Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Overview

On September 17, 2025, the Securities and Exchange Commission (SEC) issued a final rule and policy statement clarifying that the inclusion of mandatory arbitration provisions between issuers and investors will not affect the staff’s decision to accelerate the effectiveness of registration statements under the Securities Act of 1933. The SEC’s new policy focuses on the adequacy of disclosures in registration statements, including those related to arbitration provisions, and confirms that federal securities statutes do not override the Federal Arbitration Act (FAA) in this context.

Key Takeaways

  • No Impact on Acceleration Decisions: The presence of issuer-investor mandatory arbitration provisions in registration statements will not influence the SEC staff’s decision to accelerate effectiveness. The staff will instead focus on whether the registration statement provides complete and adequate disclosure, including clear information about any arbitration provisions.
  • Federal Arbitration Act Prevails: The SEC’s analysis, informed by recent Supreme Court precedent, concludes that the FAA’s policy favoring arbitration agreements is not displaced by federal securities statutes. There is no “clearly expressed congressional intention” in the securities laws to override the FAA with respect to issuer-investor arbitration provisions.
  • Disclosure is Paramount: The SEC emphasizes that any issues related to the enforceability or appropriateness of arbitration provisions are best addressed through robust disclosure in the registration statement, rather than through the acceleration process.
  • State Law Considerations Remain: While the SEC’s policy is clear at the federal level, state laws may still impact the permissibility or enforceability of mandatory arbitration provisions. For example, recent amendments to Delaware law may restrict such provisions in corporate charters or bylaws.
  • No Endorsement of Arbitration Provisions: The SEC does not express a view on the merits or appropriateness of mandatory arbitration provisions for issuers or investors, nor does it opine on the enforceability of any specific provision.

Legal and Practical Implications

  • Issuer Certainty: Issuers seeking to include mandatory arbitration provisions in their governing documents or offering materials can do so without concern that such provisions will delay or prevent the acceleration of their registration statements, provided disclosures are adequate.
  • Investor Considerations: The adoption of mandatory arbitration provisions may affect investors’ ability to bring class actions or pursue claims in court, potentially impacting the cost and outcome of dispute resolution. However, the SEC’s policy does not address the substantive fairness or enforceability of such provisions, which may still be subject to state law or judicial review.
  • Market Dynamics: The SEC acknowledges that the new policy may influence issuer behavior, potentially leading to broader adoption of arbitration provisions. However, the ultimate impact will depend on market forces, including investor preferences, proxy advisory firm recommendations, and stock exchange requirements.
  • No New Regulatory Burden: The policy statement does not impose new rules or requirements on issuers but clarifies the SEC’s approach to a recurring issue in the registration process.

Conclusion

The SEC’s final rule provides clarity for issuers and market participants regarding the treatment of mandatory arbitration provisions in registration statements. By deferring to the FAA and focusing on disclosure, the SEC aims to provide regulatory certainty while leaving substantive questions about the appropriateness and enforceability of arbitration provisions to other forums. Issuers should ensure that any such provisions are clearly disclosed and consider potential state law and market reactions before adoption.