On September 17, 2025, the Securities and Exchange Commission (the "Commission") held an open meeting to discuss several items, including (i) permitting the acceleration of effectiveness of registration statements of issuers with certain mandatory arbitration provisions and (ii) amending the Commission's Rules of Practice relating to the Commission's review of staff declarations of effectiveness of registration statements by delegated authority. The two matters were discussed together, with clear acknowledgement that they are interrelated, although voted on separately by the Commission. Taken together, these actions signal a dramatic departure from the Commission's historic views, and have the potential to substantially impact the contents of public company governing documents.
Mandatory Arbitration Provisions
Under the first of these two agenda items, the Commission considered whether to issue a policy statement addressing provisions requiring investors to arbitrate claims against an issuer arising under the federal securities laws, and the impact of these provisions on decisions to accelerate the effectiveness of a registration statement. While the Commission has not previously published a position with respect to these so-called "mandatory arbitration provisions," they have historically been considered impermissible on the grounds that they (i) foreclose class-action lawsuits by investors under the federal securities laws and (ii) are contrary to the anti-waiver provisions in the federal securities laws. Specifically, Section 14 of the Securities Act of 1933, as amended, and Section 29(a) of the Securities Exchange Act of 1934, as amended, provide that any condition requiring a person to waive compliance with the federal securities laws is void.
In the open meeting, however, the Commission voted 3-to-1 to approve a policy statement (the "Policy Statement"), stating that "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. Accordingly, when making such decisions, the staff will focus on the adequacy of the registration statement's disclosures, including disclosure regarding the arbitration provision." In other words, the Commission and its Staff will no longer object to mandatory arbitration provisions, but will instead ensure that the disclosure about such provisions is clear and provides investors with material information about the provision prior to accelerating the effectiveness of the related registration statement.
The Policy Statement marks a major shift in the Commission's approach to mandatory arbitration provisions; in recent years, many issuers have received Staff comments noting that such provisions are contrary to federal securities law anti-waiver provisions, and requesting changes to organizational documents including these provisions as well as updated disclosure clarifying that such provisions do not apply to claims arising under federal securities laws. In reaching the opposite conclusion, the Policy Statement begins with the premise that if the Federal Arbitration Act of 1925 (the "FAA") applies to a particular mandatory arbitration provision,1 the federal securities laws do not override the FAA with respect to such provisions—in other words, contractually-mandated arbitration is enforceable because the federal securities laws, including the anti-waiver provisions, are not implicated in analyzing these provisions. According to the Policy Statement, "[a]pplying current and relevant Supreme Court precedent, there is no basis to conclude that either the anti-waiver provisions or any other provision of the Federal securities statutes displaces the primacy of the Arbitration Act in the context of issuer-investor mandatory arbitration provisions," such that it is not appropriate for the Staff to consider these provisions when determining whether to grant an issuer's request for acceleration of effectiveness.
The Policy Statement also touches on the fact that, prior to granting an issuer's request to take a registration statement effective, the Commission (or the Staff, through delegated authority) must consider "the public interest and the protection of investors."2 Since mandatory arbitration provisions make it difficult for investors to bring suit under the federal securities laws by foreclosing class-action proceedings, there has long been a question as to whether such provisions are, indeed, in the public interest. The Policy Statement analogizes to Supreme Court case law in the context of federal antitrust statutes where the potential recovery by a plaintiff under arbitration was less than the plaintiff's costs to bring such arbitration.3 There, the Court stated that a mandatory arbitration provision was enforceable because federal antitrust laws "do not guarantee an affordable procedural path to the vindication of every claim." Similarly, the federal securities laws do not promise an "affordable procedural path" for all investor claims, and, furthermore, do not provide a specific right to class action lawsuits. Therefore, "the potential for an issuer-investor mandatory arbitration provision to diminish, or even eliminate, the economic incentive for some investors to bring private claims under the Federal securities laws is not a sufficient basis to conclude that the Federal securities statutes displace the Arbitration Act's mandate."
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Footnotes
1. The Policy Statement says that it is "not within the Commission's purview to conclude whether any particular issuer-investor mandatory arbitration provision is enforceable for purposes of the FAA."
2. See Securities Act Section 8(a) and Rule 461(b).
3. See American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013).
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