Clifford Chance

Beware The Claw: New SEC-Mandated Listing Standards To Require Issuers Listed On US Exchanges To Recover Erroneously Awarded Incentive Compensation From Executive Officers In Connection With Accounting Restatements

November 2, 2022

On October 26, 2022, the Securities and Exchange Commission adopted new Rule 10D-1, Listing standards relating to recovery of erroneously awarded compensation, together with related rule and form amendments.  The adopting release for this SEC rulemaking is available here (the "Adopting Release"). Pursuant to this new rule, all national securities exchanges and associations (each, a "US Exchange") are directed to adopt listing standards that require each listed company to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers. A recovery would be triggered when the listed company is required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws. Each listed company will be required to file its compensation recovery policy as an exhibit to its annual report and, if a recovery is triggered, to include disclosures related to its policy and recovery analysis.

No later than 90 days following the date on which the Adopting Release is published in the Federal Register, US Exchanges will be required to file with the SEC their proposed listing standards to implement new Rule 10D-1. These listing standards should become effective no later than one year after such publication date. Listed companies that are subject to the new standards will be required to adopt compliant policies no later than 60 days after the effective date of the standards. In addition, a listed company will be required to comply with related disclosure requirements in annual reports and proxy statements filed on or after the date on which it adopts its recovery policy.

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