March 29, 2023

Clawback Listing Standards: “It is Later Than You Think”

I tipped my hand about one of my quirky obsessions a little while ago when I mentioned the old-time radio writer & auteur Arch Oboler at the end of a recent blog.  Yes, I admit I’m a fan of 1940s and 1950s radio shows, and I find many of the ones that Oboler had a hand in to be among the best. One of his shows that I’ve always been particularly fond of is the supernatural themed “Lights Out,” which opened each episode with the ominous tagline, “It . . . Is . . .Later. . .Than . . .You . . .Think . . .”

I thought of that line when I responded to a recent member question on our Q&A Forum (Topic #11526).  The member read the proposed clawback listing standard filings by Nasdaq & the NYSE, and noticed that although the standards aren’t required to be adopted until November 28, 2023, the SEC’s notice requesting comments on them suggests that they could be in place a lot sooner than that:

The SEC’s notice requesting comments on the NYSE listing standards, for example (available at ), which were published in the Fed. Reg. on March 13, 2023 says that “[w]ithin 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days . . . the Commission will: (A) by order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved.”

Forty-five days from March 13, 2023 would be April 27, 2023 — much earlier than November 28, 2023. If 60 days after April 27, 2023 is the deadline for adopting a compliant clawback policy, I would guess that a lot of companies will have to scramble to get Board approval (by written consent if they don’t have a meeting scheduled). Yet I haven’t seen much commentary on this. Is anyone else concerned about the timing, or is there a tacit understanding that the SEC will take longer than 45 days?

As part of my response, I pointed out this excerpt from Weil’s memo on the proposed listing standards, which acknowledges that these standards may be in place a lot earlier than expected:

Although SEC Rule 10D-1 permits the stock exchanges to have an effective date for the Proposed Listing Standards by an outside date of November 28, 2023, they could become effective sooner. The NYSE and Nasdaq filings with the SEC contemplate that their Proposed Listing Standards would be approved by the SEC (and become effective) within 45 days of the date of their publication in the Federal Register or within such longer period, up to 90 days, (i) as the SEC may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the listing exchange consents.

This date could be many months earlier than the November outside date most companies had expected. It is possible that the stock exchanges could amend their filings with the SEC to provide for an effective date closer to the outside date. Comments on the Proposed Listing Standards are due 21 days from publication in the Federal Register.

An earlier than expected adoption of listing standards is potentially a big deal, because as the member noted, listed companies will be required to adopt a compliant clawback policy no later than 60 days following the date on which the applicable listing standard becomes effective. So, if you’ve been counting on a November effective date, you may want to accelerate your efforts to pull together a clawback policy – because when it comes to the timing of those standards, it just may be later than you think.

John Jenkins