U.S. Securities & Exchange Commission says mandatory arbitration clauses do not affect registration statement acceleration and limits automatic stays under Rule 431

The U.S. Securities & Exchange Commission published a policy statement on issuers that include mandatory arbitration provisions in their governance documents when registering securities offerings, concluding that such provisions are not inconsistent with the federal securities laws and should not affect decisions to accelerate a registration statement’s effectiveness. In parallel, the SEC amended Rule 431 of its Rules of Practice to reduce the risk that Commission review requests automatically disrupt transactions after a registration statement has been declared effective. The policy statement addresses clauses that require investors to arbitrate federal securities law claims with the issuer, and focuses on the SEC’s role in evaluating consistency with federal securities laws rather than enforceability under state corporate law. It notes that state law can be determinative, citing recent amendments to Delaware’s General Corporation Law that may prohibit mandatory arbitration provisions, and emphasizes that the SEC’s acceleration standard centers on complete and adequate disclosure of material information rather than the merits of a company’s dispute resolution approach. Under the Rule 431 changes, declarations of effectiveness of registration statements are added to exceptions from the general rule that a request for Commission review of a staff-delegated action stays that action. The exceptions also cover declaring post-effective amendments effective and qualifying a Regulation A offering statement or post-qualification amendment, allowing the SEC to consider whether a stay is warranted rather than triggering one automatically.