In response to the October 26, 2022 adoption by the Securities and Exchange Commission (the "SEC") of rules (the "clawback rules") directing national securities exchanges and national securities associations to establish listing standards that require issuers to develop, implement, disclose and comply with a written policy for recovery of erroneously awarded incentive-based compensation (a description of which can be found here), the New York Stock Exchange filed a proposal with the SEC on February 22, 2023 and Nasdaq filed a proposal with the SEC on February 24, 2023 for the establishment of such listing standards (the "clawback listing standards").
The requirements for the recovery policies called for by the proposed clawback listing standards are nearly identical to the requirements prescribed by the SEC's clawback rules, apart from Nasdaq not exempting from compliance with the clawback listing standards securities futures or standard options cleared by a registered clearing agency.
The SEC will next publish the proposed clawback listing standards on its website and comments will be due within 21 days from publication of the clawback listing standards in the Federal Register. The proposed clawback listing standards will become effective as of the date they are approved by the SEC (which date shall be no later than November 28, 2023 per the SEC's clawback rules), and companies listed on either exchange must comply with the new listing standards within 60 days of such approval.
If an issuer on the New York Stock Exchange fails to adopt a recovery policy within 60 days of when the clawback listing standards become effective (a "Late Recovery Policy Adoption Delinquency"), the issuer is required to notify the New York Stock Exchange in writing of its failure to adopt a recovery policy within five days of the Late Recovery Policy Adoption Delinquency.1 An issuer on the New York Stock Exchange will have six months thereafter to cure this delinquency and come into compliance with the clawback listing standards by adopting a recovery policy within six months of the Late Recovery Policy Adoption Delinquency. An additional six-month period to cure the delinquency may be granted in the New York Stock Exchange's sole discretion based on individual facts and circumstances. Any other noncompliance with the New York Stock Exchange clawback listing standards will cause the New York Stock Exchange to immediately commence delisting procedures.
Noncompliance with the Nasdaq clawback listing standards may, but will not automatically, result in the delisting of an issuer's securities. Unless an issuer is under review by Nasdaq's Hearings Panel or Listing Council, or a member thereof, Nasdaq's Listing Qualifications Department may accept and review a plan for the issuer to regain compliance with the clawback listing requirements.
Next Steps
Although the clawback listing standards are not yet final, issuers should begin reviewing their recovery policies and preparing revisions as necessary to reflect any new requirements once the clawback listing standards are adopted. Further, if an issuer does not currently have a recovery policy, the issuer should begin preparing a policy that is compliant with the clawback listing standards.
Footnote
1 This interpretation of the New York Stock Exchange listing requirements assumes the intent of the listing standards is to afford issuers the entire 60 days to implement a recovery policy and for issuers to notify the New York Stock Exchange of the absence of the implementation of a recovery policy after the 60-day grace period ends.
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