SEC Rearranges Score for Declaring Registrations Effective - Acceleration Now in Harmony With Mandatory Arbitration

Under its current leadership, the SEC has emphasized capital formation as a key priority. Consistent with that focus, on September 17, 2025, the SEC issued a policy statement clarifying that the presence of mandatory investor arbitration provisions will no longer impact the acceleration of effectiveness of registration
statements.

The policy statement reversed a long-standing and opaque practice — never formalized as SEC policy — of delaying the acceleration of registration statements that contained mandatory arbitration provisions. The policy statement now makes clear that the staff’s decision to accelerate effectiveness will depend solely on the adequacy of the filing’s disclosures, including disclosures related to any arbitration provision. The SEC, however, did not express a view concerning whether “arbitration provisions are appropriate or optimal for issuers or investors.”

Prior to the policy statement, there had long been persistent staff concerns that the “anti-waiver” provisions of the federal securities laws overrode the Federal Arbitration Act (FAA), a concern that caused the staff to delay the effectiveness of registration statements that reflect mandatory arbitration provisions. The policy statement clarified, however, that absent congressional direction, the federal securities statutes “do not override the [FAA’s] policy favoring enforcement of arbitration agreements.”

The policy statement underscores that the SEC is not a merit-based regulator, and it should be a market-driven decision whether to include mandatory arbitration provisions in registration statements. However, the policy statement struck a sour note with Caroline Crenshaw, currently the sole Democrat commissioner, who published a dissent stating that the SEC’s decision “stack[ed] the deck” against small investors who, absent the availability of shareholder class actions, will be “prevented from vindicating their rights.”

Moreover, the broader practical impact of the policy statement remains an open question. For example, whether mandatory investor-issuer arbitration provisions can be included in a corporation’s governing documents is a matter of state corporate law where the issuer is incorporated (and the laws are not uniform as among the states). Significantly, a recent amendment to the Delaware General Corporation Law has the effect of prohibiting mandatory arbitration provisions. This Delaware amendment has been subject to criticism, including by SEC Chairman Paul Atkins. Among other issues, purported state law limits on mandatory arbitration provisions are in tension with the FAA, and the resulting uncertainty may need to be decided by the courts.

Accordingly, it’s too soon to know what precise impact the policy statement will have on shareholder class actions. While issuers would like to avoid costly and protracted class action litigation under the securities laws, it’s equally likely that the securities class action bar would challenge the mandatory arbitration of federal securities law claims, which has never been considered by the Supreme Court.

Finally, as a practical matter, some issuers might still prefer the certainty and efficiency of litigating a single federal court action with the safeguards of the Private Securities Litigation Reform Act and the other benefits of federal court (such as experienced judges, predictable procedures, full discovery, and robust appellate rights) as opposed to numerous individual arbitrations in a forum with less predictability, limited discovery, and constrained appeal opportunities.

Ultimately, however, the market will resolve such dissonances, which is precisely where this SEC believes the decision belongs.