and clear for investors. This subtle but important distinction means that companies must approach mandatory arbitration provisions with care. While the SEC will no longer treat them as a red flag, investors and analysts will still scrutinize how arbitration is described, who will administer it, and whether the process is perceived as fair and independent by potential investors.

But more fundamentally, the SEC has expressed its view that, more broadly speaking, the anti-waiver provisions of the Securities Acts do not foreclose issuers from adopting mandatory arbitration provisions covering claims under the federal securities laws. Certainly, that position may be challenged in court proceedings. States may adopt their own laws prohibiting mandatory arbitration provisions, which might raise preemption questions under the Federal Arbitration Act and might affect new issuers differently from seasoned ones. But the SEC’s change in position opens the door for companies going public to consider adopting a mandatory issuer-investor arbitration provision for claims under the federal securities laws without fearing a delay in the offering process, and the SEC’s broader interpretation of the anti-waiver provisions enables any company to adopt such a provision at least without the risk of a potential SEC enforcement action.

Why the SEC’s Policy Shift Matters

The SEC’s decision could reshape the legal landscape of securities law disputes involving public companies. Until now, most federal securities law claims involving public companies have been handled through litigation in federal courts, with a few in state court. These cases are often sprawling, public, and slow-moving. Class actions and complex procedural battles can add years to the process, diverting management’s attention, and creating uncertainty for shareholders.

By eliminating a hurdle to mandatory arbitration as a viable alternative, the SEC is opening the door to a dispute resolution method that can be:

• Faster: Arbitration proceedings typically conclude in months rather than years.
• Confidential: Unlike court proceedings, arbitration is private, helping companies protect sensitive business information.
• Specialized: Arbitrators can be chosen for their expertise in securities law, financial transactions, and public offerings.
• Efficient: Arbitration procedures often reduce discovery disputes and motion practice, saving time and costs.
• Individualized: Arbitration proceedings typically involve only the individual claimant or claimants.

For companies planning to go public or that are already public, these advantages can provide certainty, mitigate risk, and allow management to stay focused on building long-term value.

The AAA-ICDR Has Already Taken Proactive Steps to Adapt to this New IPO Paradigm

The American Arbitration Association and its international division, the ICDR, have decades of experience handling securities, investment, consumer, and commercial disputes, including mass arbitration cases involving thousands of claimants.

To meet the specific needs of public or soon-to-be public companies navigating the SEC’s new policy, the AAA-ICDR has already taken proactive steps:

• Specialized Arbitrator Panel: The AAA-ICDR has established a panel of arbitrators with experience in securities offerings, financial services, and SEC regulations. These arbitrators bring a unique understanding of the risks, disclosure obligations, and regulatory considerations involved in securities law disputes.
• Tailored Guidelines: The organization is developing specialized guidelines to ensure arbitration procedures for securities law disputes are consistent, transparent, and responsive to the concerns of investors and issuers alike.
• Global Reach: With the ICDR’s international footprint, the AAA-ICDR can handle cross-border disputes that may arise when multinational investors participate in U.S. offerings or when foreign companies list on a U.S. exchange.

By positioning itself as an independent forum for these disputes, the AAA-ICDR helps ensure that mandatory arbitration provisions not only remain permissible under SEC policy but also retain credibility in the eyes of the investors.

How Arbitration Can Be Incorporated into Offering Documents

For companies considering mandatory issuer-investor provisions, the next step is determining how best to integrate arbitration provisions into their organizational and offering materials. This requires a careful balance: arbitration must be presented as a fair, neutral, and efficient process—not as a mechanism to disadvantage investors.

Key considerations include:

• Clarity of Language: Arbitration provisions must be written in plain English and clearly explain the process, rights, and obligations of all parties.
• Selection of Administrator: Naming a reputable administrator can provide confidence to regulators and investors that disputes will be handled fairly.
• Scope of Arbitration: Companies must decide whether arbitration will apply to all claims or only to certain types of disputes. This decision should be disclosed transparently.
• Seat of Arbitration: Companies should indicate the jurisdiction that will serve as the seat of arbitration.
• Procedural Safeguards: Offering documents should highlight safeguards such as neutral arbitrator selection, opportunities for both sides to be heard, and appeal or review options (where available).
• Cost Allocation: Investors will want assurance that arbitration is not prohibitively expensive. Provisions can address how fees will be allocated or capped.

In short, the inclusion of issuer-investor mandatory arbitration is not just a legal drafting exercise—it is a strategic decision that signals how a company intends to manage investor relationships and dispute risks.

Benefits of Arbitration for Companies and Investors

The SEC’s new policy has the potential to create a win-win scenario for both companies and investors.

For Companies:

• Reduced Litigation Risk: Avoid costly, protracted litigation and the reputational damage that may come with it.
• Predictable Timelines: Arbitration often results in faster finality, enabling companies to plan with greater certainty.
• Confidentiality: Sensitive financial or strategic information can be protected from public disclosure.
• Expert Decision-Makers: Arbitrators with specialized expertise can better understand the complexities of securities offerings.

For Investors:

• Accessible Forum: Arbitration can provide a more streamlined, less intimidating forum than federal court.
• Efficiency: Faster resolutions mean investors may receive remedies sooner.
• Fairness: Arbitration is designed to balance the interests of both issuers and investors.

Looking Ahead: What This Means for the Market

The SEC’s policy change represents a quiet but important inflection point. As more companies test the waters by adopting mandatory issuer-investor arbitration provisions, the market will gain clarity on how investors, courts, and regulators respond.

In the near term, we are likely to see:

• Pilot Use Cases: A handful of companies, especially in industries accustomed to arbitration (such as financial services or technology), may be among the first to adopt arbitration provisions.
• Market Reactions: Analysts and investor advocates will closely monitor these cases to assess whether arbitration provisions impact investor confidence or share performance.
• Refinement of Best Practices: As experience accumulates, clearer guidelines and model provisions will emerge.

In the long term, arbitration could become a standard feature of public offerings, reshaping how securities disputes are resolved and reducing the burden on federal courts.

Conclusion

The decision to go public is both an opportunity and a risk. Companies must balance the benefits of gaining access to the capital markets with the challenges of heightened scrutiny and the potential for disputes. With the SEC’s September 2025 policy shift, mandatory arbitration has emerged as a viable, credible, and potentially advantageous tool for resolving issuer-investor disputes.