New NYSE/Nasdaq Rules Require Shareholder Approval of Option Plans, Amendments and Repricings

On Monday of this week, the SEC approved new New York Stock Exchange and Nasdaq Stock Market rules requiring shareholder approval of stock option and other equity compensation plans.1 The rules require shareholder approval of repricings and material plan amendments.

Both the Nasdaq and the NYSE rules have exceptions for certain awards:

to new hires;

in connection with mergers and acquisitions; and

  • under plans such as 401(k) plans, ESOPs, employee stock purchase plans and “parallel excess plans.”

The shareholder approval rules are effective immediately. Generally, plans in place at the effective date are grandfathered. However, preexisting “formula plans” and plans with “evergreen” provisions may require shareholder approval or modification. Future material modifications to plans in place at the effective date will require shareholder approval.

The SEC also approved a new New York Stock Exchange rule prohibiting member firms from voting shares held in “street name” for or against equity compensation plans unless the broker has received instructions from the beneficial holder. This rule will be effective for meetings occurring on or after September 28, 2003.

If you would like to discuss these new rules, please do not hesitate to contact any Kramer Levin corporate or employee benefits attorney.

1 See “Order Approving NYSE and Nasdaq Proposed Rule Changes,” Release No. 34-48108 (June 30, 2003), available at