Delaware and the U.S. Securities and Exchange Commission (SEC) are increasingly at odds over the role of mandatory arbitration provisions in the context of federal securities law claims. Recent legislative action by Delaware, combined with a notable policy shift at the SEC, has brought this long-simmering issue into the open, raising important questions about jurisdiction, corporate governance, and the future of public company litigation.

This divergence is unusual. Delaware and the SEC typically operate in close coordination, particularly where public companies, IPOs, and securities disclosure intersect. Yet recent developments suggest a rare and pointed disagreement between the nation’s most influential corporate law jurisdiction and the federal agency charged with enforcing the securities laws.

Background: What Are Mandatory Arbitration Provisions?

Mandatory arbitration provisions require parties, often shareholders, customers, or counterparties to waive their right to bring disputes in court and instead resolve claims through private arbitration. Arbitration is generally faster and more streamlined than litigation and operates under different procedural and evidentiary rules. Arbitration awards are typically enforced by courts at the request of the prevailing party.

Despite these efficiencies, mandatory arbitration provisions are controversial. Critics argue they are anti-consumer and anti-shareholder, particularly because they often:

• Limit access to public courts

• Restrict discovery

• Prevent class or collective actions

• Reduce transparency and precedent-building

These concerns are especially acute in the context of federal securities law claims, where private litigation has historically played a key role in enforcement alongside regulators.

Delaware’s August 2025 Amendments to the DGCL

In August 2025, Delaware amended the Delaware General Corporation Law (DGCL) to prohibit corporations from including mandatory arbitration provisions covering federal securities law claims in their governing documents, including charters and bylaws.

Delaware has long barred mandatory arbitration clauses for intra-company affairs claims between shareholders and management governed by Delaware law. The rationale is well-established: allowing arbitration of these disputes could undermine the Delaware Court of Chancery, fragment the development of Delaware corporate jurisprudence, and deprive shareholders of collective enforcement mechanisms.

Until 2025, however, this prohibition did not extend to claims brought under federal securities laws. The amendment closes that gap, explicitly preventing Delaware corporations from forcing arbitration of claims arising under statutes such as the Securities Act of 1933 and the Securities Exchange Act of 1934.

The SEC’s Reversal: From Opposition to Quiet Support

At nearly the same time Delaware acted, the SEC took the opposite approach.

Historically, the SEC refused to declare effective IPO registration statements that included mandatory arbitration provisions applicable to federal securities law claims. That policy effectively prevented public companies from adopting such provisions at the IPO stage.

In 2025, the SEC quietly abandoned that position. The agency announced it would no longer oppose IPOs containing mandatory arbitration clauses for federal securities claims, and subsequent statements suggested growing support for arbitration as a tool to reduce what the SEC views as frivolous or abusive litigation against public companies.

SEC Chairman Atkins made this shift explicit in public remarks criticizing Delaware’s position, stating that Delaware’s approach “suggest[s] that the state is not only uninterested in reform, but instead seems to embrace the litigation costs that abusive lawsuits impose on companies franchised in Delaware.”

He went further, suggesting that other states, explicitly naming Texas, may adopt more arbitration-friendly corporate laws, potentially making them more attractive domiciles for public companies.

Why This Conflict Matters

The stakes are significant.

As of 2024:

• 66.7% of Fortune 500 companies were incorporated in Delaware

• 81.4% of IPO-issuing companies chose Delaware as their corporate home

By prohibiting mandatory arbitration of federal securities claims, Delaware has effectively blocked such provisions for the vast majority of U.S. IPOs dramatically limit the practical impact of the SEC’s policy change.

From the SEC’s perspective, Delaware is intruding into federal territory. Federal securities laws fall squarely within the SEC’s jurisdiction, and Delaware’s dominance in corporate law gives it outsized influence over how those laws are enforced in practice. In this sense, Delaware’s amendment functions as a de facto federal policy override, despite being enacted through state corporate law.

From Delaware’s perspective, the amendment is a logical extension of its longstanding commitment to preserving:

• Judicial oversight of shareholder rights

• Consistent interpretation of corporate-related claims

• The ability of shareholders to pursue collective remedies

A Rare and Public Institutional Dispute

This disagreement is notable not only for its substance, but for its tone.

The SEC and Delaware typically maintain a cooperative, if sometimes tense, relationship. Open criticism particularly framed in terms of interstate competition for corporate charters is unusual. Chairman Atkins’ remarks reflect a willingness by federal regulators to challenge Delaware’s long-standing dominance in corporate governance, at least rhetorically.

Whether other states will meaningfully capitalize on this moment remains to be seen. Delaware’s corporate ecosystem, judiciary, and legal predictability remain powerful advantages that are not easily replicated.

Key Takeaways for Companies and Counsel

For public companies, founders, and legal advisors, several implications are already clear:

• Mandatory arbitration of federal securities claims remains effectively unavailable for Delaware corporations, regardless of SEC policy shifts.

• Corporate domicile choices may take on new strategic significance, particularly for companies considering IPOs or reincorporation.

• Regulatory and governance fragmentation may increase, as federal and state authorities pursue divergent solutions to litigation risk.

• Future litigation and possible constitutional challenges could further clarify or complicate the boundary between state corporate law and federal securities regulation.

Conclusion

The clash between Delaware and the SEC over mandatory arbitration marks a rare and consequential moment in U.S. corporate governance. At its core, the dispute reflects deeper questions about who should shape the enforcement landscape for federal securities laws and how far state corporate law can go in influencing that outcome.

For now, Delaware’s position prevails in practice. But with federal regulators openly signaling dissatisfaction and other states watching closely, this issue is far from settled.

Companies navigating IPOs, charter amendments, or governance reforms should pay close attention. In this evolving environment, corporate structure and legal design are becoming regulatory strategies.

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