On June 25, 2015, the SEC issued a Sunshine Act Meeting Notice announcing that it will hold an open meeting on Wednesday, July 1, 2015 to consider whether to propose amendments that would require the national securities exchanges to prohibit the listing of any security of an issuer that is not in compliance with the executive compensation clawback requirements of Section 10D under the Exchange Act.

Section 10D was added to the Exchange Act by Section 954 of the Dodd-Frank Act, which requires listed companies to adopt a clawback policy if an accounting restatement is required due to material noncompliance with any financial reporting requirements under the securities laws. Under this clawback policy, a company must be able to recover from any current or former executive officer any incentive compensation paid out during the three-year period before the accounting restatement that is in excess of what would have been paid out based on the restated financial information. Section 10D requires the SEC to adopt rules directing the national securities exchanges to prohibit listing the securities of any company that does not comply with this requirement.

Practical Law will publish a more detailed legal update on the SEC's proposed rules once they have been issued. However, the upcoming SEC rulemaking will not be the final step in the process of implementing Dodd-Frank's clawback requirements. After the SEC ultimately adopts final rules under the Exchange Act, the stock exchanges will need to propose their own implementing listing rules and requirements, which will then be subject to SEC approval.

For more information on the Dodd-Frank Act's executive compensation requirements, see Practice Note, Summary of the Dodd-Frank Act: Executive Compensation. For a sample clawback policy, see Standard Document, Clawback Policy.