The Advisors' Blog

On Wednesday of this week, the NYSE posted its initial rule filing to implement listing standards under the SEC’s Dodd-Frank clawback rules – and yesterday, Nasdaq followed suit by posting proposed listing standards on its website. Nasdaq is proposing a new Rule 5608. Here are a few key details, which track closely to the SEC’s Rule 10D-1:

– The new rule will require listed companies, in the event of a restatement (“Big R” and “little r”), to recover the amount of incentive-based compensation received by an executive officer that exceeds the amount the executive officer would have received had the incentive-based compensation been determined based on the accounting restatement.

– Companies will be subject to delisting if they don’t adopted a compensation recovery policy that complies with the listing standard, disclose the policy in accordance with SEC rules, or comply with the policy’s recovery provisions.

– Under the proposed listing standard, Nasdaq would determine whether the steps a company is taking constitute compliance – the propsal lists factors that the exchange will consider.

– Companies will be required to adopt the compensation recovery policy no later than 60 days following the effective date of Rule 5608, and to provide the disclosures required by the Rule and in applicable SEC filings on or after the effective date of Rule 5608.

– As proposed, a company will only be required to apply the recovery policy to incentive-based compensation received on or after the effective date of the new listing standard, notwithstanding the lookback requirement in the rule.

There will be an opportunity for comments on the proposal and it will be effective on the date it’s approved by the SEC (under Rule 10D-1, that’s required to happen by November 28th of this year).

Dave blogged more about the proposed listing standard on TheCorporateCounsel.net And, here’s what Dave blogged yesterday about the NYSE’s rule:

Last October, the SEC adopted Rule 10D-1, which directs the national securities exchanges to adopt listing standards that will apply the disclosure and clawback policy requirements of the rule to all listed companies, with only limited exceptions. Under the rule, each listed company will ultimately be required to adopt a clawback policy, comply with that policy and provide the required clawback policy disclosures. A company will be subject to delisting if it does not adopt and comply with a clawback policy that meets the requirements of the listing standards. The SEC indicated that each national securities exchange must file its proposed listing standards with the SEC no later than 90 days following November 28, 2022. The listing standards required by Rule 10D-1 must be effective no later than one year following November 28, 2022.

The NYSE has now posted on its website its initial rule filing with the SEC. The initial rule filing contemplates proposing new Section 303A.14 of the NYSE Listed Company Manual to require issuers to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers. The NYSE notes in the filing that proposed Section 303A.14 is designed to conform closely to the applicable language of Rule 10D-1.

Proposed Section 303A.14(b) would establish the timeframe within which listed companies must comply with proposed Section 303A.14, as follows:

– Each listed issuer must adopt the clawback policy required by proposed Section 303A.14 no later than 60 days from the adoption of the proposed listing.

– Each listed issuer must comply with its clawback policy for all incentive-based compensation received (as such term is defined in proposed Section 303A.14(e) as set forth below) by executive officers on or after the effective date that results from attainment of a financial reporting measure based on or derived from financial information for any fiscal period ending on or after the effective date.

– Each listed issuer must provide the required disclosures in the applicable SEC filings required on or after the effective date.

The NYSE also proposes to adopt new Section 802.01F, which would provide that in any case where the exchange determines that a listed issuer has not recovered erroneously-awarded compensation as required by its clawback policy reasonably promptly after such obligation is incurred, trading in all listed securities of such listed issuer would be immediately suspended and the exchange would immediately commence delisting procedures with respect to all such listed securities. While Rule 10D-1 does not specify the time by which the issuer must complete the recovery of excess incentive-based compensation, NYSE would determine whether the steps an issuer is taking constitute compliance with its clawback policy. A listed issuer would not be eligible to follow the procedures outlined in Sections 802.02 and 802.03 with respect to such a delisting determination, and any such listed issuer would be subject to delisting procedures as set forth in Section 804.

The SEC will next publish the Notice of Filing of Proposed Rule Change to Adopt New Section 303A.14 of the NYSE Listed Company Manual on its website. Comments will be due 21 days from publication of the Notice in the Federal Register.

– Liz Dunshee