U.S. Securities And Exchange Commission Adopts New Policy Statement On Mandatory Issuer-Investor Arbitration Provisions

On September 17, 2025, the U.S. Securities and Exchange Commission issued a policy statement announcing that, when considering a request by a company to accelerate the effectiveness of its registration statement, the Commission’s decision will not be affected by whether the company has a provision in its governing documents requiring arbitration of investor claims under the federal securities laws. SEC Policy Statement, https://www.sec.gov/files/rules/policy/33-11389.pdf. The policy statement reverses a long-standing policy of the SEC’s Division of Corporation Finance that effectively prohibited the inclusion of mandatory arbitration provisions in the governing documents of companies seeking to go public. The policy was based on the Division’s assessment that it was not able to determine that these types of provisions were consistent with “the public interest and the protection of investors” as it is required to by Section 8(a) of the Securities Act in connection with a declaration of effectiveness of a registration statement.

In an accompanying press release, SEC Chairman Paul Atkins stated that the policy statement was intended to “provide clarity that such provisions are not inconsistent with the federal securities laws.” Press Release, SEC Issues Policy Statement Clarifying that Mandatory Arbitration Provisions Will Not Affect Effectiveness of Registration Statements, https://www.sec.gov/newsroom/press-releases/2025-120-sec-issues-policy-statement-clarifying-mandatory-arbitration-provisions-will-not-affect. The press release also emphasized that the SEC’s decision as to whether to accelerate the effective date of a registration statement “will focus on the adequacy of the registration statement’s disclosures, including disclosure regarding the arbitration provision.”

The Commission’s policy statement explained that “issuers have on occasion asked whether the presence of an issuer-investor mandatory arbitration provision would impact acceleration of the effectiveness of their registration statement.” Statement at 3. While the Commission explained that it lacks authority to determine the applicability of the Federal Arbitration Act (“FAA”) to such arbitration provisions, the Commission indicated that it believes that the federal securities laws do not override the FAA’s policy favoring enforcement of arbitration agreements. Id. at 6–7. In support of its reasoning, the Commission stated that it believes that nothing in the anti-waiver provisions of the securities laws displace the FAA, and noted that the Supreme Court has held that “resort to the arbitration process does not inherently undermine any of the substantive rights afforded to [investors] under the Securities Act.” Id. at 10 (quoting Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 485–86 (1989)). The Commission further explained that, even if mandatory arbitration may reduce the economic incentive for some investors to bring claims under the federal securities laws, “no provision in the federal securities statutes guarantees an affordable procedural path to the vindication of every claim,” and the federal securities laws “do not expressly include a right to proceed through class actions or collective actions.” Id. at 12–14. The Commission also noted that certain states (including Delaware) have enacted provisions that may prohibit certificates of incorporation or bylaws from including such mandatory arbitration provisions and that it is not clear if such provisions may be preempted by federal law, id. at 2–3, but that it was the Commission’s view that for purposes of acceleration decisions “any relevant issues concerning an issuer-investor mandatory arbitration provision are best addressed through complete and adequate disclosure of material information in the registration statement.” Id. at 15.

SEC Commissioner Caroline Crenshaw issued remarks objecting to the SEC’s policy statement, arguing it was unwarranted since it “fails to identify a problem,” “fails to adequately address numerous and complex legal and economic issues,” and “fails entirely to discuss the practical consequences of allowing public companies to mandate arbitration.” Statement, Commissioner Caroline Crenshaw, Mandatory Dis-Agreements: The Commission’s Policy of Quietly Shutting the Door on Investors, https://www.sec.gov/newsroom/speeches-statements/crenshaw-statement-mandatory-dis-agreements-the-commissions-policy-of-quietly-shutting-the-door-on-investors-091725. Commissioner Crenshaw indicated that the Commission’s policy statement will encourage companies to adopt arbitration provisions which, in turn, will reduce the likelihood that shareholders will seek to vindicate their rights, leading to under-enforcement of the securities laws. Commissioner Crenshaw also emphasized that “neither the Supreme Court nor Congress has ever adjudged that the FAA requires enforcement” of such mandatory arbitration provisions.

Whether companies elect to include an arbitration clause in their governing documents and, if so, the viability of such provisions once challenged, will involve careful consideration of the availability of mass arbitration, the advantages and disadvantages of arbitration versus court challenge for defendants—including avenues of appeal, settlement dynamics, and the predictability provided by binding legal precedent in the constantly evolving securities litigation space—and complicated questions of statutory interpretation and pre-emption. The Commission’s announcement, and state reactions to it, will also likely play a role in the ongoing challenge states like Texas and Nevada are raising to Delaware’s primacy as a state of incorporation.