NYSE and Nasdaq Propose Clawback Rule Listing Standards: What Public Companies Need to Know

Last year the Securities and Exchange Commission (SEC) adopted long-awaited executive compensation recovery rules (the Clawback Rules). Those Clawback Rules instructed national securities exchanges (such as NYSE and Nasdaq) to propose new listing standards to require exchange listed companies to develop and implement a policy providing for the recovery, in the event of a required accounting restatement, of incentive-based compensation received by executive officers where that compensation is based on the erroneously reported financial information (a Clawback Policy).

Last week NYSE and Nasdaq each released their proposed listing standards, which remain subject to SEC review and approval. The NYSE and Nasdaq proposed listing standards are available here and here.

Below we cover key takeaways from the proposed listing standards and what actions exchange listed companies should take now.

Key Takeaways:

The proposed listing standards for both NYSE and Nasdaq:

• model the requirements of the Clawback Rules, with no additional standards or disclosure obligations; and
• will become effective on the date the SEC approves them, which will occur no later than November 28, 2023.

Exchange listed companies should begin to brief key stakeholders about the final Clawback Rules, prepare a compliant Clawback Policy (including obtaining written stakeholder consent to the policy) and plan for adopting the policy shortly after the listing standards become effective.

Do the proposed listing standards differ from the final Clawback Rules?

The proposed listing standards apply the same obligations, permit the same limited exemptions, and use the same defined terms. Among other things, the proposed listing standards also provide for the exchange delisting process applicable in the event of noncompliance. Neither exchange has proposed listing standards that would require Clawback Policy features or related disclosure obligations beyond the scope of the final Clawback Rules.

For additional details about the final Clawback Rules and a model Clawback Policy suitable for both NYSE and Nasdaq listed companies, see our previous client alert: What You Need to Know About the SEC’s Final Clawback Rules.

When will the listing standards become effective?

The listing standards for each exchange will become effective on the date the SEC approves them (the Effective Date), which could occur as early as 30 days after the listing standards are published in the Federal Register, or as late as November 28, 2023.

What should NYSE or Nasdaq listed companies do now?

Under the final Clawback Rules each listed company will be required to:

• adopt a Clawback Policy no later than 60 days following the Effective Date;
• comply with the Clawback Policy on or after the Effective Date; and
• provide the disclosures required by the Clawback Rules on or after the Effective Date.

Since the SEC may act quickly to approve the proposed listing standards, listed companies are advised to begin to:

• brief key stakeholders, such as Compensation Committee members, Board members, executive officers and finance personnel, about the final Clawback Rules, related disclosure obligations and consequences of noncompliance;
• prepare a compliant Clawback Policy; and
• establish a plan to adopt such policy and implement related disclosure controls and procedures shortly after the listing standards are approved.

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We will continue to monitor developments under these new standards. If you have any questions regarding these new standards, please contact one of the listed authors of this article, or your regular Orrick contact.