On September 17, 2025, the SEC issued a long-awaited policy statement “to inform the public 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.” Instead, going forward, the SEC will focus on “the adequacy of the registration statement’s disclosures, including disclosure regarding the arbitration provision.”
Along with the policy statement, the SEC issued this press release and fact sheet.
This development has implications for late-stage private companies preparing for initial public offerings and for existing public companies considering adopting these provisions. The statement addresses a long-standing question, but it also introduces new considerations for companies and boards around enforcement risk and investor relations.
The SEC staff, acting pursuant to its delegated authority, will accelerate the effective date of a registration statement if it meets the criteria under § 8(a) and Rule 461 of the Securities Act of 1933 (Securities Act). These criteria primarily focus on ensuring registrants completely and adequately disclose material information to the public but also require consideration of “the public interest and the protection of investors.”
While the SEC has not (until now) taken a public position on mandatory arbitration provisions, it has historically viewed these provisions as being inconsistent with the “anti-waiver” provisions of the federal securities laws; specifically §14 of the Securities Act and § 29(a) of the Securities Exchange Act (Exchange Act), which provide that any condition that would bind a person to waive compliance with those laws is void. In two specific instances, the SEC staff has refused to declare an issuer’s registration statement effective, where the issuer’s governing documents included a mandatory arbitration provision, effectively disrupting the IPO process for those companies.
For decades, companies and advisers have believed that including a mandatory arbitration clause in a company’s charter or bylaws could affect the SEC’s decision to accelerate the effectiveness of the company’s registration statement and have questioned the basis for such position.
The policy statement clarifies the SEC’s view (by a 3–1 vote) that inclusion of a mandatory arbitration clause in an issuer’s governing documents should not impact the decision to accelerate the effectiveness of the issuer’s registration statement, based on developments involving the U.S. Supreme Court’s interpretation and application of the Federal Arbitration Act (FAA) and case law examining the intersection of the FAA and federal statutes (including federal securities statutes) over the past decade or so.
“[In] the context of issuer-investor mandatory arbitration provisions, the federal securities statutes do not override the FAA’s policy favoring arbitration. Because the federal securities statutes do not override the FAA when it applies to an issuer-investor mandatory arbitration provision, the existence of such a provision may not be considered under section 8(a)’s public interest and investor protection standard for accelerating registration statements and will not impact determinations whether to accelerate the effective date of a registration statement. When considering acceleration requests pursuant to section 8(a) and Rule 461, the staff will focus on the adequacy of the registration statement’s disclosures, including disclosure regarding issuer-investor mandatory arbitration provisions.”
A footnote to the policy statement clarifies that the SEC’s position is not limited to registration statements filed under the Securities Act, and will also apply to decisions on whether to (i) accelerate the effectiveness of registration statements filed under the Exchange Act; (ii) declare effective post-effective amendments to registration statements; and (iii) qualify an offering statement or a post-qualification amendment under Regulation A. The SEC will also apply this position to an Exchange Act reporting issuer amending its bylaws or corporate charter to adopt an issuer-investor mandatory arbitration provision.
Chair Paul Atkins was clear, however, that in adopting the policy statement, the SEC is not expressing a view on the advisability or enforceability of mandatory arbitration provisions included in an issuer’s charter or bylaws.
“While many people will express views on whether a company should adopt a mandatory arbitration provision, the Commission’s role in this debate is to provide clarity that such provisions are not inconsistent with the federal securities laws.”
As the SEC noted in the policy statement, whether mandatory arbitration provisions can be included in a company’s organizational documents will ultimately depend on “the intersection of a Federal statute … and the unique laws of the state or other jurisdiction governing the provision.” For example, recent amendments to § 115 of the Delaware General Corporation Law, which covers forum-selection provisions, may call into question whether a Delaware corporation’s certificate of incorporation or bylaws may include a mandatory arbitration provision.
The policy statement expands on this intersection, citing case law which suggests that mandatory arbitration clauses included in governing documents would be enforceable under the FAA (despite the lack of a “signed” agreement) and the Supreme Court’s determination that a state law that targets arbitration is preempted. Meanwhile the policy statement recognizes § 2 of the FAA, which includes a narrow “savings clause” that “permits arbitration agreements to be declared unenforceable ‘upon such grounds as exist at law or in equity for the revocation of any contract.’”
Setting aside the question of enforceability, the SEC’s policy reversal does not close the debate.
Companies generally view mandatory arbitration provisions as a way to limit exposure to investor class actions and move disputes into a private forum, which may greatly reduce costs and negative publicity. But many investors have a different view of these provisions.
As Commissioner Caroline Crenshaw, who opposed the policy statement, noted:
“Mandatory arbitration forces harmed shareholders to sue companies in a private, confidential forum, instead of a court and without the benefit of proceeding in the form of a class action. While, in theory, arbitration could cut costs for companies, there are real downsides for investors. Arbitrations are typically more expensive for individual shareholders; they are not public; they have no juries; they lack consistent procedures; arbitrators are not bound by legal precedent; arbitration precludes collective action among shareholders; there are limited rights of appeal; and, ultimately, there is no assurance that two identical investors would get the same outcome. If that collection of things transpired in a courtroom without a party’s consent, judges would not hesitate to call it what it is: a violation of due process.”
Yet another consideration is the reaction of proxy advisors, who have generally opposed mandatory arbitration provisions.
While the SEC’s policy reversal on mandatory arbitration provisions removes the hurdle for companies contemplating an IPO or other registered offering, it does not, by its own admission, resolve the question of whether any specific mandatory provision will be legally enforceable. Accordingly, companies thinking about adopting a mandatory arbitration provision should consult with counsel and financial advisors to understand the potential risks around enforceability and shareholder relations.
When a registration has been declared effective, issuers and market participants such as underwriters and investors take action relying on such effectiveness. For example, an IPO cannot proceed until a registration statement has become effective; and once it has been declared effective, the company and underwriters typically sign the underwriting agreement and the underwriters sell the shares to investors, within a matter of hours. Subject to limited exceptions, the SEC’s Rules of Practice provide for an automatic stay of any SEC staff action taken under delegated authority from the Commission, which historically included the declaration of effectiveness of registration statements, in the event that any Commissioner or any other aggrieved person requests a review of that action, with the stay remaining in place until the Commission acts. In the context of public offering, such an automatic stay may be highly disruptive and costly to issuers and market participants, and it has the potential for malicious abuse. Consequently, the SEC approved technical amendments to Rule 431 of the Rules of Practice, along with the policy statement on mandatory arbitration, to add declaration of effectiveness of registration statements to the list of limited exceptions to the automatic stay requirement.
In his open meeting statement, Atkins noted:
“Today’s recommendations on mandatory arbitration and Rule 431 are among the first steps of my goal to make IPOs great again. This ambitious project will make being a public company an attractive proposition for more firms by eliminating compliance requirements that yield no meaningful investor protections, minimizing regulatory uncertainty, and reducing legal complexities throughout the SEC’s rulebook. The next steps in this project include enhancing accommodations for newly public and smaller companies, expanding post-IPO companies’ ability to easily access the public markets to raise additional capital, simplifying disclosure requirements for executive compensation and other topics to focus on material information, and modernizing the shareholder proposal process.”
Both the policy statement and Rule 431 amendments will be effective upon publication in the Federal Register.