Companies that submit a registration statement to sell securities to the public face a mandatory waiting period. Acceleration of the registration statement’s effective date shortens the period, and is considered an essential predicate for a successful offering. Until recently, however, the Securities and Exchange Commission refused acceleration to companies whose bylaws or certificate of incorporation mandated arbitration for investor claims under the federal securities laws. No more: On September 17, 2025, the SEC issued a Policy Statement, adopted by a 3-1 vote of the SEC Commissioners, providing that requiring arbitration for securities claims will not affect a decision whether to accelerate the effectiveness of a registration statement for public offering.
The Waiting Period and the SEC’s Discretion to Accelerate It
The Securities Act of 1933 and the SEC regulations thereunder set forth the requirements for a company to offer and sell securities to the public. Section 5 of the Securities Act states that a registration statement must be in effect as to a particular security before it can be sold. Section 8(a) provides that a registration statement becomes effective automatically 20 calendar days after it is filed. However, a company may submit a request under SEC Rule 461 specifying the date when it wants the registration statement to become effective, and the SEC Staff in the Division of Corporation Finance may accelerate the effective date if it believes that the registration statement provides adequate disclosure. Acceleration of the effective date is essential for the company and its investment bankers to know the precise date on which the securities may be sold.
A Change in SEC Opinion on Whether Mandatory Arbitration of Investor Claims Is Against the “Public Interest”
The Section 8(a) criteria for an accelerated effective date are primarily focused on ensuring complete and adequate disclosure of material information, as well as “the public interest and the protection of investors.” The SEC’s Division of Corporation Finance previously held the position that companies that required mandatory arbitration provisions for securities claims were not eligible for an accelerated effective date because such provisions were contrary to the public interest and barred by the anti-waiver provisions of Section 14 of the Securities Act. But in the late 1980s, the Supreme Court issued decisions favoring the arbitration of claims pursuant to the Federal Arbitration Act (FAA), including securities claims. See Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987) (claims under Section 10(b) of the Securities Exchange Act of 1934 were subject to mandatory arbitration claims in broker agreement); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989) (mandatory arbitration provisions did not violate Section 14 of the Securities Act).
Although these decisions concerned broker-customer agreements, the SEC stated that there is no reason to believe that a different result would apply to issuer-investor agreements. Further, the Supreme Court more recently held that in any federal statute enacted after the FAA, which include the securities laws, there must be a “clearly expressed Congressional intention” to override the FAA and if not, there is a “strong presumption” that the FAA applies exclusively to the enforceability of an arbitration provision. Epic Sys. Corp. v. Lewis, 584 U.S. 497 (2018). While plaintiffs may assert that issuer-investor mandatory arbitration provisions may impede the ability of investors to enforce the securities laws through class-wide proceedings, an identical argument was rejected with respect to the antitrust laws. American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013). Accordingly, the economic incentive for some investors to bring private claims under the securities acts does not support overriding the FAA.
More Mandatory Arbitration of Investor Claims in the Future?
There is no guarantee that companies will rush to institute mandatory arbitration of investor claims. Companies may prefer to address one class-wide action rather than have to confront numerous separate arbitration claims. Federal securities actions are subject to well-established procedures and legal authority, while arbitration claims may be subject to the vicissitudes of arbitrators. The settlement of a class-wide claim in a single proceeding provides greater certainty than endless arbitration claims. Adverse results in a lower court may be appealed, while arbitration rulings are rarely overturned.
Further, Delaware law permits forum selection provisions so long as there is jurisdiction in at least one Delaware court, which may be construed as barring mandatory arbitration provisions in Delaware-chartered companies. However, the SEC’s Policy Statement noted that such statutes may be challenged on the grounds that they are preempted by federal law.
For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Joshua Korr, or Kevin O’Brien.
****
Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.
The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.
Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.