SEC & Mandatory Arbitration: Policy Evolution and Supreme Court Precedent

Introduction

On September 17, 2025, the U.S. Securities and Exchange Commission (the “Commission”) published a policy statement concerning the inclusion of mandatory arbitration provisions in registration statements for investor claims arising under the federal securities laws. The policy statement marked an important development in the United States’ securities regulatory regime.

For the first time, the Commission directly addressed the role and treatment of mandatory arbitration provisions in registration statements filed under the Securities Act of 1933. In determining that such arbitration provisions will not serve as a basis to grant, deny or otherwise affect the acceleration of registration statements, the Commission’s new approach reflects alignment with established U.S. Supreme Court jurisprudence. It also marks a shift from previous regulatory interpretations that viewed mandatory arbitration with skepticism, at best.

In this alert, we review the context of the Commission’s policy evolution, the Supreme Court precedents that underpin the changed approach, the implications for issuers, investors and others (especially in light of a recent amendment to Delaware law) and the emerging key practical takeaways.

Historical Context and Judicial Evolution

To appreciate the significance of the Commission’s 2025 statement, we consider it against the backdrop of the historical debates over investor protection and access to judicial remedies.

For nearly five decades after the implementation of Securities Act of 1933 (15 U.S.C. § 77a et seq. (the “Securities Act”)) and the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq. (the “Exchange Act”)), the prevailing view was that investors should have unimpeded access to the courts to vindicate their rights under the Acts. This perspective flowed from the anti-waiver provisions contained in the securities laws, including Section 14 of the Securities Act and Section 29(a) of the Exchange Act. These anti-waiver provisions prohibit issuers (and others) from imposing on investors “[a]ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision” of the respective Acts.

For decades, the view was that these anti-waiver clauses created a categorical bar to mandatory arbitration provisions. The Commission shared the belief that mandatory arbitration clauses were inconsistent with the public interest and investor protection purposes of the securities laws.

But the regulatory landscape has steadily evolved. And by the 1980s, the Supreme Court had begun its path of increasing deference to the Federal Arbitration Act of 1925 (9 U.S.C. § 1 et seq. (“FAA”)), which codifies the “liberal federal policy favoring arbitration agreements,” as articulated in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983).

The FAA’s Central Role

Enacted a century ago, the FAA was designed to “reverse centuries of judicial hostility to arbitration agreements” and to place arbitration agreements “upon the same footing as other contracts.” Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 225–26 (1987). The Supreme Court has repeatedly emphasized that, absent a contrary command from Congress, arbitration agreements must be enforced according to their terms.

The Erosion of Early Judicial Skepticism

Initially, the courts (and the Commission) were skeptical of applying the FAA to securities claims. In Wilko v. Swan, 346 U.S. 427 (1953), the Court held that predispute arbitration agreements were invalid for claims under the Securities Act. Arbitration took off over the next three decades, providing sophisticated commercial parties with a regulated and thorough process by which to resolve complex disputes.

Then, a series of Supreme Court decisions reshaped the legal landscape, establishing the primacy of the FAA in the context of federal statutory claims.

First, in McMahon, the Supreme Court revisited Wilko in the context of claims under the Exchange Act and Racketeer Influenced and Corrupt Organizations Act. 482 U.S. at 228–38. The Court’s holding—that the anti-waiver provisions in federal securities laws did not preclude arbitration, provided the substantive rights afforded by the statutes were preserved—cracked open the door to enforceability of arbitration in securities cases. Id. at 238.

Second, the Supreme Court directly overruled Wilko just two years later, holding that claims under the Securities Act could be subject to mandatory arbitration. See Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989). Rodriguez de Quijas further cemented the FAA’s role, making clear that the anti-waiver provisions of the securities laws were no obstacle to shunting cases to arbitration, so long as the substantive rights were available to claimants in arbitration.

Third, the Supreme Court held in 2011 that the FAA preempted a California state law that had been held to prohibit class action waivers in arbitration agreements. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). The Concepcion court held that such a rule stood “as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” as set forth in the FAA. Id. at 352.

Fourth, the Supreme Court has continued to reinforce the FAA’s policy favoring arbitration. In American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), the Court held that the FAA requires enforcement of an arbitration agreement for antitrust claims, even if the costs of pursuing such claims individually through arbitration—as opposed to collectively in court—outweigh any potential recovery.

Together, these and other cases from the Supreme Court demonstrate the Court’s view that the FAA protects “pretty absolutely” the right of “individualized rather than class or collective action procedures” (Epic Sys. Corp. v. Lewis, 584 U.S. 497, 506 (2018)), and that the right to arbitration exists even as relates to securities claims and despite an individual state’s attempts to single out arbitration clauses with restrictions or prohibitions.

The Commission’s Policy Statement

Under the Securities Act, absent an exemption, a registration statement must be in effect as to a security before an issuer may offer to sell it. A registration statement automatically becomes effective 20 calendar days after it is filed, but the Securities Act alternatively permits an issuer to delay the effective date for an indefinite period by including a delaying amendment on the registration statement pursuant to Rule 473(a) of the Securities Act when it is filed with the Commission. An issuer can then request acceleration of effectiveness of the registration statement from the Commission. In determining whether to accelerate the effective date of the registration statement to the date specified by the issuer, the Commission assesses certain criteria primarily focused on (a) ensuring complete and adequate disclosure of material information to the public, (b) the public interest and (c) the protection of investors.

In this context, issuers raised questions regarding whether the presence of an issuer-investor mandatory arbitration provision was within the ambit of appropriate considerations in assessing the public interest and investor protection criteria, and as a result, would impact determinations as to whether to accelerate the effective date of a registration statement.

Thus, on September 17, 2025, the Commission issued its policy statement, making several important findings and clarifications:

• The presence of a provision requiring arbitration of investor claims arising under the federal securities laws will not impact the Commission’s decision-making as to whether to accelerate the effectiveness of a registration statement. While framed in the context of acceleration of the effectiveness of a registration statement, the Commission notes that its conclusion likewise applies to decisions whether to: (i) accelerate the effectiveness of registration statements filed under the Exchange Act; (ii) declare effective post-effective amendments to registration statements and (iii) qualify an offering statement or a post-qualification amendment under 17 CFR 230.251 et seq. (“Regulation A”).
• In the context of issuer-investor mandatory arbitration provisions, the federal securities statutes do not override the FAA’s policy favoring enforcement of arbitration agreements. Here too, while framed narrowly, the Commission again makes explicit that its conclusion is not limited to this context. This same conclusion also applies, for example, if an Exchange Act reporting issuer were to amend its bylaws or corporate charter to adopt an issuer-investor mandatory arbitration provision.
• The Commission explicitly does not conclude whether any particular issuer-investor mandatory arbitration provision is enforceable for purposes of the FAA. Rather, the Commission defers conclusion on this to the Courts (or arbitrators) as a legal matter implicating federal statute and the laws of the state or other jurisdiction governing the provision.
• The Commission reaffirmed that its focus in reviewing acceleration requests will be on the adequacy of the registration statement’s disclosures. This includes, but is not limited to, the adequacy of the disclosure of the arbitration provision.

Practical Considerations

Importantly, the Commission’s policy statement was not a wholesale endorsement of arbitration provisions. But the Commission’s acknowledgment of the Supreme Court’s precedent over the last several decades provides clarity to both issuers and investors. At the same time, questions remain about the interplay with state law. Several items warrant closer inspection:

For Issuers. Issuers now know that the inclusion of mandatory arbitration provisions will not jeopardize a registration statement’s effective date. However, issuers must remain attentive to developments on this issue, including the possibility of litigation challenging the enforceability of arbitration clauses.

For Investors. Investors potentially face a new world in which court-venued litigation and classwide remedies may be curtailed. That said, we expect the plaintiffs’ bar to mount significant challenges to these arbitration provisions and undertake other efforts to disrupt the viability of mandatory arbitration provisions in this arena.

For Company Lawyers. The shifting framework obviously underscores the need for robust compliance practices and ongoing review of documents and disclosures. Companies should ensure that all arbitration provisions are clearly and accurately described, and that investor communications reflect the current state of the law.

For States and All Market Participants. Delaware—the dominant place of incorporation for U.S. IPOs—recently amended the provision on forum selection in its General Corporation Law (effective August 1, 2025) by adding the requirement that, for non-internal corporate claims, stockholders be allowed “to bring such claims in at least 1 court in this State that has jurisdiction over such claims.” Del. Code Ann. tit. 8, § 115(c). By mandating the availability of Delaware state court as a forum, the law effectively prohibits mandatory arbitration provisions. While the viability of this new Delaware law remains uncertain—with no court yet having addressed this new language—the amendment has, at the very least, introduced potential conflicts that may lead to litigation over FAA preemption.

Conclusion and Key Takeaways

The Commission’s policy statement represents the agency’s only formal acceptance of the Supreme Court’s pro-arbitration jurisprudence. The policy statement reflects the Commission’s agreement that the FAA requires enforcement of, and due respect for, all valid arbitration agreements—even those that are formed in the securities context.

This change in approach provides regulatory clarity for market participants, but we expect that it also foreshadows continued legal debate over the boundaries of federal and state authority.

• The Commission’s statement removes the regulatory barrier to arbitration but ultimately does not mandate—or even endorse—arbitration. Nor does the Commission’s statement guarantee the enforceability of arbitration provisions in governing documents.
• Issuers considering mandatory arbitration provisions should ensure robust and transparent disclosure in registration statements as this remains the SEC’s primary focus.
• Delaware-incorporated companies should closely monitor legal developments surrounding the enforceability of arbitration clauses in light of the state’s new forum requirements.