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June 13, 2018 Practice Points

Will SEC Approve Mandatory Securities Arbitration?

By S.I. Strong

Questions have arisen in recent days and months as to whether the U.S. Securities and Exchange Commission (SEC) will allow arbitration of shareholder disputes via a mandatory arbitration provision in the charter or bylaws of publicly held U.S. companies. Recent reports indicate that SEC Chair Jay Clayton wrote a letter last April indicating that mandatory arbitration of shareholder disputes is "not a priority." He also stated that had not yet decided whether such procedures would be "appropriate" for U.S. companies contemplating initial public offerings to include such provisions in their corporate charters. However, Clayton did say that the commissioners would "give the issue full consideration in a measured and deliberative manner" before authorizing this type of procedure.

Shareholder arbitration is of increasing interest around the world, although some states—such as Germany—have placed restrictions on the circumstances in which such procedures are proper. Prof. Massimo Benedettelli gave a presentation on these matters at ICCA In April 2018, and an increasing number of commentators have begun writing on this subject. It will be interesting to see if the United States joins others in authorizing this practice and if so, under what restrictions.

S.I. Strong is the Manley O. Hudson Professor at the University of Missouri, School of Law in Columbia, Missouri.

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