KMK Law Corporate & Securities Blog

On February 22, 2023, the New York Stock Exchange (NYSE) and on February 24, 2023, Nasdaq filed proposed listing standards with the U.S. Securities and Exchange Commission (SEC) to adopt executive compensation recovery rules.  These proposed listing standards implement SEC Rule 10D-1 (the “Clawback Rule”) mandated by Section 954 of the Dodd-Frank Act. The SEC’s final rule directed U.S. stock exchanges to adopt listing standards requiring all listed companies to develop, implement, comply with and disclose a written policy providing for the recovery of incentive-based compensation received by executive officers where that compensation is based on erroneously reported financial information. The stock exchanges will prohibit the initial or continued listing of any security of an issuer that is not in compliance.  

The Proposed Listing Standards:
The NYSE proposed new Section 303A.14 of the NYSE Listed Company Manual, which prohibits the initial or continued listing of any security of an issuer that is not in compliance with the Clawback Rule. Similarly, Nasdaq proposed new Listing Rule 5608, which requires issuers to adopt a clawback policy, comply with the policy, and provide the related disclosures required by the rule and applicable SEC filings. The proposed listing standards, which are subject to approval by the SEC, largely follow the requirements of Rule 10D-1 under the Securities Exchange Act of 1934, adopted by the SEC last October. Our prior alert provides a detailed summary of Rule 10D-1.

What’s Next:
Comments on the proposed listing standards are due within 21 days from publication in the Federal Register.  SEC Rule 10D-1 permits stock exchanges to have an effective date for the proposed listing standards by no later than November 28, 2023 but they could become effective sooner. The NYSE and Nasdaq proposals contemplate that they would be approved by the SEC (and become effective) within 45 days of the date of their publication in the Federal Register, or within such longer period, up to 90 days, (i) as the SEC may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the listing exchange consents. Therefore, the effective date could be much sooner than the November date most companies had expected.

Because the proposed listing standards have been published and the effective date may even occur sooner than expected,  companies may want to begin or continue preparing a compliant clawback policy and establish a plan to adopt the policy shortly after the proposed rules are approved. Because the NYSE and Nasdaq proposed listing standards closely mirror the Clawback Rule of SEC Rule 10D-1, issuers can begin drafting policies to be in compliance by the time the rules are effective.

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