On September 17, 2025, the Securities and Exchange Commission (the Commission) voted 3-1 to issue a policy statement clarifying that the presence of a mandatory arbitration provision for investor claims arising under the federal securities laws in an issuer’s articles or certificate of incorporation, bylaws or any securities-related contractual agreements (Operating Documents) will not affect the Commission’s decision whether to accelerate the effectiveness of that issuer’s registration statement.[1] The statement marks a reversal of the Commission’s longstanding refusal to accelerate an issuer’s registration statement under these circumstances,[2] a position that has resulted in U.S. public companies generally not including mandatory arbitration provisions for federal securities law claims in their Operating Documents. As a result, these claims can and have historically been filed as class actions in federal courts.
In reaching the decision to issue the policy statement, the Commission assessed Supreme Court precedent and concluded that neither the anti-waiver provisions of the Securities Act of 1933 (the Securities Act) or the Securities Exchange Act of 1934 (the Exchange Act),[3] nor concerns over bilateral arbitration’s economic deterrence to bringing federal securities law claims[4] override the Federal Arbitration Act of 1925 (FAA) and its presumption favoring arbitration provisions and their enforceability. As a result, the Commission does not view the inclusion of mandatory arbitration provisions in Operating Documents as an appropriate consideration when evaluating whether to accelerate a registration statement. The Commission noted that current caselaw limits the Commission’s consideration of the public interest and the protection of investors to matters over which the Commission has authority under the federal securities laws. As outlined in the policy statement, the Commission will therefore limit its focus to the adequacy of disclosure relating to the existence and impact of mandatory arbitration provisions.
Now that the Commission has “removed its thumb from the scale” (as Commissioner Peirce put it),[5] whether public companies will move to adopt mandatory arbitration provisions will depend on the reactions of the states, the investor community, proxy advisors and issuers themselves. The Commission specifically noted that it was not taking a view on several important outstanding questions, including whether (1) any given mandatory bylaw would be enforceable as a matter of state law, (2) the FAA would preempt state law attempts to limit mandatory arbitration bylaws or (3) mandatory arbitration bylaws are appropriate or optimal for issuers or investors.
The first and second questions are noteworthy because Delaware very recently amended Delaware General Corporation Law § 115(c) in a manner that may prohibit certificate of incorporation or bylaw provisions that mandate arbitration and therefore foreclose access to “at least 1 court in [Delaware]”[6] for certain claims that are not internal corporate claims (a universe that would encompass federal securities law claims). By contrast, neither Texas nor Nevada currently has such explicit prohibitions,[7] potentially opening up a new front in the ongoing battle around Delaware’s dominance as the go-to jurisdiction for incorporation and attempts by other states to lure companies away (commonly known as “DExit”). These lingering questions around the legality and enforceability of mandatory arbitration provisions will likely play out in the courts over time, as issuers attempt to add and enforce such provisions. It is also possible state legislatures will adopt specific provisions in response to the Commission’s statement to entice public companies (or those with aspirations to become public companies).
As Chairman Atkins[8] noted in his statement accompanying the policy statement, there is now likely to be a “robust public debate on this issue among various interested parties.”[9] Proxy advisors generally take adverse positions against governance provisions that limit the rights of shareholders, and we expect they may react similarly if mandatory arbitration provisions are introduced into companies’ Operating Documents going forward. Glass Lewis’s 2025 proxy guidelines for U.S. companies already states that that they may recommend against the chair of the governance committee or the entire committee if the board amends the company’s governing documents to reduce or remove important shareholder rights, including by adding provisions that require arbitration of shareholder claims.[10] While ISS does not have a published policy against mandatory arbitration provisions, it is possible they may take a similar position as Glass Lewis, by analogy to ISS’s position on other governance provisions that aim to limit shareholder rights (e.g., dual class structures, fee-shifting, certain exclusive federal forum selection restrictions, restrictions against shareholders acting by written consent or calling special meetings, etc.).
We also expect to see similar sentiments from institutional investors. The Council of Institutional Investors historically voiced opposition to mandatory arbitration provisions[11] and may again raise similar concerns in light of this new development. Certain investors, including Blackrock, Vanguard and T. Rowe Price, previously voted against a stockholder proposal to adopt a bylaw requiring mandatory arbitration of all stockholder claims under the federal securities laws in 2020,[12] and we expect they may maintain this position even if they do not publish formal voting policies on this issue. CalPERS’s CEO publicly criticized the Commission’s new position in a letter to the Commission last week, arguing that “forced arbitration would prevent investors from joining together to hold companies accountable for securities fraud and other misconduct.”[13]
Against this backdrop, issuers will need to evaluate whether they would like to adopt mandatory arbitration provisions (if permissible under applicable state law). While there are certainly some advantages, such as potentially reducing frivolous lawsuits and potentially benefitting from enhanced confidentiality protections in arbitration compared to litigation, it is possible such a provision could ultimately cause more harm than good for companies. Among other things, mandatory arbitration could result in companies being bombarded with hundreds if not thousands of separate arbitration cases, requiring the company to pay filing fees for each matter, with limited ability for consolidation, and with no mechanism for a release on a collective basis. This could ultimately cost more money, take more time and result in less finality than defending a class action in federal court. Moreover, arbitration would remove several of the important procedural protections defendants have in securities class actions in federal court, including an automatic stay of discovery under the Private Securities Litigation Reform Act of 1995 (PSLRA),[14] a higher pleading standard under Federal Rule of Civil Procedure (FRCP) 9(b),[15] and an opportunity to move to dismiss the action under FRCP 12(b)(6).[16] Indeed, more than 50% of securities class actions filed are dismissed before discovery,[17] due to the PSLRA’s automatic stay, which does not apply to arbitration. Instead, cases not settled would likely proceed into some discovery and be resolved on a full merits hearing.
Further, litigation funders may also become more involved in arbitration of federal securities claims. Litigation funders are largely sidelined from securities class actions in federal court due to rules governing the approval of settlements and attorneys’ fees, which limit the size and predictability of the return they can realize on these cases. But funders may become more interested in financially backing such arbitrations, including by putting together a book of claims to pursue with a law firm in arbitration against the issuer.
With thanks to Associates Andrew Khanarian and Mitchell Kohles and Law Clerk Sreya Pinnamaneni for their contributions to this blog post.
[1] Policy Statement, Securities & Exchange Commission, Acceleration of Effectiveness of Registration Statements of Issuers with Certain Mandatory Arbitration Provisions, Release Nos. 33-11389; 34-103988, 17 C.F.R. Parts 231 & 241 (Sept. 17, 2025) (the Policy Statement), https://www.sec.gov/files/rules/final/2025/33-11389.pdf.
[2] The most recent public example is from 2012, when the Carlyle Group was forced to drop a proposed mandatory arbitration provision from its IPO following discussion with the Commission, among other stakeholders and interested parties. See Kevin Roose, Carlyle Drops Arbitration Clause from IPO Plans, N.Y. Times (DealBook), Feb. 3, 2012, archived at https://archive.nytimes.com/dealbook.nytimes.com/2012/02/03/carlyle-drops-arbitration-clause-from-i-p-o-plans/. Former Republican Commission Chairman Jay Clayton sidestepped the issue in 2019 in the context of whether a shareholder proposal to add mandatory arbitration bylaw was excludable on the grounds of violating applicable law, noting that the Commission staff ultimately concluded it was properly excludable from the company’s proxy statement on the grounds of violating the relevant state law (based on the view of that state’s Attorney General). See Jay Clayton, Statement on Shareholder Proposals Seeking to Require Mandatory Arbitration Bylaw Provisions (Feb. 11, 2019), Securities & Exchange Commission, https://www.sec.gov/newsroom/speeches-statements/clayton-statement-mandatory-arbitration-bylaw-provisions/.
[3] The Commission noted its view that current Supreme Court precedent only prohibits the waiver of substantive obligations under the federal securities laws, not judicial or procedural provisions, and that any federal statute enacted after the FAA (including the Securities Act and Exchange Act) would need to include a clearly expressed congressional intent to override the FAA (which the Securities Act and Exchange Act do not). See Policy Statement at 13-14 (citing Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 228–29 (1987); Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 482 (1989); Epic Sys. Corp. v. Lewis, 584 U.S. 497, 510 (2018)); see also 15 U.S.C. §§ 78o(o), 80b-5(f).
[4] The Commission analogized to a 2013 Supreme Court decision relating to antitrust laws, noting their view that, similar to the antitrust laws in question in that case, no provision in the federal securities statutes “guarantee[s] an affordable procedural path to the vindication of every claim.” See Policy Statement at 15 (citing Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013)). Further, the Commission noted that the federal securities laws (like the applicable antitrust laws) do not expressly include a right to proceed via class action, and both the Securities Act and Exchange Act were enacted before class actions were permitted, implying that individual suits were viewed as adequate for investor protection. Id at 16–17 (citing Italian Colors, 570 U.S. at 236).
[5] See Hester M. Peirce, Commissioner, Securities and Exchange Commission, Staying in Our Lane: Statement on Two Recommendations from the Division of Corporation Finance (Sept. 17, 2025), https://www.sec.gov/newsroom/speeches-statements/peirce-statement-recommendations-division-corporation-finance-091725.
[6] See 8 Del. C. § 115(c).
[7] Compare id., with Tex. Bus. Orgs. Code Ann. § 2.115, and Nev. Rev. Stat. § 78.046(1).
[8] See Paul S. Atkins, Commissioner, Securities and Exchange Commission, Open Meeting Statement on Policy Statement Concerning Mandatory Arbitration and Amendments to Rule 431 of the Commission’s Rules of Practice (Sept. 17, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-091725-open-meeting-statement-policy-statement-concerning-mandatory-arbitration-amendments-rule-431.
[9] Commissioner Crenshaw, the sole dissenter, argued in her dissenting statement that this debate should have preceded any Commission action. See Caroline Crenshaw, Commissioner, Securities and Exchange Commission, Mandatory Dis-Agreements: The Commission’s Policy of Quietly Shutting the Door on Investors (September 17, 2025), https://www.sec.gov/newsroom/speeches-statements/crenshaw-statement-mandatory-dis-agreements-the-commissions-policy-of-quietly-shutting-the-door-on-investors-091725.
[10] See 2025 Benchmark Policy Guidelines, Glass Lewis (Nov. 14, 2024), https://resources.glasslewis.com/hubfs/2025%20Guidelines/2025%20US%20Benchmark%20Policy%20Guidelines.pdf
[11] See Jeff Mahoney, Council of Institutional Investors, Letter to Keith F. Higgins & John Ramsey, Directors, U.S. Securities and Exchange Commission (Dec. 11, 2013), https://www.cii.org/files/issues_and_advocacy/correspondence/2013/12_11_13_CII_letter_to_SEC_forced_arbitration.pdf, following the final decisions in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) and Italian Colors Rest.
[12] See Shell Midstream Partners, L.P., Current Report (Form 8-K) (Jan. 23, 2020), https://www.sec.gov/ix?doc=/Archives/edgar/data/896878/000089687820000020/a8-kshellshmtg01232020.htm, showing that the mandatory arbitration bylaw proposal received only 5,255,203 votes cast in favor of adopting the bylaw amendment. According to the definitive proxy statement filed by Intuit Inc. on November 27, 2019 for the 2020 annual meeting of stockholders, T. Rowe Price, Vanguard and Blackrock held 22,211,601 shares, 19,513,185 shares and 20,251,688 shares of Intuit Inc.’s common stock, respectively.
[13] See Marcie Frost, Chief Executive Officer of CalPERS, Letter to Paul Atkins, Commissioner Chair, U.S. Securities and Exchange Commission (Sep. 16, 2025), https://crain-design-hub.s3.us-east-1.amazonaws.com/pi/9.16.25+CalPERS+Letter+to+SEC.pdf
[14] See 15 §§ U.S.C. 77z-1(b)(1), 78u-4(b)(3)(b).
[15] See Fed. R. Civ. P. 9(b).
[16] See Fed. R. Civ. P. 12(b)(6).
[17] See Securities Class Action Filings 2024 Year in Review, Cornerstone Research, 16 (2025), https://www.cornerstone.com/wp-content/uploads/2025/01/Securities-Class-Action-Filings-2024-Year-in-Review.pdf.