The SEC's Tenuous, Tentative Case For Preemption

The Securities and Exchange Commission's last week adopted rules requiring the securities exchanges to adopt listing standards requiring listed companies to develop and implement policies providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers. In commenting on the proposed rule, I noted that the rules could conflict with state laws that prohibit employers from recouping compensation from their employees. The SEC did not duck the issue in its adopting release, asserting "With respect to preemption, as a general matter, listing standards adopted by national securities exchanges and associations at the direction of Congress and the Commission can preempt state laws in certain circumstances." However, the adopting release falls short of concluding that preemption is a certainty: "Accordingly, issuers should be able to assert that state laws that would prevent or impede recovery are