NYSE and Nasdaq Adopt Proposed Listing Standards to Implement Clawback Rules

Capital Markets

As we previously reported, last October, the Securities and Exchange Commission (“SEC”) adopted a final rule requiring most publicly traded companies to adopt a clawback policy to recover incentive-based compensation from current or former executive officers in connection with certain accounting restatements. The SEC rule directed the national securities exchanges (NYSE and Nasdaq) to establish listing standards the require each listed company to develop and implement a clawback policy and make certain related disclosures. NYSE and Nasdaq have issued their proposed listing standards, which are summarized below.


NYSE proposes to adopt new Section 303A.14 of the NYSE Listed Company Manual. This new section requires issuers to adopt and comply with a written recovery policy providing that the issuer will recover reasonably promptly the amount of erroneously award incentive-based compensation in the event that the issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer with any financial reporting requirement under the securities laws.

The recovery policy must apply to all incentive-based compensation received by a person (1) after beginning service as an executive officer, (2) who served as an executive officer at any time during the performance period for such compensation, (3) while the issuer has a class of listed securities, and (4) during the three completed fiscal years preceding the date of the accounting restatement.

The amount of compensation that must be subject to the recovery policy is the amount received that exceeds the amount that otherwise would have been received had it been determined based on restated amounts, and must be computed without regard to any taxes paid.

The issuer must recover erroneously awarded compensation unless one of the following exceptions applies:

  1. the direct expense paid to a third-party to assist in the recovery would exceed the amount to be recovered;
  2. the recovery would violate a home country law adopted prior to November 28, 2022; or
  3. the recovery would likely cause an otherwise tax-qualified retirement plan to fail to meet relevant requirements.

Issuers are prohibited from indemnifying any officer against the loss of erroneously awarded compensation.

Issuers not in compliance with these requirements will be subject to delisting.


Nasdaq proposes to implement the clawback requirements in Listing Rule 5608.

Nasdaq proposes to define the terms “executive officer”, “incentive-based compensation” and “financial reporting measures” the same as the SEC.

Similar to the SEC, the proposed recovery under a clawback policy with Nasdaq will be triggered without regard to the occurrence of misconduct.  Nasdaq intends to also have the same triggers for recovery under a clawback policy, including treatment with regards to “Big R” and “little r” statements, however, unlike the SEC, Nasdaq is planning to make the determination regarding materiality of an error based on facts and circumstances and existing judicial and administrative interpretations.

Nasdaq plans to have the same recovery amount requirements as the SEC, however Nasdaq makes no mention with regards to the treatment of tax payments on these amounts.

Nasdaq’s determination of what does and does not constitute incentive-based compensation is intended to be the same as the SEC, however Nasdaq excludes incentive-based compensation received by an executive officer before the issuer had a class of securities listed on a national securities exchange or a national securities association.

Nasdaq, like the SEC, is planning to provide limited discretion to listed companies to not recover excess incentive-based compensation.  In addition to the same SEC requirements, a violation of home country law, with Nasdaq the law has to be adopted prior to November 28, 2022 and the opinion with regards to the violation must be acceptable to Nasdaq.  Additionally, where the SEC exception to recovery includes only tax-qualified retirement plans, Nasdaq plans to include instead only broad-based retirement plan.

Nasdaq intends to also require documentation with regards to a pursuit of recovery being impracticable, like the SEC. However, Nasdaq will require that the recovery policy be applied consistently to all executive officers, and like the SEC, they propose to prohibit their indemnification.

Nasdaq projects having additional disclosure requirements, such as providing for each current and former named executive officer, disclosure of the amount of erroneously awarded compensation still owed that had been outstanding for 180 days or longer since the date the issuer determined the amount owed.

Nasdaq proposes that it too will require the filing of all disclosures and recovery with respect to a company’s erroneously awarded executive compensation recovery policy in connection with the SEC laws, including exemption with regards to disclosure in SEC filings for certain registered investment companies in certain circumstances.

Additionally, Nasdaq proposes to adopt Listing Rule 5608(c) to provide certain exemptions from the requirements related to recovery of erroneously awarded executive compensation for any security issued by a unit investment trust, as defined in 15 U.S.C. 80a-4(2); and any security issued by a management company, as defined in 15 U.S.C. 80a-4(3), that is registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8), if such management company has not awarded incentive-based compensation to any executive officer of the company in any of the last three fiscal years, or in the case of a company that has been listed for less than three fiscal years, since the listing of the company.

Nasdaq also proposes delisting if a company does not adopt a compensation recovery policy that complies with the applicable listing standard, disclose the policy in accordance with SEC rules or comply with the policy’s recovery provisions.  As a part of the delisting process Nasdaq would determine the steps to regain compliance and recovery promptness, assessing it on a holistic basis.  As with other instances of non-compliance, Nasdaq would request a plan to regain compliance to provide the company with 180 days to cure the deficiency, however the appeal process would be available upon the issuance of a Nasdaq delisting letter and provide the company with potentially an additional 180 days to cure the deficiency. 

Implementation will be within 60 days of the rule’s effective date and will require disclosure, including with regards to SEC filings, also on or after the rule’s effective date. 

Nasdaq is looking to require the application of the recovery policy on the compensation that is received on or after the rule’s effective date.

Timing of Effectiveness

The proposed NYSE and Nasdaq listing standards have been filed with the SEC and are under review. Companies will be required to adopt a clawback policy no later than 60 days following the date on which the applicable listing standards become effective.

Companies must begin to comply with new disclosure requirements set forth in the SEC rule in proxy and information statements and the company’s annual report filed on or after the company adopts its clawback policy. For more information, see our prior report.

Jonathan Greene and Holly Wagner are members of the Capital Markets practice group of Wyrick Robbins, which represents public company clients across a broad range of industries in connection with their SEC reporting and corporate matters, and significant financing transactions. The Capital Markets group publishes Client Alerts periodically as a service to clients and friends. The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.