On February 22, 2023, the New York Stock Exchange (NYSE) and Nasdaq filed proposed rule changes with the U.S. Securities and Exchange Commission (SEC) to adopt listing standards related to the recovery of erroneously awarded executive compensation. These proposed listing standards, which are subject to approval by the SEC, largely follow the requirements outlined in Rule 10D-1 under the Securities Exchange Act of 1934, adopted by the SEC last October. For a detailed discussion of Rule 10D-1, please see our Client Alert. In addition, the NYSE proposal is available here, and the Nasdaq proposal is available here.

Under Rule 10D-1, no later than February 27, 2023, the national securities exchanges (including the NYSE and Nasdaq) and national securities associations were required to propose rules that comply with Rule 10D-1, including rules prohibiting the initial or continued listing of any security of an issuer that is not in compliance with the requirements of Rule 10D-1. Accordingly, the NYSE and Nasdaq proposed new listing standards relating to the adoption, compliance, and disclosure of recovery (or clawback) policies (collectively, “clawback-related listing standards”). As noted above, these clawback-related listing standards closely track to the requirements outlined in Rule 10D-1. In addition to the clawback-related listing standards, the NYSE and Nasdaq have proposed new and amended procedures for delisting the securities of listed issuers that are not in compliance with the clawback-related listing standards.[1]

The NYSE has proposed new Section 802.01F of the NYSE Listed Company Manual, relating to noncompliance with the NYSE’s clawback-related listing standards. In the event that the NYSE has determined that one of its listed issuers has not recovered the erroneously awarded compensation as required under the listed issuer’s recovery policy “reasonably promptly after such obligation is incurred,” then trading in all securities of that listed issuer would be immediately suspended and the NYSE would immediately commence delisting procedures under Section 804.00 of the NYSE Listed Company Manual. While “reasonably promptly” is not defined in the proposed listing standards, the NYSE states that it would “determine whether the steps an issuer is taking constitute compliance with its compensation Recovery Policy.” In the event the listed issuer is delayed in adopting a recovery policy, proposed Section 802.01F(b) would allow the NYSE, in its sole discretion, to provide for cure periods up to 12 months, prior to delisting. 

Nasdaq has proposed to amend Listing Rule 5810 to require a Nasdaq-listed issuer that is not in compliance with Nasdaq’s clawback-related listing standards (including, for example, where the listed issuer has not recovered the erroneously awarded compensation as required under the recovery policy, or where the listed issuer has not adopted a recovery policy) to submit a plan to Nasdaq staff to regain compliance. This plan would be required to be submitted to staff within 45 calendar days. Under these delisting procedures, staff could provide the listed issuer up to 180 days to cure the deficiency. Thereafter, if the listed issuer had not cured the deficiency, staff would issue a delisting letter, which the listed issuer could appeal to the Hearings Panel under the procedures set forth in Listing Rule 5815. The Hearings Panel could provide the issuer with an additional 180 days to cure the deficiency.

The SEC will publish notices of the filing of these proposed listing standards (“notices”) on its website, and then these notices will be published in the Federal Register. Following publication in the Federal Register, the proposed listing standards will be subject to a 21-day public comment period. Interested persons should submit written comments during this public comment period by following the instructions provided on the SEC’s website.

[1] The NYSE has proposed to adopt new Section 303A.14, Erroneously Awarded Compensation, to the NYSE Listed Company Manual, and Nasdaq has proposed to adopt new Listing Rule 5608, Recovery of Erroneously Awarded Compensation.