Franklin: SEC Upends Prior Skepticism of Mandatory Arbitration Provisions

In September, the U.S. Securities and Exchange Commission issued a policy statement upending the agency’s prior skepticism of mandatory arbitration agreements, writes Shook Associate Andrew Franklin. Franklin has published an article on the policy change for the Illinois State Bar Association’s In The Alternative newsletter titled “The SEC Says It Will No Longer Consider Mandatory Arbitration Clauses Potential Roadblocks to Acceleration of Effectiveness of Registration Statements.”

 

In the article, Franklin says the primary rationale for the policy shift is aligning SEC practices with recent Supreme Court case law. An implication of the policy shift, Franklin says, is that in order for an issuer to sell a security, a registration statement must be in effect, theoretically removing a significant roadblock to access to capital for issuers.

 

“The Policy Statement makes clear that the SEC’s staff ‘will focus on the adequacy of the registration statement’s disclosures, including disclosure regarding issuer-investor mandatory arbitration provisions’ when making acceleration decisions,” Franklin says.