SEC Issues Policy Statement Concerning Mandatory Arbitration Provisions

On September 17, 2025, the SEC announced in a policy statement that the presence of a mandatory arbitration provision will no longer affect the agency’s decision to accelerate a registration statement effectively giving companies pursuing public offerings the option to include such provisions in their governing documents.

Mandatory arbitration provisions require shareholders to resolve federal securities law claims through private arbitration rather than through class actions, an otherwise common mechanism for aggrieved shareholders to seek redress.

Prior to this policy statement, the SEC had taken the view that the Federal Arbitration Act of 1925 (“FAA”), that will now govern these mandatory arbitration provisions, was “inconsistent with the Federal securities statutes in at least two respects: (1) issuer-investor mandatory arbitration provisions could violate the anti-waiver provisions of the Federal securities statutes by foreclosing a judicial forum; and (2) such provisions could unduly impede the ability of investors to bring private actions to vindicate their rights under the Federal securities laws by foreclosing class action litigation in courts.”

Now, however, the SEC has “concluded that, in the context of issuer-investor mandatory arbitration provisions, the Federal securities statutes do not override the Arbitration Act’s policy favoring enforcement of arbitration agreements” upon “considering the Supreme Court’s jurisprudence relating to the FAA.”

With the SEC’s new position, companies going public no longer need to wait for the SEC to rule on the adequacy of their disclosures before their registration statement becomes effective.

This represents a significant shift from its previous position,[1] and companies pursuing initial public offerings may be incentivized to include mandatory arbitration provisions in their governing documents, while investors may, as the policy statement itself acknowledges, find their ability to bring actions to enforce federal securities laws “unduly impeded.”

[1] Previously, the SEC found that the FAA was inconsistent with federal securities statutes and as such,  took the position that it would not accelerate the effectiveness of registration statements for companies with mandatory arbitration provisions.