SEC Green Lights Mandatory Arbitration Provisions in IPOs

The SEC has cleared the path for mandatory arbitration provisions in public company governance documents, ending decades of regulatory uncertainty that had deterred companies from including such clauses in their IPO filings.

Breaking with the Past

On September 17, 2025, the Commission adopted a policy statement concluding that mandatory arbitration provisions are not inconsistent with federal securities laws and will not affect acceleration of registration statements. This marks a significant shift from the agency's prior approach of scrutinizing such provisions and creating uncertainty about IPO timing.

Chairman Paul Atkins framed the changes as part of his broader agenda: "Today's recommendations on mandatory arbitration and rule 431 are among the first steps of my goal to make IPOs great again."

Two Key Changes

Policy Statement: Companies can now include mandatory arbitration provisions without fear of delayed IPO effectiveness. The SEC focuses strictly on disclosure requirements rather than merit-based judgments about dispute resolution mechanisms.

Rule 431 Amendments: The SEC removed automatic stays that previously applied when staff acceleration decisions were challenged, streamlining the process and preventing post-effectiveness disruptions to securities offerings.

Commissioner Uyeda supported both measures, emphasizing the Commission's limited role in disclosure oversight rather than regulating market participant conduct.

The Dissent

Commissioner Crenshaw opposed the changes, arguing they disadvantage retail shareholders by forcing them into private arbitration forums that lack the transparency, jury trials, and class action mechanisms available in federal court. She also criticized the Commission for acting without public comment on such consequential policy shifts.

Practical Implications

For Companies: Clear regulatory path for including arbitration provisions in governance documents, though state law enforceability questions remain (particularly given Delaware's recent prohibition on such clauses).

For the Market: Part of Chairman Atkins' broader deregulatory agenda targeting IPO requirements and public company compliance costs.

Going Forward: Companies should evaluate state law compliance before implementing arbitration provisions, as federal securities law clearance doesn't guarantee enforceability in shareholder disputes.

The Commission's approach signals a proactive stance on regulatory modification through policy statements rather than traditional rulemaking processes—a trend worth monitoring as the deregulatory agenda unfolds.