SEC - U.S. Securities and Exchange Commission
09/17/2025 | Press release | Distributed by Public on 09/17/2025 11:43
Mandatory Dis-Agreements: The Commission’s Policy of Quietly Shutting the Door on Investors
Good morning. Before I begin, I want to thank the staff in the Division of Corporation Finance, the Office of General Counsel, the Division of Economic and Risk Analysis and The Division of Investment Management for their work. And thank you to the operations staff who made today's meeting possible.
Also, I would like to thank Cicely LaMothe for her service as Acting Director. For those of you who don't know Cicely, she is a public servant in the best sense of those words. She is dedicated, hard-working, thoughtful and committed to her staff and to the public good. And she does it all with a smile and unflappable composure. She has taken on this very large task-probably for longer than she anticipated-and for that we are grateful. Thank you, Cicely.
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Today the Commission finds another way to stack the deck against investors-this time primarily small, retail shareholders in public companies. We do so by opening the floodgates to something called mandatory arbitration. So, what is mandatory arbitration?
Mandatory arbitration forces harmed shareholders to sue companies in a private, confidential forum, instead of a court and without the benefit of proceeding in the form of a class action. While, in theory, arbitration could cut costs for companies, there are real downsides for investors. Arbitrations are typically more expensive for individual shareholders; they are not public; they have no juries;[1] they lack consistent procedures; arbitrators are not bound by legal precedent; arbitration precludes collective action among shareholders; there are limited rights of appeal; and, ultimately, there is no assurance that two identical investors would get the same outcome. If that collection of things transpired in a courtroom without a party's consent, judges would not hesitate to call it what it is: a violation of due process.
Today, the Commission takes two steps to advance this policy goal. First, the Commission issues a policy statement dictating that staff make public-interest findings without considering whether a corporation has forced its shareholders into mandatory arbitration.[2] And, second, we amend the Rules of Practice to ensure that no Commissioner or third party can effectively intervene to challenge those public-interest findings.[3]
The policy statement fails on many fronts. It fails to identify a problem. It fails to adequately address numerous and complex legal and economic issues. And it fails entirely to discuss the practical consequences of allowing public companies to mandate arbitration. If, however, we actually were to consider whether mandatory arbitration is in the public interest-an analysis required by the Securities Act-we would face overwhelming evidence that it is not. So, to start there, what are some of those consequences?
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The Practical Consequences of Our Policy Statement
First, small shareholders will be prevented from vindicating their rights. Cases involving offering frauds, accounting misstatements or other types of public company malfeasance are usually complex, and require extensive litigation resources, multiple experts, and services that require upfront fees.[4] For these types of claims, most shareholder investments are too small, and the costs of arbitration too high, to incentivize individual shareholder suits-even if the collective losses would more than justify the expense of litigation through class action. As one court put it, "The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30."[5]
Indeed, the primary defense of mandatory arbitration is that it provides cost savings to companies. But if every single member of a class sued in arbitration individually, there likely would not be great cost savings.[6] Part of the reason that companies will save money is precisely because many investors will decide not to sue in the first place.[7]
Second, the markets will go under-policed. If we erode private rights of action, not only are shareholders uncompensated for the wrong perpetrated on them, but the wrongdoers get off scot-free.
There are two ways to remedy wrongdoing in our markets-(i) by governmental enforcement action or (ii) by private lawsuit. Private lawsuits can be a more efficient remedy than government action in terms of investor recompense. In 2024, securities class action settlements brought by shareholders returned approximately $3.7 billion to harmed investors.[8] By contrast, over a similar period, Commission enforcement returned only $345 million to investors.[9] This may also explain why mandatory arbitration is so appealing - some companies would rather keep their ill-gotten gains than return them to harmed investors.
If we chisel away at private actions, then we lean more heavily on the Commission to police the markets. But that crutch is faltering. The staff of the Commission has shrunk by approximately 16% since the beginning of the current fiscal year.[10] But our markets have grown.[11] So, we are reducing private enforcement mechanisms at the same time as agency resources are shrinking.[12]
One might expect that, as we deregulate and seek less government intervention, we would lean more into an individual's freedom to pursue her own recovery; not less.[13] But that is apparently not the case.
Third, mandatory arbitration undermines deterrence. Deterrence is subverted, not only because wrongdoers are not held to account, but also because arbitration claims and awards are non-public. Parties bear the burden of compelled silence. Defrauded investors who are not part of an arbitration may not know they have been defrauded, nor may the markets, paving the road for the same company to inexpensively engage in the same misconduct again in the future. And where there is no public account, there is also no deterrence to other would-be wrongdoers.[14]
This lack of deterrence will lead not only to more brazen misconduct, but it will also reduce the integrity of our markets. It lays the groundwork for less accurate disclosures, less reliable financial statements, and executives who are incentivized to cut corners. Less accurate market information is a solution to a problem that I don't think exists.
Fourth, market transparency and integrity will suffer. Judicial resolution of shareholder disputes provides a public good. Arguments about the costs of litigation often leave out the tremendous benefits being provided.
Private litigation allows the law to develop. Many seminal federal and state securities law cases have developed from private litigation.[15] Where caselaw is allowed to develop, it provides for consistent and predictable outcomes for market participants. On the contrary, there is no consistency in arbitration.
- Arbitrators are often not required to follow the law;
- There are not bound by precedent;
- Arbitrators need not provide reasoning for their decisions;
- Nor are they required to apply rules of evidence;
- Discovery and evidence are curbed; and,
- Judicial review is limited.
This means that similarly situated investors-victims of the same mass fraud-may face significantly divergent outcomes in arbitration. That is bad for our markets, which thrive on consistency and predictability.[16]
Finally, allowing companies to mandate arbitration squelches investor choice. It is worth pointing out the dissonance in allowing companies to strip investors of the choice to litigate in court, while touting the primacy of investor choice in other contexts-for example, in the Commission's push to open the private markets to retail investors. This raises the unsavory specter that "freedom of investor choice" is only a Commission priority when that choice serves the goal of lining the pockets of favored business interests.
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The Commission's Policy Position is Out of Step with History and the Law
All of this is to say, there are compelling reasons that mandatory arbitration provisions are against the public interest and at odds with protecting investors.[17] They deprive shareholders of fundamental rights, fundamental choices, and they fly in the face of market integrity, fairness and efficiency. And perhaps that is why today's action is so out of step with our agency's history.[18] The Commission has never-either expressly or implicitly-granted permission to a public company to force their shareholders into mandatory arbitration.[19] And Chairmen and Commissioners of both parties-such as Chairmen Breeden, Donaldson, and Levitt-have exalted the import of private litigation,[20] alongside Congress.[21] Before today, we have never adopted a policy of willful blindness to those provisions.
To be clear-the legal analysis that staff puts forward in the Policy Statement does not demand the conclusion that we reach. Today's actions are a matter of policy and not a matter of law. Certainly, the Supreme Court has interpreted the scope of the Federal Arbitration Act to allow for greater enforcement of arbitration agreements. But, neither the Supreme Court nor Congress has ever adjudged that the FAA requires enforcement of mandatory arbitration provisions tucked away in governance documents of public companies.[22] And there are good reasons to believe that neither the FAA nor certain state laws would require enforcement of such provisions in the context of shareholder disputes.[23] For example, do corporate bylaws bear the hallmarks of privity and consent sufficient to constitute written agreements under the FAA?[24]
Absent unequivocal mandates from the courts or Congress to enforce forced arbitration provisions, the Commission should enforce the securities laws, which provide (unequivocally) that any attempt to require a shareholder to waive her rights is void.[25]
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A Needless Binding of Our Hands
But, perhaps the most anomalous outcome of today's policy statement is that we predetermine a certain outcome-regardless of what a particular mandatory arbitration clause says and regardless of our statutory obligation to make a specific public interest finding for the offerings of individual issuers. Today's statement leaves little room for staff or the Commission to make an assessment of whether a particular mandatory arbitration provision violates a quintessential shareholder right-which the Supreme Court has stated would be unlawful.[26] One could imagine many clever ways that arbitration provisions could eliminate substantive rights by, for example, wholesale eliminating remedies, limitations periods, or even entire causes of action. What if there were a provision that required shareholders to bring fraud claims within one day of the occurrence of the fraud?
We have, in effect, hard-wired a finding that that mandatory arbitration is in the public interest, without any real consideration of any issuer's filings. Do we even have authority to make such a broad finding through a policy statement? I can't remember another time in recent history where the Commission chose to take a critical tool out of its toolbox for performing a task it was mandated to do by Congress.
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A Policy Without a Process
This brings me to the utter lack of input from market participants.
Today's statement includes a quasi-economic analysis, which glaringly concludes that … we have no idea what the outcome of our policy shift might be.[27] There is a reason why we don't know the full extent of the costs and the benefits of today's action-because we didn't ask. This seismic policy shift has too many ramifications to be done without an economic analysis.
The last time mandatory arbitration provisions took the limelight, then-Chairman Jay Clayton promised that "[no] decision would be made by the Commission absent a fair amount [] of consideration and debate, including [input on] the law, the economics, [and] what investors want."[28] Commissioners who came before us shared that view.[29] Hundreds of interested stakeholders have in the past written to the Commission expressing not only concern over green lighting mandatory arbitration provisions, but also seeking the opportunity to be heard before the implementation of any policy change. These interested stakeholders include members of Congress,[30] State Treasurers of both parties,[31] academics of all stripes,[32] institutional investors,[33] and investor advocates, [34] among many others.[35]
Indeed, one letter from 26 Members of Congress summed it up well:
[B]ecause of the longstanding public-position of the SEC, and the significant impact such a monumental shift in policy would have on American investors, any examination of this issue should be done in a transparent manner…. Anything less will be seen as a stealth attempt by the Commission to circumvent U.S. securities laws and the fundamental rights of shareholders.[36]
Today we fail to heed this warning. Instead of soliciting public comment as to the practical, economic and legal effects of our actions, we cover our ears and simply do the thing that we want to do. We could have engaged in rulemaking. We could have considered building in guardrails to protect investors and market integrity. And we could have actually addressed complex substantive questions about the nexus between our policy statement and state law,[37] and the fiduciary duties corporate managers owe to investors.[38] But, full speed ahead-no matter the consequences. Through today's policy statement, we not only silence investors in court, we also silence their ability to be heard by the Commission, the body specifically tasked with protecting their interests. This is a double slight, at best. A due process violation at worst.
This also begs the question-what other consequential actions does the Commission think it can adopt without soliciting public comment? The public should be concerned because today might mark the beginning of an era in which the Commissions acts first and asks questions only later (if at all).[39]
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Doubling Down on Disenfranchisement
It would be bad enough if all the Commission did today was issue the mandatory arbitration policy statement. But we simultaneously propose amendments to our Rules of Practice in order to eviscerate the procedural rights of those who might choose to challenge an issuer's inclusion of mandatory arbitration.
Currently, when either a Commissioner or a third-party requests Commission review of almost any staff action made pursuant to delegated authority, those actions are automatically stayed pending Commission consideration. This consideration is an important backstop to delegated staff action. That all goes away with today's amendments. From now on, the automatic stay, which provides the mechanism for meaningful Commission review of registration statements before an offering hits the market, vanishes. Accordingly, I also cannot support today's amendments to the Commission's Rules of Practice.
First, creating a new exception-only the third one and the first in 30 years-to the automatic-stay provisions amplifies the tension between Rule 431 of our Rules of Practice and Section 4A of the Exchange Act.
Section 4A provides a statutory basis for the Commission to delegate its own authority to staff.[40] However, by statute, the Commission must review such delegated action if one Commissioner requests review.[41] Third parties may also petition the Commission for review of delegated actions.[42] The statute further specifies two (and only two) situations in which the delegated action "shall . . . be deemed the action of the Commission."[43]
Despite these two narrow circumstances in which the statute deems delegated action to be Commission action, Rule 431 broadly states, "An action made pursuant to delegated authority shall have immediate effect and be deemed the action of the Commission."[44] On its face, the expansiveness of the rule's text directly conflicts with the statute. In our legal system, that is impermissible, and the statute wins.[45]
Historically, the automatic-stay provisions of Rule 431 eased that tension between the rule and Section 4A since decisions made pursuant to delegated authority were automatically stayed once review was requested, thus halting the immediate effect of any staff action.[46] But, by removing the pressure-release valve of the automatic-stay provisions, today's amendments amplify the conflict between Rule 431 and Section 4A.[47] Thus, today's amendments raise serious questions regarding whether Rule 431 violates the Exchange Act.[48]
Second, the Commission errs, yet again, by deciding to enact these amendments without the benefit of public comment. We assert that today's amendments are not subject to the notice-and-comment requirements of the Administrative Procedure Act because they qualify for an exemption for "rules of agency organization, procedure, or practice."[49] I am not convinced that this exemption applies here since after today's amendments an investor's right to Commission review will exist in name only. Seems to me, this is more than just internal agency procedure.[50]
Even if the amendments do qualify for the exemption to notice-and-comment rulemaking, we still should have solicited public comment. By my count, over the last 30 years the Commission has revised our Rules of Practice 17 times.[51] And, like today, we have often (though not always[52]) asserted that the revisions do not require notice-and-comment rulemaking.[53] The Commission nevertheless solicited public comment on revisions to the Rules of Practice in all but seven instances, and six of those seven involved amendments that were technical, ministerial, or related to other simultaneous amendments that themselves went through notice and comment.[54] And, again, today's amendments are much more than technical or ministerial changes. Indeed, the only other time that the Commission carved out exceptions to the automatic stay, it did so after notice and comment.[55]
So why not ask for comments today when the weight of past Commission practice would dictate that we do so? Maybe the Commission views the amendments as controversial, is afraid of the comments it might receive, and is uncertain how it might effectively answer those comments. Maybe it is just in a hurry to stymie investors' access to courts. Whatever the reason, the Commission's rush to adopt this change without input from the public is perplexing and hard to square with my colleagues' past calls for more robust public comment when the Commission issues rules.[56] The Commission's decision to promulgate these consequential amendments without first hearing from the public is unsound.
Third, the amendments are bad policy. They cut off the ability for investors to obtain any meaningful Commission review of staff decisions to accelerate the effectiveness of registration statements. Once a registration statement is declared effective, issuers can offer and sell those securities.[57] Thus, without an automatic stay, the offers and sales might well be completed before the Commission can review staff actions. Unwinding those transactions after the fact would be much more difficult and disruptive than it would be under the current automatic-stay regime. In light of this, after today's amendments, the opportunity for Commission review of staff acceleration of registration statements will exist merely as an illusion. Moreover, rather than providing issuers with more predictability, stripping away the automatic stay introduces more uncertainty and a greater possibility for disruption following Commission reversal of staff action than the current automatic-stay regime, which has been on the books for decades-seemingly without any complaint.[58]
As such, even if the amendments were not being so transparently paired with the Commission's attempt to promote mandatory arbitration clauses, they would not merit inclusion in our rulebook. But these amendments are not travelling alone. The Commission is using them as a tool to further tilt the scales and accelerate the adoption of mandatory arbitration clauses by public companies. This will, correspondingly, supercharge our descent into a world where investors are unable to effectively vindicate the rights Congress promised them in our nation's securities laws.
***
Today, the Commission has decided to hastily construct a new shortcut to its preferred policy destination. Investors will be distressed to discover that the only thing waiting to greet them at the end of their journey down this new path is a courthouse with its doors welded shut.
[1] See generally SEC v. Jarkesy, 603 U.S. 109 (2024) (extolling the importance of the right to trial by jury).
[2] Final Rule, Policy Statement, "Acceleration of Effectiveness of Registration Statements of Issuers with Certain Mandatory Arbitration Provisions," Rel. Nos. 33-11389, 34-103988 (Sept. 17, 2025) ("Policy Statement"); see generally Securities Act Section 8, 15 U.S.C. § 77h ("The effective date of a registration statements shall be the twentieth day after the filing thereof or such earlier date as the Commission may determine, having due regard to . . . the public interest and the protection of investors.") (emphasis added).
[3] Final Rule, "Amendments to the Commission's Rule of Practice," Rel. No. 34-103980 (Sept. 17, 2025).
[4] See Rick Flemming, Mandatory Arbitration: An Illusive Remedy for Public Company Shareholders (Feb. 24, 2018).
[5] Carnegie v. Household Int'l, Inc., 376 F.3d 656, 661 (7th Cir. 2004) (Posner, J.) (cited by Letter to Chairman Jay Clayton from Twenty-Two U.S. Senators (May 3, 2018) ("Letter from 22 Senators")). The point was reinforced by six bipartisan State Treasurers:
[I]ndividual police and firefighter pensioners, teachers and municipal workers, and other individual and retail investors simply do not possess the financial size or scale to contest the inclusion of a forced arbitration clause or class action waiver in a company charter or corporate bylaw. The choice is either to forego any reasonable hope of accountability in the wake of securities fraud, or to forego the investment entirely. We can all support concepts of individual choice and freedom of contract without sacrificing our commitment to ensure that such investment choices and contractual relationships are informed and not predatory.
Letter to Chairman Jay Clayton from State Treasurers of California, Illinois, Iowa, Oregon, Pennsylvania and Rhode Island (July 2, 2018) ("Letter from State Treasurers"); see also Forbes, Trial Lawyers Find Unusual Allies in Fight Against Arbitration: Conservative State Treasurers (Dec. 10, 2018) (citing the State Financial Officers Foundation letter to the SEC "opposing any move to allow companies to require investors to arbitrate disputes," and signed by ten treasurers, including from Kentucky, Indiana, Idaho, Arizona, Arkansas, Louisiana, Maine, Nevada, South Carolina and Washington) ("Letter from State Financial Officers Foundation").
[6] The Supreme Court has shown hostility to the argument that class action waivers are unenforceable. See, e.g., Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013) (in upholding a class action waiver in a credit card agreement, finding that "the anti-trust laws do not guarantee an affordable path to every claim."). That does not, however, compel this Commission to put on blinders as to what the practical effect of its actions will be as a matter of public interest.
[7] Today's policy statement brings about another anomalous result. Critics of securities class actions argue that, because most shareholders own the defendant company that they sue, a recovery is tantamount to transferring money from their left pocket to their right. I disagree with that notion and would argue that shareholder litigation benefits investors, punishes wrongdoers and corrects market ills. Nonetheless, if only large shareholders can sue and recover for wrongdoing in individual arbitrations (with small shareholders effectively locked out of recovery by the lack of a class action mechanism), and small shareholders remain the equity owners of the defendant, smaller shareholders are forced to subsidize the recoveries of larger shareholders for corporate wrongdoing. In other words, we would have a redistribution of funds from those with less to those with more-a wealth transfer running in the wrong direction. See David H. Webber, "Shareholder Litigation without Class Actions" 57 Ariz. L. Rev. 202, 258 (2015).
[8] Cornerstone, Securities Class Action Settlements-2024 Review and Analysis, at 1.
[9] SEC.gov | SEC Announces Enforcement Results for Fiscal Year 2024 (noting "in fiscal year 2024, the SEC distributed $345 million to harmed investors"). See also Commissioner Robert J. Jackson, Keeping Shareholders on the Beat: A Call for a Considered Conversation about Mandatory Arbitration (Feb. 26, 2018) (noting similar results for 2016 and further noting that private lawsuits in Worldcom, Enron, Tyco, Bank of America and Global Crossing resulted in recovery of more than $19.4 billion to investors; whereas the SEC obtained $1.75 billion). It is also worth noting that the remedies available to investors and regulators diverge-regulators can seek to disgorge only a wrongdoer's ill-gotten gains, whereas investors can seek full restitution of their own losses and compensatory damages.
[10] See generally Fiscal Year 2026 Congressional Budget Justification Annual Performance Plan (May 2025).
[11] See, e.g., World Bank Group, Market Capitalization of Listed Domestic Companies (1975-2024) (showing U.S. market cap at $17.28 trillion in 2010 and at $62.19 million in 2024).
[12] See Commissioner Luis A. Aguilar, Defrauded Investors Deserve Their Day in Court (Apr. 11, 2012) ("It is unrealistic to expect that the Commission will have the resources to police all securities frauds on its own, and as a result, it is essential that investors be given private rights of action to complement and complete the Commission's efforts."); see also Stephen J. Choi and A.C. Pritchard, SEC Investigations and Securities Class Actions: An Empirical Comparison, June 3, 2015, Univ. of Michigan Law & Econ Research Paper No. 12-022 (finding that plaintiff lawsuits may more accurately target misconduct than SEC enforcement).
[13] See generally Brian Fitzpatrick, "The Conservative Case for Class Actions," Univ. of Chicago Press (2020).
[14] As one scholar has noted: "If you take shareholder suits out of the light of day and put them in a dark closet, you lose the deterrent effect… The very reasons why some corporations would like the ability to require shareholders to arbitrate securities fraud claims are the reasons why it would be bad public policy to allow them to do so." Alison Frankel, Shareholder Alert, SEC Commissioner Floats Class Action Killing Proposal," Reuters (July 17, 2017) (quoting NYU Professor Jennifer Arlen).
[15] See, e.g., Commissioner Elisse B. Walter, Remarks Before the FINRA Institute at Wharton Certified Regulatory and Compliance Professional (CRCP) Program (Nov. 8, 2011) (noting the overlap of private litigation with Commission action, including "decisions on core issues including the definition of 'security,' such as [Reves v. Ernst & Young, 494 U.S. 56 (1990)]; when fraud is 'in connection with' securities purchases or sales, such as [Superintendent of Ins. v. Bankers Life & Cas. Co, 404 U.S. 6 (1971)]; the degree of intent needed to violate the antifraud provisions of the Securities laws, such as [Ernst & Ernst v. Hochfelder, 425 U.S.185 (1976)]; and the contours of the element of materiality under Rule 10b-5, such as [Basic Inc. v. Levinson, 485 U.S. 224 (1988)]"); Keeping Shareholders on the Beat (citing the importance of the development of Delaware law on the fiduciary duties managers owe their investors and citing In re Caremark Int'l Inc., 698 A.2d 959 (Del. Ch. 1996) and Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985)).
[16] These are just a few among many reasons that forced arbitration leads to bad policy outcomes.
[17] See Securities Act Section 8(a), 15 U.S.C. § 77h(a) (noting the requirement that the Commission's decision to accelerate a registration statement be made with due regard to "the public interest and the protection of investors").
[18] See SEC Associate General Counsel Thomas L. Riesenberg, Commentary, "Arbitration and Corporate Governance: A Reply to Carly Schneider," Insights: Corp. & SEC. L. Advisor, Vol. 4, No. 8, Aug. 1990, at 2 ("[I]t would be contrary to the public interest to require investors who want to participate in the nation's equity markets to waive access to a judicial forum for vindication of federal or state law rights, where such waiver is made through a corporate charter rather than an individual investor's decision.")
[19] See Consumer Federation of America, A Settled Matter: Mandatory Shareholder Arbitration Is Against the Law and the Public Interest, at 15-19 (2018) ("A Settled Matter") (noting that at least twice in recent history, staff has rebuffed acceleration requests with the presence of a corporate mandatory arbitration clauses (Franklin First Financial Corp. and Carlyle Group LP), and three times staff has granted no action relief to corporations who sought to exclude proxy provisions that required the adoption of mandatory arbitration provisions (Gannett Co. Inc.; Pfizer Inc.; and Alaska Air Group, Inc.); see also Office of Chief Counsel, Division of Corporation Finance, Letter Regarding Johnson & Johnson's Letter Dated December 11, 2018 (Feb. 11, 2019) (granting company no-action relief to exclude proxy proposal that would require the company to adopt a bylaw provision requiring disputes be arbitrated). Certain corporations have done offerings under Reg A with such provisions where there is no public interest finding required of the Commission.
[20] Former Chairman Richard Breeden, for example, stated that "[p]rivate rights of action are an essential enforcement tool to protect investors against fraud. Private suits under Section 10(b) of the Securities Exchange Act and Rule 10(b)(5) thereunder, for example, are instrumental in recompensing investors who are cheated through the issuance of false and misleading information or by other means. When corporate officers, accountants, lawyers or others involved in the operation of a public company deceive investors for their own benefit, they should be held accountable for their actions. If this were not the case, investors would be far less willing to participate in our securities markets. This would limit the most important source, and raise the costs, of new capital for all American businesses." Chairman Richard Breeden, Private Litigation under the Federal Securities Laws, Hearings before the Senate Securities Subcommittee (1993). Former Chairmen Donaldson and Levitt, along with former Commissioner Goldschmid, wrote a joint amicus brief stating that "Private cases, so long as they are well grounded, are an important enforcement mechanism supplementing the SEC in the policing of our markets. Most often, the larger the frauds, the greater investors must rely on private cases to recover their losses." Brief Amici Curiae of Former SEC Commissioners in Support of Petitioner's Interest, Stoneridge Investment Partners, LLC v. Scientific-Atlantic, Inc., 552 U.S. 148 (2008).
[21] See, e.g., H.R. Conf. Rep. 104-369, 104th Cong., 1st Sess. 1995, 1995 WL 709276, at *31 (House of Representatives Conference Report noting that private securities actions "promote public and global confidence in our capital markets and help to deter wrongdoing and to guarantee that corporate officers, auditor, directors, lawyers and others properly perform their jobs. . . . [Private securities actions are] an indispensable tool with which defrauded investors can recover their losses without having to rely on government action.").
[22] Letter to Chair Mary Jo White from Twenty-Nine Law Professors (October 30, 2013) ("Letter from 29 Law Professors") ("[T]he FAA has never been interpreted to require the enforcement of bylaws or similar provisions unilaterally adopted to remove judicial oversight of investor disputes.").
[23] See, e.g., id.; A Settled Matter, at 21-25; infra at n.36.
The Policy Statement relies on Shearson/American Express, Inc. v. McMahon, 107 S.Ct. 2332 (1987) and Rodriguez de Quijas v. Shearson/American Express, Inc., 109 S. Ct. 1917 (1989) to conclude that the anti-waiver provisions of the securities statutes do not override the FAA's policy of favoring enforcement of arbitration agreements. Those cases, however, held that arbitration clauses in brokerage agreements did not violate the anti-waiver provisions, where that the arbitration process was carried out by a self-regulatory organization (SRO) that was subject to the oversight of the Commission. See McMahon, 482 U.S. at 233-34; Rodriguez, 490 U.S. at 483. This was the position advocated by the Commission itself in its amicus in McMahon, noting that its position "would not apply" where the arbitration procedure was not subject to the SEC's oversight. Notably, after McMahon and Rodriguez were decided, the Commission took the position that it would not accelerate a registration statement under Section 8A where the company mandated arbitration of shareholder disputes. See Carl Schneider, "Change, the SEC and … me: Reflections From the Loyal Opposition," Revised Remarks before the 1998 ABA Annual Meeting, at 14 (1998) (company counsel to First Keyston noting that "I was advised that the commission itself determined not to allow acceleration of the registration statement's effectiveness if and when we requested acceleration . . . unless we eliminated the arbitration provision."). But see American Express Co. v. Italian Colors Restaurant, 133. S. Ct. 2304 (2013) (noting that courts must "rigorously enforce" arbitration agreements, and that the federal anti-trust laws do not evidence an intention to preclude a waiver of class action, rendering and arbitration provision enforceable).
[24] Ann Lipton, "Manufactured Consent: The Problem of Arbitration Clauses in Corporate Charters and Bylaws," 104 Georgetown Law Journal 583 (2016).
[25] See Securities Act Section 14, 15 U.S.C. § 77n ("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."); Exchange Act Section 29(a), 15 U.S.C. § 78cc(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.").
[26] The Court has ruled that a mandatory arbitration provision would violate the securities laws "where arbitration is inadequate to protect the substantive rights at issue." Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 230 (1987).
[27] Policy Statement at 19-20 ("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. . . . It is difficult to estimate . . . the ultimate economic impact of such provisions.").
[28] Council of Institutional Investors, Spring 2018 Meeting, Plenary 1: Interview with the SEC Chair (Mar. 12, 2018) (17:40).
[29] See, e.g., Keeping Shareholders on the Beat, ("[I]f we're going to take away investors' rights to their day in court, I hope my colleagues on the Commission can agree that we should, at least, do so in the light of day.").
[30] Letter from 22 Senators (voicing concerns that the Commission "might be willing to abandon a critical investor protection and remedy without applying the rigorous processes and analysis that would normally accompany such a major change in policy."); Letter to Chairman Jay Clayton from Twenty-Six Members of Congress (March 12, 2018) ("Letter from 26 Members of Congress").
[31] See Letter from State Treasurers; Letter from State Financial Officers Foundation.
[32] Letter from 29 Law Professors.
[33] See, e.g., Comment Letter to Chairman Jay Clayton from Council of Institutional Investors (Jan. 31, 2019).
[34] Letter to Chairman Jay Clayton From 56 Organizations (Jan. 16, 2018) (underscoring the need for an open and deliberative process) ("Letter from 56 Organizations"); Letter to Chairman Jay Clayton from Public Citizen and Better Markets (Mar. 16, 2018); Letter to Chairman Jay Clayton from 133 Organizations (Aug. 21, 2018).
[35] See, e.g., Letter to Jay Clayton from the North American Securities Administrators Association, Inc. (Feb. 21, 2018).
[36] Letter from 26 Members of Congress.
[37] The Federal Arbitration Act (FAA) provides a presumption in favor of arbitration. See 9 U.S.C. § 2. <_m3a_omath><_m3a_r> But, the presumption only applies to valid and binding clauses in valid and binding contracts-matters of state law-and it does not apply "upon such grounds as exist at law or inequity for the revocation of any contract. 9 U.S.C. § 2.<_m3a_omath><_m3a_r> Delaware law prohibits mandatory arbitration. 8 Del. Code Ann. Tit. 8, Section 115(c) (2025); see also Mohsen Manesh and Joseph A. Grundfest, "The Corporate Contract and Shareholder Arbitration," 98 N.Y.U. L. Rev. 1106 (Oct. 2023) (arguing that mandatory arbitration provisions are inequitable and unenforceable under state law (which is not preempted under the FAA)); Ann Lipton, "Manufactured Consent: The Problem of Arbitration Clauses in Corporate Charters and Bylaws," 104 Georgetown Law Journal 583, 587 (arguing that "corporate governance arrangements are not contractual" and therefore not subject to the FAA's presumption because "contract law is organized around a theory of consent, whereby the application of state coercive force is justified on the presumption that the parties, acting at arms' length, agreed to terms that they deemed to be mutually beneficial at the time"); Asaf Raz, "Mandatory Arbitration and the Boundaries of Corporate Law," 29 Geo. Mason L. Rev. 223 (2001) (arguing that corporate law is nearly the structural opposite of contract law).
The Policy Statement expressly does not address whether any mandator arbitration provision is valid and enforceable pursuant to state contract law, noting that "it is not within the Commission's purview." See Policy Statement at 7-8. Notably, however, earlier this week staff granted no-action relief based on matters of Indian law, making it hard to understand why, for example, Delaware law might be too inscrutable. See Office of Mergers and Acquisitions, Division of Corporation Finance, Letter re Infosys Ltd (Sept. 11, 2025) ("Indian law mandates that the Issuer Tender Offer be open to all shareholders [] on equal terms . . . .").
[38] See, e.g., Letter from 56 Organizations.
[39] The Commission might do well to pause and consider how such a playbook might be used in the future when their seats are occupied by new individuals. It would not be surprising if future Commissions adopted the same tactics to advance their own (perhaps very different) policy goals.
[40] See Exchange Act Section 4A(a), 15 U.S.C. § 78d-1(a).
[41] See Exchange Act Section 4A(b), 15 U.S.C. § 78d-1(b).
[42] See Exchange Act Section 4A(b), 15 U.S.C. § 78d-1(b).
[43] Exchange Act Section 4A(c), 15 U.S.C. § 78d-1(c) (explaining that delegated staff action is "deemed the action of the Commission" only if either (1) the Commission declines review or (2) no review is sought within the time periods in Commission rules); see also Rules of Practice 430(b) & 431(c), 17 C.F.R. §§ 201.430(b) & .431(c) (providing time periods for seeking Commission review of delegated actions).
[44] See Rule of Practice 431(e), 17 C.F.R. § 201.431(e).
[45] See Am. Fed'n of Gov't Emps., ALF-CIO v. Gates, 486 F.3d 1316, 1321-22 (D.C. Cir. 2007) (Kavanaugh, J.) ("If the relevant statutory language is plain but is inconsistent with [agency] regulations, we must hold the regulations invalid.").
[46] See Rule of Practice 431(e), 17 C.F.R. § 201.431(e).
[47] This is especially true since there is a ticking clock for investors to obtain anything resembling meaningful Commission review of the staff decisions to accelerate registration statements because, by statute, registration statements without active delaying amendments go effective no later than 20 days after filing. See Securities Act Section 8(a), 15 U.S.C. § 77h(a) (effective dates of registration statements); 17 C.F.R. § 230.473 (delaying amendments).
[48] This conflict looks like a facial violation, but, even if not, the rule might well violate the statute as applied to staff actions accelerating registration statements because, as explained below, such actions are particularly insulated from meaningful Commission review.
[49] 5 U.S.C. § 553(b)(3)(A).
[50] See Am. Fed'n of Lab. and Cong. of Indus. Orgs. v. NLRB, 57 F.4th 1023, 1035-36 (D.C. Cir. 2023) (noting that Section 553(b)(3)(A)'s exemption to notice-and-comment rulemaking does not apply to rules that alter the rights or interests of parties and that the exemption must be construed narrowly and invalidating a rule not promulgated through notice-and-comment rulemaking).
[51] See Rules of Practice, Exchange Act Release No. 35833, 60 Fed. Reg. 32738 (June 23, 1995) (hereinafter "June 1995 Release"); Rules of Practice; Technical Amendments and Corrections, Exchange Act Release No. 36174, 60 Fed. Reg. 46498 (Sept. 7, 1995) (hereinafter "September 1995 Release"); Rules of Practice, Exchange Act Release No. 40636, 63 Fed. Reg. 63404 (Nov. 13, 1998) (hereinafter "1998 Release"); Rules of Practice, Exchange Act Release No. 48018, 68 Fed. Reg. 35787 (June 17, 2003); Adoption of Amendments to the Rules of Practice and Delegations of Authority of the Commission, Exchange Act Release No. 49412, 69 Fed. Reg. 13166 (Mar. 19, 2004); Adoption of Amendments to the Rules of Practice and Delegations of Authority of the Commission, Exchange Act Release No. 52846, 70 Fed. Reg. 72566 (Dec. 5, 2005); Amendments to the Informal and Other Procedures, Rules of Organization and Program Management, and Rules of Practice; Interim Commission Review of Public Company Accounting Oversight Board Inspection Reports and Regulation P, Exchange Act Release No. 62575, 75 Fed. Reg. 47444 (Aug. 6, 2010) (hereinafter "2010 Release"); Rules of Practice, Exchange Act Release No. 63723, 76 Fed. Reg. 4066 (Jan. 24, 2011) (hereinafter "January 2011 Release"); Rescission of Outdated Rules and Forms, and Amendments To Correct References, Exchange Act Release No. 65686, 76 Fed. Reg. 71872 (Nov. 21, 2011) (hereinafter "November 2011 Release"); Amendments to the Commission's Rules of Practice, Exchange Act Release No. 78319, 81 Fed. Reg. 50212 (July 29, 2016) (hereinafter "2016 Release"); Technical Amendments to Rules of Practice and Rules of Organization; Conduct and Ethics; and Information and Requests, Exchange Act Release No. 83325, 83 Fed. Reg. 25365 (June 1, 2018) (hereinafter "2018 Release"); Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Persons To Effect or Be Involved in Effecting Security-Based Swaps, Exchange Act Release No. 84858, 84 Fed. Reg. 4906 (Feb. 19, 2019) (hereinafter "February 2019 Release"); Technical Amendments To Update Cross-References to Commission's FOIA Regulations, Exchange Act Release No. 86982, 84 Fed. Reg. 50737 (Sept. 26, 2019) (hereinafter "September 2019 Release"); Cross-Border Application of Certain Security-Based Swap Requirements, Exchange Act Release No. 87780, Fed. Reg. 6270 (Feb. 4, 2020) (hereinafter "February 2020 Release"); Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments and Modified Procedures for Proposed NMS Plans and Plan Amendments, Exchange Act Release No. 89618, 85 Fed. Reg. 65470 (Oct. 15, 2020) (hereinafter "October 2020 Release"); Amendments to the Commission's Rules of Practice, Exchange Act Release No. 90442, 85 Fed. Reg. 86464 (Dec. 30, 2020) (hereinafter "December 2020 Release"); Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities, Exchange Act Release No. 98845, 88 Fed. Reg. 87156 (Dec. 15, 2023).
[52] See February 2019 Release (not claiming an exemption to notice-and-comment rulemaking); February 2020 Release (same).
[53] See, e.g., 1998 Rule Release at 63405 (claiming an exemption for rules of agency organization, procedure, or practice); 2016 Rule Release at 50233 (same); December 2020 Rule Release at 86474-75 (same).
[54] See September 1995 Release (technical/ministerial); 2010 Release (technical/ministerial); November 2011 Release (technical/ministerial); 2018 Release (technical/ministerial); September 2019 Release (technical/ministerial); October 2020 Release (amendments to Rules of Practice related to Regulation NMS amendments, which received public comment). But see January 2011 Release (promulgating rules setting forth the procedural requirements to determine whether to disapprove an SRO's proposed rule change).
[55] See June 1995 Release.
[56] See Commissioner Mark T. Uyeda, Statement on Reporting of Securities Loans (Oct. 13, 2023) (expressing "significant concerns with the rulemaking process" when the public was given only 30 days to comment); Commissioner Mark T. Uyeda, Statement on Reopening of Comment Period for Share Repurchase Disclosure Modernization (Dec. 7, 2022) ("One might ask: what is the purpose of the comment period? Is it merely an item to be checked off to satisfy the lowest acceptable standard of process required by the Administrative Procedures [sic] Act? Or is it a vital component of a discussion between an administrative agency and the public in order to better understand the effects of a proposed rule, especially under a changed factual scenario? I believe it is the latter." (footnote omitted)); Commissioner Mark T. Uyeda, Statement on the Final Rule Related to Listing Standards for Recovery of Erroneously Awarded Compensation (Oct. 26, 2002) (arguing that 30-day comment periods "significantly weaken a cornerstone of effective rulemaking: feedback from investors, issuers, and intermediaries to provide us with their expertise"); Commissioner Mark T. Uyeda, Remarks at the APABA-DC Awards and Installation Reception (Oct. 19, 2022) ("The quality of agency rulemaking suffers when the public is unable to meaningfully participate. These procedural failures also can expose Commission rulemaking to challenge in the courts."); id. (arguing that the legitimacy of agency action needs to be restored and that "[t]he blueprint for restoring that legitimacy is straightforward: ensure that every regulatory action goes well above and beyond the bare minimum required by law"); Commissioner Mark T. Uyeda, Statement on Final Rule Amendments on Proxy Voting Advice (July 13, 2022) (arguing that a 30-day comment period spanning "major holidays, including Thanksgiving, Christmas, Hanukkah, and the beginning of Kwanzaa" was insufficient and noting that short comment period might have "resulted in the Commission only seeing a narrower picture of the public concerns and failing to capture relevant data and perspectives"); see also Commissioner Hester M. Peirce, Rendering Innovation Kaput: Statement on Amending the Definition of Exchange (Apr. 14, 2023) ("Today's Commission treats the notice-and-comment rulemaking process not as a conversation, but as a threat."); Commissioner Hester M. Peirce, Exclusion Preclusion: Statement on the Shareholder Proposals Proposal (July 13, 2022) ("The likelihood of receiving thoughtful comments in response to these questions and the many others in the proposal is diminished by the Commission's continued unwillingness to afford adequate time for public comment."); Commissioner Hester M. Peirce, Rip Current Rulemakings: Statement on the Regulatory Flexibility Agenda (June 22, 2022) (advocating for longer comment periods and contending, "We have abandoned our careful and considered approach to altering regulation in favor of effecting hasty and sweeping change"); Commissioner Hester M. Peirce, Dissenting Statement on the Proposal to Amend Regulation ATS (Jan. 26, 2022) ("I cannot comprehend why we insist on blindfolding ourselves, rather than embracing the notice-and-comment process that has been so valuable in unearthing issues for our consideration. . . . We face no emergency in these markets that compels us to limit comments to 30 days; indeed, the Commission's precipitous rush to plow through the comment period-almost as if it were a mere formality in our process-presents a greater immediate risk to the market than any of the issues that have led to this recommendation.").
[57] See Securities Act Section 5(a) & (c), 15 U.S.C. § 77e(a) & (c).
[58] If there has, in fact, been some actual problem in the markets because of the status quo, we should have identified that problem and asked the public about it.
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