[Note: This post has been updated to reflect the SEC’s approval of the Nasdaq and NYSE amendments.]

On Friday, June 9, 2023, the U.S. Securities and Exchange Commission (“SEC”) approved, on an accelerated basis, each of the Nasdaq Stock Market’s (“Nasdaq”) and the New York Stock Exchange’s (“NYSE”) proposed listing standards, as modified by the Exchanges’ respective amendments from last week, implementing the requirement for issuers to adopt and disclose “no fault” clawback policies providing for the recovery of erroneously awarded compensation.[1]

In amendments filed last week, both the Nasdaq and NYSE proposed October 2, 2023 as the effective date for its listing standards. The exchanges noted that delaying the effective date would be consistent with the goal of implementing the proposed rule promptly, while also being consistent with the expectations of listed issuers that the proposed rules would take effect one year after the adoption of SEC Rule 10D-1. With the SEC approving these amendments, issuers listed on the Nasdaq and NYSE will now be required to adopt SEC-compliant clawback policies by December 1, 2023, which would apply to incentive-based compensation received by covered executives on or after October 2, 2023.

Additionally, the NYSE’s amendment provides for a cure period when the NYSE believes that a listed issuer has failed to enforce its recovery policy; the initial proposed listing standard had only allowed for a cure period in the event of a listed issuer’s failure to adopt a recovery policy within the required sixty (60) day time period.  This brings the NYSE listing standard more in line with the Nasdaq’s proposed listing standard.  The NYSE did not provide any specific factors it will consider when assessing a listed issuer’s compliance with its obligation to recover “reasonably promptly” the amount of erroneously awarded incentive-based compensation, but it did note that “the issuer’s obligation to recover erroneously awarded incentive based compensation reasonably promptly will be assessed on a holistic basis with respect to each such accounting restatement prepared by the issuer. In evaluating whether an issuer is recovering erroneously awarded incentive-based compensation reasonably promptly, the NYSE will consider whether the issuer is pursuing an appropriate balance of cost and speed in determining the appropriate means to seek recovery and whether the issuer is securing recovery through means that are appropriate based on the particular facts and circumstances of each executive officer that owes a recoverable amount.”

If you have any questions concerning the amendment or compliance with the clawback listing standards, please feel free to contact your regular contacts at the firm.

[1] The Nasdaq Stock Market LLC, File No. SR-Nasdaq-2023-005, Amendment No. 1 (June 6, 2023), https://listingcenter.nasdaq.com/assets/rulebook/NASDAQ/filings/SR-NASDAQ-2023-005_Amendment_1.pdf; SEC, Release No. 34-97687, File No. SR-NASDAQ-2023-005, (June 9, 2023),  https://www.sec.gov/rules/sro/nasdaq/2023/34-97687.pdf; New York Stock Exchange LLC, File No. SR-NYSE-2023-12, Amendment No. 1 (June 5, 2023), https://www.nyse.com/publicdocs/nyse/markets/nyse/rule-filings/filings/2023/SR-NYSE-2023-12_Am._1.pdf; SEC, Release No. 34-97688, File No. SR-NYSE-2023-12, (June 9, 2023), https://www.sec.gov/rules/sro/nyse/2023/34-97688.pdf.