US Securities and Exchange Commission Proposes Clawback Rules

    View Author September 2015

    On July 1, 2015, the US Securities and Exchange Commission (SEC) proposed a rule implementing Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added Section 10D to the Securities Exchange Act of 1934 (Exchange Act). The proposed rule requires US national securities exchanges (e.g., NYSE and NASDAQ) to prohibit the listing of securities of issuers that have not adopted a written policy regarding the recovery, or clawback, of incentive-based compensation. The proposed rule also requires listed issuers to disclose their incentive-based compensation recovery policy and compliance-related actions.

    The proposed rule applies to all listed issuers, including foreign private issuers, smaller reporting companies and emerging growth companies, except for certain registered investment companies. Although some US national securities exchanges permit foreign private issuers to follow their home country rules in lieu of certain corporate governance requirements, the proposed rule as currently drafted does not permit the exchanges to exempt foreign private issuers from compliance with the clawback requirements. Under the proposed rules, US national securities exchanges are permitted to commence de-listing proceedings for issuers that fail to adopt and comply with their incentive-based compensation clawback policies or to make the required disclosures.