On September 17, 2025, the Securities and Exchange Commission made a decision that could dramatically shift how investors seek remedies against public companies.
In a 3-1 vote, the Commission adopted a policy statement allowing companies going public to include mandatory arbitration clauses in their charters or bylaws without fearing that SEC staff will block their IPO registration statements solely because of those provisions.
For investors and corporate counsel alike, this moment signals a fundamental recalibration of the federal posture toward the arbitration of shareholder disputes.
Here’s a guide to what changed, what stayed the same, and what it means for issuers, investors, and the broader market.
Quick Facts
| Item | What to Know |
| Date | September 17, 2025 |
| SEC Action | Policy statement clarifying that mandatory arbitration provisions will not affect staff decisions to accelerate effectiveness of registration statements |
| Vote | 3–1 |
| Companion Action | Amendments to Rule 431 to reduce the risk of last-minute stalls once staff accelerates a registration statement |
| Who Is Affected Now | Companies preparing for IPOs in jurisdictions that permit arbitration clauses, and investors evaluating those IPOs |
| What It Does Not Do | Does not force any company to adopt arbitration, and does not override state corporate law limiting arbitration clauses |
| Effective Timing | Policy statement and Rule 431 amendments effective upon publication in the Federal Register |
What the SEC Actually Changed
The SEC’s September 17 vote marked a clear shift in how the agency treats arbitration clauses in public company filings. Here’s a quick look at the core changes that set the stage for everything else.
A New Policy Statement on Arbitration
The Commission stated that, under Supreme Court precedent and the Federal Arbitration Act (FAA), mandatory arbitration provisions covering investor claims under federal securities laws are not inconsistent with federal statutes.
That means the SEC staff will no longer treat the presence of such a clause as a barrier to declaring a registration statement effective.
The key condition is disclosure quality. A company must provide clear, prominent, and plain-language disclosure of any arbitration requirements, including how they affect investor rights, class actions, costs, and procedural options.
Rule 431 Amendment to Reduce Last-Minute Stalls
Simultaneously, the SEC amended Rule 431 of its Rules of Practice. Previously, even after SEC staff accelerated a registration statement, an individual Commissioner or an outside party could file a request for review that automatically stayed the effectiveness of the registration.
The new amendment removes that automatic stay. Stop orders under Section 8 of the Securities Act remain in place as an investor protection backstop, but the path to market is smoother and less prone to eleventh-hour derailments.
Why This Policy Matters
Securities class actions are among the largest recurring liabilities for public companies.
Cornerstone Research and the Stanford Securities Class Action Clearinghouse report that in 2024, there were 88 settlements totaling roughly 3.7 billion dollars, with a median settlement of 14 million dollars and an average settlement of 42.4 million dollars. Those numbers are still historically high despite a slight year-over-year dip.
By signaling neutrality on arbitration clauses, the SEC is stepping back from a gatekeeping posture that effectively deterred public companies from experimenting with arbitration for federal securities claims.
Companies now have a green light, at least on the federal level, to test arbitration as a way to reduce exposure to costly and highly public class actions, or even look to platforms like forexstore.com for how arbitration mirrors automated trading tools in shaping outcomes.
What Did Not Change
Not everything shifted with the SEC’s September vote. Some long-standing rules and limits remain firmly in place, shaping how far companies and investors can go under the new policy.
State Corporate Law Still Controls Much of the Terrain
The SEC policy does not preempt state corporate law. Delaware’s General Corporation Law section 115, for example, has been interpreted to require at least one Delaware court be available for specified internal corporate claims, and Delaware case law has generally disfavored mandatory arbitration clauses in charters or bylaws.
Companies incorporated in Delaware, the majority of U.S. public issuers, still face major hurdles in adopting shareholder arbitration provisions.
No Blanket Endorsement
The Commission is not endorsing arbitration as superior to litigation. The policy statement merely removes the SEC staff as a federal barrier to the acceleration of registration statements containing arbitration clauses.
Private Rights Remain
Investors retain private causes of action under the federal securities laws. Whether they can pursue those actions in court or arbitration depends on the enforceability of the company’s arbitration clause under applicable state law and federal law principles.
How State Law Shapes Adoption
State corporate law still sets the boundaries for how far companies can go with arbitration clauses.
Before drafting anything, it’s worth looking closely at the incorporation state’s rules, because those statutes and court decisions often decide whether an arbitration provision stands or falls.
Delaware’s Restrictions
Delaware remains the incorporation home for most large public companies. Section 115 of the Delaware General Corporation Law allows forum selection clauses but has been widely interpreted to bar eliminating Delaware courts for internal corporate claims.
Commentators note that Delaware practice has also disfavored mandatory arbitration of shareholder disputes, even for federal claims. Unless Delaware law changes, companies incorporated there face serious limits on adopting arbitration clauses.
Other States with More Flexibility
According to Snell & Wilmer, states such as Texas or Nevada lack the same statutory restrictions and may be more fertile ground for arbitration clauses in corporate governing documents.
Companies incorporated in these states could move quickly to adopt arbitration provisions in IPO documents, testing investor reaction and proxy advisor responses.
What Investors Should Scrutinize in Filings
If you’re reading a prospectus after September 17, 2025, pay close attention to the arbitration disclosure. Key elements include:
- Scope of Claims: Does it apply to federal Securities Act and Exchange Act claims, derivative claims, or only to certain disputes?
- Arbitration Provider and Rules: Whether it’s AAA, JAMS, or another forum, and where the arbitration is seated.
- Class Procedures: Are class arbitrations allowed or waived?
- Costs and Fee Allocation: Who pays filing fees and arbitrator costs?
- Opt-Out or Severability Clauses: Can parts of the clause be invalidated without striking the whole?
- Governing Law: Which state’s law applies, since enforceability hinges on that.
The SEC has made it clear: disclosure adequacy is the focal point for acceleration. Investors need to be ready to parse that disclosure and assess whether they’re comfortable with the trade-offs.
How Litigation Dynamics Could Change
Lawsuits against public companies may start to look very different under the new policy.
As more issuers test arbitration clauses, the familiar path of securities class actions in federal court could shift toward private forums, changing how claims are brought, resolved, and disclosed.
Fewer Court-Filed Class Actions
If arbitration clauses spread, the number of class action lawsuits against IPO issuers may shrink. Investors may instead file individual arbitrations or test the enforceability of class waivers and arbitration clauses in state and federal courts.
Confidentiality and Transparency
Arbitration proceedings are typically private. This could reduce public awareness of settlements and limit the development of case law clarifying issuer obligations.
Investor advocates worry about a loss of transparency and precedent, which could erode the deterrent effect of public litigation.
Costs and Timelines
Arbitration can be faster and less procedurally burdensome, potentially lowering costs for both sides. However, it also limits discovery tools that investors might use to uncover wrongdoing.
Timelines and outcomes will depend heavily on the chosen arbitration rules and arbitrators’ practices.
Implications for Existing Public Companies
The policy statement primarily affects IPO issuers because it focuses on acceleration decisions for registration statements. But could an existing public company adopt arbitration provisions now?
- Legally Possible in Some States: Where state law permits and governing documents allow board-initiated bylaw changes, a company could propose an amendment to include arbitration.
- Investor Relations Risks: Companies must weigh investor and proxy advisor reactions, as well as potential exchange considerations.
- Market Test Ahead: A handful of issuers may try first, watching how analysts, investors, and courts respond before others follow.
Proxy Advisors and Investor Reaction
Proxy advisory firms have not yet issued comprehensive post-policy frameworks specifically addressing arbitration clauses.
However, they have historically opposed governance changes that reduce shareholder rights. Expect heightened attention to:
- Whether the board acted unilaterally or sought a shareholder vote.
- Any bundling of arbitration clauses with other governance changes.
- The clarity of disclosure about the rationale and consequences of arbitration.
Issuers considering arbitration provisions should prepare for extensive engagement with key institutional investors and proxy advisors well before filing.
Political and Legal Challenges Ahead
The SEC’s vote was not unanimous. Commissioner Caroline Crenshaw dissented, arguing that the change weakens investor protections and citing the large scale of 2024 class action recoveries relative to SEC enforcement distributions. That dissent signals where legal and political challenges may emerge.
Key pressure points to watch:
- Administrative Law Challenges: Critics could argue the policy statement is arbitrary or capricious, or that the Commission should have used notice-and-comment rulemaking.
- FAA Versus Securities Statutes: While the Commission grounded its position in Supreme Court precedent under the FAA, opponents may argue that anti-waiver provisions in securities laws should limit arbitration.
- State Law Preemption Debates: If a state restricts arbitration for certain shareholder claims, courts may be asked to decide whether federal law preempts those restrictions. Delaware will be the jurisdiction to watch most closely.
Practical Checklist for Companies Considering Arbitration
| Step | Action Item | Key Considerations |
| 1. State Law Fit | Verify incorporation state rules on arbitration clauses | Delaware restrictive, Texas/Nevada more flexible |
| 2. Scope and Drafting | Decide which claims are covered, specify forum rules, class procedures, and fee allocation | Include severability to protect the clause |
| 3. Disclosure Design | Place clear summary in the prospectus summary and risk factors | Explain implications for court access, costs, and class actions |
| 4. Investor Engagement | Pre-filing outreach with key investors | Be ready for questions on governance and accountability |
| 5. Proxy Advisor and Exchange Lens | Monitor guidance updates that may affect voting recommendations or listing considerations | |
| 6. Scenario Planning | Prepare for challenges to enforceability, model cost savings versus reputational impacts |
Practical Checklist for Investors
- Read the Clause Carefully: Note any class waiver, cost shifting, and limits on discovery.
- Assess the Forum: Some arbitration providers and venues are more investor-friendly than others.
- Price the Governance Feature: If you view arbitration as a negative for enforcement and transparency, reflect that in allocation and pricing decisions.
- Watch the State of Incorporation: Enforceability can hinge on state law.
- Track Early Adopters: Their experience will shape market norms.
Data Points to Keep in Mind
- Class Action Settlements in 2024: 88 settlements totaling 3.7 billion dollars; median settlement 14 million; average 42.4 million.
- Filing Volume: 225 securities class action filings in 2024 across federal and state courts, with core filings above long-term averages.
Those numbers form the backdrop for the SEC’s decision and the arguments on both sides.
Where Things Go Next
The SEC’s policy shift is only the beginning. What happens next will depend on how quickly companies test the new ground, how investors respond, and whether lawmakers or courts step in to shape the limits.
First Movers
Expect a handful of IPO issuers incorporated outside Delaware to adopt arbitration clauses and test investor reception.
Some may tailor features like fee sharing or class arbitration to soften the impact on investors.
Delaware Watch
Keep an eye on the Delaware legislature and courts for any changes that could expand or restrict the use of arbitration clauses in charters and bylaws.
Guidance and Best Practices
Law firms and advisors are likely to issue model disclosures and clause checklists soon. Over time, market practice will converge on a set of common terms.
Final Thoughts
The SEC’s policy shift on September 17, 2025 removes a long-standing informal barrier to mandatory arbitration clauses in IPO registration statements. Companies now have room to experiment, but they remain constrained by state corporate law, investor expectations, and proxy advisor scrutiny.
Investors, for their part, must sharpen their reading of prospectuses and weigh the practical impact of arbitration clauses on their rights and remedies. While the headlines are about the SEC’s vote, the real story will unfold in courtrooms, arbitration forums, and boardrooms over the coming years.
One thing is clear: the ground rules for shareholder disputes are changing, and everyone: issuers, investors, regulators, and advisors will need to adjust.
