SEC Revisits Mandatory Arbitration Provision In Registration Statements, Streamlining Their Review, Amid Potential State Law Challenges

Highlights

• The U.S. Securities and Exchange Commission (SEC) confirmed that mandatory arbitration provisions in registration statements do not impact the effectiveness or acceleration of registration statements under federal securities laws.
• The SEC emphasized clear disclosure of the provisions, without weighing their policy merits.
• State laws, including recent Delaware amendments, may still restrict or complicate the use of mandatory arbitration clauses.

On September 17, 2025, the SEC issued a policy statement clarifying its position on the inclusion of mandatory arbitration provisions in registration statements, which require investors to resolve disputes with issuers in a private arbitration forum rather than through a court system, often waiving their rights to class actions. The policy statement confirms that the provisions do not impact the effectiveness or acceleration of registration statements under federal securities laws.

Issuers still face uncertainty regarding mandatory enforcement provisions from state regulators. Most notably, a new Delaware corporate law provision may limit an issuer's abilities to prescribe a forum for adjudicating claims outside of Delaware courts (e.g., through mandatory arbitration provisions).

Key Takeaways From the SEC's Policy Statement

No Impact on Registration Effectiveness: The SEC policy statement clarified that, consistent with the Supreme Court's current interpretation of the Federal Arbitration Act, the presence of a mandatory arbitration provision will not affect the SEC's decision to accelerate the effective date of a registration statement.

Focus on Disclosure: The SEC emphasized that its primary consideration in reviewing registration statements is the adequacy of disclosures, including ensuring that any mandatory arbitration provision is clearly disclosed to investors. The SEC's role is not to opine on the merits of arbitration provisions, or as SEC Chairman Paul Atkins stated in his opening remarks, to weigh in on "good" or "bad" policy provisions, but to ensure transparency.

Regulatory Consistency: The policy statement underscores that mandatory arbitration provisions are consistent with federal securities laws. The SEC's approach aligns with its mission to promote disclosure and transparency, providing clarity to issuers and market participants on this issue.

Implications for Issuers

Issuers considering the adoption of mandatory arbitration provisions can now take some comfort that the SEC will not stand in their way. However, issuers continue to face uncertainty and roadblocks to mandatory arbitration provisions under federal and state corporate laws, as Chairman Atkins reminded issuers and investors in his Open Meeting Statement in support of the Policy Statement (SEC, Sept. 17, 2025).

Most notably, Delaware recently amended its General Corporation Law (8 DEL. CODE ANN. Tit. 8, Section 115(c) (2025) (effective Aug. 1, 2025)) in a manner that, as discussed by the SEC in the policy statement, may prohibit a company's governance documents from including a mandatory arbitration provision. As the SEC stated, "Specifically, new paragraph (c) in section 115 permits the certificate of incorporation or bylaws to prescribe a forum or venue for certain claims that are not internal corporate claims but only if a stockholder may bring such claims in at least one court in the State of Delaware that has jurisdiction over such claims."

Conclusion

Issuers seeking to enter capital markets through an IPO face many important decisions that will steer their companies through the choppy waters of state, federal, and even international regulations. The SEC has now clarified that inserting a mandatory arbitration provision in its organizational documents will not impede or slow down their registration from a federal securities perspective and that the SEC will no longer use the acceleration of effectiveness process to discourage the use of such provisions. Whether such provisions will withstand challenges based on other state and federal regulatory grounds will be an issue to be determined and much watched by issuers and investors alike.

Citations

Open Meeting Statement on Policy Statement Concerning Mandatory Arbitration and Amendments to Rule 431 of the Commission's Rules of Practice, U.S. Sec. & Exch. Comm'n (Sept. 17, 2025).

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