On September 17, 2025, the U.S. Securities and Exchange Commission (SEC or Commission) approved a Policy Statement clarifying the SEC’s position on accelerating the effective date of registration statements for the offer and sale of securities under the Securities Act filed by companies that have mandatory arbitration provisions in their governing documents. The Policy Statement represents a significant development in the SEC’s approach to filings by companies with mandatory arbitration provisions applicable to claims under the federal securities laws—and potentially other governance claims as well. The Policy Statement also comes at a time of growing debate over the proper role of stockholder litigation as a policy matter and the optimal approach to such matters under state corporate law.
Background
Under Section 5 of the Securities Act, a registration statement must be “effective” as to a security for a company to sell that security to the public. SEC rules permit a company to request specific timing to have the registration statement declared effective, thus allowing the company control over the timing of its offering.1 When considering such requests, the SEC staff focus on whether a company has provided complete and adequate disclosure of material information to the public and considers “the public interest and the protection of investors.”2 As such, these criteria have been central to the consideration of registration statements filed by companies with a mandatory arbitration provision.
In this context, mandatory arbitration refers to a provision in a company’s governing documents requiring an investor to arbitrate federal securities laws claims with the company rather than seeking redress in a federal or state court. The SEC staff previously indicated to companies with mandatory arbitration provisions, or those contemplating one, that the staff would not act on requests for effectiveness of a registration statement for an initial public offering if the company’s governing documents included such a provision. Rather, the SEC staff indicated they would seek the Commission’s views.3 A company seeking access to the capital markets was faced with a decision whether to subject itself to additional regulatory scrutiny and a possible extended time frame for completion of its offering so that the Commission could consider the issue, along with the potential for negative publicity and the risk of an unfavorable decision by the Commission, or to choose not to include a mandatory arbitration provision in its governing documents in favor of a speedier route to accessing capital. In the face of those options, companies typically chose the expedient route to the capital markets to fund and grow their businesses.
Policy Statement
The Policy Statement notes that a mandatory arbitration provision may implicate the Federal Arbitration Act of 1925 (FAA), which establishes a policy favoring arbitration agreements. Initially, the federal securities statutes were viewed to override the FAA because arbitration provisions could be viewed as inconsistent with the federal securities statutes, particularly the anti-waiver provisions of the Securities Act and Exchange Act. The specific concerns were that arbitration provisions could preclude a judicial forum and could unduly impede investors’ ability to bring private actions to vindicate their rights by foreclosing class action lawsuits. After analyzing the statutory framework and recent Supreme Court case law enforcing arbitration agreements alleging many kinds of claims, including under the federal securities laws, the Commission concluded that the federal securities statutes do not override the FAA’s policy of favoring arbitration. Therefore, the Policy Statement stated that the existence of a mandatory arbitration provision is not within the “appropriate considerations under section 8(a)’s public interest and investor protection standard.”4 Notably, the Commission examined case law regarding the anti-waiver provisions of the Securities Act and Exchange Act and expressed the view that arbitration provisions limiting the ability to proceed in a judicial forum would not violate the anti-waiver provisions and that nothing in the federal securities statutes clearly express a congressional intention that the FAA would not apply to federal securities law claims.
Based on the foregoing considerations, among others, the Policy Statement expressed the view that mandatory arbitration provisions are not inconsistent with the federal securities laws, and that the presence of such a provision in a company’s governing documents will not impact the SEC’s decision whether to declare a registration statement effective. Consistent with the statutory purpose of full and fair disclosure, the SEC staff will focus on the adequacy of the company’s disclosures regarding an arbitration provision when considering acceleration requests for effectiveness of registration statements.5
Considerations Beyond Registration Statements
Although the Policy Statement focused on whether an arbitration provision will prevent a registration statement from being declared effective, the implications extend further. The Policy Statement explicitly stated that: “[O]ur conclusion that the Federal securities statutes do not override the FAA in the context of issuer-investor mandatory arbitration provisions is not limited to this context. This same conclusion also applies, for example, if an Exchange Act reporting issuer were to amend its bylaws or corporate charter to adopt an issuer-investor mandatory arbitration provision.”6
State Law Considerations
The Policy Statement highlighted the need to consider state law and noted uncertainty may exist regarding the interaction of the FAA and state law. The Commission noted its belief that deciding whether any particular arbitration provision is enforceable under state law for purposes of the FAA is not within its purview.
State law generally governs the permissible scope of the contents of a company’s certificate of incorporation and bylaws. For example, the Delaware General Corporation Law (the DGCL) and the Delaware case law generally permit provisions in certificates of incorporation and bylaws specifying that stockholder claims and other intra-corporate claims must be brought in particular courts, to bring efficiency and predictability to litigation. The market has broadly adopted charter and bylaw provisions specifying that state corporate law claims and federal securities law claims must be brought in particular categories of courts. But the DGCL further provides that such provisions must allow a stockholder to bring claims in at least one court in Delaware that has jurisdiction over such claims. That language appears to foreclose Delaware corporations from adopting a charter or bylaw-based forum provision that exclusively requires such claims to be arbitrated. The Policy Statement noted, however, that “a state law that targets the enforceability of mandatory arbitration agreements either by name or by more subtle methods, such as by interfering with fundamental attributes of arbitration may be preempted by the Arbitration Act.”7 The Policy Statement further suggested, “[o]ther states may take different approaches.”
Takeaways
The Policy Statement is a significant change in the SEC’s approach to filings by companies with a mandatory arbitration provision in their governing documents. Companies seeking to access capital in the markets, such as in an IPO, may consider whether to adopt a mandatory arbitration provision. In addition, given the SEC statement that the same considerations apply if an issuer were to amend its bylaws or corporate charter to adopt a mandatory arbitration provision, current registrants may consider doing the same. Companies should consult their legal and financial advisors to fully consider the implications, including potential market and investor considerations and state law implications and enforceability. Existing public companies also need to consider relevant state law and voting requirements for changes to its governing documents. In addition, companies should consider the potential reaction of major institutional investors, proxy advisory firms, and other constituencies that may view mandatory arbitration agreements with suspicion or contrary to investors’ interests. If a company proceeds with adopting an arbitration provision and can do so under state law, it should work with counsel to fully disclose the provision, including its scope, the implications and risks for investors, and whether there is uncertainty regarding its enforceability.
The Policy Statement, and companies’ reactions to it, may also bring into focus the ongoing debate over the proper approach to stockholder litigation generally and the optimal policy for such matters under state corporate law.
The Policy Statement is effective as of September 19, 2025.
For more information, please contact Tamara Brightwell, Amy Simmerman, Brad Sorrels, Ignacio Salceda, Richard Blake, Michael Nordtvedt, or any member of the firm’s Capital Markets, Public Company, Corporate Governance, or Securities Litigation groups.
[1] See Securities Act Section 8(a) and Rule 473.
[2] See Securities Act Section 8(a) and Rule 461.
[3] The Commission delegates authority to declare registration statements effective to the Division of Corporate Finance and certain members of its staff.
[5] See Securities Act 8(a) and Rule 461.
[6] Policy Statement at page 4, n.8. The SEC noted it will take a similar approach to decisions whether to accelerate the effectiveness of Exchange Act registration statements, declare effective post-effective amendments to registration statements, and qualify an offering statement or a post-qualification amendment under Regulation A.
[7] Policy Statement at 7 (quoting Epic Systems Corp. v. Lewis, 584 U.S. 497, 508 (2018) (cleaned up).
