SEC Policy Statement: Clarifies that mandatory arbitration provisions will not affect effectiveness of registration statements

On September 17, 2025, the US Securities and Exchange Commission published a policy statement, announcing that decisions by the SEC about whether to accelerate the effectiveness of a registration statement will not be affected by the inclusion of a provision that subjects investor claims arising under the federal securities laws to mandatory arbitration.

In announcing the policy, Chairman Paul S. Atkins noted the SEC’s focus is “the importance of disclosure and transparency” and that the SEC’s role in the debate over whether a company should adopt a mandatory arbitration provision is “to provide clarity that such provisions are not inconsistent with the federal securities laws.”

This marks a significant policy shift at the SEC, with public companies having more flexibility to avoid these costly actions in federal courts by requiring shareholders to pursue claims in private arbitration.

Background

Prior to the policy statement, securities practitioners had long debated whether public companies should be permitted to require in their organizational documents arbitration for securities law claims by shareholders and whether such provisions were at odds with anti-waiver provisions of federal securities laws. 

The SEC had followed an unwritten policy of not accelerating effectiveness of registration statements¹ for companies with such mandatory arbitration provisions. The SEC based its prior position on its authority under Section 8(a) of the Securities Act of 1933 to consider, for example, the facility with which the rights of holders of securities can be understood, public interest and the protection of investors. 

Policy Statement

Under the new policy, the SEC will focus on the adequacy of disclosure in the registration statement, including regarding any arbitration provisions. However, the existence of such a provision will not affect determinations of whether to accelerate the effectiveness of a registration statement. The SEC declined to express a view regarding whether arbitration provisions are appropriate or optimal for issuers or investors. Instead, as Commissioner Hester Peirce noted in an accompanying statement, “[k]nowing that the SEC will not put its thumb on the scale, Under the new policy, the SEC will focus on the adequacy of disclosure in the registration statement, including regarding any arbitration provisions. However, the existence of such a provision will not affect determinations of whether to accelerate the effectiveness of a registration statement. The SEC declined to express a view regarding whether arbitration provisions are appropriate or optimal for issuers or investors. Instead, as Commissioner Hester Peirce noted in an accompanying statement, “[k]nowing that the SEC will not put its thumb on the scale, companies can decide whether they want to include arbitration provisions,” adding that whether some public companies are correct in their assessment that mandatory arbitration clauses could be “value-maximizing…should be up to the market to decide.” 

Dissenting Views

Commissioner Caroline A. Crenshaw criticized the SEC’s action as “stack[ing] the deck against investors,” highlighting both substantive disagreements with the policy as well the lack of a process to seek public comment before the SEC issued the policy statement.

She noted that the practical consequences of the policy statement could prevent small shareholders from vindicating their rights as the costs of arbitration may be too high relative to their investments. Without the benefit of shareholder class actions, Commissioner Crenshaw observed, many shareholders may not be able to afford the significant upfront fees required to arbitrate complex cases involving offering frauds, accounting misstatements, or other types of public company malfeasance. She also cautioned that mandatory arbitration may result in under-policing of the markets by limiting the practical availability of shareholder litigation. Commissioner Crenshaw further warned that the non-public nature of arbitration claims and awards may reduce the deterrent effect of such litigation. Finally, she highlighted that market transparency and integrity may suffer without court opinions in shareholder litigation, which allow caselaw to develop and provide more consistent and predictable outcomes.

Implications

This new policy paves the way for companies going public to limit investors’ ability to pursue claims based on the federal securities laws in the courts and instead channel any such actions into arbitration, which may have the effect of avoiding shareholder class actions. This could result in significant cost savings for public companies, as shareholder class actions are generally complex, long-running, and costly. We do note that state laws (or laws of a non-US jurisdiction) where the company is organized may also affect whether a company is able to include a mandatory arbitration provision, and the SEC does not take a position on the application of state laws. For example, Delaware recently banned mandatory arbitration clauses. In addition to state law considerations, whether mandatory arbitration provisions become widespread will also be a function of institutional investor reactions. In the words of Commissioner Peirce, the SEC’s policy statement “empowers investors to decide for themselves whether the presence or absence of a mandatory arbitration provision in governance documents is positive, negative, or neutral,” which “will be reflected in companies’ stock prices and the general demand for allocation in an IPO.”
 

_{1  A registration statement must be “effective” before a company can use it to sell its securities.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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