Rule2025-18238
Acceleration of Effectiveness of Registration Statements of Issuers With Certain Mandatory Arbitration Provisions
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 19, 2025
Effective
September 19, 2025
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is issuing this statement to inform the public that the presence of a provision requiring arbitration of investor claims arising under the Federal securities laws will not impact decisions regarding whether to accelerate the effectiveness of a registration statement. Accordingly, when making such decisions, the staff will focus on the adequacy of the registration statement's disclosures, including disclosure regarding the arbitration provision.
Full Text
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<title>Federal Register, Volume 90 Issue 180 (Friday, September 19, 2025)</title>
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[Federal Register Volume 90, Number 180 (Friday, September 19, 2025)]
[Rules and Regulations]
[Pages 45125-45131]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-18238]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 231 and 241
[Release No. 33-11389; 34-103988]
RIN 3235-AN55
Acceleration of Effectiveness of Registration Statements of
Issuers With Certain Mandatory Arbitration Provisions
AGENCY: Securities and Exchange Commission.
ACTION: Final rule; Policy statement.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
issuing this statement to inform the public that the presence of a
provision requiring arbitration of investor claims arising under the
Federal securities laws will not impact decisions regarding whether to
accelerate the effectiveness of a registration statement. Accordingly,
when making such decisions, the staff will focus on the adequacy of the
registration statement's disclosures, including disclosure regarding
the arbitration provision.
DATES: Effective date: September 19, 2025.
FOR FURTHER INFORMATION CONTACT: Questions about specific filings
should be directed to staff members responsible for reviewing the
documents the issuer files with the Commission. For general questions
about this statement, contact John Fieldsend, Special Counsel, at (202)
551-3430, Division of Corporation Finance, or Anna Sandor, Senior
Counsel, or Yoon Choo, Senior Counsel, at (202) 551-6787, Division of
Investment Management, U.S. Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Discussion
A. Acceleration of a Registration Statement's Effectiveness
B. The Arbitration Act and Issuer-Investor Mandatory Arbitration
Provisions
C. Effect of Supreme Court Case Law Developments Regarding the
FAA on the Application of Section 8(a)'s ``Public Interest/Investor
Protection'' Standard
1. Nothing in the Text of the Anti-Waiver Provisions or any
Other Provisions of the Federal Securities Statutes Could Be
Construed as a Clearly Expressed Congressional Intention That the
Arbitration Act Would Not Apply to Federal Securities Laws Claims
2. Under Supreme Court precedent, the FAA Is Not Displaced
Merely Because Bilateral Arbitration May Undermine the Economic
Incentive of Some Persons To Bring Private Federal Securities Law
Claims
III. Conclusion
IV. Other Matters
Statutory Authority
I. Introduction
This statement concerns requests to accelerate the effective date
of registration statements filed under the Securities Act of 1933
(``Securities Act'') \1\ by issuers with a mandatory arbitration
provision for investor claims arising under the Federal securities laws
\2\ (``issuer-investor mandatory arbitration provision'').\3\ As
discussed in further detail in section II.C. there have been a number
of developments involving the U.S. Supreme Court's (``Supreme Court''
or ``Court'') interpretation and application of the Federal Arbitration
Act of 1925 (``FAA''
[[Page 45126]]
or ``Arbitration Act'') \4\ that inform such acceleration requests. In
addition, as discussed in further detail in Section II.B., potential
uncertainty exists regarding the intersection of the FAA and state law.
For example, Delaware recently amended its General Corporation Law in a
way that may prohibit certificates of incorporation or bylaws from
including an issuer-investor mandatory arbitration provision.\5\ Other
states may adopt different approaches on this issue. Notwithstanding
these developments and potential uncertainty, the Commission has not
spoken publicly on this topic even though, during the registration
process, issuers have on occasion sought to include such a provision in
their Securities Act registration statements.\6\
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\1\ 15 U.S.C. 77a et seq.
\2\ As used in this statement, the phrase ``Federal securities
laws'' includes the Federal securities statutes and any rules and
regulations issued thereunder, whereas the phrase ``Federal
securities statutes'' includes only the relevant statutes.
\3\ Issuer-investor mandatory arbitration provisions may be
contained in an issuer's articles or certificate of incorporation or
bylaws. They may also be contained in indentures, limited
partnership agreements, declarations of trust or trust agreements,
American depositary receipts deposit agreements, or elsewhere. The
use of the term ``issuer-investor mandatory arbitration provision''
is not meant to preclude (or foreclose) the possibility that issuers
may seek to include other entities or persons related to, or
connected with, the issuer within the scope of the arbitration
provision. Relatedly, although we refer to issuer-investor mandatory
arbitration provisions throughout as bilateral, it is possible that
the issuer-investor mandatory arbitration provision may require
investors to arbitrate certain claims involving parties other than
the issuer.
\4\ 9 U.S.C. 1 through 16. The Arbitration Act was enacted prior
to the enactment of all of the Federal securities statutes.
\5\ See 8 Del. Code Ann. Tit. 8, Section 115(c) (2025)
(effective Aug. 1, 2025). Specifically, new paragraph (c) in section
115 permits the certificate of incorporation or bylaws to prescribe
a forum or venue for certain claims that are not internal corporate
claims but only if a stockholder may bring such claims in at least
one court in the State of Delaware that has jurisdiction over such
claims. This statement expresses no view on whether this or any
other state law provision is consistent with the FAA.
\6\ See, e.g., Amendment to Registration Statement on Form S-1,
The Carlyle Group L.P., File No. 333-176685 (Jan. 10, 2012).
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In order to provide issuers with greater certainty concerning the
Commission's approach to requests to accelerate the effective date of a
registration statement disclosing an issuer-investor mandatory
arbitration provision, we are issuing this policy statement. For the
reasons explained in this statement, we have determined that the
presence of an issuer-investor mandatory arbitration provision \7\ will
not impact decisions whether to accelerate the effectiveness of a
registration statement under the Securities Act.\8\ Accordingly, when
considering acceleration requests pursuant to Securities Act section
8(a) \9\ and Rule 461 thereunder,\10\ the staff will focus on the
adequacy of the registration statement's disclosures, including
disclosure regarding issuer-investor mandatory arbitration
provisions.\11\
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\7\ Conditions or restrictions that are part of the issuer-
investor mandatory arbitration provision that may impact investors'
substantive rights under the Federal securities laws are outside the
scope of this statement.
\8\ We would also apply this conclusion to decisions whether to:
(i) accelerate the effectiveness of registration statements filed
under the Securities Exchange Act of 1934 (``Exchange Act''), 15
U.S.C. 78a et seq.; (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''). Moreover, our conclusion that the Federal
securities statutes do not override the FAA in the context of
issuer-investor mandatory arbitration provisions 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.
\9\ 15 U.S.C. 77h(a) (``section 8(a)'').
\10\ 17 CFR 230.461 (``Rule 461'').
\11\ Section 4A of the Exchange Act gives the Commission the
authority to delegate its functions to a division of the Commission.
See 15 U.S.C. 78d-1(a). The Commission retains a discretionary right
to review any division use of delegated authority. See 15 U.S.C.
78d-1(b). The Director of the Division of Corporation Finance
possesses delegated authority to accelerate effectiveness of a
registration statement under the Securities Act and the Exchange
Act, declare effective post-effective amendments to registration
statements, and to qualify an offering statement and an amendment to
an offering statement under Regulation A. See 17 CFR 200.30-1. The
Director of the Division of Investment Management possesses similar
delegated authority to accelerate effectiveness of a registration
statement under the Securities Act and the Exchange Act and declare
effective post-effective amendments to registration statements. See
17 CFR 200.30-5. Throughout this statement, any statements about the
Division of Corporation Finance or the Division of Investment
Management declining to accelerate effectiveness of a registration
statement mean declining to use their delegated authority to
accelerate effectiveness.
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II. Discussion
A. Acceleration of a Registration Statement's Effectiveness
Section 5 of the Securities Act requires that a registration
statement must be in effect as to a security before an issuer may sell
it.\12\ Section 8(a) provides that a Securities Act registration
statement becomes effective automatically 20 calendar days after it is
filed. Securities Act Rule 473(a) \13\ permits an issuer to include a
``delaying amendment'' on the front page of a registration statement
that extends the effective date to: (1) 20 calendar days after the
issuer complies with Rule 473(b); \14\ or (2) an indefinite period that
will end when the Commission grants the issuer's request to accelerate
the effective date of the registration statement. The issuer may submit
a request for acceleration under Rule 461 specifying when it wants the
registration statement declared effective. The staff, acting pursuant
to its delegated authority, will accelerate the effective date of a
registration statement if it meets the criteria under section 8(a) and
Rule 461.\15\
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\12\ 15 U.S.C. 77e(a).
\13\ 17 CFR 230.473(a).
\14\ 17 CFR 230.473(b).
\15\ Certain Securities Act registration statements become
effective automatically upon filing with the Commission and do not
require acceleration. See, e.g., 17 CFR 230.462.
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The section 8(a) criteria are primarily focused on ensuring
complete and adequate disclosure of material information to the public.
Additionally, the criteria require consideration of ``the public
interest and the protection of investors.'' \16\ Courts have considered
the scope of the public interest and investor protection standard in
the context of the Federal securities laws and determined that, when
applying this standard, it is only permissible to consider those
matters over which the Commission has authority under the Federal
securities laws.\17\
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\16\ See section 8(a) and Rule 461(b).
\17\ See Business Roundtable v. SEC, 905 F.2d 406, 412 (D.C.
Cir. 1990) (``Business Roundtable'') (holding that the Commission
could not rely on the statutory mandate to ``protect investors and
the public interest'' to take regulatory action that would
``overturn or at least impinge severely on the tradition of state
regulation of corporate law'') and id. at 413-14 (citation modified)
(explaining that statutory language about the ``public interest''
``must be limited to `the purposes Congress had in mind when it
enacted the legislation,' '' and such language cannot be read to
permit the Commission to regulate areas that Congress has not
assigned to the agency (quoting NAACP v. FPC, 425 U.S. 662, 670
(1976) (``NAACP'')). See generally FCC v. Consumers' Research, 145
S.Ct. 2482, 2503 (2025) (explaining that the Supreme Court has
``long held that the words `public interest' in a regulatory statute
do not encompass the general public welfare but rather take meaning
from the purposes of the regulatory legislation'' (citation
modified)); NAACP, 425 U.S. at 670 (rejecting the argument that the
Federal Power Commission's broad ``public interest'' mandate
authorized it to promulgate rules prohibiting its regulated entities
from engaging in discriminatory employment practices generally).
Similar limitations apply to the ``protection of investors''
language in section 8(a). See generally Davis v. Mich. Dept. of
Treasury, 489 U.S. 803, 809 (1989) (explaining that ``statutory
language cannot be construed in a vacuum,'' but rather ``the words
of a statute must be read in their context and with a view to their
place in the overall statutory scheme'').
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B. The Arbitration Act and Issuer-Investor Mandatory Arbitration
Provisions
During the registration process, issuers have on occasion asked
whether the presence of an issuer-investor mandatory arbitration
provision would impact acceleration of the effectiveness of their
registration statement.\18\ An issuer-investor mandatory arbitration
provision may implicate the Arbitration Act, which establishes a
``liberal Federal policy favoring arbitration agreements.'' \19\
Section 2 of the statute, which is the FAA's principal substantive
provision, provides in pertinent part that ``[a] written provision in .
. . a contract evidencing a
[[Page 45127]]
transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction . . . shall be
valid, irrevocable, and enforceable.'' \20\
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\18\ The timing of when an issuer requests acceleration is often
tied to market conditions, and the inability to predict with
certainty whether the staff would exercise its delegated authority
or have the matter considered by the Commission poses challenges for
issuers.
\19\ CompuCredit Corp. v. Greenwood, 565 U.S. 95, 98 (2012)
(``CompuCredit Corp.'') (quoting Moses H. Cone Mem'l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).
\20\ 9 U.S.C. 2.
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Whether the FAA may apply to an issuer-investor mandatory
arbitration provision turns in the first instance on whether there is a
valid and enforceable written agreement to arbitrate.\21\ Assuming it
is written, whether an agreement to arbitrate is valid and enforceable
is generally determined based on ``the contract law of the state
governing the agreement.'' \22\ However, a state law that ``target[s]
the enforceability of [mandatory] arbitration agreements either by name
or by more subtle methods, such as by `interfering with fundamental
attributes of arbitration' '' may be preempted by the Arbitration
Act.\23\ The applicability of the FAA to a particular issuer-investor
mandatory arbitration provision is a legal matter implicating the
intersection of a Federal statute that Congress did not authorize the
Commission to administer, and the unique laws of the state or other
jurisdiction governing the provision.\24\ Accordingly, we do not
consider it within the Commission's purview to conclude whether any
particular issuer-investor mandatory arbitration provision is
enforceable for purposes of the FAA.
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\21\ Galloway v. Santander Consumer USA, Inc., 819 F.3d 79, 89
(4th Cir. 2016) (explaining that ``application of the FAA requires
demonstration of . . . a written agreement that includes an
arbitration provision which purports to cover the dispute''
(citation modified)). Courts have not interpreted the FAA to require
``written agreements'' to be signed. See, e.g., Seawright v. Am.
Gen. Fin. Servs., Inc., 507 F.3d 967, 978 & n.5 (6th Cir. 2007)
(explaining that ``arbitration agreements under the FAA need to be
written, but not necessarily signed'' (emphasis in original)); Caley
v. Gulfstream Aero. Corp., 428 F.3d 1359, 1369 (11th Cir. 2005)
(``Gulfstream Aero. Corp.'') (``We readily conclude that no
signature is needed to satisfy the FAA's written agreement
requirement.''); Tinder v. Pinkerton Sec., 305 F.3d 728, 736 (7th
Cir. 2002) (explaining that although ``the FAA requires arbitration
agreements to be written, it does not require them to be signed'');
Valero Refining, Inc. v. M/T Lauberhorn, 813 F.2d 60, 64 (5th Cir.
1987) (``We note also that section three of the Act does not require
that a charter party be signed in order to enforce an arbitration
agreement contained within it.''); McAllister Bros., Inc. v. A&S
Transp. Co., 621 F.2d 519, 524 (2d Cir. 1980) (explaining that ``a
party may be bound by an agreement to arbitrate even in the absence
of a signature''); Medical Development Corp. v. Indus. Molding
Corp., 479 F.2d 345, 348 (10th Cir. 1973) (``it [is] not necessary
that there be a simple integrated writing or that a party sign the
writing containing the arbitration clause.'').
\22\ Banks v. Mitsubishi Motors Credit of Am., Inc., 435 F.3d
538, 540 (5th Cir. 2005); see, e.g., Memmer v. United Wholesale
Mortg., LLC, 135 F.4th 398, 404 (6th Cir. 2025) (``Whether the
parties entered a valid agreement to arbitrate is a question of
state contract law.''); Marshall v. Georgetown Mem'l Hosp., 112
F.4th 211, 218 (4th Cir. 2024) (``Whether an agreement to arbitrate
was formed is a question of ordinary state contract law
principles.'' (quoting Rowland v. Sandy Morris Fin. & Estate
Planning Servs., LLC, 993 F.3d 253, 258 (4th Cir. 2021)) (citation
modified)); Rodgers-Rouzier v. Am. Queen Steamboat Operating Co.,
LLC, 104 F.4th 978, 991 (7th Cir. 2024) (``An arbitration agreement
is just a type of contract, and the FAA does not itself provide a
substantive law governing the formation or general interpretation of
contracts, so ordinary state contract law always fills in crucial
gaps in any arbitration agreement.''); Meyer v. Uber Techs., Inc.,
868 F.3d 66, 74 (2d Cir. 2017) (``State law principles of contract
formation govern the arbitrability question.'' (quoting Nicosia v.
<a href="http://Amazon.com">Amazon.com</a>, Inc., 834 F.3d 220, 231 (2d Cir. 2016))); Donaldson Co.,
Inc. v. Burroughs Diesel, Inc., 581 F.3d 726, 731 (8th Cir. 2009)
(explaining that ``state contract law governs the threshold question
of whether an enforceable arbitration agreement exists between
litigants''); Gulfstream Aerospace Corp., 428 F.3d at 1368 (``[I]n
determining whether a binding agreement arose between the parties,
courts apply the contract law of the particular state that governs
the formation of contracts.''). The FAA also contemplates that in
some instances mandatory arbitration agreements may be governed by
the laws of a foreign jurisdiction. See generally 9 U.S.C. 202
(addressing arbitration agreements that may implicate foreign
jurisdictions).
\23\ Epic Systems Corp. v. Lewis, 584 U.S. 497, 508 (2018)
(``Epic Systems Corp.'') (citation modified); see also Volt
Information Sciences, Inc. v. Board of Trustees of Leland Stanford
Junior University, 489 U.S. 468, 478 (1989) (``[T]he FAA pre-empts
state laws which require a judicial forum for the resolution of
claims which the contracting parties agreed to resolve by
arbitration.''); see also, e.g., Southland Corp. v. Keating, 465
U.S. 1, 10-16 (finding preempted a state statute which rendered
agreements to arbitrate certain franchise claims unenforceable);
Perry v. Thomas, 482 U.S. 483, 490 (1987) (finding preempted a state
statute which rendered unenforceable private agreements to arbitrate
certain wage collection claims). While the Supreme Court has
determined that state laws that target arbitration are preempted,
section 2 of the FAA does include a narrow ``savings clause'' that
``permits arbitration agreements to be declared unenforceable `upon
such grounds as exist at law or in equity for the revocation of any
contract.' '' AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339
(2011) (``Concepcion'') (quoting section 2 of the FAA). The Supreme
Court has held that that this savings clause allows `` `generally
applicable contract defenses, such as fraud, duress, or
unconscionability.' '' Id. (quoting Doctor's Assocs., Inc. v.
Casarotto, 517 U.S. 681, 687 (1996)).
\24\ To illustrate some of the potential complexities involved,
consider Delaware corporate law. Corporate charters and bylaws would
appear to constitute written agreements. See, e.g., Centaur
Partners, IV v. Nat'l Intergroup, Inc., 582 A.2d 923, 928 (Del.
1990) (citing cases) (``Corporate charters and by-laws are contracts
among the shareholders of a corporation and the general rules of
contract interpretation are held to apply.''). Thus, an arbitration
provision in a Delaware corporate charter or bylaw may constitute a
written agreement to arbitrate for purposes of the FAA. But see
Manesh & Joseph A. Grundfest, The Corporate Contract and Shareholder
Arbitration, 98 NYU L. Rev. 1106 (2023); Ann M. Lipton, Manufactured
Consent: The Problem of Arbitration Clauses in Corporate Charters
and Bylaws, 104 Geo. L.J. 583 (2016). 8 Del. Code Ann. Tit. 8,
Section 115(c) (2025).
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C. Effect of Supreme Court Case Law Developments Regarding the FAA on
the Application of Section 8(a)'s ``Public Interest/Investor
Protection'' Standard
Assuming the FAA applies to a particular issuer-investor mandatory
arbitration provision, there is a separate question whether the Federal
securities statutes override the FAA. In the past, the Federal
securities statutes were thought to potentially override the FAA
because issuer-investor mandatory arbitration provisions could be
viewed as inconsistent with the Federal securities statutes in at least
two respects: (1) issuer-investor mandatory arbitration provisions
could violate the anti-waiver provisions of the Federal securities
statutes by foreclosing a judicial forum; \25\ and (2) such provisions
could unduly impede the ability of investors to bring private actions
to vindicate their rights under the Federal securities laws by
foreclosing class action litigation in courts.
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\25\ 15 U.S.C. 77n is the anti-waiver provision in the
Securities Act (``section 14''). (``Any condition, stipulation, or
provision binding any person acquiring any security to waive
compliance with any provision of this title or of the rules and
regulations of the Commission shall be void.''). 15 U.S.C. 78cc(a)
is the anti-waiver provision in the Exchange Act (``section 29(a)'')
(``Any condition, stipulation, or provision binding any person to
waive compliance with any provision of this title or any rule or
regulation thereunder, or any rule of a self-regulatory
organization, shall be void.''). 15 U.S.C. 77aaaa (section 327 of
the Trust Indenture Act of 1939 (``Trust Indenture Act''), 15 U.S.C.
77aaa et seq.); 15 U.S.C. 80a-46(a) (section 47(a) of the Investment
Company Act of 1940 (``Investment Company Act''), 15 U.S.C. 80a-1 et
seq.); and 15 U.S.C. 80b-15(a) (section 215(a) of the Investment
Advisers Act of 1940 (``Investment Advisers Act''), 15 U.S.C. 80b-1
et seq.) contain similar anti-waiver provisions.
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After considering the Supreme Court's jurisprudence relating to the
FAA and analyzing case-law developments involving the intersection of
the FAA and other Federal statutes, 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. Because the Federal securities
statutes do not override the Arbitration Act when it applies to the
enforceability of an issuer-investor mandatory arbitration provision,
the
[[Page 45128]]
existence of such a provision is not within the ambit of appropriate
considerations under section 8(a)'s public interest and investor
protection standard and will not impact determinations whether to
accelerate the effective date of a registration statement.\26\
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\26\ See supra note 17 (citing Business Roundtable).
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1. Nothing in the Text of the Anti-Waiver Provisions or Any Other
Provisions of the Federal Securities Statutes Could Be Construed as a
Clearly Expressed Congressional Intention That the Arbitration Act
Would Not Apply to Federal Securities Laws Claims
Applying current and relevant Supreme Court precedent, there is no
basis to conclude that either the anti-waiver provisions or any other
provision of the Federal securities statutes displaces the primacy of
the Arbitration Act in the context of issuer-investor mandatory
arbitration provisions.
For many decades, the anti-waiver provision set forth in section 14
was understood to prohibit issuer-investor mandatory arbitration
provisions relating to Federal securities law claims. In a 1953
decision involving the enforceability of an arbitration agreement
between a brokerage firm and its customers, the Supreme Court held that
``the right to select the judicial forum is the kind of `provision'
that cannot be waived under [section] 14 of the Securities Act.'' \27\
In reaching this conclusion, the Court agreed with the firm's customer
(who purchased the securities at issue in the dispute) that ``the
purpose of Congress [in enacting the anti-waiver provision] was to
assure that sellers could not maneuver buyers into a position that
might weaken their ability to recover under the Securities Act.'' \28\
The Court expressed the view that, ``[w]hile a buyer and seller of
securities, under some circumstances, may deal at arm's length on equal
terms, it is clear that the Securities Act was drafted with an eye to
the disadvantages under which buyers labor. Issuers of and dealers in
securities have better opportunities to investigate and appraise the
prospective earnings and business plans affecting securities than
buyers. It is therefore reasonable for Congress to put buyers of
securities covered by that [Securities] Act on a different basis from
other purchasers'' who are otherwise subject to the terms of the
FAA.\29\
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\27\ Wilko v. Swan, 346 U.S. 427, 434-35 (1953) (``Wilko'')
(overruled by Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477 (1989) (``Rodriguez'')).
\28\ Id. at 432.
\29\ Id. at 435.
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But in a pair of decisions in the late 1980s, the Supreme Court
took a different course.\30\ The first of these was a 1987 decision in
which the Court considered whether the anti-waiver provision in section
29(a) precludes enforcement of an arbitration agreement between a
broker-dealer and its customer. Even though the text of the Exchange
Act's anti-waiver provision is substantively identical to the
Securities Act's provision, the Court held that it does not prohibit
the enforcement of arbitration agreements.\31\ The Court explained that
by its terms the provision declares void only an agreement that waives
``compliance with any provision of'' the Exchange Act, which the Court
read to prohibit only waiver of the act's substantive obligations.\32\
Based on that understanding, the Court concluded that the anti-waiver
provision does not render unenforceable agreements that waive section
27 of the Exchange Act,\33\ which confers Federal courts with exclusive
subject matter jurisdiction over violations of that Act, because this
jurisdictional provision does not impose any statutory duties.\34\
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\30\ See Rodriguez, 490 U.S. at 485-86 and Shearson/American
Express, Inc. v. McMahon, 482 U.S. 220, 228-38 (1987) (``McMahon'').
\31\ McMahon, 482 U.S. at 228-29. The case involved a fraud
claim under section 10(b) of the Exchange Act that a customer had
brought against a broker-dealer. 15 U.S.C. 78j(b). The arbitration
proceeding was administered by a self-regulatory organization
(``SRO''). See 15 U.S.C. 78c(a)(26) (Exchange Act section 3(a)(26)).
The Commission filed an amicus curiae brief with the Supreme Court
arguing that the anti-waiver provisions of the Federal securities
statutes did not preclude enforcement of the arbitration agreement
between the brokerage firm and its customer because of the
Commission's regulatory oversight over SRO arbitration procedures
under section 19 of the Exchange Act (``section 19''). 15 U.S.C.
78s. The amicus brief urged the Supreme Court to adopt the position
that a separate analysis would be required in situations where the
Commission lacked statutory oversight authority.
\32\ McMahon, 482 U.S. at 228-29.
\33\ 15 U.S.C. 78aa.
\34\ McMahon, 482 U.S. at 228.
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Two years later, in another dispute involving a brokerage firm and
its customer, the Court reconsidered whether the anti-waiver provision
in section 14 precludes the enforcement of mandatory arbitration
arrangements. Based on the text of the anti-waiver provision, the Court
held that section 14 applies only to the substantive provisions of the
Securities Act, not to its jurisdictional or procedural provisions.\35\
Further, the Court explained that its prior holding in 1953 reflected a
judicial hostility to arbitration that it has since abandoned:
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\35\ Rodriguez, 490 U.S. at 482.
Once the outmoded presumption of disfavoring arbitration
proceedings is set to one side, it becomes clear that the right to
select the judicial forum and the wider choice of courts are not
such essential features of the Securities Act that [section] 14 is
properly construed to bar any waiver of these provisions. Nor are
they so critical that they cannot be waived under the rationale that
the Securities Act was intended to place buyers of securities on an
equal footing with sellers.\36\
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\36\ Id. at 481.
The Court also explained that ``[t]o the extent that [its prior
decision] rested on suspicion of arbitration as a method of weakening
the protections afforded in the substantive law to would-be
complainants, it has fallen far out of step with our current strong
endorsement of the Federal statutes favoring this method of resolving
disputes.'' \37\ The Court concluded that ``resort to the arbitration
process does not inherently undermine any of the substantive rights
afforded to petitioners under the Securities Act.'' \38\
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\37\ Id.
\38\ Id. 485-86.
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Although these two Supreme Court decisions applying the anti-waiver
provisions did not involve the precise issue of issuer-investor
mandatory arbitration provisions, we discern no reason to believe that
any different result should follow.\39\ Accordingly, we
[[Page 45129]]
believe that the inability to proceed in a judicial forum as a result
of an issuer-investor mandatory arbitration provision would not violate
the anti-waiver provisions of the Federal securities statutes.
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\39\ In rejecting Wilko's negative assumptions regarding
arbitration, the McMahon and Rodriguez decisions relied on the
enhanced oversight of the SROs' arbitration processes (through
greater authority over SRO rules) that the Commission obtained as a
result of certain amendments to section 19 in 1975. See McMahon, 482
U.S. at 233-34 (``Since the 1975 amendments to [section] 19 of the
Exchange Act . . . the Commission has had expansive power to ensure
the adequacy of the arbitration procedures employed by the SROs. No
proposed rule change may take effect unless the SEC finds that the
proposed rule is consistent with the requirements of the Exchange
Act, 15 U.S.C. [section] 78s(b)(2); and the Commission has the
power, on its own initiative, to `abrogate, add to, and delete from'
any SRO rule if it finds such changes necessary or appropriate to
further the objectives of the Act, 15 U.S.C. [section] 78s(c).'')
and id. at 233 (stating that ``[e]ven if Wilko's assumptions
regarding arbitration were valid at the time Wilko was decided, most
certainly they do not hold true today for arbitration procedures
subject to the SEC's oversight authority''). See also Rodriguez, 490
U.S. at 483 (referencing the Commission's ``authority to oversee and
to regulate [SRO-administered] arbitration procedures'' in support
of its rejection of Wilko's aversion to arbitration as an
appropriate forum to entertain claims arising under the Securities
Act). We recognize that the broker-dealer arbitration arrangements
at issue in McMahon and Rodriguez were administered by SROs, which
would not be the case with issuer-investor mandatory arbitration
provisions. Nonetheless, we do not understand either McMahon or
Rodriguez to require that the Commission have supervisory authority
over the particular arbitration process employed in order for an
issuer-investor mandatory arbitration provision to be permissible
under the Federal securities statutes. First, both decisions were
grounded on the separate rationale that Federal policy strongly
favors enforcement of arbitration agreements and that arbitration
itself is a suitable means of resolving the kinds of commercial
disputes arising under the Federal securities laws. Second, any such
understanding would be inconsistent with subsequent Supreme Court
decisions that, as discussed infra, establish a strong presumption
that the Arbitration Act's policy favoring arbitration should
control absent a clear and manifest statutory indication otherwise.
Lastly, in the three decades since McMahon and Rodriguez were
decided, no subsequent decision has referred to government oversight
as a factor to consider in determining whether to enforce an
arbitration agreement.
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Moreover, in subsequent decisions, the Supreme Court has noted
that, in any Federal statute enacted after the Arbitration Act, which
would include each of the Federal securities statutes, there must be a
``clearly expressed congressional intention'' to override the act.\40\
As the Court has explained, ``the intention must be `clear and
manifest,' '' \41\ and while the Court has not gone so far as to
require unambiguous statutory language overriding the Arbitration Act,
the Court has explained that when Congress does not displace the FAA
using unambiguous statutory language, 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.\42\
---------------------------------------------------------------------------
\40\ Epic Systems Corp., 584 U.S. at 510 (quoting Vimar Seguros
y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 533 (1995)).
\41\ Id. at 510 (citations and internal quotation marks
omitted); see also id. (admonishing that a party arguing that
another Federal statute displaces the FAA's mandate bears a ``heavy
burden'').
\42\ Id. at 510-11 (citation modified) (citing United States v.
Fausto, 484 U.S. 439, 452, 453 (1988)). See, e.g., id. at 517
(explaining that the Court has ``stressed that the absence of any
specific statutory discussion of arbitration'' must be considered by
courts to be ``an important and telling clue that Congress has not
displaced the Arbitration Act'') and CompuCredit Corp., 565 U.S. at
104 (explaining that, in contrast to clear statutory provisions that
deal expressly with arbitration, it is ``unlikely'' that ``Congress
would have sought to achieve the same result in the [statute at
issue] through a combination of the nonwaiver provision'' and
certain other statutory provisions that never expressly reference
arbitration).
---------------------------------------------------------------------------
In applying this standard, we can discern nothing in the Federal
securities statutes that demonstrates a clear and manifest
congressional intention to displace the FAA in the context of issuer-
investor mandatory arbitration agreements. The absence of any clearly
expressed congressional intent is particularly striking given that in
2010 Congress expressly granted the Commission rulemaking authority to
limit, condition, or prohibit arbitration agreements between broker-
dealers and their customers and comparable authority over arbitration
agreements between, among others, investment advisers and their
clients.\43\
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\43\ See 15 U.S.C. 78o(o) (``section 15(o)'') (``Authority to
Restrict Mandatory Pre-dispute Arbitration .--The Commission, by
rule, may prohibit, or impose conditions or limitations on the use
of, agreements that require customers or clients of any broker,
dealer, or municipal securities dealer to arbitrate any future
dispute between them arising under the Federal securities laws, the
rules and regulations thereunder, or the rules of a self-regulatory
organization if it finds that such prohibition, imposition of
conditions, or limitations are in the public interest and for the
protection of investors.'') and 15 U.S.C. 80b-5(f) (``section
205(f))'') (``Authority to Restrict Mandatory Pre-dispute
Arbitration.--The Commission, by rule, may prohibit, or impose
conditions or limitations on the use of, agreements that require
customers or clients of any investment adviser to arbitrate any
future dispute between them arising under the Federal securities
laws, the rules and regulations thereunder, or the rules of a self-
regulatory organization if it finds that such prohibition,
imposition of conditions, or limitations are in the public interest
and for the protection of investors.''). See also Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010, Public Law 111-
203, 124 Stat. 1376, section 921 (amending the Exchange Act to add
section 15(o) and amending the Investment Advisers Act to add
section 205(f)).
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2. Under Supreme Court Precedent, the FAA Is Not Displaced Merely
Because Bilateral Arbitration May Undermine the Economic Incentive of
Some Persons To Bring Private Federal Securities Law Claims
When considering section 8(a) and Rule 461's public interest and
investor protection standard for accelerating the effectiveness of
registration statements, a concern has been that issuer-investor
mandatory arbitration provisions, which are presumed to be bilateral in
nature,\44\ could unduly impede the ability of investors to bring
private actions to enforce the Federal securities laws by foreclosing
class-wide proceedings.\45\
---------------------------------------------------------------------------
\44\ See, e.g., Lamps Plus, Inc. v. Varela, 587 U.S. 176 (2019).
\45\ For completeness, we note that there were two different
legal theories (both based on dicta in Supreme Court decisions from
the 1980s) through which this policy concern could have provided a
legal basis for concluding that issuer-investor arbitration
agreements were prohibited under the Federal securities statutes.
The first involved a potential application of the anti-waiver
provisions that the Supreme Court did not consider in McMahon and
Rodriguez--i.e., whether undermining or effectively eliminating the
economic incentive to pursue a Federal securities law violation
would violate the anti-waiver provisions by in effect ``weakening''
investors' ability to vindicate their rights to recover under the
securities laws. See McMahon, 482 U.S. at 230-31 (suggesting in
dicta that the anti-waiver provision of the Exchange Act might
preclude the enforcement of an arbitration requirement if it
``weakened'' the ability of those protected by the securities laws
to ``vindicate'' their ability to recover). The other legal theory
concerned the potential invocation of the ``effective vindication''
exception, which is a judge-made exception to the FAA's policy
favoring arbitration agreements. See Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n. 19 (1985). This
exception--which the Supreme Court has discussed only in dicta--
would ``prevent prospective waiver of a party's right to pursue
statutory remedies,'' id., and could potentially have been used to
argue that bilateral arbitration effectively denies injured
investors a meaningful opportunity to seek a remedy by effectively
eliminating their economic incentive to do so. As discussed above,
however, the Supreme Court has now effectively foreclosed any
argument that an arbitration agreement should not be enforced if, by
precluding class-action relief, it would eliminate the economic
incentive for many victims to seek relief for their private
securities law claims.
---------------------------------------------------------------------------
But in 2013, the Supreme Court rejected a nearly identical argument
involving private claims under the Federal antitrust statutes. In
American Express Co. v. Italian Colors Restaurant,\46\ the Court held
that the Arbitration Act requires the enforcement of a mandatory
arbitration agreement for bilateral arbitration even though the
plaintiff's cost of individually arbitrating the antitrust claims would
exceed the potential recovery. In the Court's view, enforcement of the
arbitration requirement would not ``contravene the policies of the
antitrust laws'' because those laws ``do not guarantee an affordable
procedural path to the vindication of every claim.'' \47\
---------------------------------------------------------------------------
\46\ 570 U.S. 228 (2013) (``Italian Colors'').
\47\ Id. at 233. When the decision speaks about an ``affordable
procedural path,'' it appears to mean a procedural path that is
worth pursuing financially given the potential monetary recovery.
See id. at 231 (``In resisting the motion, respondents submitted a
declaration from an economist who estimated that the cost of an
expert analysis necessary to prove the antitrust claims would be `at
least several hundred thousand dollars, and might exceed $1
million,' while the maximum recovery for an individual plaintiff
would be $12,850, or $38,549 when trebled.''); id. at 236 (``But the
fact that it is not worth the expense involved in proving a
statutory remedy does not constitute the elimination of the right to
pursue that remedy.'') (emphasis excluded).
---------------------------------------------------------------------------
In support of this conclusion, the Court observed that nothing in
the Federal antitrust statutes affords a right to bring a class action
and, in fact, those statutes were enacted years before class actions
were even authorized in Federal courts.\48\ No person seeking to
vindicate a claim under the Federal antitrust statutes in a bilateral
arbitration proceeding that forecloses class-action or collective
proceedings would, in the Court's view, be any worse off than a
[[Page 45130]]
person proceeding under those statutes when they were enacted because
at that time there was no allowance for class or collective
procedures.\49\ Based on that historical perspective, the Court
ultimately found no difficulty with enforcing the agreement for
bilateral arbitration and concluded that the FAA controls.\50\ As the
Court explained, because nothing in the Federal antitrust statutes
affords a right to vindicate one's private claims through class or
collective actions, the ``contrary congressional command'' required by
the Court's decisions to displace the Arbitration Act's policy favoring
arbitration was lacking.\51\
---------------------------------------------------------------------------
\48\ Id. at 234. The Sherman Act, 15 U.S.C. 1-7, was enacted in
1890. The Clayton Act, 15 U.S.C. 12-27, and the Federal Trade
Commission Act, 15 U.S.C. 41-58, were enacted in 1914.
\49\ Italian Colors 570 U.S. 228, at 236. (``The class-action
waiver merely limits arbitration to the two contracting parties. It
no more eliminates those parties' right to pursue their statutory
remedy than did federal law before its adoption of the class action
for legal relief in 1938.'') (internal citations omitted). See also
id. at 236-37 (explaining that ``the individual suit that was
considered adequate to assure `effective vindication' of a federal
right before adoption of class-action procedures did not suddenly
become `ineffective vindication' upon their adoption'').
\50\ Id. at 234 (explaining that because the parties agreed to
bilateral arbitration, ``it would be remarkable for a court to erase
that expectation'').
\51\ Id. at 232-33.
---------------------------------------------------------------------------
Similar to the Court's findings with the Federal antitrust
statutes, no provision in the Federal securities statutes
``guarantee[s] an affordable procedural path to the vindication of
every claim.'' \52\ Further, like the Federal antitrust statutes, the
Federal securities statutes do not expressly include a right to proceed
through class actions or collective actions. Finally, because the
Securities Act and the Exchange Act (like the antitrust statutes at
issue in Italian Colors) were enacted before class-action proceedings
were permitted, it stands to reason that ``the individual suit'' based
on claims under those acts that was considered adequate and consistent
at the time those statutes were enacted remains so notwithstanding the
advent of class-action litigation.\53\ Accordingly, the potential for
an issuer-investor mandatory arbitration provision to diminish, or even
eliminate, the economic incentive for some investors to bring private
claims under the Federal securities laws is not a sufficient basis to
conclude that the Federal securities statutes displace the Arbitration
Act's mandate.\54\
---------------------------------------------------------------------------
\52\ Id. at 233.
\53\ See id. at 236-37. This argument does not apply to claims
under the Trust Indenture Act, Investment Company Act, or the
Investment Advisers Act because those statutes were enacted after
the Federal rules of civil procedure were amended to permit class-
wide relief. Nonetheless, we believe that the FAA's mandate controls
even if injured persons lack an economic incentive to pursue
bilateral arbitration for claims under these statutes. Because these
statutes do not afford an entitlement to class-wide relief and
Congress did not provide such a right when it authorized class-wide
procedures in Federal litigation, they lack a clear expression of a
congressional intention to displace the FAA. See id. at 234
(explaining that ``congressional approval of Rule 23 [of the Federal
Rules of Civil Procedure]'' does not ``establish an entitlement to
class proceedings for the vindication of statutory rights'').
\54\ The Supreme Court has instructed that the FAA's policy
favoring arbitration agreements is not impacted even when the one
party with superior bargaining power may have imposed the
arbitration requirement. See Concepcion, 563 U.S. at 340-41.
---------------------------------------------------------------------------
III. Conclusion
For the reasons discussed above, 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. While the discussion above focuses on the
Court's application of the FAA, we acknowledge there may be instances
in which the FAA does not apply, such as where there is no valid and
enforceable written agreement for purposes of the FAA. Given that
neither the Commission nor the staff is well-positioned to conclusively
determine when the FAA applies,\55\ and in light of the case-law
developments discussed above, we believe that any relevant issues
concerning an issuer-investor mandatory arbitration provision are best
addressed through complete and adequate disclosure of material
information in the registration statement. Accordingly, when
considering acceleration requests pursuant to section 8(a) and Rule
461, the staff will focus on the adequacy of the registration
statement's disclosures, including disclosure regarding issuer-investor
mandatory arbitration provisions. Nothing in this statement should be
understood to express any views on the specific terms of an arbitration
provision, or whether arbitration provisions are appropriate or optimal
for issuers or investors.
---------------------------------------------------------------------------
\55\ See supra notes 19-24 and accompanying text.
---------------------------------------------------------------------------
IV. Other Matters
Pursuant to the Congressional Review Act,\56\ the Office of
Information and Regulatory
---------------------------------------------------------------------------
\56\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------
Affairs has designated this policy statement as not a ``major
rule,'' as defined by 5 U.S.C. 804(2). This statement is a significant
regulatory action under Executive Order 12866, as amended, and has been
reviewed by the Office of Management and Budget.
This statement does not impose any new rules, regulations, or other
requirements on issuers, but could influence issuer behavior to the
extent that an issuer did not previously have an issuer-investor
mandatory arbitration provision. This is in part due to concerns about
potential impacts on acceleration requests. After publication of this
statement, it is possible that some issuers may adopt issuer-investor
mandatory arbitration provisions, which could potentially deter or
prevent some investors from filing civil actions arising under the
Federal securities laws. For both issuers and investors, adoption of
such provisions would likely impact the cost of resolving future
investor claims for damages and the extent of any monetary or other
relief that might be awarded in connection with such claims. However,
it is difficult to estimate how many issuers are likely to adopt
issuer-investor mandatory arbitration provisions, or the ultimate
economic impact of any such provisions, if adopted.
Some issuers may choose not to include such provisions due to
potential state law considerations or concern about potential negative
reactions from shareholders and other investors. Actions or potential
actions by others, including proxy voting advice businesses, stock
exchanges, and institutional investors, can be expected to influence
the number of issuers who adopt arbitration of issuer-investor claims
arising under the Federal securities laws. Further, some issuers may
already have issuer-investor mandatory arbitration provisions,
irrespective of this statement. A number of other issuers may have no
plans to register an offering or class of securities, and thus would
not be affected by this statement.
Statutory Authority
The statement contained in this release is being adopted pursuant
to the authority set forth in section 19 of the Securities Act and
section 23 of the Exchange Act.
List of Subjects in 17 CFR Parts 231 and 241
Securities.
Text of Amendments
For the reasons set forth in the preamble, the Commission is
amending title 17, chapter II of the Code of Federal Regulations as
follows:
[[Page 45131]]
PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF
1933 AND GENERAL RULES AND REGULATIONS THEREUNDER
0
1. The authority for part 231 continues to read as follows:
Authority: 15 U.S.C. 77a et seq.
0
2. Amend Sec. 231 by adding an entry at the end of the table to read
as follows:
----------------------------------------------------------------------------------------------------------------
Federal Register Vol. and
Subject Release No. Date page
----------------------------------------------------------------------------------------------------------------
* * * * * * *
Acceleration of Effectiveness of 33-11389 Sept. 17, 2025............ [INSERT FEDERAL REGISTER
Registration Statements of Issuers with DOCUMENT CITATION].
Certain Mandatory Arbitration
Provisions.
----------------------------------------------------------------------------------------------------------------
PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER
0
3. The authority for part 241 continues to read as follows:
Authority: 15 U.S.C. 78a et seq.
0
4. Amend Sec. 241 by adding an entry at the end of the table to read
as follows:
----------------------------------------------------------------------------------------------------------------
Federal Register Vol. and
Subject Release No. Date page
----------------------------------------------------------------------------------------------------------------
* * * * * * *
Acceleration of Effectiveness of 34-103988 Sept. 17, 2025............ [INSERT FEDERAL REGISTER
Registration Statements of Issuers with DOCUMENT CITATION].
Certain Mandatory Arbitration
Provisions.
----------------------------------------------------------------------------------------------------------------
By the Commission.
Dated: September 17, 2025.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-18238 Filed 9-18-25; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on September 19, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.