Securities Regulation and Corporate Governance


NYSE and Nasdaq Allow More Time for Companies to Adopt Rule 10D-1 Clawback Policies: What to Do Now

This week, both the New York Stock Exchange (“NYSE") and The Nasdaq Stock Market (“Nasdaq", and together with NYSE, the “Exchanges") filed amendments with the Securities and Exchange Commission (“SEC") to provide a delayed effective date for the Exchanges' proposed listing standards requiring listed companies to adopt clawback policies as mandated by Rule 10D-1 under the Securities and Exchange Act of 1934. Specifically, the Exchanges are proposing that their new listing standards become effective on October 2, 2023. If the listing standards are approved by the SEC, companies will have until December 1, 2023 (60 days after the effective date) to adopt clawback policies satisfying the new listing standards  (“Rule 10D-1 policies"), and the policies would need to apply to any incentive compensation “received" (as defined in Rule 10D-1) on or after October 2, 2023. The NYSE's amended proposal is available here, Nasdaq's is available here, and our client alert on the SEC's adoption of Rule 10D-1 is available here.

The delayed effective dates, which were highly anticipated, align with the SEC's statement when it adopted Rule 10D-1 in October 2022 that it anticipated companies would have “more than a year from the date the final rules are published in the Federal Register to prepare and adopt compliant recovery policies." We expect the SEC to approve the Exchanges' listing standards substantially in the form now proposed, with the October 2, 2023 effective date.  The delayed effective dates will ensure that companies have adequate time to draft, customize, and implement Rule 10D-1 policies. When doing so, companies should consider the following issues:

What form should the policy take, and should it be integrated with any existing clawback policy?

The Exchanges' listing standards will require that companies adopt a written policy. Companies that have existing clawback policies need to determine whether to adopt a stand-alone Rule 10D-1 compliant policy, or whether to integrate that policy with their existing clawback policy. When faced with the prospect of an early effective date for the Exchanges' listing standards, some companies were leaning toward adoption of a stand-alone policy, but either approach is acceptable, and with more time to draft and review a compliant policy, we expect both approaches to be common.  Factors to consider when making that decision include whether the existing policy applies in contexts other than financ...

Supreme Court Upholds Tracing Requirement For Section 11 Claims in Direct Listings - Slack Technologies LLC v. Pirani, No. 21-200

On June 1, 2023, the Supreme Court of the United States unanimously upheld that  plaintiffs alleging the registration statement for a “direct listing" IPO contained a material misstatement or omission, who sue under Section 11 of the Securities Act of 1933, must trace the shares they bought  to the registration statement.  In a direct listing, unlike a traditional IPO, unregistered shares can be sold by non-affiliates on the initial listing date, so it is possible that certain shares bought on the first day will be unregistered shares and thus not subject to the strict liability standard of Section 11.   

The Court declined to resolve whether Section 12 under the Securities Act similarly requires tracing and remanded that matter to the lower courts to decide that question.  In a footnote, the Supreme Court noted that the Ninth Circuit had stated that its decision to permit the plaintiff's Section 12 claim “follow[ed] from" its analysis of his Section 11 claim.  The Supreme Court further noted that it is not “endors[ing] the Ninth Circuit's apparent belief that Section 11 and Section 12 necessarily travel together, but instead caution[s] that the two provisions contain distinct language that warrants careful consideration."

Gibson Dunn represents Slack in this matter, including in the case that was before the Supreme Court. A link to our full alert on this decision can be found here. ​

New SEC Staff Guidance on Rule 10b5-1 Amendments and Summary of Compliance Dates

On May 25, 2023, the staff of the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (the “SEC") issued three new Compliance and Disclosure Interpretations (“C&DIs") on the SEC's recent Rule 10b5-1 amendments. The new C&DIs re-affirm prior statements made by Staff members regarding effective dates for required new disclosures and the operation of the cooling-off period when entering into back-to-back trading plans. We summarize below the C&DI and the compliance dates for new rules relating to Rule 10b5-1, Section 16 and share repurchases.

Questions 120.26 and 120.27 – Compliance Dates for New Disclosure Requirements

The SEC's Rule 10b5-1 amendments require:

  • Quarterly disclosure in Forms 10-Q and 10-K (for the fourth quarter) regarding executive officers' and directors' adoption, modification, or termination of Rule 10b5-1 and “non-Rule 10b5-1" trading arrangements, and the material terms thereof, under Item 408(a) of Regulation S-K; and
  • Annual disclosure in Form 10-K and proxy statements regarding (1) whether a company has adopted insider trading policies and procedures, any of which must be filed as exhibits, under Item 408(b) of Regulation S-K, and (2) the company's policies and practices regarding the timing of stock option awards, as well as additional disclosures regarding options awarded to named executive officers near the time of filings disclosing material non-public information, under Item 402(x) of Regulation S-K (or Item 16J of Form 20-F).

Companies are required to tag the disclosures required under new Items 402(x), 408(a), and 408(b) of Regulation S-K, and new Item 16J(a) of Form 20-F, in Inline XBRL.

The C&DIs confirm that the annual disclosures described above are not required until completion of the first full fiscal year beginning after April 1, 2023, even though the quarterly disclosures begin in 2023. The C&DIs provide the following examples of compliance dates for the new disclosure and tagging requirements:

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SEC Enforcement Action Highlights Importance of Non-GAAP Policies and Disclosure Controls and Procedures

​On March 14, 2023, the SEC charged DXC Technology Co. (“DXC") with making material misstatements with respect to its non-GAAP financial performance measures, stating that, DXC “negligently misclassif[ied] tens of millions of dollars of expenses as [transaction, separation and integration-related (“TSI")] costs and improperly exclude[ed] them in its reporting of non-GAAP measures." The SEC's order also found that DXC, and specifically its controllership function and disclosure committee, failed to maintain “adequate" disclosure controls and procedures relating to DXC's non-GAAP disclosures, citing the following shortcomings:

  • DXC had insufficient processes to ensure that proposed expenses were accurately classified as TSI costs, as described in its periodic reports and earnings releases.
  • DXC did not have “adequate" disclosure controls and procedures in place specific to its non-GAAP financial measures.
  • DXC did not have a formal non-GAAP policy.

The SEC stated that these shortcomings caused employees within the business units and financial planning & analysis to “make subjective determinations about whether expenses were related to an actual or contemplated transaction, regardless of whether the costs were actually consistent with the description of the adjustment included in the company's public disclosures." For example, although DXC's public description of TSI costs remained unchanged for two full years, “the company had no process by which its employees evaluated whether proposed TSI costs were consistent with the description of TSI costs included in its non-GAAP disclosure."

The SEC also cited several factors that prevented DXC's controllership from engaging in a meaningful review of proposed TSI costs, including the large number of line items contained in the TSI cost spreadsheet, the short time period within which to complete its review, and the lack of access to project and cost descriptions. Notably, when controllership employees questioned particular expenses or raised other concerns, they often received incomplete or inaccurate information, and no supporting documentation was provided.

Without admitting or denying the findings in the order, DXC consented to a cease-and-desist order, to pay an $8 million penalty, and to undertake to develop and implement appropriate non-GAAP policies and disclosure controls and procedures, including providing a certification of compliance with such undertakings.


Key Takeaways

Below ar...

Updated Summary of Director Education Opportunities Available

Gibson Dunn's summary of director education opportunities has been updated as of April 2023. A copy is available at this link. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.  

This quarter's update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior summaries.

Thank you to associates Mason Gauch and To Nhu Huynh from our Houston office for their assistance with this quarter's update.

SEC Publishes C&DIs Addressing Tender Offer Issues

​On March 17, 2023, the staff of the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission released over thirty questions and answers in the form of Compliance and Disclosure Interpretations (“C&DIs") addressing various tender offer issues.

These new C&DIs consolidate and memorialize a variety of the Staff's long-standing interpretative positions documented in different places over the years.  Some of the more interesting C&DIs include reminders that:

  • an arrangement involving target company directors becoming directors of the acquiror (without an election) would not be subject to Rule 14f-1, while an arrangement involving the acquiror directors becoming members of the target company's board (without an election) would be subject to Rule 14f-1 (see Question 181.01);
  • a statutory merger (by itself) is not a tender offer, and thus not subject to Regulations 14D and 14E (see Question 101.13);
  • exchange offers by an investment vehicle (such as a SPAC) for the equity securities of a public company are generally considered tender offers, unless an affirmative statement is made in the offering materials noting that the amount of equity securities to be acquired, when added to the securities already beneficially owned by the offeror, will not exceed 5% (see Question 101.13);
  • an issuer conducting a tender offer subject to Rule 13e-4 may purchase some of the issuer's securities in the open market prior to commencement of the offer without violating Rule 14e-3, but consideration should be given to Rule 14e-5 (see Question 164.01); and
  • a target company subject to a third-party tender offer may satisfy its Rule 14e-2 dissemination obligations by including its Schedule 14D-9 solicitation / recommendation statement with the offering materials sent by the bidder (see
SEC Adopts New Final Rules for Clearance and Settlement; Proposes Changes for Investment Adviser Rules

On February 15, 2023, the Securities and Exchange Commission (the “SEC") adopted final rule changes intended to reduce risk in clearance and settlement for most broker-dealer securities transactions and proposed new rules designed to enhance safeguards for customer assets managed by investment advisers.

The new final rules amend Rule 15c6-1 under the Securities Exchange Act of 1934 (the “Exchange Act") to shorten the standard settlement cycle for broker-dealer transactions from two business days after the trade (“T+2") to one business day (“T+1").  The new rules also shorten the separate settlement cycle for firm commitment offerings, including initial public offerings, from T+4 to T+2, although most market participants already employ a T+2 settlement cycle for these offerings.


The rule amendments also adopt Rule 15c6-2, requiring a broker or dealer to establish, maintain and enforce written policies or enter into written agreements that ensure prompt completion of applicable allocation, confirmation or affirmation processes. To comply with the new rule, such agreements or policies must ensure that allocation, confirmation or affirmation processes be completed as soon as technologically practicable but in no case later than end of day on the trade date. Additionally, the new rules amend Rule 204-2 under the Investment Advisers Act of 1940 (the “Investment Advisers Act") to require investment advisers to keep records for transactions subject to Rule 15c6-2 above. Finally, the new final rules adopt Rule 17Ad-27 under the Exchange Act and amend Regulation S-T to require clearing agencies that provide a central matching service to facilitate straight-through processing and submit to the SEC via EDGAR an annual report regarding straight-through processing implementation. The compliance date for these rule changes is set for May 28, 2024.


These changes come in part as a response to the unprecedented volatility associated with the so-called “meme stock craze" of 2021. Commissioner Jaime Lizárraga supported the adoption of new rules,

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Updated Summary of Director Education Opportunities Available

Gibson Dunn's summary of director education opportunities has been updated as of January 2023. A copy is available at this link. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.

This update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior summaries.


Thank you to associate To Nhu Huynh from our Houston office for her assistance with this quarter's update.


SEC Updates Non-GAAP C&DIs


On December 13, 2022, the staff of the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission announced an update to its Compliance and Disclosure Interpretations (“C&DIs") on Non-GAAP Financial Measures under Questions 100.01, 100.04 – 100.06, and 102.10(a)(b)(c).  Many of the changes memorialize positions the Staff has taken in comment letters or provide additional detail about those positions.

Significant changes are discussed below, and Appendix A (attached as a pdf) is a marked version of the impacted C&DIs showing all of the revisions and additions.

Question 100.01 – Misleading Adjustments

Question 100.01 was revised to emphasize that a company's individual facts and circumstances affect whether an adjustment makes a non-GAAP measure misleading. Using the pre-update example (i.e., a non-GAAP performance measure that excludes normal, recurring, cash operating expenses may be misleading), the updated C&DI illustrates this by noting that:

  • When evaluating what is a “normal, operating expense," the Staff considers the nature and effect of the non-GAAP adjustment and how it relates to the company's operations, revenue generating activities, business strategy, industry and regulatory environment.
  • The Staff would view an operating expense that occurs repeatedly or occasionally, including at irregular intervals, as “recurring."

Question 100.04 – Individually Tailored Accounting Principles

Question 100.04, which was completely re-written, continues to include a prohibition on individually tailored accounting principles, but has now been supplemented with the following additional examples of adjustments that would run afoul of this prohibition:

  • adjusting performance measures to accelerate revenue that GAAP requires to be recognized ratably over time as though revenue was earned when customers were billed;
  • presenting revenue on a net basis when GAAP requires it to be presented on a gross basis (and vice versa); and
  • changing the basis of accounting for revenue or expenses in a non-GAAP performance measure from an accrual basis in accordance with GAAP to a cash basis.

100.05 – Improper Labels and Descriptions

New Question 100.05 memorializes the Staff's position, often made clear through comment letters, that a non-GAAP measure can be misleading if it (or any adjustment ma...

Updated Summary of Select Director Education Opportunities Available

Gibson Dunn's summary of director education opportunities has been updated as of October 2022 and is available at this link. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.

This update includes a number of additional opportunities as well as updates to the programs offered by organizations that have been included in our prior summaries.

Thank you to associate To Nhu Huynh from our Houston office for her assistance with this quarter's update.

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