March 4, 2026
The Securities and Exchange Commission’s September 2025 policy shift on mandatory arbitration clauses has not gained in popularity.
Investor advocates continue to warn that the Securities and Exchange Commission’s September 2025 policy statement allowing companies to compel shareholders into private arbitration will negatively impact markets, including hurting stock valuations and investor confidence.
The policy, which reflects President Donald Trump’s goal of making it easier for companies to conduct initial stock offerings, was swiftly met with criticism from institutional investors, who insisted the move would hinder transparency.
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Part of Trump’s agenda has focused on rooting out “frivolous litigation.”
According to Laura Posner, a partner in the securities litigation and investor protection practice of law firm Cohen Milstein Sellers & Toll PLLC, over the past 30 years, courts have shown that the Private Securities Litigation Reform Act of 1995, which increased the pleading standards plaintiffs must meet to initiate a suit, is working as intended: Roughly half of securities cases are dismissed at the motion-to-dismiss stage, meaning frivolous or weak claims are filtered out early, while credible ones are allowed to move forward.
Posner says the risk to company valuations will deter companies from seeking forced arbitration provisions.
“The reason we haven’t seen companies adopt such a provision—in addition to upsetting their investor base, which they should be responsive to—is that [forced arbitrations] are going to increase the cost of litigation pretty exponentially,” Posner says. “Instead of having one, maybe two, cases that are class action, you’re then dealing with hundreds or thousands of cases” in arbitration.
Read SEC’s Arbitration Shift Still Sparks Fears Over US Stock Valuations.