On June 9, 2023, the Securities and Exchange Commission (SEC) approved the “clawback” listing standards proposed by the New York Stock Exchange (NYSE)1 and Nasdaq2, including the amendments filed by each, extending the effective date to October 2, 2023 (see the NYSE Amendment3 and the Nasdaq Amendment4, filed with the SEC on June 5, 2023, and June 6, 2023, respectively). Companies listed on the NYSE and Nasdaq will now have until December 1, 2023, to adopt a compliant Dodd-Frank clawback policy.
Under these amendments, clawback policies are required to apply to any erroneously awarded incentive compensation received on or after October 2, 2023. In addition, the disclosure obligations, including the requirement to file the clawback policy as an exhibit to the annual report, would become effective beginning on or after October 2, 2023.
With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), Congress mandated that the SEC adopt rules that direct national securities exchanges and associations to prohibit listing the securities of an issuer that is not in compliance with Section 10D of the Securities Exchange Act of 1934. Section 10D(b) requires each listed issuer to develop, implement and disclose an executive compensation clawback policy that specifically provides for the recovery of executive incentive-based compensation erroneously awarded in the event the issuer is required to prepare an accounting restatement. Under the SEC’s Final “Clawback” Rule (Rule 10D-1, the Final Rule), which was published on October 26, 2022, national securities exchanges are required to adopt formal listing standards that, in turn, require publicly listed companies to establish compensation clawback policies that are responsive to the mandate of Section 10D and meet the standards prescribed in the Final Rule. The Final Rule requires that the new listing standards of the national securities exchanges be effective no later than November 28, 2023. Therefore, the newly approved amendments from the NYSE and Nasdaq make the effective dates of their listing standards more aligned with the SEC’s originally proposed timeline of approximately one year from the adoption of Rule 10D-1 on November 28, 2022.
1 The SEC’s approval of the NYSE amendment is available here: https://www.sec.gov/rules/sro/nyse/2023/34-97688.pdf
2 The SEC’s approval of the Nasdaq amendment is available here: https://www.sec.gov/rules/sro/nasdaq/2023/34-97687.pdf.
3 The NYSE Amendment is available here: https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-filings/filings/2023/SR-NYSE-2023-12_Am._1.pdf.
4 The Nasdaq Amendment is available here: https://listingcenter.nasdaq.com/assets/rulebook/NASDAQ/filings/SR-NASDAQ-2023-005_Amendment_1.pdf.