Securities Regulation Daily Wrap Up, SECURITIES OFFERINGS—Commissioner policy statement seeks to clarify application of FAA, (Sep 17, 2025)

By Mark S. Nelson, J.D.

The SEC said it will focus on the adequacy of disclosures when processing acceleration requests where an issuer and investors are subject to a mandatory arbitration provision.

The Commission is set to issue a policy statement in which it will clarify that SEC staff will emphasize the adequacy of an issuer’s disclosures rather than try to apply the Federal Arbitration Act (FAA) when processing issuer requests to accelerate the effectiveness of registration statements for offerings in which the issuer and its investors may have a mandatory arbitration agreement. The Commission’s policy statement explained that in light of recent Supreme Court opinions regarding the FAA and ongoing confusion over whether the securities laws may take precedence over the FAA, the better approach would be to focus on disclosure adequacy rather than to make individualized determinations about whether the FAA or federal securities laws govern such registration statements.

Sharp disagreement among commissioners. According to a statement issued by SEC Chairman Paul S. Atkins, the policy change was long overdue and became more pressing because of recent changes to Delaware’s corporate law that may ban mandatory arbitration agreements from corporate governance documents for companies incorporated there.

“Today’s recommendations on mandatory arbitration and rule 431 are among the first steps of my goal to make IPOs great again,” said Atkins. “This ambitious project will make being a public company an attractive proposition for more firms by eliminating compliance requirements that yield no meaningful investor protections, minimizing regulatory uncertainty, and reducing legal complexities throughout the SEC’s rulebook.”

Commissioner Mark T. Uyeda issued a statement that focused on the automatic stay aspect of the acceleration process that was addressed via a change to the Commission’s rules of practice. “These amendments reflect the fact that an automatic stay of the staff’s determination to accelerate effectiveness or to qualify an offering statement after sales have commenced would be highly disruptive to the distribution process,” said Uyeda. “Today’s amendments will remove the unpredictability resulting from an automatic stay.” According to Uyeda, the SEC still can invoke the stop order provision contained in Securities Act Section 8(d) as a “key safeguard.”

According to a statement issued by Commissioner Hester M. Peirce, the Commission is now letting market forces judge the propriety of mandatory arbitration provisions. “Past signaling from the SEC, unrooted in any apparent statutory authority, that it would block registration statements for companies with mandatory arbitration clauses prevented companies from taking a step some viewed to be value-maximizing, and thus good for shareholders,” said Peirce. “Whether those companies are correct should be up to the market to decide.”

Commissioner Caroline A. Crenshaw, the lone Democratic commissioner, issued a lengthy critique of the Commission’s policy statement. She said it would hurt small investors most, would limit private enforcement of federal securities laws, lacked adequate economic analysis, failed to solicit public comment, and was paired with a change to Commission rules of practice that may limit the ability of persons to challenge the policy statement and mandatory arbitration provisions.

Said Crenshaw: “We have, in effect, hard-wired a finding that that [sic] mandatory arbitration is in the public interest, without any real consideration of any issuer’s filings. Do we even have authority to make such a broad finding through a policy statement? I can’t remember another time in recent history where the Commission chose to take a critical tool out of its toolbox for performing a task it was mandated to do by Congress.”

Speeding IPOs to market. By way of background, issuer requests to accelerate the effective date of registration statements is a common practice under the federal securities laws. As the policy statement explained, Securities Act Rule 473(a) allows issuers to delay effectiveness for up to an additional 20 days or indefinitely. If the delay is on an indefinite basis, then the registration cannot become effective until the issuer requests acceleration of it from SEC staff under Securities Act Section 8(a) and Rule 461. Issuers often elect to delay effectiveness until market conditions are optimal.

With respect to issuer-investor mandatory arbitration agreements, noted the policy statement, these provisions can arise in the context of a variety of corporate governance documents, including the issuer's articles of incorporation, certificate of incorporation, bylaws, indentures, partnership agreements, trust agreements, or American depository receipts.

Generally, the policy statement added, these documents are governed by state law, but there can arise a potential conflict between the FAA and state law. Those potential conflicts implicate the SEC's authority to make determinations about the FAA, which the policy statement said Congress did not grant the agency authority to administer.

But the FAA’s intersection with federal securities laws and state laws also raises a question about whether the federal securities laws may override the FAA, at least to the extent federal securities laws contain an anti-waiver provision or other provisions that may run afoul of federal securities laws.

On this point, the Commission’s policy statement cited Supreme Court cases for the proposition that an override of the FAA must arise from “clearly expressed congressional intention” or a “clear and manifest” intent by Congress to override the FAA. The policy statement said the Supreme Court had not invoked the concept of “unambiguous” statutory language regarding the FAA, but still “there is a ‘strong presumption’ that the FAA applies exclusively to any issues regarding the enforceability of the arbitration agreement, and the other Federal statute that gives rise to the underlying substantive claims has no relevance to any arbitration issues.”

The policy statement explained further: “…;we have 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. This conclusion follows from the fact that nothing in the text of the anti-waiver provisions or any other provision of the Federal securities statutes demonstrates a clearly expressed congressional intention to except issuer-investor mandatory arbitration provisions from the Arbitration Act’s policy favoring arbitration.”

The policy statement noted that there may be other instances where the FAA would be inapplicable, such when there is no valid and enforceable written agreement for purposes of the FAA. The policy statement also said the Commission was not making any judgments about the propriety of issuer-investor mandatory arbitration provisions

Preemptive legislative rebuke. In a letter sent by Senate Banking Committee Ranking Member Elizabeth Warren (D-Mass) and Sen. Jack Reed (D-RI) to Atkins in advance of today’s open meeting of the Commission, the senators urged the Commission not to upend the decades long practice of declining to accelerate registration statements to effectiveness if the issuer’s governance documents include a mandatory arbitration provision regarding federal securities law disputes. The senators also noted that Jay Clayton, currently U.S. Attorney for the Southern District of New York, had indicated when he was SEC Chairman during the first Trump Administration that he would not alter the agency’s long-standing practice absent a deliberative process.

“If the Commission rolls back protections against forced arbitration, it would open the floodgates to companies adopting these provisions,” said Warren and Reed. “This would eliminate the critical tool of private securities litigation for securities law enforcement, denying relief for investors and allowing misconduct to go unpunished.”

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