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.
Yesterday, the NYSE 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.
As of this morning, Nasdaq has not yet posted its initial rule filing with the SEC. When available, that rule filing will be posted on the Nasdaq website.
– Dave Lynn, TheCorporateCounsel.net, February 23, 2023
Photo Credit: Maruizio De Mattei. NEW YORK CITY, UNITED STATES – CIRCA OCTOBER 2016