Mandatory Arbitration Provisions No Longer Impede SEC Registration Statement Approval

What Is a Mandatory Arbitration Provision?

A mandatory arbitration provision requires investors to arbitrate claims arising under the federal securities laws with the issuer of the securities, rather than pursuing those claims in federal court. In the context of an SEC registration statement, this is commonly referred to as an issuer-investor mandatory arbitration provision.

According to Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission (SEC):

“A mandatory arbitration provision requires an investor to arbitrate its claims arising under the federal securities laws with the issuer of the securities.”

Mandatory arbitration provisions offer an alternative forum for resolving disputes and have long raised questions regarding enforceability and investor protections under federal securities laws.

Is Arbitration a Satisfactory Alternative to Federal Court Litigation?

The Federal Arbitration Act of 1925 (“FAA”) established a strong federal policy favoring arbitration agreements. Section 2 of the FAA, its principal substantive provision, states in relevant part:

“A written provision in a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction shall be valid, irrevocable, and enforceable.”

Whether the FAA applies to issuer-investor mandatory arbitration provisions depends initially on whether there is a valid and enforceable written agreement to arbitrate between the parties.

Do Federal Securities Laws Override the FAA?

Chairman Atkins has explained that issuer-investor mandatory arbitration provisions have historically been viewed as potentially inconsistent with federal securities statutes in at least two ways:

They may violate the anti-waiver provisions of federal securities laws by foreclosing a judicial forum; and
They may impede investors’ ability to bring private actions—particularly class actions—to enforce their rights under federal securities laws.

Anti-Waiver Provisions Under Federal Securities Laws

Section 14 of the Securities Act of 1933 and Section 29(a) of the Securities Exchange Act of 1934 contain anti-waiver provisions that invalidate contractual clauses which:

•Require investors to waive compliance with federal securities laws; or
•Eliminate substantive investor protections, including remedies for fraud.

Supreme Court Resolution of Arbitration and Anti-Waiver Conflicts

In a series of decisions issued in the late 1980s, the U.S. Supreme Court clarified the relationship between arbitration agreements and federal securities laws. The Court held that:

1. Anti-waiver provisions prohibit waivers of substantive obligations, not procedural or jurisdictional provisions;
2. The arbitration process does not inherently undermine substantive rights granted under the Securities Act; and
3. To override the FAA, Congress must express a “clear and manifest” intention to do so in subsequent legislation.

These rulings significantly strengthened the enforceability of arbitration agreements in securities-related disputes.

New SEC Policy Statement

On September 17, 2025, the SEC issued a policy statement titled Acceleration of Effectiveness of Registration Statements of Issuers with Certain Mandatory Arbitration Provisions.

In announcing the policy change, Chairman Atkins stated:

“The Commission has determined that the presence of an issuer-investor mandatory arbitration provision will not impact decisions regarding whether to accelerate the effectiveness of a registration statement.”

This policy marks a significant shift, making clear that mandatory arbitration provisions will no longer impede SEC approval or acceleration of registration statements.

Need Legal Guidance on Mandatory Arbitration Provisions?

The attorneys at Corporate Securities Legal LLP advise companies on the advantages and risks associated with mandatory arbitration provisions, registration statement disclosures, and all aspects of the IPO process.

Our team is prepared to help you evaluate strategic considerations, comply with SEC requirements, and structure registration statements for a successful public offering.