Open Commission Meeting Remarks on Commission Policy Statement and Amendments to the Rules of Practice

Thank you, Chairman Atkins, and thank you to the staff for your presentation. Today, the Commission issues a policy statement regarding the acceleration of effectiveness of registration statements for issuers that have certain mandatory arbitration provisions, and corresponding amendments to the Commission's Rules of Practice.

For public offerings registered with the Commission, the effective date of the registration statement is of paramount importance. Section 8(a) of the Securities Act[1] states that the effective date shall be either the 20th day after filing or such earlier date as the Commission may determine. Most registered offerings are declared effective by acceleration. Although during our agency's early history, the Commissioners themselves personally voted to declare registration statements effective, that task has long since been delegated to the staff. Issuers have used the acceleration provision to provide important transactional timing flexibility to consider market sentiment and economic conditions.

For decades, Commission staff, acting under the direction of various SEC chairs, has taken the position that acceleration of a registration statement would not be granted for an issuer with corporate charter or bylaw provisions requiring the adjudication of investor claims in arbitration. This policy statement is now being issued to provide instruction from the full Commission.

Importantly, the policy statement does not seek to regulate the conduct of market participants nor does it attempt to resolve the interplay between the Federal Arbitration Act (FAA) and the federal securities laws. Instead, it focuses on the Commission's limited role as to whether there is appropriate disclosure in registration statements. Whether there are benefits to arbitration of investor claims, such as whether they lead to lower investor costs, is not a question that the Commission has been tasked to answer.

The federal securities laws are primarily designed so that the public has sufficient information to make informed investment decisions-rather than making qualitative regulatory judgments as to the most optimal investment characteristics. Issuers, investors, and market intermediaries are tasked with a straightforward proposition: do the features and characteristics of a proposed investment align with one's individual investment goals and risk tolerance.

In issuing this policy statement, the Commission has based its position on a significant body of legal precedent and legislation. This policy statement, however, recognizes that we are not the Securities and Arbitration Commission nor are we a state corporate or "Blue Sky" law regulator charged with merit-based evaluation of offerings. Today's policy statement describes the Commission's approach to declaring registration statements effective[2] and does not attempt to conform behavior or express a view on whether mandatory arbitration is appropriate or beneficial for issuers or investors. Most importantly, it places focus on the adequacy of disclosure as being the central consideration on declaring registration statements effective.

In tandem with this policy statement, we are amending the Rules of Practice relating to procedures governing Commission review of staff actions made pursuant to delegated authority in connection with the determination of the effective dates of registration statements and post-effective amendments and the determination of the dates and times of qualification of an offering statement and post-qualification amendments under Regulation A.

These amendments reflect the fact that an automatic stay of the staff's determination to accelerate effectiveness or to qualify an offering statement after sales have commenced would be highly disruptive to the distribution process. Today's amendments will remove the unpredictability resulting from an automatic stay.

Most importantly, the key safeguard remains in place-the issuance of a stop order under Section 8(d) of the Securities Act.[3] The Commission remains, as always vigilant as to frauds perpetrated upon investors and will use all available regulatory tools to address securities fraud involving registered offerings.

I thank the staff in the Division of Corporation Finance, the Division of Investment Management, the Division of Economic and Risk Analysis, and the Office of the General Counsel, for their work on these matters. I also join in thanking Cicely LaMothe for her service as Acting Director of the Division of Corporation Finance for the past 10 months.