When a company undertakes a registered public offering of securities, section 8(a) of the Securities Act of 1933 (the “Securities Act”), by its terms, provides that the registration statement will go effective (allowing sales of the securities being registered) 20 days after it is filed with the Securities and Exchange Commission (the “Commission”). The Commission, however, can comment on and require changes in registration statements and does not want to be confined in its review process by section 8(a)’s 20-day mandate. Accordingly, early on, a practice evolved to place a “delaying amendment” on the front page of the registration statement–what that does is essentially maintain the effectiveness of the registration statement in “limbo.” Once the company has cleared the Commission’s comments and is ready to market the securities, it then asks the Commission to “accelerate” the effectiveness rather than simply let it go effective in 20 days.

The question that the Commission addressed on September 17, 2025, was whether, when being requested to accelerate the effectiveness of a registration statement, the Commission staff would consider the existence of an issuer-investor mandatory arbitration provision in the company’s constituent documents and, if so, how. On that date, the Commission voted to issue a policy statement [found here] clarifying its stance on arbitration provisions in corporate governing documents. In short, the Commission announced that the presence of a provision in a corporation’s governing documents that mandates arbitration of shareholder disputes will not affect the Commission’s decision to accelerate the effectiveness of a Securities Act registration statement.  In adopting that policy, the Commission addressed the Federal Arbitration Act (the “FAA”) and related Supreme Court interpretations, concluding that Federal securities laws do not override the FAA’s policy favoring arbitration and, as such, the existence of a mandatory arbitration clause is not relevant under the section 8(a) public interest and investor protection standards.

In announcing that agenda item, Commission Chairman Paul Atkins pointed out that the Commission “is not a merit regulator that decides whether a company’s particular method of resolving disputes with its shareholders is ‘good’ or ‘bad’” and therefore, that the Commission will not participate in that debate. Instead, Chairman Atkins stated that “the Commission and its staff should focus on ensuring complete and adequate disclosure of material information concerning a company’s mandatory arbitration provision, if one exists. This approach is in keeping with how the agency has treated certain other provisions that companies impose for resolving disputes, such as exclusive forum requirements for Securities Act claims.” It is also consistent with how it treats the Commission’s policy on indemnification for Securities Act claims – requiring an undertaking, unless in the opinion of counsel the matter has been settled by controlling precedent, to submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the [Securities] Act and will be governed by the final adjudication of such issue.

Unsurprisingly, the Commission’s policy statement on mandated arbitration provisions has already sparked criticism, with some accusing the Commission of “shutting the door on investors.”  Prominent U.S. Senators claim that this “eliminate[s] the critical tool of private securities litigation for securities law enforcement, denying relief for investors and allowing misconduct to go unpunished.” Never mind that the state of Delaware, the leading state for incorporations of public companies, recently prohibited such arbitration provisions. These claims overlook the Commission’s historic mission and role – what it has the power to regulate and what it does not. Chairman Atkins has vowed to return the Commission to its historic role. 

In regard to the roots of the Commission’s historic mission, look no further than President Franklin D. Roosevelt’s 1933 inaugural speech, in which he focused on a major issue of the 1932 presidential race—the sanctity of the U.S. capital markets. Congress quickly took up the challenge, passing the two cornerstone acts of federal securities laws—the Securities Act of 1933 and the Securities Exchange Act of 1934—and more securities legislation quickly followed. Much as SOX and Dodd-Frank grew, respectively, out of the corporate scandals of 2002 and the 2008 financial crisis, the major U.S. securities laws were quintessential New Deal legislation that grew out of the 1929 stock market crash and President Roosevelt’s 1932 presidential campaign. Securities law reform was one of the planks of the Democratic platform: “We advocate protection of the investing public by requiring to be filed with the government and carried in advertisements of all offerings of foreign and domestic stocks and bonds true information as to bonuses, commissions, principal invested, and interests of the sellers.”[1]

Within weeks of his inauguration, Roosevelt moved to begin the reform. A former Federal Trade Commissioner named Huston Thompson was given the task of drafting the Securities Act.[2] His bill went to Congress in March 1933, accompanied by a message from the President stating his desires as to the thrust of the legislation. It quickly became apparent that the Thompson bill was not consistent with those desires. The President agreed with Louis Brandeis that “sunshine is said to be the best of disinfectants; electric light the most efficient policeman,”[3] and he wanted regulation through disclosure requirements. Although this philosophy was embodied in the 1932 campaign plank, the Thompson bill went in another direction. It mandated what has become known as “merit regulation.” This scheme, much used in state securities or “blue sky” laws, gives a governmental body the power to pass upon the merits of securities offerings in order to prevent unworthy offerings.

In early April 1933, a new drafting team was formed. The members’ identities, their intellect, and the constraints on them as they worked are important parts of the tale. The group, which was assembled by Felix Frankfurter, consisted of James M. Landis, a Harvard Law School professor; Thomas G. Corcoran, a government lawyer recently out of a securities law practice; and Benjamin V. Cohen, a practicing lawyer. Each was brilliant, and from the statute they created, it is apparent that they delighted in mental challenges involving interwoven complexities and neatly hidden traps.

The team set to work on a Friday. For political reasons, they did not scrap the Thompson bill. They used it as a base for amendment, while drawing heavily on the English Companies Act of 1929. By late Saturday, they had a draft that, more than ninety years later, still constitutes the main body of the Securities Act. The Act is a masterpiece, an intellectual tour de force. Simply realize that when one works with the Securities Act, one plays a complex mental game (e.g., what is an “offer,” what is a “prospectus,” who is an “underwriter”) devised by three exceptional minds over a weekend.

Back to basics, however,per President Roosevelt’s direction, the Securities Act (and, indeed, the vast majority of the federal securities laws) are disclosure-oriented, not merit-based.  If Congress wants the course to be different, it has the power to amend the statutes or to give the Commission a different mission and role. Congress has done so before by:

• Passing the Williams Act in the face of perceived “abusive takeover tactics”;
• Mandating internal control over financial reporting in the Foreign Corrupt Practices Act of 1977;
• Passing the Sarbanes-Oxley Act of 2002, which required, among other things: creating the PCAOB, requiring CEO/CFO certifications and internal control attestations, requiring the Commission to adopt attorney professional conduct rules and regulations dealing with off-balance sheet arrangements and non-GAAP financial measures (called “pro-forma” measures in the statute)
• Passing Dodd Frank in 2010, which required, among other things, restrictions on uninstructed broker voting, say on pay votes, pay ratio disclosure, pay versus performance disclosure, compensation “clawbacks” for exchange-listed companies, and whistleblower protections;
• Passing the JOBS Act, which created “emerging growth companies” and their attendant provisions, as well as what we refer to as Regulation “A+”, and removed restrictions on general solicitation in certain private offerings.

So, what’s next? If Congress wants to prohibit publicly traded companies from including mandatory arbitration provisions in their governing documents, it has the power to do so. For example, similar to what Congress did in Dodd-Frank with respect to “clawbacks,” it could require stock exchanges to prohibit listing the securities of companies that have such provisions. It could add a provision to the Private Securities Litigation Reform Act prohibiting companies with securities registered under Exchange Act section 12 or subject to filing requirements under Exchange Act section 15(d) from having such provisions in their constituent documents. Or, similar to what was done with SPACs, it could disallow the use of the PSLRA safe harbor for forward-looking information by those companies or disallow the benefits of the PSLRA altogether.

But don’t be upset at the current Commission or Chairman Atkins. He’s simply following the mission prescribed by FDR and the original architects of federal securities law. If change is needed, it is up to Congress to make it happen. Meanwhile, the Commission is sticking to its roots: disclosure, not merit regulation. And who knows, we may even see a new acronym catch on – MIPOGA: Making IPOs Great Again.