SEC Issues Policy Statement Permitting Arbitration Clauses in Registration Statements

The US Securities and Exchange Commission’s recent policy statement, Acceleration of Effectiveness of Registration Statements of Issuers with Certain Mandatory Arbitration Provisions, indicated that, in the Commission’s view, mandatory arbitration clauses are “not inconsistent” with the federal securities laws, with the effect that issuers may now include these provisions in their registration statements without impact to the statement’s acceleration.

In an effort to “make IPOs great again,” [1] on September 17, 2025 the Commissioners of the US Securities and Exchange Commission (SEC or Commission) voted 3-1 to issue a policy statement expressing the Commission’s view that the presence of a mandatory arbitration provision in a registration statement requiring that shareholders arbitrate claims against the issuer of the security would not impact the Commission’s acceleration of that registration statement. [2]

More recently, SEC Chairman Paul Atkins gave a speech in which he doubled down on the position that mandatory arbitration—while not without controversy—has “merits, including . . . quicker payments to harmed shareholders and reduced litigation costs.” [3] Previously, a registration statement would not clear SEC review if it contained an arbitration provision.

Relying on its interpretation of US Supreme Court precedent, the SEC concluded that mandatory arbitration clauses are “not inconsistent” with the federal securities laws, [4] thus paving the way for issuers to include these clauses in their registration statements.

WHY DID THE SEC ISSUE THE POLICY STATEMENT?

Commissioner Peirce declared that the Policy Statement is an example of the SEC removing its “thumb from the scale,” [5] which is consistent with the current administration’s deregulatory agenda. Commissioner Peirce further explained that giving companies the choice of mandatory arbitration may not just benefit the corporate sector but also investors, and the “market will do a better job than [the SEC] can in assessing [] mandatory arbitration provisions.” [6]

Chairman Atkins also opined that this change is overdue “as the law in this area has been clear since at least 2013.” [7] Specifically, the Policy Statement details the evolution of Supreme Court precedent [8] and concludes that the inability to proceed in a judicial forum as a result of a mandatory arbitration provision does not violate the anti-waiver provisions of the federal securities statutes.

The Policy Statement also relies on the fact that the Supreme Court has held that there must be a “clearly expressed congressional intention” to override the Federal Arbitration Act (FAA). [9] The Policy Statement concludes that there is a paucity of congressional intent for federal securities statutes to override the FAA. [10] Given these factors, the Policy Statement concludes that a mandatory arbitration clause in a registration statement is “not inconsistent” with the federal securities laws.

DID THE COMMISSION VOTE UNANIMOUSLY?

No. The Policy Statement is not without its critics. Commissioner Crenshaw, the sole dissenting Commissioner, offered five central areas of concern principally centering around what she views as harm to investors. [11] Commissioner Crenshaw expressed concerns about the impact that the Policy Statement could have if it were to move conventional securities class actions away from public courtrooms and into private arbitrations. [12]

Specifically, Commissioner Crenshaw envisioned markets being underpoliced without common law developments emerging from courts and, potentially more concerning, the lack of recourse for harmed parties if they are mandated to arbitrate as individuals and bear the costs alone. Senators Elizabeth Warren and Jack Reed share Commissioner Crenshaw’s concerns, as well as the CEO of CalPERS—the largest pension fund in the world—who all wrote letters to the SEC expressing their disapproval of the Policy Statement.

WHAT ARE THE PRACTICAL IMPLICATIONS?

It largely remains to be seen, but there are several potential practice implications worth noting:

The SEC will accelerate registration statements with arbitration clauses. The Policy Statement reversed the SEC’s previous—albeit unwritten—policy of not accelerating the effectiveness of registration statements that contained mandatory arbitration clauses. [13] While the Policy Statement removes this barrier to inclusion of a mandatory arbitration clause in a registration statement, it does not express a view on whether these arbitration clauses are valid as a matter of state law or under the FAA—only that they do not conflict with the federal securities laws. The Commission explicitly did not opine on that question, nor did it opine on whether such arbitration clauses are “good” or “bad” from a business or investor perspective.

Effective limitation on damages. If an issuer were to elect to include a mandatory arbitration provision in its registration statement, the most likely claims to be affected are those arising under the Securities Act of 1933 (33 Act) since the act applies to securities offerings. These claims present significant risk to issuers because the 33 Act is a strict liability statute and does not require an investor to prove reliance on the alleged material misrepresentation.

Having a 33 Act claim proceed in arbitration without the opportunity for a class action would limit damages to only one investor’s purported losses (per arbitration, of course). As noted below, there are questions about the viability of an arbitration clause in a registration statement for Delaware corporations and potential downsides to issuers outside of Delaware who are considering including a mandatory arbitration provision in a registration statement.

Individual nonclass arbitrations. Similarly, opponents of the Policy Statement argue that, by negating the opportunity to proceed as a class action, an arbitration clause may dissuade retail investors from pursuing claims at all because the cost of litigation would likely exceed the potential damages for most retail investors. That said, while an arbitration clause would negate a class action, it would not foreclose investors from bringing individual arbitrations, forcing issuers to defend multiple shareholder lawsuits at once.

No state court litigation. In the 2011 Cyan decision, the US Supreme Court held that 33 Act claims could be brought either in state or federal court. [14] Many issuers responded by including forum selection clauses in their certificates of incorporation mandating that such suits be filed in federal court. These clauses have largely been upheld by state courts, but the effect of Cyan was that significant securities cases were regularly filed in state courts where judges often have much busier dockets and less experience with securities claims, and companies were also often forced to simultaneously defend 33 Act claims in multiple forums. The certainty that an arbitration clause provides could prove important to issuers.

Disclosure still matters. While the mere fact of an arbitration provision will not be a bar to acceptance of a registration statement, Chairman Atkins’s statement indicates that the Commission will consider the adequacy of the disclosure of any such provision: “the Commission and its staff should focus on ensuring complete and adequate disclosure of material information concerning a company’s mandatory arbitration provision, if one exists.” [15] Accordingly, issuers will need to think through the adequacy of their disclosure concerning the clause.

WHAT QUESTIONS REMAIN?

State law issues. The Policy Statement’s impacts on the securities class action landscape may be tempered by roadblocks under state law. For example, as discussed above, Delaware—where more than two-thirds of Fortune 500 companies are incorporated [16]—recently amended the Delaware General Corporation Law (DGCL), mandating that Delaware corporations provide the option for shareholders’ claims to proceed in at least one Delaware court, federal or state. [17] On its face, this appears to prohibit the inclusion of mandatory arbitration provisions in a Delaware corporation’s certificate of incorporation or bylaws, as a mandatory arbitration provision may entirely block a Delaware proceeding. [18]

In a recent speech, Chairman Atkins made clear that he is “disappointed” by the recent amendment to the DGCL. [19] He characterized the DGCL amendment as the “Delaware legislature suggest[ing] that the state is not only uninterested in reform, but instead, seems to embrace the litigation costs that abusive lawsuits impose on companies franchised in Delaware.” And he forewarned that “for public companies that consider mandatory arbitration to be a vital aspect of their dispute resolution strategy, [the recent amendment] has effectively eliminated Delaware as an option for incorporation.” [20] The SEC, however, does not dictate state corporate law and it remains to be seen if the Delaware legislature will revisit this issue.

Possible increase in SEC enforcement. Commissioner Crenshaw’s dissent noted that in 2024 securities class action settlements brought by shareholders returned approximately tenfold more than Commission settlements with issuers. If Commissioner Crenshaw is correct that mandatory arbitration provisions with class action waivers dissuade investors from bringing claims against issuers, there could be an increase in whistleblower complaints to the SEC that seek to monetize alleged false statements in an issuer’s registration statement.

This may in turn increase pressure on the SEC to investigate alleged federal securities law disclosure violations. It remains to be seen whether this type of enforcement activity would be a priority for the SEC under Chairman Atkins or future SEC leadership and, if it becomes a priority, whether the SEC even has the resources to conduct investigations and litigations in this area.

Loss of PSLRA protection and opportunities for appellate relief. The Private Securities Litigation Reform Act (PSLRA), passed in 1995, provides certain protections for issuers defending against securities class actions. [21] As just one example, discovery is stayed pending a decision on a motion to dismiss, which can create significant cost savings for defendant-issuers, which typically shoulder the vast majority of the discovery burden in class action litigation. (Although courts are split about whether the mandatory stay on discovery applies in state court.) The PSLRA, however, applies explicitly to “class actions” and presumably would not apply in an arbitral forum.

Moreover, dispositive motions are generally disfavored in most arbitrations. Defendants have a high success rate on motions to dismiss in securities class actions in federal courts. For example, according to one recent study, among the cases in which a motion to dismiss was filed in 2024, 61% of those motions were granted. [22] The result could be that issuers defending securities claims in arbitration would be required to proceed through discovery, adding time and expense to the litigation process. Lastly, mandatory arbitration decisions often cannot be substantively appealed on their merits, therefore limiting any such appellate review.

Application to bylaws and certificates of information. The Policy Statement is not limited to IPOs, and notes that issuer-investor mandatory arbitration provisions may be contained in an issuer’s corporate governance documents. In 2020, a stockholder bylaw proposal to require arbitration of shareholder claims received only 2.4% of shareholder approval, indicating that the largest shareholders of the issuer, including T. Rowe Price and Vanguard, opposed the proposal. It also remains unclear whether proxy advisory firms would be in favor of a mandatory arbitration provision.

Application to investment funds. The Policy Statement language and statements of the Commissioners appears to largely be focused on public companies considering arbitration provisions in their registration statements. But the Policy Statement at footnote 11 mentions that the Director of the Division of Investment Management also possesses delegated authority to accelerate effectiveness of a registration statement.

Public companies of course are not the only corporate entities that register their shares with the public: investment companies register shares with the SEC as well and similarly file registration statements. Albeit not explicit, the Policy Statement’s reference to the Division of Investment Management suggests that the Commission had in mind investment fund registration statements when it issued the Policy Statement, potentially indicating an acceptance of arbitration agreements in those registration statements as well.

CONCLUSION

While it is unclear exactly how this will play out in practice, issuers can now introduce mandatory arbitration provisions that could potentially provide a more cost-effective path than resource-demanding securities class action litigation. There may also be creative ways to structure these arbitration agreements to potentially negate some of the potential drawbacks noted above.

The SEC’s Policy Statement makes clear that the Commission has removed itself from deciding whether mandatory arbitration is the right policy choice for an issuer. It remains to be seen whether or how many issuers decide the inclusion of such provisions is something they wish to do—a choice they did not previously have.