The Securities and Exchange Commission has issued a policy statement clarifying its view regarding companies that have mandatory arbitration provisions in their governing documents.
The SEC said it wanted to make it clear that decisions about whether to accelerate the effectiveness of a company’s registration statement will not be affected if they have a provision that requires arbitration of investor claims that arose under the federal securities laws. This was reported to be a shift in the SEC’s previous stance that it would not accelerate the effectiveness of a company’s registration statement if it contained a mandatory arbitration provision.
Under Section 5 of the Securities Act, a registration statement must be “effective” as to a security for a company to sell that security to the public.
“As an agency that trumpets the importance of disclosure and transparency, the Commission’s lack of a recent public position on this important topic is unmoored from both its mission and its mandate. That ends today,” said SEC Chairman Paul S. Atkins.
“While many people will express views on whether a company should adopt a mandatory arbitration provision, the Commission’s role in this debate is to provide clarity that such provisions are not inconsistent with the federal securities laws,” Atkins added. “We have fulfilled that role through the issuance of this policy statement.”
The SEC noted that companies have asked whether mandatory arbitration provisions would impact the acceleration of the effectiveness of their registration statement.
The commission said its current view is based on the Supreme Court’s current interpretation and application of the Federal Arbitration Act, holding that the existence of such a provision will not impact determinations whether to accelerate the effective date of a registration statement.
The SEC says that when deciding on whether to accelerate effectiveness of a registration statement, its staff will focus on the adequacy of the registration statement’s disclosures, including disclosure regarding the arbitration provision.
At Hyman Cotter PC, our attorneys have handled hundreds of arbitrations before FINRA, , the Chicago Board Options Exchange, the Chicago Board of Trade, JAMS, the American Arbitration Association and other self-regulatory organizations nationwide. We have also appeared in courts throughout the United States in various types of securities-related matters. For more information about our arbitration and litigation services, please contact us at 312-291-4600 or through our online contact form.
