The SEC has long had a policy that effectively prohibited public companies from requiring arbitration of shareholder claims under the Securities Act[1] and Securities Exchange Act.[2] Last month, the SEC announced a change to that policy. In its September 17, 2025 Policy Statement, the SEC stated that, effective September 19, 2025, “the presence of an issuer-investor mandatory arbitration provision will not impact decisions [on] whether to accelerate the effectiveness of a registration statement under the Securities Act.”
The SEC’s Policy Statement eliminates one of the most significant impediments to public companies requiring arbitration for securities claims. But it leaves unresolved several important issues concerning the viability and impact of issuer-investor arbitration clauses.
Unsettled Legal Issues Relating to Issuer-Investor Arbitration Clauses
The Policy Statement brings to the fore, but does not resolve, a number of legal issues surrounding issuer-investor arbitration clauses.
Compatibility with State Law. The Policy Statement does not provide guidance on whether issuer-investor arbitration provisions are consistent with state law. For example, under a recent amendment to Delaware’s General Corporation Law, Delaware corporations must allow stockholders to bring claims relating “to the business of the corporation, the conduct of its affairs, or the rights or powers of the corporation or its stockholders, directors or officers” in “at least 1 court in [Delaware] that has jurisdiction over such claims.”[3] As a result, Delaware companies may be prohibited from adopting mandatory arbitration provisions for investor securities law claims, notwithstanding the SEC’s Policy Statement.
Compatibility with Federal Law. The status of mandatory arbitration provisions also remains somewhat uncertain under federal law. The Policy Statement explains that, historically, the anti-waiver provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 were believed to preclude issuer-investor mandatory arbitration provisions.[4] The Policy Statement interprets U.S. Supreme Court precedent as permitting mandatory issuer-investor provisions under the Federal Arbitration Act but acknowledges that the issue has not been directly addressed.
Applicability of the PSLRA. When shareholders bring securities lawsuits in federal court, the Private Securities Litigation Reform Act of 1995 (PSLRA) imposes special requirements. For example, the PSLRA sets out procedures for appointing lead plaintiffs for securities class actions, mandates a stay of discovery while a motion to dismiss is pending, and imposes heightened pleading burdens.[5] U.S. Supreme Court precedent makes clear that the substantive protections of the PSLRA will apply to federal securities claims in state courts,[6] and some commentators predict that the substantive protections therefore also apply in arbitrations.[7] District courts have determined that the PSLRA does not prohibit arbitrations of securities claims,[8] but have also expressed skepticism that “the PSLRA allows the Court to micro-manage arbitration proceedings,” which may provide arbitrators latitude to depart from the PSLRA’s procedural requirements.[9] The Supreme Court has not decided whether and to what extent the PLSRA’s procedural provisions will apply to issuer-investor arbitrations, nor has it definitively stated that the PSLRA’s substantive provisions apply in arbitrations.
Class Action Waivers. The Policy Statement also raises questions about the permissibility of class action waivers under mandatory issuer-investor arbitration provisions. In other contexts, the Supreme Court has allowed arbitration provisions that mandate bilateral arbitration, even when the costs of arbitration exceeded potential recovery for any individual plaintiff.[10]The SEC seems to anticipate that companies adopting issuer-investor arbitration provisions will mandate bilateral arbitrations; the Policy Statement cites the Supreme Court’s decision on bilateral arbitration provisions and emphasizes that federal securities statutes do not guarantee plaintiffs an affordable path to vindicate every claim.
Key Considerations for Securities Class Actions
The SEC’s Policy Statement may bring about a significant shift for securities class actions. By reducing the obstacles to adopting mandatory issuer-investor arbitration provisions, the Policy Statement may reduce the prevalence of securities fraud class actions and increase the prevalence of securities fraud arbitrations.
Increased adoption of mandatory issuer-investor arbitration clauses will also likely result in legal challenges to the enforceability of these clauses. Courts will likely need to grapple with the unresolved legal issues discussed above concerning the compatibility of issuer-investor arbitration clauses with federal and state law and the applicability of the PSLRA.
Adoption of mandatory issuer-investor arbitration clauses may also lead to a rise in the number of securities fraud mass arbitrations. Mass arbitrations are coordinated filings of a large number of substantially similar claims, filed simultaneously in hopes of imposing large filing fees on the company and thereby obtaining settlement leverage. Companies may seek to mitigate this risk by incorporating procedural rules designed to prevent this tactic into their arbitration provisions.
[1] “Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.” 15 U.S.C. § 77n.
[2] “Any condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of a self-regulatory organization, shall be void.” 15 U.S.C. § 78cc.
[3] 8 Del. Code § 115(c).
[4] 15 U.S.C. 77n; 15 U.S.C. 78cc(a).
[5] 15 U.S.C. § 78u-4(a)(3), (b)(3)(B), (b)(1)-(2).
[6] Cyan, Inc. v. Beaver Cnty. Emps. Ret. Fund, 583 U.S. 416, 422–23 (2018) (stating, with respect to federal securities claims in state courts, that “wherever those suits go forward, the [PSLRA’s] substantive protections necessarily apply.”).
[7] Harold S. Bloomenthal & Samuel Wolff, 3D Sec. & Fed. Corp. Law § 16:193 (2d ed. June 2025). (“The substantive aspects of the PSLRA, such as the safe harbor for forward-looking statements and proportionate liability, clearly are applicable to a Rule 10b-5 claim in arbitration since arbitrators are ‘required’ to follow the law.”).
[8] See Hastings v. Nifty Gateway, LLC, 724 F. Supp. 3d 241, 250 (S.D.N.Y. 2024); Dropp v. Diamond Resorts Int’l, Inc., 2019 WL 332399, at *3 (D. Nev. Jan. 25, 2019).
[9] Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 462, 478 (S.D.N.Y. 2010).
[10] American Express Co. v. Italian Colors Restaurant,570 U.S. 228 (2013).