Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Establish a New Optional Listing Category on the Exchange, “LTSE Listings on IEX”, 31614-31628 [2018-14461]
Download as PDF
<![CDATA[
31614
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
proposed Clearing Fund and stress
testing methodologies and processes, (2)
would be reasonably and fairly implied
by the proposed Rules, Policy, and
Methodology Description, and/or (3)
would otherwise not be deemed to be
material aspects of OCC’s Clearing
Fund-related operations. Accordingly,
OCC believes the proposed changes
would be consistent with the
requirements of Rule 17Ad–22(e)(1).89
III. Date of Effectiveness of the Advance
Notice and Timing for Commission
Action
The proposed change may be
implemented if the Commission does
not object to the proposed change
within 60 days of the later of (i) the date
the proposed change was filed with the
Commission or (ii) the date any
additional information requested by the
Commission is received. OCC shall not
implement the proposed change if the
Commission has any objection to the
proposed change.
The Commission may extend the
period for review by an additional 60
days if the proposed change raises novel
or complex issues, subject to the
Commission providing the clearing
agency with prompt written notice of
the extension. A proposed change may
be implemented in less than 60 days
from the date the advance notice is
filed, or the date further information
requested by the Commission is
received, if the Commission notifies the
clearing agency in writing that it does
not object to the proposed change and
authorizes the clearing agency to
implement the proposed change on an
earlier date, subject to any conditions
imposed by the Commission.
OCC shall post notice on its website
of proposed changes that are
implemented.
The proposal shall not take effect
until all regulatory actions required
with respect to the proposal are
completed.
daltland on DSKBBV9HB2PROD with NOTICES
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the advance notice is
consistent with the Clearing
Supervision Act. Comments may be
submitted by any of the following
methods:
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
OCC–2018–803 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549.
All submissions should refer to File
Number SR–OCC–2018–803. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the advance notice that
are filed with the Commission, and all
written communications relating to the
advance notice between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of OCC and on OCC’s website at
https://www.theocc.com/components/
docs/legal/rules_and_bylaws/sr_occ_18_
803.pdf.
All comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
that you wish to make available
publicly.
All submissions should refer to File
Number SR–OCC–2018–803 and should
be submitted on or before July 23, 2018.
By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–14459 Filed 7–5–18; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
89 Id.
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83558; File No. SR–IEX–
2018–06]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing of Amendment No. 1 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 1, To Establish a New
Optional Listing Category on the
Exchange, ‘‘LTSE Listings on IEX’’
June 29, 2018.
I. Introduction
On March 15, 2018, Investors
Exchange LLC (the ‘‘Exchange’’ or
‘‘IEX’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
establish a new optional listing category
on the Exchange, referred to as the
‘‘LTSE Listings on IEX’’ or ‘‘LTSE
Listings.’’ The proposed rule change
was published for comment in the
Federal Register on April 2, 2018.3 The
Commission received 23 comment
letters on the proposed rule change.4 On
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 82948
(March 27, 2018), 83 FR 14074 (‘‘Notice’’).
4 See letters to Brent J. Fields, Secretary,
Commission, from Tony Davis, CEO, Inherent
Group, dated April 19, 2018 (‘‘Inherent Group
Letter’’); Morgan Housel, Partner, The Collaborative
Fund, dated April 20, 2018 (‘‘Collaborative Fund
Letter’’); Chris Brummer, Professor of Law, Faculty
Director, Institute of International Economic Law,
Georgetown University Law Center, dated April 22,
2018 (‘‘Brummer Letter’’); Dick Costolo, dated April
23, 2018 (‘‘Costolo Letter’’); James Anderson,
Partner and Head of Global Equities, Baillie Gifford
& Co, dated April 23, 2018 (‘‘Baillie Gifford Letter’’);
Marcie Frost, Chief Executive Officer, California
Public Employees’ Retirement System Investment
Office, dated April 23, 2018 (‘‘CalPERS Letter’’);
Evan Williams, Co-Founder and James Joaquin, CoFounder & Managing Director, Obvious Ventures,
dated April 23, 2018 (‘‘Obvious Ventures Letter’’);
Douglas K. Chia, Executive Director, Governance
Center, The Conference Board, Inc., dated April 23,
2018 (‘‘Conference Board Letter’’); Steve Case,
Chairman and CEO, Revolution, dated April 23,
2018 (‘‘Revolution Letter’’); Marc Andreessen,
Cofounder and General Partner, Andreessen
Horowitz, dated April 23, 2018 (‘‘Andreessen
Horowitz Letter’’); John Buhl, dated April 23, 2018
(‘‘Buhl Letter’’); Sam Altman, President, Y
Combinator, dated April 23, 2018 (‘‘Y Combinator
Letter’’); Andrew Mason, CEO, Descript, dated April
23, 2018 (‘‘Descript Letter’’); Judith Samuelson,
Vice President, Founder & Director, The Business
& Society Program, and Alastair Fitzpayne,
Executive Director, The Future of Work Initiative,
The Aspen Institute, dated April 23, 2018 (‘‘Aspen
Institute Letter’’); Brian Singerman, Partner,
Founders Fund, dated April 23, 2018 (‘‘Founders
Fund Letter’’); David Brown and David Cohen,
Founders and Co-CEOs, Techstars, dated April 23,
2018 (‘‘Techstars Letter’’); Tony Hsieh, Founder,
2 17
E:\FR\FM\06JYN1.SGM
06JYN1
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
April 26, 2018, the Commission
received a response letter from the
Exchange.5 On June 27, 2018, the
Exchange submitted Amendment No. 1
to the proposed rule change.6 The
Commission is publishing this notice to
solicit comments on Amendment No. 1
from interested persons, and is
approving the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis.
daltland on DSKBBV9HB2PROD with NOTICES
II. Background of the Proposed Rule
Change
The Exchange proposes to adopt rules
to create a new optional listing category
on the Exchange for common equity
securities, referred to as the ‘‘LTSE
Downtown Project, dated April 23, 2018
(‘‘Downtown Project Letter’’); Aaron Bertinetti, SVP,
Research & Engagement, Glass, Lewis & Co., LLC,
dated April 23, 2018 (‘‘Glass, Lewis Letter’’); Jeff
Weiner, CEO, LinkedIn, dated April 23, 2018
(‘‘LinkedIn Letter’’); Chris Concannon, President
and COO, Cboe Global Markets, Inc. (‘‘Cboe Letter’);
Reid Hoffman, Partner, Greylock Partners, dated
April 23, 2018 (‘‘Greylock Partners Letter’’); Aneesh
Chopra, President, CareJourney, dated April 23,
2018 (‘‘CareJourney Letter’’); and Alexis Ohanian,
General Partner/Cofounder, and Garry Tan,
Managing Partner/Cofounder, Initialized Capital,
dated April 23, 2018 (‘‘Initialized Capital Letter’’).
All comments received by the Commission on the
proposed rule change are available at: https://
www.sec.gov/comments/sr-iex-2018-06/
iex201806.htm.
5 See letter to Brent J. Fields, Secretary,
Commission, from Claudia Crowley, Chief
Regulatory Officer, Investors Exchange LLC, dated
April 26, 2018 (‘‘IEX Response Letter’’). The
Exchange’s response letter is available at: https://
www.sec.gov/comments/sr-iex-2018-06/iex2018063520149-162294.pdf.
6 In Amendment No. 1, the Exchange proposes to
amend: (1) Proposed Rule 14A.001(a) to clarify that
an LTSE Listings Issuer must qualify for listing
under Chapter 14 of the IEX Rules and the LTSE
Listings Rules, except as otherwise provided in the
LTSE Listings Rules; (2) proposed Rule
14A.200(c)(2) to specify that when a company lists
on LTSE Listings, in addition to the requirement
that the company must not have any security listed
for trading on the Exchange or any other national
securities exchange, the company also must be
listing in connection with its initial public offering;
(3) proposed Rule 14A.210 to indicate that when
the LTSE Listings Issuer is dually-listed on the
Exchange and on another national securities
exchange that is the Primary Listing Market and
that requires a minimum number of market makers,
IEX Rules 14.310 and 14.320 requiring a minimum
number of market makers for IEX listed companies
would not apply; and (4) proposed Rule 14A.413 by
adding paragraph (c) to require an LTSE Listings
Issuer to post prominently on its website a plain
English explanatory statement regarding
shareholders’ rights under the long-term voting
provisions included in its governance documents,
including how the shareholder’s voting power may
increase over time and the administrative steps the
shareholder must take to allow the shares’ voting
power to increase over time. To promote the
transparency of its proposed amendment, when IEX
filed Amendment No. 1 with the Commission, it
also submitted Amendment No. 1 as a comment
letter to the file, which the Commission posted on
its website and placed in the public comment file
for SR–IEX–2018–06 (available at https://
www.sec.gov/comments/sr-iex-2018-06/
iex201806.htm).
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
Listings on IEX’’ or ‘‘LTSE Listings.’’
According to the Exchange, the new
optional listing category would provide
a differentiated choice for issuers and
investors that prefer listing standards
that are expressly designed to promote
long-term value creation.7 Specifically,
the Exchange believes that LTSE
Listings would promote the interests of
companies that seek to focus on longterm value creation, as well as to
respond to the transparency and
governance concerns of long-term
focused investors.8
The Exchange believes that the
proposed LTSE Listings Rules could
encourage greater participation in the
public markets by companies and
potentially increase the number of
companies willing to undertake an
initial public offering (‘‘IPO’’).9
According to the Exchange, the total
number of listed companies in the
United States and the number of IPOs
have declined in the past few decades,
and the Exchange states that many
academics, market participants, and
other commenters believe that these
declines are the result of short-term
pressures placed on public
companies.10
III. Description of the Proposed Rule
Change, as Modified by Amendment
No. 1
The proposed rules for LTSE Listings
would be located in new Chapter 14A
of the Exchange’s rules (‘‘LTSE Listings
Rules’’ or ‘‘Rules’’). Companies choosing
to list on the Exchange (‘‘LTSE Listings
Issuers’’) could elect to be subject to the
LTSE Listings Rules, and such
companies also would be subject to the
listing and applicable requirements set
forth in current Chapter 14 of the IEX
Rulebook (‘‘IEX Rules’’) for IEX listed
companies, except as those rules may be
modified by the LTSE Listings Rules.11
The LTSE Listings Rules would
include the following features: (i) Rules
relating to the board of directors and
committee requirements; (ii) rules
requiring supplemental long-term
disclosures; (iii) rules requiring longterm alignment of executive
compensation; (iv) rules requiring a
long-term shareholder voting structure;
and (v) certain other rules that the
Exchange believes would encourage
LTSE Listings Issuers to focus on longterm value creation.12 In addition, the
Notice, supra note 3, at 14074.
id. at 14077.
9 See id. at 14076–77.
10 See id. at 14075–76.
11 See Notice, supra note 3, at 14074–75; see also
proposed Rules 14A.001(a) and 14A.200, and
Amendment No. 1, supra note 6.
12 See Notice, supra note 3, at 14077.
PO 00000
7 See
8 See
Frm 00090
Fmt 4703
Sfmt 4703
31615
Exchange is proposing rules that would
clarify the application of certain existing
Exchange rules to LTSE Listings
Issuers.13 The Exchange would limit the
availability of LTSE Listings to
companies seeking to list on LTSE
Listings concurrently with their IPO
(whether listing on LTSE Listings only
or dually listing on LTSE Listings and
another national securities exchange) 14
and would not permit issuers already
listed on another national securities
exchange to transfer to LTSE Listings.15
LTSE Listings Issuers may list only
common equity securities on LTSE
Listings.16
A. The Exchange’s Arrangement With
LTSE Holdings, Inc.
The Exchange notes that the LTSE
Listings Rules initially were developed
by LTSE Holdings, Inc. (together, with
its affiliates, ‘‘LTSE’’), and that the
Exchange has entered into an
arrangement with LTSE to authorize the
Exchange to make the LTSE Listings
Rules available to interested companies
as a listing category of the Exchange.17
The Exchange states that, although the
LTSE Listings Rules were developed by
LTSE, the Exchange would retain full
self-regulatory responsibility for
determining initial and continuing
compliance with the Exchange’s listing
standards, including for those
companies that elect to be subject to the
LTSE Listings Rules.18
The Exchange further states that it
would retain, as its agents, a small
number of staff that also are employed
by LTSE (‘‘LTSE Listings Agents’’)
solely to provide IEX with expertise in
interpreting the LTSE Listings Rules and
assistance in conducting the LTSE
Listings business, and that the Exchange
would not receive regulatory services
from LTSE itself.19 Specifically, the
13 Id.
14 See
Amendment No. 1, supra note 6.
Notice, supra note 3, at 14075; see also
proposed Rule 14A.200(c)(2). In connection with an
initial public offering on the Exchange, the
proposed LTSE Listings Rules would permit the
dual-listing of companies seeking to list
concurrently on LTSE Listings and another national
securities exchange. See infra Section III.F.2. and
proposed Rule 14A.210.
16 See proposed Rule 14A.001(b).
17 See Notice, supra note 3, at 14074. The
Exchange states that it understands that LTSE
anticipates separately registering a subsidiary as a
national securities exchange in the future. See id.
18 See id. at 14077.
19 See id. The Exchange represents that the LTSE
Listing Agents’ involvement would not extend to
other matters within the Exchange’s jurisdiction
and that IEX would retain full self-regulatory
responsibility for determining initial and
continuing compliance with the Exchange’s listing
standards, including for those companies that elect
to be subject to the LTSE Listings Rules. See id.
15 See
E:\FR\FM\06JYN1.SGM
06JYN1
31616
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
daltland on DSKBBV9HB2PROD with NOTICES
Exchange notes that the LTSE Listings
Agents would provide certain advisory,
marketing, public communications, and
sales services to IEX in connection with
LTSE Listings.20 The Exchange,
however, represents that the LTSE
Listings Agents would be subject to the
Exchange’s oversight and regulatory
authority as the responsible selfregulatory organization.21 The Exchange
states that it has an arrangement with
the LTSE Listings Agents that includes
restrictions designed to protect the
Exchange’s responsibilities as a selfregulatory organization and the
confidentiality of its books and
records.22 Separately, the Exchange
states that it would permit LTSE to use
and redistribute written marketing,
public communications, and sales
materials concerning the LTSE Listings
20 See id. at 14077 n.34. The Exchange states that,
for example, LTSE Listings Agents would evaluate
issuers seeking to list on the Exchange under the
LTSE Listings Rules and would assist in monitoring
LTSE Listings Issuers for compliance with the LTSE
Listings Rules. See id.
21 See id. at 14077. The Exchange notes that, at
all times, LTSE Listings Agents would be subject to
the satisfaction and the oversight of the Exchange’s
Chief Regulatory Officer, with all actions proposed
by LTSE Listings Agents subject to the Exchange’s
regulatory authority. See id. at 14077 n.34. The
Exchange represents that, notwithstanding the
services provided by the LTSE Listings Agents to
the Exchange, all actions taken by the Exchange
ultimately would be based on the Exchange’s
determination that the action is appropriate and
consistent with the Act, the Commission’s rules
thereunder, and the Exchange’s rules. See id.
22 See id. at 14077 n.34. According to the
Exchange, each LTSE Listings Agent would be
considered to be an agent of the Exchange in
connection with the performance of services under
the Exchange’s arrangement with LTSE, pursuant to
Article XI, Section 4 of the Exchange’s Amended
and Restated Operating Agreement. Among other
things, the Exchange represents that, pursuant to
the Exchange’s arrangement with LTSE, the
Exchange would not share confidential regulatory
information with LTSE (other than with LTSE
regulatory personnel that are LTSE Listings Agents
and that do not have direct involvement in LTSE’s
commercial operations). In addition, the Exchange
represents that LTSE has agreed that each LTSE
Listings Agent would be required to consent in
writing to the application to such agent of the
following provisions, which are consistent with
Article VII of the Bylaws of IEX Group, Inc.: noninterference with, and due regard for, the
Exchange’s self-regulatory function; confidentiality
of the Exchange’s books and records pertaining to
its self-regulatory function; maintenance of books
and records related to services under the
Exchange’s arrangement with LTSE and services
provided to the Exchange by LTSE Listings Agents
at a location within the United States; compliance
with the federal securities laws and the rules and
regulations promulgated thereunder and
cooperation with the SEC in respect of the SEC’s
oversight responsibilities regarding the Exchange
and the self-regulatory functions and
responsibilities of the Exchange; and consent to
jurisdiction of the United States federal courts, the
SEC, and the Exchange for purposes of any suit,
action, or proceeding arising out of or relating to
services provided to the Exchange and the
Exchange’s arrangement with LTSE. See id.
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
business, subject to the Exchange’s
consent.23
B. Board of Directors and Committee
Requirements
As more fully described below, the
LTSE Listings Rules would create new
requirements for the boards of directors
and board committees of LTSE Listings
Issuers, which are intended to align the
boards with the objectives of the LTSE
Listings Rules. The LTSE Listings Rules
would require each LTSE Listings Issuer
to establish board committees dedicated
to overseeing the issuer’s strategies for
creating and sustaining long-term
growth and for selecting or
recommending qualified director
nominees. The LTSE Listings Rules also
would impose additional obligations on
audit committees and compensation
committees with the aim of increasing
oversight and transparency.24
1. Long-Term Strategy and Product
Committee
Proposed Rule 14A.405(c)(1) would
require that each LTSE Listings Issuer’s
board of directors maintain a committee
specifically dedicated to overseeing the
LTSE Listings Issuer’s strategic plans for
long-term growth, the Long Term
Strategy and Product Committee (‘‘LTSP
Committee’’). The LTSP Committee
must include a minimum of three
members of the board, a majority of
whom must be independent directors.25
The LTSP Committee cannot assume
any roles or responsibilities that are
required to be undertaken by the LTSE
Listings Issuer’s board committees
comprised solely of independent
directors.26
Pursuant to proposed Rule
14A.405(c)(3)(A), each LTSE Listings
Issuer must certify that it has adopted a
formal written LTSP Committee charter
and that the LTSP Committee would
review and reassess the adequacy of the
formal written charter on an annual
basis. The charter must specify, among
other things, the scope of the LTSP
Committee’s responsibilities, and how it
would carry out those responsibilities,
including structure, processes, and
membership requirements, and that the
LTSP Committee must report regularly
to the board of directors.27
id.
id.
25 See proposed Rule 14A.405(c)(4).
26 See proposed Rule 14A.405(c)(1).
27 See proposed Rule 14A.405(c)(3)(B)(i)–(v).
Proposed Rule 14A.405(c)(3)(C) would require that
the LTSP Committee’s charter be made available on
or through the LTSE Listings Issuer’s website.
PO 00000
23 See
24 See
Frm 00091
Fmt 4703
Sfmt 4703
2. Nominating/Corporate Governance
Committee
Pursuant to proposed Rule
14A.405(d)(1), the director nominees of
an LTSE Listings Issuer must be either
selected, or recommended for the
board’s selection, by a nominating/
corporate governance committee that is
comprised solely of independent
directors. Director nominees of an LTSE
Listings Issuer may not be selected, or
recommended for the board’s selection,
by the independent directors
constituting a majority of the board’s
independent directors, as provided in
IEX Rule 14.405(e)(1)(A), subject to an
exception for exceptional and limited
circumstances.28 Independent Director
oversight of director nominations would
not apply in cases where the right to
nominate a director legally belongs to a
third party.29
Proposed Rule 14A.405(d)(6)(A)
would require that each LTSE Listings
Issuer adopt a formal written
nominating/corporate governance
committee charter and to review and
reassess the adequacy of the formal
written charter on an annual basis.
Among other things, the charter would
need to specify the scope of the
nominating/corporate governance
committee’s responsibilities, and how
the committee would carry out those
responsibilities, including structure,
processes, and membership
requirements. The charter also would be
required to specify that the nominating/
corporate governance committee must
report regularly to the board of
directors.30
3. Audit Committee and Compensation
Committees
Proposed Rule 14A.405 imposes
requirements on the audit committee
and compensation committee in
addition to the requirements imposed
28 If the nominating/corporate governance
committee is comprised of at least three members,
one director, who is not an ‘‘Independent Director’’
as defined in IEX Rule 14.405(a)(2) and is not
currently an Executive Officer or employee or a
Family Member of an Executive Officer, may be
appointed to the nominating/corporate governance
committee if the board, under exceptional and
limited circumstances, determines that such
individual’s membership on the committee is
required by the best interests of the LTSE Listings
Issuer and its shareholders. See proposed Rule
14A.405(d)(2). An LTSE Listings Issuer that relies
on this exception must disclose the nature of the
relationship and the reasons for the determination,
as well as provide any disclosure required by
Instruction 1 to Item 407(a) of Regulation S–K
regarding its reliance on this exception. See id. In
addition, a member appointed under this exception
may not serve longer than two years. See id.
29 See proposed Rule 14A.405(d)(3).
30 This charter must be made available on or
through the LTSE Listings Issuer’s website. See
proposed Rule 14A.405(d)(6)(B).
E:\FR\FM\06JYN1.SGM
06JYN1
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
by current IEX Rules 14.405(c) and
14.405(d), respectively. Under proposed
Rules 14A.405(a)(1) and
14A.405(b)(2)(A)(i), an LTSE Listings
Issuer’s audit committee and
compensation committee charters must
specify that the committees must report
regularly to the board of directors. In
addition, the compensation committee
charter must specify that the
compensation committee must adopt
executive compensation guidelines in
accordance with proposed Rule
14A.405(b)(3) (Executive Compensation
Guidelines).31 An LTSE Listings Issuer
would be required to make both the
audit committee charter and
compensation committee charter
available on or through its website.32
4. Committee Delegations and ThirdParty Nominations
daltland on DSKBBV9HB2PROD with NOTICES
The proposed rules would allow the
responsibilities of certain committees to
be delegated to other committees.
Specifically, the proposed rules would
permit the board of directors to allocate
the responsibilities of the LTSP
Committee, the nominating/corporate
governance committee, and
compensation committee to committees
of their own denomination, provided
that, in each case the committee with
the allocated committee responsibilities
must satisfy the same compositional
requirements of the original committee
and must be subject to a formal written
charter that satisfies the same committee
charter requirements of the original
committee.33 Furthermore, if any
function of the LTSP Committee, the
nominating/corporate governance
committee, or compensation committee
has been delegated to another
committee, the charter of the committee
receiving such delegation must also be
made available on or through the LTSE
Listings Issuer’s website.34
Under the proposal, the charters of
each committee of LTSE Listings Issuers
also would be permitted to address the
authority of the committee to delegate
its responsibilities to subcommittees of
the committee, provided that any such
subcommittee must meet the applicable
committee composition requirements
31 See proposed Rule 14A.405(b)(2)(A)(ii).
Proposed Rule 14A.405(b)(4) clarifies that ‘‘Smaller
Reporting Companies,’’ as defined in Rule 12b–2
under the Act, 17 CFR 240.12b–2, are not exempt
from these additional compensation committee
requirements.
32 See proposed Rules 14A.405(a)(2) and
14A.405(b)(2)(B).
33 See proposed Rules 14A.405(c)(2),
14A.405(d)(5), and 14A.405(b)(2)(B).
34 See proposed Rules 14A.405(c)(3)(C),
14A.405(d)(6)(B), and 14A.405(b)(2)(B).
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
with respect to independence.35
However, this LTSE Listings Rule would
not apply in cases where the right to
nominate a director legally belongs to a
third party, because the right to
nominate directors in such a case does
not reside with the LTSE Listings
Issuer.36
5. Corporate Governance Guidelines
Proposed Rule 14A.409 would require
each LTSE Listings Issuer to adopt and
disclose certain corporate governance
guidelines that address director
qualification standards, director
responsibilities, director access to
management, director compensation,
director orientation and continuing
education, management succession, and
annual performance evaluations of the
board.37 Among other things, these
corporate governance guidelines must
specify that no less than 40% of director
compensation must be paid in stockbased compensation tied to long-term
periods.38 In addition, LTSE Listings
Issuers must adopt director stock
ownership guidelines, which must
include minimum ownership
requirements that can be met over the
length of board service.39
C. Long-Term Strategy and Other
Disclosure Requirements
The Exchange notes that, in addition
to and separate from all disclosures
required under applicable securities
laws, the Commission’s rules, and the
Exchange’s other rules, proposed Rule
14A.207 would require LTSE Listings
Issuers to provide certain supplemental
disclosures (‘‘LTSP Disclosures’’).40 The
LTSP Disclosures would be made
publicly available pursuant to a
supplement to the LTSE Listings
Issuer’s Annual Report (‘‘Annual Report
35 See Supplementary Material .01 to proposed
Rule 14A.405, which would apply to LTSE Listings
Issuers in lieu of existing Supplementary Material
.08 to IEX Rule 14.405 (Independent Director
Oversight of Director Nominations).
36 See proposed Rule 14A.405, Supplementary
Material .01.
37 An LTSE Listings Issuer would be required to
make its corporate governance guidelines available
on or through its website. See proposed Rule
14A.409(b).
38 See proposed Rule 14A.409(a)(4). An LTSE
Listings Issuer would be required to disclose in its
corporate governance guidelines what it considers
to be ‘‘long-term’’ for this purpose. See id.
39 See id.
40 See Notice, supra note 3, at 14080. Proposed
Rule 14A.207(a) specifies that nothing in the rule
shall affect the obligation of an LTSE Listings Issuer
to comply with applicable securities laws. In
addition, proposed Rule 14A.207(b) states that all
disclosures must comply with applicable securities
laws, including rules and regulations pertaining to
the use and reconciliation of non-GAAP financial
measures and any securities law obligations
regarding updating or correcting prior public
statements or disclosures.
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
31617
Supplement’’) that must be distributed
to shareholders along with, and in the
same manner as, the LTSE Listings
Issuer’s Annual Report.41 In addition,
LTSE Listings Issuers must make the
Annual Report Supplement available on
or through the LTSE Listings Issuer’s
website.42 The LTSP Disclosures also
must be reviewed and approved by the
LTSP Committee on at least an annual
basis.43
1. Long-Term Growth Strategy
Proposed Rule 14A.207(c)(1) would
require each LTSE Listings Issuer to
disclose its ‘‘Long-Term Growth
Strategy.’’ Long-Term Growth Strategy is
defined as ‘‘the strategy, as determined
by management and the board of
directors and approved by the LTSP
Committee, that is focused on achieving
long-term growth.’’ 44 The Exchange
states that this proposed requirement is
designed to increase transparency for
shareholders on the strategic goals of the
company’s managers and provide for
greater alignment and accountability
between a company’s long-term vision
and investor expectations. An LTSE
Listings Issuer must include how it
defines ‘‘long-term’’ for purposes of its
Long-Term Growth Strategy, including a
discussion of how it made this
determination.45
Proposed Rule 14A.207(c) outlines
other required aspects of the Long-Term
Growth Strategy disclosure. This
disclosure must include a discussion of
the LTSE Listings Issuer’s ‘‘Leading
Indicators,’’ 46 as well as key milestones
41 See proposed Rule 14A.207(b). Proposed Rule
14A.002(a)(1) states that ‘‘Annual Report’’ means
‘‘consistent with IEX Rule 14.207(d), the annual
report made available to Shareholders containing
audited financial statements of the LTSE Listings
Issuer and its subsidiaries (which, for example, may
be on Form 10–K, 20–F, 40–F or N–CSR) within a
reasonable period of time following the filing of the
annual report with the Commission.’’
42 See id. In addition, ‘‘[e]ach LTSE Listings
Issuer must include a statement in its Annual
Report that the LTSP Disclosures are available in
the Annual Report Supplement and provide the
website address,’’ as well as ‘‘notify IEX Regulation
once its Annual Report Supplement has been made
publicly available on its website.’’ Id.
43 Id. The LTSP Committee must determine
whether to recommend to the board of directors that
the LTSP Disclosures be included in the Annual
Report Supplement, and any board and committee
approvals should be reflected in board resolutions
as appropriate. See id.
44 See proposed Rule 14A.002(a)(11).
45 See proposed Rule 14A.207(c)(1)(A).
46 Proposed Rule 14A.002(a)(10) defines ‘‘Leading
Indicators’’ as ‘‘quantitative metrics (financial or
non-financial) that an LTSE Listings Issuer’s
management uses to help forecast revenue, profit or
other common after-the-event measures of longterm success. These current and predictive metrics
[would be] used by management to focus on dayto-day results as they work towards achieving the
LTSE Listings Issuer’s Long-Term Growth Strategy,
E:\FR\FM\06JYN1.SGM
Continued
06JYN1
31618
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
that the LTSE Listings Issuer aims to
achieve with respect to the Leading
Indicators.47 The LTSE Listings Issuer
also must report on the progress that the
LTSE Listings Issuer has made in
achieving these key milestones.48 In
addition, the Long-Term Growth
Strategy must include details relating to
different businesses of the LTSE Listings
Issuer if the information is material to
the overall strategy.49 Lastly, LTSE
Listings Issuers must include a
discussion of any changes to the LTSE
Listings Issuer’s Long-Term Growth
Strategy, Leading Indicators, and/or key
milestones since the publication of the
LTSE Listings Issuer’s previous LongTerm Growth Strategy.50
Proposed Rule 14A.207(c)(3) would
provide an exception from the
requirement to disclose aspects of an
LTSE Listings Issuer’s Long-Term
Growth Strategy. Specifically, if the
LTSE Listings Issuer’s LTSP Committee
makes a determination that disclosure of
any aspect of the LTSE Listings Issuer’s
Long-Term Growth Strategy would be
‘‘reasonably likely to result in material
harm’’ to the LTSE Listing Issuer’s
competitive position, the LTSE Listings
Issuer could exclude such information
from its LTSP Disclosures. A process for
making this determination would be
required to be disclosed in the issuer’s
LTSP Committee Charter pursuant to
proposed Rule 14A.405(c)(3)(B)(iv) and
any such determination must be
documented by the LTSP Committee
and be made in accordance with its
fiduciary duties.51 In addition, the LTSE
Listings Issuer must disclose in its LTSP
Disclosures that it is withholding
certain aspects of its Long-Term Growth
Strategy as a result of competitive
concerns.52 Upon the time that any
withheld information is no longer
competitively sensitive, the LTSE
Listings Issuer would be required to
disclose that information in its LTSP
Disclosures, even though this
information may no longer be relevant
to its current Long-Term Growth
Strategy.53
daltland on DSKBBV9HB2PROD with NOTICES
2. Other Supplemental Disclosure
Requirements
In addition to the Long-Term Growth
Strategy disclosure, proposed Rule
14A.207 would require issuers to make
disclosures relating to buybacks, human
and provide useful information for timely decisionmaking in the shorter term.’’
47 See proposed Rule 14A.207(c)(1)(B).
48 See id.
49 See proposed Rule 14A.207(c)(2).
50 See proposed Rule 14A.207(c)(1)(C).
51 See Notice, supra note 3, at 14081.
52 See proposed Rule 14A.207(c)(3).
53 Id.
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
capital investment, and research and
development, as described below:
Buybacks: Each LTSE Issuer must
disclose its EPS Net of Buybacks,
defined as the quotient calculated by
dividing (i) net income (as reported in
the LTSE Listings Issuer’s financial
statements in its most recent Annual
Report) by (ii) the sum of outstanding
shares and shares that were subject to a
Buyback during the prior fiscal year.54
Human Capital Investment: Each
LTSE Listings Issuer must disclose the
extent to which the LTSE Listings
Issuer’s selling, general, and
administrative expenses (as reported in
the LTSE Listings Issuer’s most recent
Annual Report) consisted of ‘‘Human
Capital Investment.’’ 55
Research and Development: Each
LTSE Listings Issuer must disclose the
amount of research and development
spending that is short-term focused and
the amount of such spending that is
long-term focused.56
3. Timing for Supplemental Disclosures
Proposed Rule 14A.207(g) describes
when these supplemental disclosures
must be made. An LTSE Listings Issuer
must disclose its Long-Term Growth
Strategy on its website no later than at
the time of its initial listing, and it must
remain on the LTSE Listings Issuer’s
website until the LTSE Listings Issuer is
required to make the disclosure
annually in its Annual Report
Supplement.57 After initial listing, an
LTSE Listings Issuer must make the
disclosures relating to buybacks, human
capital investment, and research and
development publicly available on its
website by the earlier of when the LTSE
Listings Issuer files its Form 10–K or
distributes its Annual Report
Supplement.58 Thereafter, the LTSE
54 See proposed Rules 14A.002(a)(6) and
14A.207(d). Pursuant to proposed Rule
14A.002(a)(3), ‘‘Buybacks’’ means issuer
repurchases that are required to be disclosed
pursuant to Item 703 of Regulation S–K.
55 See proposed Rules 14A.002(a)(7) and
14A.207(e). Proposed Rule 14A.207(e) defines
‘‘Human Capital Investment’’ as the aggregate
amount an LTSE Listings Issuer spends on formal
training of workers in new skills to improve job
performance, including, among other things,
amounts spent on fees or expenses related to
personnel hired or retained to train employees,
training materials, tuition assistance, and
continuing education or similar programs. Each
LTSE Listings Issuer must also disclose the amount
spent on Human Capital Investment per full-time
equivalent employee. Id.
56 See proposed Rule 14A.207(f). Each LTSE
Listings Issuer must also disclose how it defines
‘‘short-term’’ and ‘‘long-term’’ for these purposes
and how it determined such definitions. Id.
57 See proposed Rule 14A.207(g)(1). The initial
disclosure must be made in compliance with the
rules and regulations relating to the dissemination
of free writing prospectuses, if applicable. Id.
58 See proposed Rule 14A.207(g)(2).
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
Listings Issuer must make this
disclosure annually in its Annual
Report Supplement, as set forth in
proposed Rule 14A.207(b).59
D. Executive Compensation
Requirements
Proposed Rule 14A.405(b)(3) requires
an LTSE Listings Issuer’s compensation
committee to adopt a set of executive
compensation guidelines applicable to
Executive Officers,60 which the
Exchange states are designed to link
executive compensation to the longterm value of the LTSE Listings Issuer.
These guidelines must include general
principles for determining the form and
amount of Executive Officer
compensation, and for reviewing those
principles, as appropriate. Specifically,
the compensation committee must
ensure that the time periods and
performance metrics used to determine
Incentive-Based Compensation 61 for
Executive Officers are consistent with
the LTSE Listings Issuer’s Long-Term
Growth Strategy, and may consult with
the LTSP Committee in assessing
whether such time periods and
performance metrics are consistent with
the LTSE Listings Issuer’s Long-Term
Growth Strategy.62
Proposed Rule 14A.405(b)(3)(B)
imposes additional requirements related
to the compensation of Executive
Officers. An LTSE Listings Issuer may
not provide Executive Officers with any
Incentive-Based Compensation that is
tied to a financial or performance metric
that is measured over a time period of
less than one year or grant any timebased equity compensation that has any
portion that vests in less than a year
from the grant date (or from the hire
date, in the case of new hire grants).63
In addition, equity compensation
awarded to Executive Officers must be
subject to a period of vesting over at
least five years.64
59 See
id.
Rule 14.405(a)(1) defines ‘‘Executive
Officer’’ as persons meeting the definition of
‘‘officer’’ in Rule 16a–1(f) under the Act, 17 CFR
240.16a–1(f).
61 Proposed Rule 14A.002(a)(8) defines
‘‘Incentive-Based Compensation’’ as any variable
compensation, fees, or benefits that serve as an
incentive or reward for performance.
62 See proposed Rule 14A.405(b)(3)(A)(i). In
addition, the LTSE Listings Issuer must disclose in
its proxy statement, or Annual Report Supplement
if no proxy statement is filed, whether or not the
compensation committee has determined that such
time periods and performance metrics are
consistent with the LTSE Listings Issuer’s LongTerm Growth Strategy. See id.
63 See proposed Rule 14A.405(b)(3)(B)(i).
64 See proposed Rule 14A.405(b)(3)(B)(ii). The
vesting scheduling must reflect the long-term focus
of the equity grant and could allow for accelerated
vesting only upon the death of the Executive Officer
or the occurrence of a disability that renders the
60 IEX
E:\FR\FM\06JYN1.SGM
06JYN1
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
The proposed LTSE Listings Rules
provide for two exceptions to the
executive compensation requirements
discussed above. First, the
compensation committee may provide
alternative time periods for incentive
and equity compensation if there is a
‘‘business necessity,’’ and the LTSE
Listings Issuer discloses and explains
such business necessity.65 Second, any
executive compensation that is subject
to an existing written agreement entered
into at least one year prior to the initial
listing of an LTSE Listings Issuer on the
Exchange need not comply with the
requirements, but usage of this
exemption must be disclosed in the
Annual Report Supplement.66
daltland on DSKBBV9HB2PROD with NOTICES
E. Long-Term Shareholder Voting
Structure
According to the Exchange, it is
consistent with the focus of the LTSE
Listings category to provide a
differentiated choice for issuers and
investors that prefer listing standards
that are explicitly designed to promote
long-term value creation.67 Thus, the
Exchange proposes Rule 14A.413(b) to
require that LTSE Listings Issuers
maintain certain voting rights
provisions in their corporate
organizational documents that would
provide shareholders with the ability,
according to the shareholder’s option, to
accrue additional voting power over
time.68 LTSE Listings Issuers would be
required to comply with the obligations
set forth in IEX Rule 14.413 and in
proposed Rule14A.413, both of which
relate to voting rights. Under proposed
Rule 14A.413, LTSE Listings Issuers
would be required to include certain
voting rights provisions in their
corporate organizational documents that
provide shareholders the ability to
accrue additional voting power over
time.69 Under proposed Rule
Executive Officer permanently unable to remain
employed at the LTSE Listings Issuer in any
capacity. Id. The compensation committee must
determine appropriate Vesting Periods and
amounts, as well as holding periods, for equity
compensation awarded to Executive Officers that
apply following an Executive Officer’s retirement or
resignation. See proposed Rule 14A.405(b)(3)(B)(iv).
65 See proposed Rule 14A.405(b)(3)(B)(iii).
However, the amount of equity awards granted in
the aggregate that vests before the first anniversary
of the grant date, or that does not meet the
minimum five-year vesting schedule, cannot exceed
5% of the total number of shares authorized for
grant in any fiscal year. See id.
66 See proposed Rule 14A.405(b)(3)(C). Proposed
Rule 14A.405(b)(4) clarifies that ‘‘Smaller Reporting
Companies,’’ as defined in Rule 12b–2 under the
Act, 17 CFR 240.12b–2, are not exempt from the
executive compensation guidelines described in
proposed Rule 14A.405(b)(3).
67 See Notice, supra note 3, at 14083.
68 Id.
69 See proposed Rule 14A.413(b).
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
14A.413(b)(2), all securities listed on
LTSE Listings, including securities
issued by Foreign Private Issuers,70
must be eligible for a Direct Registration
Program (‘‘DRP’’) operated by a clearing
agency registered under Section 17A of
the Act.71
Voting power would accrue only to
shareholders who are beneficial owners;
register such shares in their name as
‘‘record holders’’ on the books of the
LTSE Listings Issuer (including through
the use of a DRP); and continue to hold
such shares as record holders over a
period of time.72 Shares held in ‘‘street
name,’’ that is, shares registered on the
books of an issuer’s transfer agent in the
name of a nominee selected by the
Depository Trust Company, would not
accrue additional voting power over
time.73
As of the date of the company’s initial
listing on LTSE Listings, each holder of
equity securities listed on LTSE Listings
must be entitled to an equal number of
votes per share (the ‘‘Initial Voting
Power’’) on a per class basis.74 For each
full calendar month following the date
of the LTSE Listings Issuer’s listing on
the Exchange during which a
shareholder maintains continuous
record ownership of shares, the voting
power of such shares for so long as they
are held of record by such shareholder
would be required to increase by at least
one twelfth (1/12th) over the shares’
Initial Voting Power on the last business
day of the month, up to an amount that
is ten times their Initial Voting Power.75
If, at any time, a shareholder transfers
shares out of record ownership, then on
the date of such transfer, such shares
would revert to entitling the shareholder
to the Initial Voting Power of such
shares.76
to IEX Rule 14.002(a)(15), the term
‘‘Foreign Private Issuer’’ as used in the Exchange’s
rules has the same meaning as in Rule 3b–4 under
the Act, 17 CFR 240.3b–4.
71 15 U.S.C. 78q–1. See also proposed Rules
14A.200(c)(1) and 14A.208.
72 See proposed Rule 14A.413(b)(2). For these
purposes, record owners of shares listed on LTSE
Listings include those shareholders holding a
physical paper certificate of such shares and
shareholders holding shares through a DRP. See
proposed Rule 14A.413(b)(3).
73 See Notice, supra note 3, at 14084.
74 See proposed Rule 14A.413(b)(1).
75 See proposed Rule 14A.413(b)(3). Pursuant to
proposed Rule 14A.413, Supplementary Material
.01(b), an LTSE Listings Issuer would be permitted
to provide that the voting rights of shareholders
holding in record name increase at a rate greater
than one twelfth (1/12th) per month, provided that
the voting power of such shares may not increase
to a level that exceeds ten times their Initial Voting
Power.
76 Proposed Rule 14A.413(b)(4). Proposed Rule
14A.413(b)(5) requires that, prior to listing
securities on LTSE Listings, a prospective LTSE
Listings Issuer must obtain from its transfer agent
PO 00000
70 Pursuant
Frm 00094
Fmt 4703
Sfmt 4703
31619
In addition, although the
requirements of proposed Rule
14A.413(b) could be viewed as similar
to time-phased voting plans, the
Exchange believes that proposed Rule
14A.413(b) is consistent with IEX Rule
14.413, which is the Exchange’s Voting
Rights Policy.77 IEX Rule 14.413 bars a
company already listed on the Exchange
from undertaking any of the prohibited
corporate actions specified therein,
including the adoption of time-phased
voting plans.78 The Exchange notes that,
because LTSE Listings Issuers would be
required as a pre-condition to listing on
LTSE Listings to have in place a voting
rights structure as of the date of its
initial listing that complies with
proposed Rule 14A.413(b), no new
corporate action that disparately
reduces voting rights would be
permitted to be taken subsequent to the
LTSE Listings Issuer’s listing on the
Exchange.79
The proposed LTSE Listings Rules
also contain various provisions relating
to the determination of record
ownership for purposes of accreting
voting power:
Accreting Voting and the Exchange’s
Voting Rights Policy: The proposed
rules describe how to determine what is
considered ‘‘super-voting’’ stock for
purposes of IEX Rule 14.413, which
provides that voting rights of existing
shareholders of publicly traded common
stock registered under Section 12 of the
Act cannot be disparately reduced or
restricted through any corporate action
or issuance.80 Proposed Rule 14A.413,
Supplementary Material .01(f) would
prohibit an issuer from disparately
reducing or restricting the voting rights
of existing shareholders by issuing a
a certification confirming that the transfer agent has
software or other systems or processes available to
the LTSE Listings Issuer that would enable the
transfer agent and LTSE Listings Issuer to
determine, as of a particular record date, the LTSE
Listings Issuer’s shareholder’s voting rights
calculated in accordance with proposed Rule
14A.413(b) (Long-Term Voting).
77 See IEX Rule 14.413.
78 See id. Proposed Rule 14A.413, Supplementary
Material .01(a) states that, so long as not
inconsistent with IEX Rule 14.413, an LTSE Listings
Issuer could (i) maintain multiple classes of
securities, including shares that have voting power
per share in excess of the Initial Voting Power of
the securities listed on the Exchange, and/or (ii)
establish or maintain classes of shares not listed on
the Exchange that do not comply with proposed
Rule 14A.413(b).
79 See Notice, supra note 3, at 14085–86.
80 See IEX Rule 14.413. IEX Rule 14.413 notes that
examples of such corporate action or issuance
include, but are not limited to, the adoption of timephased voting plans, the adopting of capped voting
rights, the issuance of super-voting stock, or the
issuance of stock with voting rights less than the
per share voting rights of the existing common stock
through an exchange offer. Id.
E:\FR\FM\06JYN1.SGM
06JYN1
31620
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
daltland on DSKBBV9HB2PROD with NOTICES
new class of super-voting stock.81 For
purposes of LTSE Listings, a class of
securities shall be considered supervoting stock if (i) the Initial Voting
Power of such class of securities
exceeds the Initial Voting Power of any
of the LTSE Listings Issuer’s existing
classes of common stock listed on LTSE
Listings or (ii) the rate at which the
voting power of such class may increase
over time is greater than the
corresponding rate for any of the LTSE
Listings Issuer’s existing classes of
common stock listed on LTSE
Listings.82
Potential Evasion of Loss of LongTerm Voting Power: An LTSE Listings
Issuer may provide in its governance
documents that if its board of directors
adopts a resolution reasonably
determining that, notwithstanding
technical compliance with the
provisions of the LTSE Listings Issuer’s
governance documents relating to the
increasing voting power of long-term
shareholders and continuity of record
ownership, there has in fact been a
change in beneficial ownership with
respect to shares held of record that
would evade the purposes of this LTSE
Listings Rule 14A.413(b), such shares
may be treated as being entitled only to
their Initial Voting Power.83
Technical Changes in Ownership: An
LTSE Listings Issuer may adopt a
process by which a shareholder may
demonstrate that, notwithstanding a
technical change in record ownership, a
change in beneficial ownership has not
occurred.84
Shareholders Holding Through
Custodians: In the case of a shareholder
that holds its shares in an LTSE Listings
Issuer through a custodian consistent
with applicable regulatory
requirements, an LTSE Listings Issuer
may recognize such shareholder as a
holder of record solely for purposes of
proposed Rule 14A.413(b), so long as
the custodian becomes the shareholder
81 See proposed Rule 14A.413, Supplementary
Material .01(f).
82 See id.
83 See proposed Rule 14A.413, Supplementary
Material .01(c). Any LTSE Listings Issuer that
provides in its governance documents that the
board of directors may make such a determination
must also adopt in its governance documents a
process for any shareholders directly affected by
such determination to challenge such
determination. This process must provide the
affected shareholders with an opportunity to
present additional information demonstrating that a
change of beneficial ownership has not occurred.
See id.
84 See proposed Rule 14A.413, Supplementary
Material .01(d). The proposed rule further states
that an example of this could be where a
shareholder changes its legal name, or where
ownership of shares by an individual is re-titled to
reflect joint ownership with a spouse. See id.
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
of record in a manner that indicates the
name of the ultimate beneficial owner.85
F. Proposed Rules Concerning the
Application of Certain Existing
Exchange Rules
Certain of the proposed LTSE Listings
Rules clarify the application of existing
Exchange listings rules to LTSE Listings
Issuers, as described further below.
1. General Procedures for Initial and
Continued Listing on LTSE Listings
A company seeking the initial listing
of one or more classes of securities on
LTSE Listings must comply with the
requirements and procedures set forth
in the IEX Rule Series 14.200, as well as
the supplemental requirements set forth
in proposed Rule 14A.200.86 The
Exchange must first determine that a
company is eligible for listing under the
LTSE Listings Rules and meets the
Exchange’s other listing criteria before it
would provide a clearance letter, as
defined in IEX Rule 14.201.87 After
receiving a clearance letter pursuant to
IEX Rule 14.201, a company choosing to
list as an LTSE Listings Issuer must file
an original listing application.88 To
apply for listing on LTSE Listings, a
company must execute a Listing
Agreement and a Listing Application on
the forms designated by the Exchange
for an LTSE Listings Issuer, which
would provide the information required
by Section 12(b) of the Act.89 At the
time of listing, the company may not
already have any security listed for
trading on the Exchange or any other
national securities exchange and the
company must be listing on LTSE
Listings in connection with its initial
public offering.90
2. Dually-Listed Securities
The Exchange proposes to permit
LTSE Listings Issuers to list a class of
securities that, in connection with its
IPO, has been approved for listing on
another national securities exchange.91
The Exchange would make an
85 See proposed Rule 14A.413, Supplementary
Material .01(e). The proposed rule further states that
an example could be if Investment Fund ABC
maintains custody of its assets through Bank XYZ,
Investment Fund ABC may be recognized as the
record holder of the shares of an LTSE-Listed
company solely for purposes of this rule if Bank
XYZ registers the shares on the books of the LTSEListed Issuer as being owned by ‘‘Bank XYZ, as
custodian for Investment Fund ABC.’’ See id.
86 See proposed Rule 14A.200 and Amendment
No. 1, supra note 6.
87 See proposed Rule 14A.200(a).
88 See proposed Rule 14A.200(b).
89 15 U.S.C.781(b). See also proposed Rule
14A.200(b).
90 See proposed Rule 14A.200(c)(2) and
Amendment No. 1, supra note 6.
91 See proposed Rule 14A.210(a).
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
independent determination of whether
any such companies satisfy all
applicable listing requirements and
shall require companies to enter into a
dual-listing agreement with the
Exchange.92 In the event that an issuer
chooses to dually list on both LTSE
Listings and another national securities
exchange in connection with its IPO, the
Exchange would expect such other
national securities exchange to be the
LTSE Listings Issuer’s ‘‘Primary Listing
Market.’’ 93 The Exchange states that
when an LTSE Listings Issuer is duallylisted on another national securities
exchange, the initial trading of such
issuer’s securities on the Exchange
would not occur until after the
completion of the opening auction for
such securities on the first day of listing
on the ‘‘Primary Listing Market.’’ 94 The
Exchange further states that it would
monitor the dually-listed LTSE Listings
Issuer for compliance with all
applicable IEX Rules on an ongoing
basis, as it would for any other LTSE
Listings Issuer.95 Proposed
Supplementary Material .01 to Rule
14A.210 would clarify the application of
certain IEX Rules, such as rules
governing trading halts, for dually-listed
LTSE Listings Issuers.
Proposed Rule 14A.435 would require
LTSE Listings Issuers to certify, at or
before the time of listing, that all
applicable listing criteria have been
satisfied, as set forth in IEX Rule
14.202(b).96 In addition, the Chief
Executive Officer of each LTSE Listings
92 See proposed Rule 14A.210, Supplementary
Material .01.
93 See Notice, supra note 3, at 14087.
94 See id. at 14087 n.74. ‘‘Primary Listing Market’’
is defined in proposed Rule 14A.002(a)(14) as
having the same meaning as that term is defined in
the Nasdaq Unlisted Trading Privileges national
market system plan and consistent with the use of
the term ‘‘listing market’’ in the Consolidated
Quotation Service and Consolidated Tape
Association national market system plans.
95 See id. at 14087 n.73. In addition, proposed
Rule 14A.210(b) imposes notification requirements
on a dually-listed LTSE Listings Issuer if its
securities have fallen below the continued listing
requirements of LTSE Listings or the other market.
Proposed Rule 14A.210(c) also provides that, for an
LTSE Listings Issuer with a dually-listed security,
if IEX is not the Primary Listing Market and the
Primary Listing Market requires a minimum
number of market makers, the minimum market
maker requirements of IEX Rules 14.310 and 14.320
that require a company listed on the Exchange to
maintain a particular minimum number of
registered and active Market Makers would not be
applicable to the LTSE Listings Issuer’s duallylisted security. See Amendment No. 1, supra note
6.
96 Proposed Rule 14A.401(b) provides that LTSE
Listings Issuers may request from IEX a written
interpretation of the LTSE Listings Rules, and a
response to such request generally would be
provided within one week following receipt by IEX
Regulation of all information necessary to respond
to the request.
E:\FR\FM\06JYN1.SGM
06JYN1
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
Issuer must annually certify to the
Exchange that: (i) The LTSE Listings
Issuer is in compliance with the
proposed Rule Series 14A.400,
qualifying the certification to the extent
necessary, and (ii) the LTSE Listings
Issuer has designated an employee
responsible for ensuring that the voting
power of the LTSE Listings Issuer’s
securities is determined in accordance
with proposed Rule 14A.413(b) (LongTerm Voting).97
LTSE Listings Issuers would not be
required to pay the fees described in IEX
Rule Series 14.600.98 The Exchange
represents that it intends to file a
separate proposed rule change that
would address listing fees applicable to
LTSE Listings Issuers.99
3. Shareholder Approval Calculation
Proposed Rule 14A.412 describes the
circumstances in which an Exchangelisted company is required to obtain
shareholder approval prior to the
issuance of securities in connection
with certain transactions. Under IEX
Rule 14.412, an Exchange-listed
company is required to obtain
shareholder approval in connection
with: (1) The acquisition of the stock or
assets of another company; (2) a change
of control; (3) equity-based
compensation of officers, directors,
employees, or consultants; and (4)
private placements.100 Among the
potential triggers that would require
shareholder approval, shareholder
approval is required if the common
stock being issued ‘‘has or will have
upon issuance voting power equal to or
in excess of 20% of the voting power
outstanding before the issuance.’’ 101 In
light of the potential increased future
voting power of new shares to be issued,
the Exchange believes that it is
appropriate in calculating the
shareholder approval threshold to
require that LTSE Listings Issuers assign
a greater level of voting power to the
newly issued shares than the Initial
Voting Power of those shares, on the
presumption that the ultimate voting
power of those shares would increase
over time.102 Proposed Rule 14A.412
would implement a special calculation
to determine whether or not the
issuance of new shares by an LTSE
daltland on DSKBBV9HB2PROD with NOTICES
97 See
proposed Rule 14A.435(b). In addition, an
LTSE Listings Issuer must provide the Exchange
with prompt notification after an Executive Officer
of the LTSE Listings Issuer becomes aware of any
noncompliance by the LTSE Listings Issuer with the
requirements of the proposed Rule Series 14A.400.
See proposed Rule 14A.410.
98 See proposed Rule 14A.200(c)(3).
99 See Notice, supra note 3, at 14092.
100 See id. at 14090.
101 See id.; see also IEX Rule 14.412(a)(1)(A).
102 See Notice, supra note 3, at 14090.
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
Listings Issuer would surpass the 20%
threshold.
Under current IEX Rule 14.412,
determining whether an issuance equals
or exceeds this shareholder approval
threshold is generally calculated by
multiplying the number of shares to be
issued by the voting power of such
shares and dividing this number by the
voting power of the shares outstanding
before the issuance.103 However,
because the shares of LTSE Listings
Issuers would have accruing voting
power, the Exchange is proposing Rule
14A.412 to provide a different means of
calculating the numerator and
denominator that would be applied to
LTSE Listings Issuers.104
Pursuant to proposed Rule
14A.412(a)(1), for LTSE Listings Issuers
that have been listed on LTSE Listings
for at least five years, the numerator of
the shareholder approval calculation
would be the number of shares to be
issued multiplied by the product of the
Initial Voting Power of such shares and
the Long-Term Voting Factor.105 For
LTSE Listings Issuers that have been
listed on LTSE Listings for fewer than
five years, the numerator would be the
greater of (i) the number of shares to be
issued multiplied by the product of the
Initial Voting Power of such shares and
the Long-Term Voting Factor and (ii) the
number of shares to be issued
multiplied by twice the Initial Voting
Power of such shares.106
Instead of applying the existing rule
for determining the denominator of the
calculation—the voting power of shares
outstanding at issuance as described in
IEX Rule 14.412(e)(2)—proposed Rule
14A.412(b) states that the following
provision shall apply, ‘‘[v]oting power
outstanding refers to the aggregate
number of votes which may be cast by
holders of those shares outstanding
which entitle the holders thereof to vote
generally on all matters submitted to the
company’s shareholders for a vote, as of
the Shareholder Approval Calculation
103 See id. This general formula is subject to
certain exceptions. See IEX Rule 14.412.
104 See Notice, supra note 3, at 14090–91.
105 See id. at 14091. Proposed Rule 14A.412(c)(1)
defines ‘‘Long-Term Voting Factor’’ as the quotient
calculated by dividing (i) the voting power
outstanding as of the Shareholder Approval
Calculation Date by (ii) the number of shares
outstanding as of the Shareholder Approval
Calculation Date multiplied by the Initial Voting
Power of those outstanding shares.
106 See proposed Rule 14A.412(a)(2).
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
31621
Date.’’ 107 All other provisions of IEX
Rule 14.412 would continue to apply.108
The Exchange believes that the
provisions of proposed Rule 14A.412 for
calculating when shareholder approval
would be required in connection with
certain transactions would be a
reasonable and balanced approach,
while taking into account the potential
increased future voting power of new
shares to be issued.109
4. Change of Control Transactions and
Reverse Mergers
The proposed LTSE Listings Rules set
forth procedures for change of control
transactions, which would operate in
conjunction with existing IEX Rule
14.102(a). Proposed Rule 14A.102(a)(1)
would require an LTSE Listings Issuer
to apply for initial listing in connection
with a transaction whereby the LTSE
Listings Issuer combines with, or into,
an entity that is not listed on LTSE
Listings, resulting in a change of control
of the LTSE Listings Issuer and
potentially allowing the non-LTSE
Listings entity to obtain a listing on
LTSE Listings.110 Proposed Rule
14A.102(a)(2) describes the impact of a
change of control transaction on the
proposed long-term voting provisions of
LTSE Listings and voting power of such
shares.111 Proposed Rule 14A.102(b)
states that an entity formed by a Reverse
Merger 112 would not be eligible to
107 Proposed 14A.412(c)(2) defines ‘‘Shareholder
Approval Calculation Date’’ as the date on which
an LTSE Listings Issuer enters into a binding
agreement to conduct a transaction that may require
shareholder approval under IEX Rule 14.412
(Shareholder Approval).
108 See Notice, supra note 3, at 14092.
109 See id.
110 ‘‘The Exchange shall consider the factors
enumerated in IEX Rule 14.102(a) for determining
whether a change of control has occurred.’’ See
proposed Rule 14A.102(a)(1). Any combined entity
applying for initial listing must agree to comply
with all applicable requirements of Chapter 14A,
including requirements relating to long-term voting
set forth in proposed Rule 14A.413, to apply to list
as permitted by proposed Rule 14A.102. See id.
111 If an initial listing following a change of
control meets applicable listing requirements and
the LTSE Listings Issuer is the surviving entity
following the business combination, any shares of
the LTSE Listings Issuer that have accrued
additional voting power pursuant to proposed Rule
14A.413(b) prior to the business combination would
retain such additional voting power following the
business combination. See proposed Rule
14A.102(a)(2). Conversely, if the non-LTSE Listings
Issuer is the surviving entity or a new entity is
formed following the business combination, all
shares of the class or classes of securities to be
listed on LTSE Listings would have voting power
equal to their Initial Voting Power at the time of
such listing. See id.
112 A ‘‘Reverse Merger’’ is generally defined as
‘‘any transaction whereby an operating company
becomes an Exchange Act reporting company by
combining, either directly or indirectly, with a shell
company which is an Exchange Act reporting
E:\FR\FM\06JYN1.SGM
Continued
06JYN1
31622
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
apply for initial listing on LTSE
Listings.
daltland on DSKBBV9HB2PROD with NOTICES
5. Exemptions From Certain Corporate
Governance Requirements
Proposed Rule 14A.407 modifies the
exemptions from certain governance
requirements for LTSE Listings Issuers.
Applicability of Exemptions to
Corporate Governance Requirements:
Proposed Rule 14A.407(a) would
provide that an LTSE Listings Issuer
may not rely on the exemptions set forth
in IEX Rule 14.407(a) with respect to the
requirements of Chapter 14A.113
Proposed Rule 14A.407(a) clarifies that
a Foreign Private Issuer who meets the
requirements of Chapter 14A, including
the requirement to distribute an Annual
Report Supplement, may list on LTSE
Listings.
Phase-in of Compliance With LTSP
Committee Composition Requirements:
In addition to the phase-in schedules
provided in existing IEX Rule
14.407(b),114 an LTSE Listings Issuer
that is listing in connection with its IPO
or that is emerging from bankruptcy
would be permitted to phase-in its
compliance with the LTSP Committee
composition requirements.115
Controlled Companies: Proposed Rule
14A.407(c)(1) states that an LTSE
Listings Issuer that is a Controlled
Company 116 would be exempt from the
additional compensation committee
requirements of proposed Rule
14A.405(b) and the nominating/
corporate governance committee
requirements of proposed Rule
14A.405(d).117
company, whether through a reverse merger,
exchange offer, or otherwise.’’ See IEX Rule
14.002(a)(27).
113 See Notice, supra note 3, at 14089. IEX Rule
14.407(a) provides exemptions to certain of the
Exchange’s corporate governance requirements for
asset-backed issuers and other passive issuers,
cooperatives, Foreign Private Issuers, limited
partnerships and management investment
companies.
114 IEX Rule 14.407(b) allows a company listed on
the Exchange to phase-in its compliance with
certain Exchange rules over a period of time in
certain situations, for example, for a company
emerging from bankruptcy. See id.
115 See proposed Rule 14A.407(b). Specifically,
that LTSE Listings Issuer would be permitted to
phase in its compliance with the committee
composition requirements set forth in proposed
Rule 14A.405(c)(4) as follows: (1) At least one
member of the LTSP Committee must be an
Independent Director at the time of listing, and (2)
a majority of the members of the LTSP Committee
must be Independent Directors within 90 days of
listing. See id.
116 The term ‘‘Controlled Company’’ is defined in
IEX Rule 14.407(c)(1) as an Exchange-listed
company of which more than 50% of the voting
power for the election of directors is held by an
individual, a group or another company.
117 However, Controlled Companies would not be
exempt from the executive compensation
requirements of proposed Rule 14A.405(b)(3). See
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
G. Other Requirements for LTSE Listings
Issuers
Earnings Guidance: Proposed Rule
14A.420 prohibits LTSE Listings Issuers
from providing Earnings Guidance more
frequently than annually, unless such
disclosure would be required by IEX
Rule 14.207(b)(1) (Disclosure of Material
Information), other applicable law or to
make the previously issued Earnings
Guidance not misleading.118
Long-Term Stakeholder Policies:
Proposed Rule 14A.425 requires LTSE
Listings Issuers to develop and publish:
(i) A policy regarding the LTSE Listings
Issuer’s impact on the environment and
community; and (ii) a policy explaining
the LTSE Listings Issuer’s approach to
diversity throughout the LTSE Listings
Issuer.119 The LTSE Listings Issuer must
review the policies required by
proposed Rule 14A.425 at least annually
and make such policies available on or
through its website.
Website Requirements: Several of the
proposed LTSE Listings rules require
LTSE Listings Issuers to make certain
disclosures or documents publicly
available on the LTSE Listings Issuer’s
website, and proposed Rule 14A.430
would explicitly require LTSE Listings
Issuers to have and maintain a public
available website.120 In addition,
proposed Rule 14A.413 would require
each LTSE Listings Issuer to prepare
and maintain an explanatory statement
that must be written in plain English
and posted prominently on the LTSE
Listings Issuer’s website and that must
explain how a shareholder’s voting
power in the LTSE Listings Issuer’s
securities may increase over time, and
explain the particular conditions that
must be satisfied and the administrative
steps that the shareholder must take to
hold shares in a manner that would
proposed Rule 14A.407(c)(1). If a Controlled
Company does not have a compensation committee,
the Independent Directors on the LTSP Committee,
or the Independent Directors of the board, would
be responsible for compliance with the executive
compensation requirements. See proposed Rule
14A.407(c)(2).
118 Pursuant to proposed Rule 14A.002(a)(5),
‘‘Earnings Guidance’’ means any public disclosure
made to Shareholders containing a projection of the
LTSE Listings Issuer’s revenues, income (including
income loss), or earnings (including earnings loss)
per share. Any Earnings Guidance, including
updates and supplementary disclosure related to
Earnings Guidance, must also comply with the
disclosure and notification requirements of IEX
Rule 14.207(b)(1). See proposed Rule 14A.420(b).
119 See Notice, supra note 3, at 14086.
120 For documents available on or through an
LTSE Listings Issuer’s website, such website must
be accessible from the United States, must clearly
indicate in the English language the location of
such documents on the website and such
documents must be available in a printable version
in the English language. See proposed Rule
14A.430.
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
allow such voting power to increase
over time.121
H. Failure To Meet LTSE Listings
Standards
Pursuant to IEX Rule 14.500(a), a
failure to meet the listing standards set
forth in the LTSE Listings Rules would
be treated as a failure to meet the listing
standards set forth in Chapter 14 of the
IEX Rules, for purposes of the IEX Rule
Series 14.500. As a result, the
procedures for the independent review,
suspension, and delisting of companies
that fail to satisfy one or more standards
for continued listing would apply to any
LTSE Listings Issuer that fails to comply
with listing standards in the LTSE
Listings Rules as well as in Chapter 14
of the IEX Rules.
Proposed Rule 14A.500(b) would
provide that a failure to satisfy one or
more of the LTSE Listings Rules would
be treated as a deficiency for which a
company may submit a plan to regain
compliance in accordance with IEX
Rule 14.501(d)(2). Absent an extension,
such a plan must be provided within 45
calendar days of IEX Staff’s notification
of deficiency in accordance with IEX
Rule 14.501(d)(2)(C) (Timeline for
Submission of Compliance Plans).
Proposed Rule 14A.500 would permit
an issuer to remain listed on the
Exchange as a standard IEX listed
company should the LTSE Listings
Issuer become subject to delisting for
failure to satisfy one or more LTSE
Listings Rules, but remains in
compliance with all other applicable
listing rules of the Exchange.
IV. Summary of Comments and IEX’s
Response Letter
As noted above, the Commission
received twenty-three comment letters
regarding the proposed rule change 122
and one response letter from the
Exchange.123 All commenters expressed
their support for the proposed rule
change, although two commenters
indicated that they generally preferred
single class voting structures.124 Several
commenters suggested that IEX’s
proposed rule change may encourage
additional companies to pursue an
initial public offering with an increased
focus on long-term objectives.125 Many
121 See
Amendment No. 1, supra note 6.
supra note 4.
123 See supra note 5.
124 See Inherent Group Letter and Glass, Lewis
Letter.
125 See Collaborative Fund Letter at 1; Costolo
Letter; Case Letter; Conference Board Letter at 2;
Andreessen Horowitz Letter; Obvious Ventures
Letter; Founders Fund Letter; Descript Letter;
LinkedIn Letter; Y Combinator Letter at 1–2;
Techstars Letter at 1; Downtown Project Letter;
CareJourney Letter; Brummer Letter at 3. See also
122 See
E:\FR\FM\06JYN1.SGM
06JYN1
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
daltland on DSKBBV9HB2PROD with NOTICES
commenters expressed a related view
that the current market structure
disproportionately encourages shortterm outlooks.126 One commenter
suggested that the proposal would
encourage additional new listings by
increasing competition and providing
an alternative model in the exchange
market for listings.127 Another
commenter commended IEX more
broadly for its proposal’s innovation in
areas such as increasing transparency in
reporting and disclosure of long-term
strategy, aligning board incentives with
the interests of long-term shareholders,
aligning executive compensation with
long-term performance, and recognizing
environmental, social, and governance
priorities.128 Yet another commenter
remarked that founders today feel the
need to grow large in the private
markets in order to sustain and protect
their cultures, thinking, and values
when they enter the public markets.129
Five commenters specifically
supported providing longer-tenured
investors in a company with greater
input in corporate governance.130 In
addition to the proposed long-term
voting system, two of these commenters
also highlighted the benefits of the
additional disclosure requirements that
are focused on long-term growth.131
Three commenters stated that the
proposed listing standards would
increase transparency to investors, such
as with respect to long-term goals,
metrics, and performance, and would
help align executive compensation with
these long-term measures.132 One of
these commenters suggested that IEX’s
proposal to require a board committee
focused on long-term growth strategies
and the disclosure of such strategies
Greylock Partners Letter (expressing support for ‘‘a
new option that aims to build an ecosystem that
enables opportunity and connects long-term
visionaries from all sides of the economy’’). Two
commenters supporting the proposal discussed the
benefits of a new exchange designed to promote
long-term objectives. See Collaborative Fund Letter
at 1; Baillie Gifford Letter at 1–2. The Commission
notes that IEX’s proposed rule change would simply
provide an additional listings tier on IEX, and that
IEX is not proposing an application for registration
as a separate national securities exchange.
126 See, e.g., Inherent Group Letter at 1; Buhl
Letter; Conference Board Letter at 1–2; Andreessen
Horowitz Letter; Obvious Ventures Letter; Greylock
Partners Letter; Aspen Institute Letter; Descript
Letter; LinkedIn Letter; Techstars Letter at 1;
Downtown Project Letter; CareJourney Letter;
Revolution Letter.
127 See Cboe Letter at 1.
128 See Glass, Lewis Letter at 1–2.
129 See Initialized Capital Letter.
130 See Revolution Letter; Inherent Group Letter at
1; CareJourney Letter; Brummer Letter at 4–5;
CalPERS Letter at 2.
131 See CalPERS Letter at 2; Brummer Letter at 3–
4.
132 See Inherent Group Letter at 1; Andreessen
Horowitz Letter; Brummer Letter at 3–4.
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
could better encourage long-term
relationships between issuers and their
shareholders through the increased
transparency that the proposal would
promote.133 This commenter also
highlighted the proposal’s required
disclosure of human capital expenses
and short-term vs. long-term research
and development spending as features
that could provide valuable insight into
how issuers are effectively investing in
their long-term growth and thereby
mitigate concerns about short-term
fluctuations in earnings.134 This
commenter further noted that the
proposed executive compensation
requirements would better tie
management’s incentives to the listed
company’s disclosed long-term growth
strategy.135
One commenter, while generally
supporting IEX’s proposal, expressed
concern about the proposed increasing
voting rights that are based on the
length of time that the shares are
held.136 This commenter noted that
dual-class voting structures ‘‘are
generally not in the best interests of
common shareholders; this includes any
equity structures providing unequal
voting rights, regardless of the number
of share classes issued.’’ 137 This
commenter acknowledged, however,
that the long-term shareholder voting
feature of the IEX proposal may be
preferable to some investors compared
to other existing unequal voting
structures.138 Another commenter,
while not expressing a concern specific
to IEX’s proposal, noted that it
‘‘generally prefer[s] single-class share
structures,’’ but ‘‘support[s] mechanisms
that reward long-term shareholders with
a greater say in corporate governance
issues than short-term shareholders.’’ 139
This commenter cautioned that any
such mechanisms ‘‘must maintain
management accountability, preserve
adequate liquidity in the public
markets, and balance the interests of
small and large—and short-term and
long-term—shareholders.’’ 140
In its response to the commenters, IEX
stated that its proposed long-term voting
provisions differ from existing dualclass and uneven voting structures
because its proposed voting structure
treats all common shareholders equally
in their ability to gain additional voting
power based on the length of time that
PO 00000
133 See
Brummer Letter at 4.
134 See id.
135 See id.
136 See Glass, Lewis Letter at 2.
137 See id.
138 See id.
139 See Inherent Group Letter at 1.
140 See id.
Frm 00098
Fmt 4703
Sfmt 4703
31623
their shares are held.141 According to
the Exchange, this proposed structure is
designed to more directly align voting
rights with long-term engagement with
the issuer.142 The Exchange further
noted that the proposed voting structure
should not be mandated for any issuer
but is an important alternative that
would be available to issuers that elect
to list on the proposed new IEX listings
tier.143
V. Discussion and Commission Findings
After careful review and
consideration of the comments received,
the Commission finds that the proposed
rule change, as modified by Amendment
No. 1, is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange.144 In
particular, the Commission finds that
the proposed rule change, as modified
by Amendment No. 1, is consistent with
Section 6(b)(5) of the Act.145 Section
6(b)(5) of the Act146 requires, among
other things, that the rules of a national
securities exchange be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest; and
not be designed to permit unfair
discrimination between customers,
issuers, brokers or dealers.
As noted above, the Commission
received 23 comment letters on the
proposed rule change, as well as a
response letter from the Exchange. The
commenters generally expressed
support for the Exchange’s proposal,
although two commenters indicated that
they preferred single-class voting
structures, but acknowledged that they
otherwise supported the aim of the
Exchange’s proposal to favor long-term
shareholder value.147
The Exchange proposes to adopt
listing rules for a new tier of listings on
its market, LTSE Listings. The Exchange
states that it believes that companies
141 See
IEX Response Letter at 1.
id. at 1–2.
143 See id. at 2.
144 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
145 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5).
146 15 U.S.C. 78f(b)(5).
147 See Section IV., supra.
142 See
E:\FR\FM\06JYN1.SGM
06JYN1
31624
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
daltland on DSKBBV9HB2PROD with NOTICES
should be able to maintain a public
listing on an exchange that provides a
differentiated choice for issuers and
investors that prefer listing standards
that the Exchange explicitly has
designed with the aim of promoting
long-term value creation. Although
companies today could list on the
Exchange and voluntarily choose to
focus on long-term value creation, the
Exchange believes that providing a
listing category with listing rules that
the Exchange has designed to address
some of the concerns regarding ‘‘shorttermism’’ could encourage greater
participation in the public markets by
long-term focused companies and
investors
In support of its proposal, the
Exchange notes that many academics,
commentators, market participants, and
others have expressed concerns
regarding ‘‘short termism’’ and the
potential impact on issuers when some
investors’ focus on short-term results.
The Exchange points to data indicating
that the average number of IPOs per year
from 2001 through 2016 was
approximately one-third of the average
number of IPOs between 1998 and 2000,
and that the number of listed companies
fell by nearly 50% from 1996 through
2016.
An analysis of IPO data,148 prepared
by the Commission’s Division of
Economic Research and Analysis,
similarly points to a decline in the
number of IPOs and public companies
compared to the nineties. For example,
the number of IPOs declined by
approximately 77% from 1997 to 2017,
while the average number of IPOs per
year declined by approximately 73%
from 1990–1998 to 2001–2017.149 The
number of listed companies decreased
by approximately 45% from 1997 to
2017 and the average number of listed
companies decreased by approximately
34% from 1990–1998 to 2001–2017.150
148 See Ritter, J., Initial Public Offerings: Updated
Statistics, January 2018, https://
site.warrington.ufl.edu/ritter/files/2018/01/
IPOs2017Statistics_January17_2018.pdf (retrieved
Jun. 20, 2018). The sample excludes IPOs with
offers prices below $5, ADRs, units, closed-end
funds, REITs, natural resource limited partnerships,
small best efforts offers, banks and thrifts, and
stocks not listed on Amex, NYSE, and NASDAQ.
149 Id. Peak technology bubble years (1999 and
2000) are excluded. If 2008 and 2009 are excluded,
the decrease in the average number of IPOs per year
from 1990–1998 to 2001–2017 is estimated to be
approximately 70%.
The decline is smaller but still considerable when
an earlier time period is used for comparison. The
average number of IPOs per year decreased by
approximately 47% from 1980–1989 to 2001–2017
(approximately 42%, excluding 2008–2009).
150 The estimate is based on Staff calculations
based on World Bank’s World Development
Indicators data on the number of domestic listed
companies in the US (retrieved April 23, 2018). The
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
Academic studies have similarly
demonstrated a decline in the number of
U.S. IPOs and listed companies in
recent years and have cited various
potential reasons for this decline,
including a high cost of going public
and being a reporting company,151 the
advantages of being acquired by a larger
firm,152 and the expanding role of
private markets.153 Other studies
generally note the cyclical nature of
offering activity.154
Other observers have offered various
reasons for the IPO decline, including
high costs of an IPO and of being a
public company155 and the
attractiveness of private placements and
of being acquired.156
average number of listed companies is estimated to
have decreased by approximately 23% from 1980–
1989 to 2001–2017.
151 See, e.g., Engel, E., Hayes, R., Wang, X., 2007,
The Sarbanes–Oxley Act and Firms’ Going-Private
Decisions, Journal of Accounting and Economics
44(1–2), 116–145; Kamar, E., Karaca-Mandic, P.,
Talley, E., 2009, Going-Private Decisions and the
Sarbanes-Oxley Act of 2002: A Cross-Country
Analysis, Journal of Law, Economics, &
Organization 25(1), 107–133; Bova, F., MinuttiMeza, M., Richardson, G., Vyas, D., 2014, The
Impact of SOX on the Exit Strategies of Private
Firms, Contemporary Accounting Research 31(3),
818–850.
152 See, e.g., Gao, X., Ritter, J., Zhu, Z., 2013,
Where have all the IPOs gone? Journal of Financial
and Quantitative Analysis 48(6), 1663–1692.
153 See, e.g., Ewens, M., Farre-Mensa, J., 2018,
The deregulation of the private equity markets and
the decline in IPOs, Working paper, https://
ssrn.com/abstract_id=3017610 (retrieved Jun. 20,
2018); Doidge, C., Kahle, K., Karolyi, A., Stulz, R.,
2018, Eclipse of the Public Corporation or Eclipse
of the Public Markets? Journal of Applied Corporate
Finance 30(1), 8–16.
154 See, e.g., Lowry, M., 2003, Why does IPO
volume fluctuate so much? Journal of Financial
Economics 67(1), 3–40; Alti, A., 2005, IPO Market
Timing, Review of Financial Studies 18(3), 1105–
1138; Yung, C., Colak, G., Wang, W., 2008, Cycles
in the IPO market, Journal of Financial Economics
89(1), 192–208.
155 See, e.g., IPO taskforce, Rebuilding the IPO
On-Ramp: Putting Emerging Companies and the Job
Market Back on the Road to Growth, October 20,
2011, https://www.sec.gov/info/smallbus/acsec/
rebuilding_the_ipo_on-ramp.pdf (retrieved Jun. 27,
2018); Committee on Capital Markets Regulation,
U.S. Public Markets are Stagnating, April 2017,
https://www.capmktsreg.org/wp-content/uploads/
2017/06/US-Public-Equity-Markets-areStagnating.pdf (retrieved Jun. 27, 2018). Besides
ongoing costs of periodic reporting, observers have
pointed to other considerations, such as the costs
of the IPO, disclosure requirements, audits,
litigation, investor relations, shareholder activism,
etc.
156 See, e.g., Eule, A., Are Unicorns Killing the
2016 IPO Market? June 4, 2016, Barron’s, https://
www.barrons.com/articles/are-unicorns-killing-the2016-ipo-market-1465018470 (retrieved Jun. 27,
2018); Zanki, T., 4 Reasons Cos. Are Staying Private
Longer, March 14, 2017, Law360, New York,
https://www.law360.com/articles/901768?scroll=1
(retrieved Jun. 27, 2018); Hutchinson, J., Why Are
More Companies Staying Private? February 15,
2017, https://www.sec.gov/info/smallbus/acsec/
hutchinson-goodwin-presentation-acsec-021517.pdf
(retrieved Jun. 27, 2018). See also Notice, supra
note 3, at 14075 n.10.
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
Issuers that list on the LTSE Listings
tier would be subject to the listing
standards in proposed Chapter 14A of
IEX’s rules, as well as Chapter 14 of
IEX’s rules relating to its standard
listing tier. Significant features of
proposed Chapter 14A, which are
discussed in more detail below, pertain
to: (1) The opportunity for shareholders
to receive accreting voting rights; (2) an
alternative calculation for determining
shareholder approval requirements; (3)
additional corporate governance and
other requirements for LTSE Listings
Issuers; and (4) provisions pertaining to
dually-listed securities.
A. Mandatory Accreting Voting Rights
A key feature of the Exchange’s
proposal is the requirement that
companies electing to list their common
equity securities on the Exchange’s
LTSE Listings tier must comply with the
voting rights requirements set forth in
proposed Rule 14A.413 with respect to
those listed securities. In the Exchange’s
view, the proposed voting rights
structure is designed to more directly
align shareholders’ voting rights with
long-term issuer engagement.157
Specifically, proposed Rule 14A.413(b)
would require an LTSE Listings Issuer
to establish an Initial Voting Power158
associated with its listed securities, and
that Initial Voting Power would be
required to increase at a rate of at least
1/12th per month for each eligible
shareholder 159 that owns the issuer’s
shares continuously as of the date that
the shareholder appears as the record
owner on the LTSE Listings Issuer’s
books or through DRP. Under Rule
14A.413(b), the voting power of the
shares would be required to accrete up
to an amount that is ten times their
Initial Voting Power. However, if at any
time, the shareholder ceases to hold the
LTSE Listing Issuer’s shares in record
form or transfers those shares out of
record ownership (whether for purposes
of sale or otherwise), then on the date
of such transfer the increased voting
power of the shares would revert to
their Initial Voting Power. The
Exchange states that the voting rights
provisions are designed to align with
the long-term focus of the LTSE Listings
category by providing long-term
investors in an LTSE Listings Issuer
with a greater role in corporate
157 See
supra notes 67–68 and accompanying text.
supra note 74 and accompanying text.
159 Only shareholders of an LTSE Listings Issuer
who register such shares in their name as record
holders on the books of the LTSE Listings Issuer,
including through the use of a DRP, would be
eligible for these accreting voting rights. See supra
note 72 and accompanying text.
158 See
E:\FR\FM\06JYN1.SGM
06JYN1
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
daltland on DSKBBV9HB2PROD with NOTICES
governance than short-term
shareholders.160
Although the commenters generally
supported the Exchange’s proposal, two
commenters expressed a concern about
the proposed voting rights structure.161
Specifically, one commenter noted a
concern that dual-class voting structures
generally are not in the best interests of
shareholders, and that skewing the
alignment of ownership and voting
rights presents agency risks.162 The
other commenter stated that
mechanisms that reward long-term
shareholders with a greater say in
corporate governance nonetheless
should balance the interests of small
and large, and short-term and long-term,
shareholders.163 The Exchange
responded by noting that its proposal
differs from existing dual-class and
uneven voting structures because its
proposed voting structure would treat
the LTSE Listings Issuer’s common
shareholders equally in their ability to
gain additional voting power based on
their ownership tenure.164 The
Exchange further noted that its
proposed voting structure would
provide an alternative available to
issuers that elect to list on the proposed
LTSE Listings tier.165 In its proposal, the
Exchange also stated that because LTSE
Listings Issuers would be required, as a
pre-condition to listing on LTSE
Listings, to already have in place a
voting rights structure as of the date of
its initial listing that complies with
LTSE Listings Rule 14A.413(b), no new
corporate action that disparately
reduces voting rights would be taken
subsequent to listing on the
Exchange.166
Section 6(b)(5) of the Exchange Act
requires that an exchange’s rules be
designed to promote just and equitable
principles of trade and not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers
and, in general, to protect investors and
the public interest. The proposed voting
rights structure rule would require an
LTSE Listings Issuer to differentiate in
the allocation of voting rights based on
the manner in which its shareholders
hold their shares (whether in DRP or
record name or whether in street name)
160 See Notice, supra note 3, at 14083. The
Exchange believes that long-term investors in a
public company are more likely than short-term
shareholders to exercise their voting rights in a
manner that prioritizes long-term growth over shortterm results. See id.
161 See Inherent Group Letter and Glass, Lewis
Letter at 2.
162 See Glass, Lewis Letter at 2.
163 See Inherent Group Letter.
164 See IEX Response Letter at 1.
165 See id. at 2.
166 See supra note 79 and accompanying text.
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
and for the length of time that they hold
their shares. The proposed voting rights
rule is intended to allow shareholders of
an LTSE Listings Issuer to increase the
voting power of their shares as long as
they continue to hold such shares as
record holders on the books of the LTSE
Listings Issuer, including through DRP.
The proposal does not make any other
distinction in voting rights among the
LTSE Listings Issuer’s shareholders, and
any shareholders that continuously hold
their shares in record form would be
eligible to increase their voting power
up to the maximum allowable voting
power consistent with proposed Rule
14A.413(b). LTSE Listings Issuers also
would be required to comply with IEX’s
existing voting rights policy, which
provides that the voting rights of
existing shareholders of listed stock
cannot be disparately reduced or
restricted through any corporate action
or issuance, including, but not limited
to, the adoption of time-phased voting
plans, the adoption of capped voting
rights plans, the issuance of supervoting stock, or the issuance of stock
with voting rights less than the per
share voting rights of the existing
common stock through an exchange
offer.167 To address the restrictions in
this voting rights policy, the proposal
prohibits an LTSE Listings Issuer from
issuing additional classes of common
stock that exceeds the Initial Voting
Power of any of the LTSE Listings
Issuer’s existing classes of common
stock listed on LTSE Listings. In
addition, the proposal prohibits
issuances where the rate at which the
voting power of such class may increase
over time at a rate greater than the
corresponding rate for any of the LTSE
Listings Issuer’s existing classes of
common stock listed on LTSE
Listings.168
The Commission also notes that,
pursuant to proposed Rule
14A.200(c)(2), at the time that a
company initially lists on the LTSE
Listings tier, that company may not
have any securities listed for trading on
IEX or any other national securities
exchange, and that a company would be
permitted to list on LTSE Listings only
in connection with its initial public
offering.169 The proposal also would
require an LTSE Listings Issuer to
prepare and maintain an explanatory
statement, written in plain-English, and
posted prominently on its website,
which provides information regarding
the rights of shareholders under the
issuer’s long-term voting provisions,
including, at a minimum, explanations
of how a shareholder’s voting power
may increase over time, the particular
conditions that must be satisfied in
order for such additional voting power
to increase, and the administrative steps
that a shareholder must take to hold
shares in a manner that will allow their
voting power to increase over time.170 In
light of the foregoing, the Commission
finds that the Exchange’s voting rights
proposal is consistent with Section
6(b)(5) of the Act.
B. Alternative Calculation for Requiring
Shareholder Approval
The Exchange proposes a modified
shareholder approval calculation
formula for LTSE Listings Issuers to be
used for determining when shareholder
approval is required for additional
issuances of securities. While the
calculation for shareholder approval
ordinarily would be based on the legal
maximum potential voting power of the
shares to be issued (which in the case
of the proposed rules would multiply
the Initial Voting Power by ten), the
Exchange asserts that this approach
would not be appropriate because it
believes that it would be extremely
unlikely that all shares of a new
issuance would be held in record name
by the same shareholder uninterrupted
for a period of 10 years.171 The
Exchange also states that it would be
even more unlikely for all shares of a
new issuance to accrue votes up to the
maximum amount while the shares
outstanding remain static and do not
accrue any additional voting rights. The
Exchange therefore argues that requiring
issuers to make these particular
assumptions would result in LTSE
Listings Issuers having to obtain
shareholder approval for transactions
that would not be materially dilutive to
existing shareholders. The Exchange
further contends that imposing the
burden of obtaining shareholder
approval (including the monetary costs,
as well as the time involved and
uncertainty of outcome) would not be
justified for transactions that, in the
Exchange’s view, are unlikely to be
materially dilutive to the voting power
of existing shareholders.172
The Exchange notes that, because
shareholders may or may not elect to
hold their shares in record ownership,
170 See
id.
Notice, supra note 3, at 14090. Under the
proposal, transferring shares out of record form or
transferring ownership to another person would
revert the voting rights associated with the shares
to their Initial Voting Power.
172 See id. at 14090–91.
171 See
IEX Rule 14.413.
supra note 81 and accompanying text;
proposed Rule 14A.413, Supplementary Material
.01(f).
169 See Amendment No. 1, supra note 6.
PO 00000
167 See
168 See
Frm 00100
Fmt 4703
Sfmt 4703
31625
E:\FR\FM\06JYN1.SGM
06JYN1
daltland on DSKBBV9HB2PROD with NOTICES
31626
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
and may hold them in such manner for
varying lengths of time, it is not possible
to determine with precision how many
shares issued in any transaction would
accumulate additional voting power or
the extent of voting power that those
shares eventually would attain.173 The
Exchange proposes two alternative
means for calculating the maximum
potential voting power of the new
shares: (i) for issuers that have been
listed on LTSE Listings for at least five
years, this value would be the number
of shares to be issued multiplied by both
the Initial Voting Power and Long-Term
Voting Factor,174 and (ii) for issuers that
have been listed on LTSE Listings for
fewer than five years, this value would
be the greater of (x) the number of
shares to be issued multiplied by both
the Initial Voting Power and Long-Term
Voting Factor or (y) the number of
shares to be issued multiplied by the
Initial Voting Power, multiplied by two.
The Exchange states that the LongTerm Voting Factor is intended to
estimate the extent of the increase in
voting power that the new shares to be
issued are likely to obtain based on the
percentage of increased voting power
that existing issued shares have already
obtained. The Exchange also believes
that, for companies that have been listed
for a shorter period of time, a minimum
multiple of two is appropriate because
the actual Long-Term Voting Factor that
these companies would have
experienced is likely to be lower than
that of longer-listed companies and may
not be representative of the longer-term
growth in voting power that the new
shares may ultimately attain.175
The Commission notes that the
rationale for the Exchange’s proposed
modification to the shareholder
approval calculation is based on the
unique features of the proposed voting
rights structure. The traditional
shareholder approval calculation
assumes that the maximum voting rights
of any newly issued shares definitely
would be reached. However, because of
the way the Exchange’s proposal would
work (i.e., with the voting rights
reverting to their Initial Voting Power
upon any trade, and accreting voting
rights available only for record holders),
it is difficult to predict what the
maximum voting rights of the newlyissued shares would be. While the
proposed formula for modifying the
calculation of the maximum potential
voting power of the newly-issued shares
may appear reasonable, it is difficult to
173 See
id. at 14090.
supra note 105 and accompanying text, for
a description of the Long-Term Voting Factor.
175 See Notice, supra note 3, at 14091.
174 See
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
assess whether it is in fact appropriate
because there is no available data on the
behavior of securities subject to the
proposed voting structure. The
Commission notes that the Exchange
has represented that, if approved, it
would periodically assess whether a five
year cut-off for applying a minimum
Long-Term Voting Factor and the
minimum Long-Term Voting Factor of
two continue to be appropriate, or
whether either element should be
modified based on the Exchange’s
experience with LTSE Listings Issuers.
For example, the Exchange would
consider when the rate of growth of the
voting power of an LTSE Listings
Issuer’s shares typically becomes
relatively stable and at what level.176
The Commission believes that that these
representations by the Exchange are
important for ensuring that the
calculation for shareholder approval is
appropriately established for LTSE
Listings Issuers and that the
requirement for shareholder approval
for required transactions remains robust.
In addition, the Commission notes that
LTSE Listings Issuers would have to
comply with all the other provisions of
the shareholder approval rules that
require a shareholder vote. For example,
an issuance that results in a change of
control would need to have shareholder
approval irrespective of whether the
issuance exceeded the 20% provision as
calculated under the LTSE Listings
rules.
For the foregoing reasons, the
Commission finds that the Exchange’s
proposal with regard to the proposed
shareholder approval calculation is
consistent with the Act, particularly
Section 6(b)(5) thereunder. The
Commission notes, however, that in the
case of an LTSE Listings Issuer whose
securities are dually-listed under
proposed Rule 14A.210, such issuers
would be required to comply with the
stricter listing standard for calculating
the requirement for shareholder
approval, which could be the rule of the
other listing exchange.
C. Additional Corporate Governance
and Other Requirements
The Exchange’s proposal contains a
number of additional corporate
governance requirements for LTSE
Listings issuers, which would be in
addition to or in lieu of the corporate
governance requirements contained in
Chapter 14 of IEX’s rules. The proposed
new requirements for boards of directors
and board committees are designed to
align the board with the objectives of
PO 00000
176 See
id. at 14091 n.87.
Frm 00101
Fmt 4703
the LTSE Listings rules.177 The proposal
would require the boards of an LTSE
Listings issuer to establish an LTSP
Committee, which would be dedicated
to overseeing the issuer’s strategies for
creating and sustaining long-term
growth, and a nominating/corporate
governance committee. The proposal
also would require committees,
including the audit and compensation
committees, to report to the board and
to make their charters available on the
issuer’s website, and would retain the
composition and transparency
requirements of those committees, if
their functions were transferred to
another committee. LTSE Listings
Issuers would be required to provide
more transparency about their
operations, and in particular their longterm goals, strategies, and performance,
in the form of additional disclosures,
i.e., the LTSP Disclosures, in an Annual
Report Supplement. The proposal also
would require LTSE Listings Issuers to
adopt corporate governance guidelines
and executive compensation guidelines,
which would impose certain
requirements and restrictions on
executive compensation that the
Exchange believes are measures
intended to capture the long-term
performance of the issuer.
These additional corporate
governance requirements were
supported by the commenters.
Commenters particularly supported the
proposed increased transparency for
investors and the proposed
requirements that the Exchange has
designed with the intent of aligning
executive compensation with long-term
measures of the issuer’s performance.
The Commission finds that the
proposed additional corporate
governance requirements are consistent
with the Act, particularly Section 6(b)(5)
thereunder.
D. Dual Listings
The Exchange proposes to allow an
LTSE Listings Issuer to list a class of
securities that, in connection with its
IPO, has been approved for listing on
another national securities exchange.
The Exchange would make an
independent determination of whether
such issuer satisfies all the applicable
listing requirements of the Exchange
and would require such issuer to enter
into a dual-listing agreement with the
Exchange. The Exchange would expect
the other national securities exchange to
be the LTSE Listings Issuer’s primary
listing market. The proposed rules
would require prompt notification by
the LTSE Listings Issuer if it falls below
177 See
Sfmt 4703
E:\FR\FM\06JYN1.SGM
id. at 14077.
06JYN1
daltland on DSKBBV9HB2PROD with NOTICES
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
the listing standards of the other
exchange (and vice versa), and also
would honor the trade halt authority of
Primary Listing Market, as designated
under the CQ and CTA Plans or the UTP
Plan.
The Commission finds that the
proposal to allow dual-listings of
securities listed on LTSE Listings,
which would allow such dual-listings to
occur in connection with the initial
public offering of those securities, is
consistent with the Exchange Act. The
Commission notes that dually-listed
securities of LTSE Listings issuers
would need to satisfy the listing
standards of both exchanges in order to
maintain both listings, and could not
rely on satisfying one exchange’s listing
standards to maintain its listing on the
other exchange. The Commission also
notes that in instances where one
exchange has a higher or more stringent
requirement than the other exchange,
the issuer would be required to comply
with the higher or more stringent
requirement. For example, as noted
above, if an LTSE Listings Issuer’s
security is also listed on another
exchange and that other exchange has a
more stringent requirement for applying
its shareholder approval calculation
requirement, the more stringent
requirement of the other exchange
would be applied to the LTSE Listings
issuer. Similarly, if the other exchange
has a lower requirement or no
requirement with respect to a corporate
governance requirement imposed by the
Exchange for an LTSE Listings Issuer,
such as the LTSP Disclosures
requirement, the LTSE Listings Issuer
would have to comply with the higher
standard imposed by the Exchange.
In light of the foregoing, the
Commission finds that the Exchange’s
proposal to adopt rules relating to
supplemental listing standards for LTSE
Listings Issuers is consistent with the
Act, particularly Section 6(b)(5)
thereunder. The Commission believes
that the proposed rules are appropriate
in that they aim to provide issuers that
believe the LTSE Listings standards to
be better aligned with their objectives,
and potentially with the governance
preferences of their shareholders, with
the option to comply with certain
additional listing requirements, which
in turn would provide shareholders
with the opportunity to increase their
voting power in the issuer’s listed
securities.
VI. Solicitation of Comments on
Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to
submit written data, views, and
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
arguments concerning whether
Amendment No. 1 is consistent with the
Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2018–06 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–IEX–2018–06. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–IEX–2018–06, and should
be submitted on or before July 27, 2018.
VII. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the thirtieth day after the date of
publication of notice of the filing of
Amendment No. 1 in the Federal
Register. As discussed above,
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
31627
Amendment No. 1 revises the proposal
to: (1) Clarify in proposed Rule
14A.001(a) that an LTSE Listings Issuer
must qualify for listing under Chapter
14 of the IEX Rules and the LTSE
Listings Rules, except as otherwise
provided in the LTSE Listings Rules; (2)
specify in proposed Rule 14A.200(c)(2)
that when a company lists on LTSE
Listings, in addition to the requirement
that the company must not have any
security listed for trading on the
Exchange or any other national
securities exchange, the company also
must be listing in connection with its
initial public offering; (3) add paragraph
(c) to proposed Rule 14A.210 to provide
that if dually-listed securities are listed
on another national securities exchange
that is the primary listing market and
requires a minimum number of market
makers, the minimum market maker
requirements of IEX Rules 14.310 and
14.320 would not be applicable to such
dually-listed securities; and (4) add
paragraph (c) to proposed Rule 14A.413
to require each LTSE Listings Issuer to
prepare and maintain an explanatory
statement that must be written in plain
English, made publicly available, and
posted prominently on its website and
that must describe how the voting
power of the issuer’s securities may
increase over time, and the conditions
and administrative steps necessary for
such voting power to increase.
With respect to not applying the
minimum market maker requirements of
IEX Rules 14.310 and 14.320 when
another national securities exchange is
the Primary Listing Market for the LTSE
Listing Issuer’s dually-listed securities,
the Exchange notes that such
requirements are not necessary if the
Primary Listing Market imposes
minimum market maker requirements.
With respect to requiring each LTSE
Listings Issuer to make an explanatory
statement publicly available and posted
prominently on the issue’s website
explaining the long-term voting
provisions, the Exchange believes that
the new rule language would help
ensure that an LTSE Listings Issuer’s
shareholders would be able to easily
obtain necessary information about the
LTSE Listings Issuer’s long-term voting
structure and how such shareholders, if
they so choose, may accrue additional
voting power over time. With respect to
the amendments to proposed Rules
14A.001(a) and 14A.200(c)(2), the
Exchange notes that these are simply
conforming and clarifying changes to
the proposed rule text.
The Commission believes that
Amendment No. 1 would help increase
transparency by providing clear and
easily accessible information to
E:\FR\FM\06JYN1.SGM
06JYN1
31628
Federal Register / Vol. 83, No. 130 / Friday, July 6, 2018 / Notices
shareholders and potential shareholders
regarding an LTSE Listings Issuer’s
long-term voting structure and regarding
how they can accrue additional voting
power over time. The Commission also
believes that it is appropriate for the
Exchange to not apply the minimum
market maker requirements of IEX Rules
14.310 and 14.320 when another
national securities exchange is the
Primary Listing Market for the LTSE
Listings Issuer’s dually-listed securities.
The Commission believes that
Amendment No. 1 does not raise any
new or novel regulatory issues, and
provides additional transparency to
investors, further facilitating the
Commission’s ability to make the
findings set forth above to approve the
Exchange’s proposed rule change. For
these reasons, the Commission finds
good cause, pursuant to Section 19(b)(2)
of the Act,178 to approve the proposed
rule change, as modified by Amendment
No. 1, on an accelerated basis.
VIII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,179 that the
proposed rule change (SR–IEX–2018–
06), as modified by Amendment No. 1,
be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.180
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–14461 Filed 7–5–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83570; File No. SR–NYSE–
2017–53]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Withdrawal of Proposed Rule Change
To Amend the Listed Company Manual
for Special Purpose Acquisition
Companies To Lower the Initial
Holders Requirement From 300 to 150
Round Lot Holders and To Eliminate
Completely the Public Stockholders
Continued Listing Requirement, To
Require at Least $5 Million in Net
Tangible Assets for Initial and
Continued Listing, and To Impose a 30Day Deadline To Demonstrate
Compliance With Certain Initial Listing
Requirements Following a Business
Combination
June 29, 2018.
On November 16, 2017, New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend the Listed Company Manual
(‘‘Manual’’) for Special Purpose
Acquisition Companies (‘‘SPACs’’) to
lower the initial holders requirement
from 300 to 150 round lot holders and
to eliminate the continued listing
requirement of 300 public stockholders
completely, to require at least $5 million
in net tangible assets for initial listing
and continued listing, and to allow
companies 30 days to demonstrate
compliance with the applicable holder
requirements of Section 102.01A in the
Manual following a business
combination.3 Finally, NYSE proposed
to eliminate certain alternative initial
listing distribution criteria for securities
of SPACs that list in connection with a
transfer or quotation.
The proposed rule change was
published for comment in the Federal
Register on December 6, 2017.4 The
Commission received two comments on
the proposal in response.5 On January
18, 2018, the Commission extended the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 SPAC initial listing requirements are currently
set forth in Section 102.06 of the Manual and SPAC
continued listing requirements are in Section
802.01B of the Manual.
4 See Securities Exchange Act Release No. 82180
(November 30, 2017), 82 FR 57632.
5 See Letters to Brent J. Fields, Secretary,
Commission, from Michael Kitlas, dated November
30, 2017 (‘‘Kitlas Letter’’); Jeffrey P. Mahoney,
General Counsel, Council of Institutional Investors,
dated December 20, 2017 (‘‘CII Letter’’).
time period within which to approve
the proposed rule change, disapprove
the proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change, to March 6, 2018.6 On
March 5, 2018, the Commission issued
an order instituting proceedings under
Section 19(b)(2)(B) of the Act to
determine whether to approve or
disapprove the proposed rule change.7
The Commission received one
additional comment.8 On May 31, 2018,
the Commission designated a longer
period for the Commission to issue an
order approving or disapproving the
proposed rule change.9 On June 21,
2018, the Exchange withdrew the
proposed rule change (SR–NYSE–2017–
53).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–14464 Filed 7–5–18; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice: 10457]
Certification Pursuant to Section
7045(a)(4)(B) of the Department of
State, Foreign Operations, and Related
Programs Appropriations Act, 2017
By virtue of the authority vested in
me as the Secretary of State, including
pursuant to section 7045(a)(4)(B) of the
Department of State, Foreign
Operations, and Related Programs
Appropriations Act 2017 (Div. J, Pub. L.
115–31), I hereby certify that the central
Government of Guatemala is taking
effective steps, which are in addition to
those steps taken since the certification
and report submitted during the prior
year, to:
• Work cooperatively with an
autonomous, publicly accountable
entity to provide oversight of the Plan;
• Combat all forms of government
and international agency corruption and
impunity when credibly alleged;
• Implement reforms, policies, and
programs to improve transparency and
strengthen public institutions, including
daltland on DSKBBV9HB2PROD with NOTICES
2 17
178 15
U.S.C. 78s(b)(2).
179 Id.
180 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:25 Jul 05, 2018
Jkt 244001
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
6 See Securities Exchange Act Release No. 82531
(January 18, 2018), 83 FR 3371.
7 See Securities Exchange Act Release No. 82804,
83 FR 10530 (March 9, 2018).
8 See Letter to Brent J. Fields, Secretary,
Commission, from Jeffrey P. Mahoney, General
Counsel, Council of Institutional Investors, dated
March 26, 2018 (‘‘CII Letter II’’).
9 See Securities Exchange Act Release No. 83355,
83 FR 26331 (June 6, 2018).
10 17 CFR 200.30–3(a)(12).
E:\FR\FM\06JYN1.SGM
06JYN1
]]>Agencies
[Federal Register Volume 83, Number 130 (Friday, July 6, 2018)]
[Notices]
[Pages 31614-31628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14461]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83558; File No. SR-IEX-2018-06]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Establish a
New Optional Listing Category on the Exchange, ``LTSE Listings on IEX''
June 29, 2018.
I. Introduction
On March 15, 2018, Investors Exchange LLC (the ``Exchange'' or
``IEX'') filed with the Securities and Exchange Commission (``SEC'' or
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to establish a new optional listing category on
the Exchange, referred to as the ``LTSE Listings on IEX'' or ``LTSE
Listings.'' The proposed rule change was published for comment in the
Federal Register on April 2, 2018.\3\ The Commission received 23
comment letters on the proposed rule change.\4\ On
[[Page 31615]]
April 26, 2018, the Commission received a response letter from the
Exchange.\5\ On June 27, 2018, the Exchange submitted Amendment No. 1
to the proposed rule change.\6\ The Commission is publishing this
notice to solicit comments on Amendment No. 1 from interested persons,
and is approving the proposed rule change, as modified by Amendment No.
1, on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 82948 (March 27,
2018), 83 FR 14074 (``Notice'').
\4\ See letters to Brent J. Fields, Secretary, Commission, from
Tony Davis, CEO, Inherent Group, dated April 19, 2018 (``Inherent
Group Letter''); Morgan Housel, Partner, The Collaborative Fund,
dated April 20, 2018 (``Collaborative Fund Letter''); Chris Brummer,
Professor of Law, Faculty Director, Institute of International
Economic Law, Georgetown University Law Center, dated April 22, 2018
(``Brummer Letter''); Dick Costolo, dated April 23, 2018 (``Costolo
Letter''); James Anderson, Partner and Head of Global Equities,
Baillie Gifford & Co, dated April 23, 2018 (``Baillie Gifford
Letter''); Marcie Frost, Chief Executive Officer, California Public
Employees' Retirement System Investment Office, dated April 23, 2018
(``CalPERS Letter''); Evan Williams, Co-Founder and James Joaquin,
Co-Founder & Managing Director, Obvious Ventures, dated April 23,
2018 (``Obvious Ventures Letter''); Douglas K. Chia, Executive
Director, Governance Center, The Conference Board, Inc., dated April
23, 2018 (``Conference Board Letter''); Steve Case, Chairman and
CEO, Revolution, dated April 23, 2018 (``Revolution Letter''); Marc
Andreessen, Cofounder and General Partner, Andreessen Horowitz,
dated April 23, 2018 (``Andreessen Horowitz Letter''); John Buhl,
dated April 23, 2018 (``Buhl Letter''); Sam Altman, President, Y
Combinator, dated April 23, 2018 (``Y Combinator Letter''); Andrew
Mason, CEO, Descript, dated April 23, 2018 (``Descript Letter'');
Judith Samuelson, Vice President, Founder & Director, The Business &
Society Program, and Alastair Fitzpayne, Executive Director, The
Future of Work Initiative, The Aspen Institute, dated April 23, 2018
(``Aspen Institute Letter''); Brian Singerman, Partner, Founders
Fund, dated April 23, 2018 (``Founders Fund Letter''); David Brown
and David Cohen, Founders and Co-CEOs, Techstars, dated April 23,
2018 (``Techstars Letter''); Tony Hsieh, Founder, Downtown Project,
dated April 23, 2018 (``Downtown Project Letter''); Aaron
Bertinetti, SVP, Research & Engagement, Glass, Lewis & Co., LLC,
dated April 23, 2018 (``Glass, Lewis Letter''); Jeff Weiner, CEO,
LinkedIn, dated April 23, 2018 (``LinkedIn Letter''); Chris
Concannon, President and COO, Cboe Global Markets, Inc. (``Cboe
Letter'); Reid Hoffman, Partner, Greylock Partners, dated April 23,
2018 (``Greylock Partners Letter''); Aneesh Chopra, President,
CareJourney, dated April 23, 2018 (``CareJourney Letter''); and
Alexis Ohanian, General Partner/Cofounder, and Garry Tan, Managing
Partner/Cofounder, Initialized Capital, dated April 23, 2018
(``Initialized Capital Letter''). All comments received by the
Commission on the proposed rule change are available at: https://www.sec.gov/comments/sr-iex-2018-06/iex201806.htm.
\5\ See letter to Brent J. Fields, Secretary, Commission, from
Claudia Crowley, Chief Regulatory Officer, Investors Exchange LLC,
dated April 26, 2018 (``IEX Response Letter''). The Exchange's
response letter is available at: https://www.sec.gov/comments/sr-iex-2018-06/iex201806-3520149-162294.pdf.
\6\ In Amendment No. 1, the Exchange proposes to amend: (1)
Proposed Rule 14A.001(a) to clarify that an LTSE Listings Issuer
must qualify for listing under Chapter 14 of the IEX Rules and the
LTSE Listings Rules, except as otherwise provided in the LTSE
Listings Rules; (2) proposed Rule 14A.200(c)(2) to specify that when
a company lists on LTSE Listings, in addition to the requirement
that the company must not have any security listed for trading on
the Exchange or any other national securities exchange, the company
also must be listing in connection with its initial public offering;
(3) proposed Rule 14A.210 to indicate that when the LTSE Listings
Issuer is dually-listed on the Exchange and on another national
securities exchange that is the Primary Listing Market and that
requires a minimum number of market makers, IEX Rules 14.310 and
14.320 requiring a minimum number of market makers for IEX listed
companies would not apply; and (4) proposed Rule 14A.413 by adding
paragraph (c) to require an LTSE Listings Issuer to post prominently
on its website a plain English explanatory statement regarding
shareholders' rights under the long-term voting provisions included
in its governance documents, including how the shareholder's voting
power may increase over time and the administrative steps the
shareholder must take to allow the shares' voting power to increase
over time. To promote the transparency of its proposed amendment,
when IEX filed Amendment No. 1 with the Commission, it also
submitted Amendment No. 1 as a comment letter to the file, which the
Commission posted on its website and placed in the public comment
file for SR-IEX-2018-06 (available at https://www.sec.gov/comments/sr-iex-2018-06/iex201806.htm).
---------------------------------------------------------------------------
II. Background of the Proposed Rule Change
The Exchange proposes to adopt rules to create a new optional
listing category on the Exchange for common equity securities, referred
to as the ``LTSE Listings on IEX'' or ``LTSE Listings.'' According to
the Exchange, the new optional listing category would provide a
differentiated choice for issuers and investors that prefer listing
standards that are expressly designed to promote long-term value
creation.\7\ Specifically, the Exchange believes that LTSE Listings
would promote the interests of companies that seek to focus on long-
term value creation, as well as to respond to the transparency and
governance concerns of long-term focused investors.\8\
---------------------------------------------------------------------------
\7\ See Notice, supra note 3, at 14074.
\8\ See id. at 14077.
---------------------------------------------------------------------------
The Exchange believes that the proposed LTSE Listings Rules could
encourage greater participation in the public markets by companies and
potentially increase the number of companies willing to undertake an
initial public offering (``IPO'').\9\ According to the Exchange, the
total number of listed companies in the United States and the number of
IPOs have declined in the past few decades, and the Exchange states
that many academics, market participants, and other commenters believe
that these declines are the result of short-term pressures placed on
public companies.\10\
---------------------------------------------------------------------------
\9\ See id. at 14076-77.
\10\ See id. at 14075-76.
---------------------------------------------------------------------------
III. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
The proposed rules for LTSE Listings would be located in new
Chapter 14A of the Exchange's rules (``LTSE Listings Rules'' or
``Rules''). Companies choosing to list on the Exchange (``LTSE Listings
Issuers'') could elect to be subject to the LTSE Listings Rules, and
such companies also would be subject to the listing and applicable
requirements set forth in current Chapter 14 of the IEX Rulebook (``IEX
Rules'') for IEX listed companies, except as those rules may be
modified by the LTSE Listings Rules.\11\
---------------------------------------------------------------------------
\11\ See Notice, supra note 3, at 14074-75; see also proposed
Rules 14A.001(a) and 14A.200, and Amendment No. 1, supra note 6.
---------------------------------------------------------------------------
The LTSE Listings Rules would include the following features: (i)
Rules relating to the board of directors and committee requirements;
(ii) rules requiring supplemental long-term disclosures; (iii) rules
requiring long-term alignment of executive compensation; (iv) rules
requiring a long-term shareholder voting structure; and (v) certain
other rules that the Exchange believes would encourage LTSE Listings
Issuers to focus on long-term value creation.\12\ In addition, the
Exchange is proposing rules that would clarify the application of
certain existing Exchange rules to LTSE Listings Issuers.\13\ The
Exchange would limit the availability of LTSE Listings to companies
seeking to list on LTSE Listings concurrently with their IPO (whether
listing on LTSE Listings only or dually listing on LTSE Listings and
another national securities exchange) \14\ and would not permit issuers
already listed on another national securities exchange to transfer to
LTSE Listings.\15\ LTSE Listings Issuers may list only common equity
securities on LTSE Listings.\16\
---------------------------------------------------------------------------
\12\ See Notice, supra note 3, at 14077.
\13\ Id.
\14\ See Amendment No. 1, supra note 6.
\15\ See Notice, supra note 3, at 14075; see also proposed Rule
14A.200(c)(2). In connection with an initial public offering on the
Exchange, the proposed LTSE Listings Rules would permit the dual-
listing of companies seeking to list concurrently on LTSE Listings
and another national securities exchange. See infra Section III.F.2.
and proposed Rule 14A.210.
\16\ See proposed Rule 14A.001(b).
---------------------------------------------------------------------------
A. The Exchange's Arrangement With LTSE Holdings, Inc.
The Exchange notes that the LTSE Listings Rules initially were
developed by LTSE Holdings, Inc. (together, with its affiliates,
``LTSE''), and that the Exchange has entered into an arrangement with
LTSE to authorize the Exchange to make the LTSE Listings Rules
available to interested companies as a listing category of the
Exchange.\17\ The Exchange states that, although the LTSE Listings
Rules were developed by LTSE, the Exchange would retain full self-
regulatory responsibility for determining initial and continuing
compliance with the Exchange's listing standards, including for those
companies that elect to be subject to the LTSE Listings Rules.\18\
---------------------------------------------------------------------------
\17\ See Notice, supra note 3, at 14074. The Exchange states
that it understands that LTSE anticipates separately registering a
subsidiary as a national securities exchange in the future. See id.
\18\ See id. at 14077.
---------------------------------------------------------------------------
The Exchange further states that it would retain, as its agents, a
small number of staff that also are employed by LTSE (``LTSE Listings
Agents'') solely to provide IEX with expertise in interpreting the LTSE
Listings Rules and assistance in conducting the LTSE Listings business,
and that the Exchange would not receive regulatory services from LTSE
itself.\19\ Specifically, the
[[Page 31616]]
Exchange notes that the LTSE Listings Agents would provide certain
advisory, marketing, public communications, and sales services to IEX
in connection with LTSE Listings.\20\ The Exchange, however, represents
that the LTSE Listings Agents would be subject to the Exchange's
oversight and regulatory authority as the responsible self-regulatory
organization.\21\ The Exchange states that it has an arrangement with
the LTSE Listings Agents that includes restrictions designed to protect
the Exchange's responsibilities as a self-regulatory organization and
the confidentiality of its books and records.\22\ Separately, the
Exchange states that it would permit LTSE to use and redistribute
written marketing, public communications, and sales materials
concerning the LTSE Listings business, subject to the Exchange's
consent.\23\
---------------------------------------------------------------------------
\19\ See id. The Exchange represents that the LTSE Listing
Agents' involvement would not extend to other matters within the
Exchange's jurisdiction and that IEX would retain full self-
regulatory responsibility for determining initial and continuing
compliance with the Exchange's listing standards, including for
those companies that elect to be subject to the LTSE Listings Rules.
See id.
\20\ See id. at 14077 n.34. The Exchange states that, for
example, LTSE Listings Agents would evaluate issuers seeking to list
on the Exchange under the LTSE Listings Rules and would assist in
monitoring LTSE Listings Issuers for compliance with the LTSE
Listings Rules. See id.
\21\ See id. at 14077. The Exchange notes that, at all times,
LTSE Listings Agents would be subject to the satisfaction and the
oversight of the Exchange's Chief Regulatory Officer, with all
actions proposed by LTSE Listings Agents subject to the Exchange's
regulatory authority. See id. at 14077 n.34. The Exchange represents
that, notwithstanding the services provided by the LTSE Listings
Agents to the Exchange, all actions taken by the Exchange ultimately
would be based on the Exchange's determination that the action is
appropriate and consistent with the Act, the Commission's rules
thereunder, and the Exchange's rules. See id.
\22\ See id. at 14077 n.34. According to the Exchange, each LTSE
Listings Agent would be considered to be an agent of the Exchange in
connection with the performance of services under the Exchange's
arrangement with LTSE, pursuant to Article XI, Section 4 of the
Exchange's Amended and Restated Operating Agreement. Among other
things, the Exchange represents that, pursuant to the Exchange's
arrangement with LTSE, the Exchange would not share confidential
regulatory information with LTSE (other than with LTSE regulatory
personnel that are LTSE Listings Agents and that do not have direct
involvement in LTSE's commercial operations). In addition, the
Exchange represents that LTSE has agreed that each LTSE Listings
Agent would be required to consent in writing to the application to
such agent of the following provisions, which are consistent with
Article VII of the Bylaws of IEX Group, Inc.: non-interference with,
and due regard for, the Exchange's self-regulatory function;
confidentiality of the Exchange's books and records pertaining to
its self-regulatory function; maintenance of books and records
related to services under the Exchange's arrangement with LTSE and
services provided to the Exchange by LTSE Listings Agents at a
location within the United States; compliance with the federal
securities laws and the rules and regulations promulgated thereunder
and cooperation with the SEC in respect of the SEC's oversight
responsibilities regarding the Exchange and the self-regulatory
functions and responsibilities of the Exchange; and consent to
jurisdiction of the United States federal courts, the SEC, and the
Exchange for purposes of any suit, action, or proceeding arising out
of or relating to services provided to the Exchange and the
Exchange's arrangement with LTSE. See id.
\23\ See id.
---------------------------------------------------------------------------
B. Board of Directors and Committee Requirements
As more fully described below, the LTSE Listings Rules would create
new requirements for the boards of directors and board committees of
LTSE Listings Issuers, which are intended to align the boards with the
objectives of the LTSE Listings Rules. The LTSE Listings Rules would
require each LTSE Listings Issuer to establish board committees
dedicated to overseeing the issuer's strategies for creating and
sustaining long-term growth and for selecting or recommending qualified
director nominees. The LTSE Listings Rules also would impose additional
obligations on audit committees and compensation committees with the
aim of increasing oversight and transparency.\24\
---------------------------------------------------------------------------
\24\ See id.
---------------------------------------------------------------------------
1. Long-Term Strategy and Product Committee
Proposed Rule 14A.405(c)(1) would require that each LTSE Listings
Issuer's board of directors maintain a committee specifically dedicated
to overseeing the LTSE Listings Issuer's strategic plans for long-term
growth, the Long Term Strategy and Product Committee (``LTSP
Committee''). The LTSP Committee must include a minimum of three
members of the board, a majority of whom must be independent
directors.\25\ The LTSP Committee cannot assume any roles or
responsibilities that are required to be undertaken by the LTSE
Listings Issuer's board committees comprised solely of independent
directors.\26\
---------------------------------------------------------------------------
\25\ See proposed Rule 14A.405(c)(4).
\26\ See proposed Rule 14A.405(c)(1).
---------------------------------------------------------------------------
Pursuant to proposed Rule 14A.405(c)(3)(A), each LTSE Listings
Issuer must certify that it has adopted a formal written LTSP Committee
charter and that the LTSP Committee would review and reassess the
adequacy of the formal written charter on an annual basis. The charter
must specify, among other things, the scope of the LTSP Committee's
responsibilities, and how it would carry out those responsibilities,
including structure, processes, and membership requirements, and that
the LTSP Committee must report regularly to the board of directors.\27\
---------------------------------------------------------------------------
\27\ See proposed Rule 14A.405(c)(3)(B)(i)-(v). Proposed Rule
14A.405(c)(3)(C) would require that the LTSP Committee's charter be
made available on or through the LTSE Listings Issuer's website.
---------------------------------------------------------------------------
2. Nominating/Corporate Governance Committee
Pursuant to proposed Rule 14A.405(d)(1), the director nominees of
an LTSE Listings Issuer must be either selected, or recommended for the
board's selection, by a nominating/corporate governance committee that
is comprised solely of independent directors. Director nominees of an
LTSE Listings Issuer may not be selected, or recommended for the
board's selection, by the independent directors constituting a majority
of the board's independent directors, as provided in IEX Rule
14.405(e)(1)(A), subject to an exception for exceptional and limited
circumstances.\28\ Independent Director oversight of director
nominations would not apply in cases where the right to nominate a
director legally belongs to a third party.\29\
---------------------------------------------------------------------------
\28\ If the nominating/corporate governance committee is
comprised of at least three members, one director, who is not an
``Independent Director'' as defined in IEX Rule 14.405(a)(2) and is
not currently an Executive Officer or employee or a Family Member of
an Executive Officer, may be appointed to the nominating/corporate
governance committee if the board, under exceptional and limited
circumstances, determines that such individual's membership on the
committee is required by the best interests of the LTSE Listings
Issuer and its shareholders. See proposed Rule 14A.405(d)(2). An
LTSE Listings Issuer that relies on this exception must disclose the
nature of the relationship and the reasons for the determination, as
well as provide any disclosure required by Instruction 1 to Item
407(a) of Regulation S-K regarding its reliance on this exception.
See id. In addition, a member appointed under this exception may not
serve longer than two years. See id.
\29\ See proposed Rule 14A.405(d)(3).
---------------------------------------------------------------------------
Proposed Rule 14A.405(d)(6)(A) would require that each LTSE
Listings Issuer adopt a formal written nominating/corporate governance
committee charter and to review and reassess the adequacy of the formal
written charter on an annual basis. Among other things, the charter
would need to specify the scope of the nominating/corporate governance
committee's responsibilities, and how the committee would carry out
those responsibilities, including structure, processes, and membership
requirements. The charter also would be required to specify that the
nominating/corporate governance committee must report regularly to the
board of directors.\30\
---------------------------------------------------------------------------
\30\ This charter must be made available on or through the LTSE
Listings Issuer's website. See proposed Rule 14A.405(d)(6)(B).
---------------------------------------------------------------------------
3. Audit Committee and Compensation Committees
Proposed Rule 14A.405 imposes requirements on the audit committee
and compensation committee in addition to the requirements imposed
[[Page 31617]]
by current IEX Rules 14.405(c) and 14.405(d), respectively. Under
proposed Rules 14A.405(a)(1) and 14A.405(b)(2)(A)(i), an LTSE Listings
Issuer's audit committee and compensation committee charters must
specify that the committees must report regularly to the board of
directors. In addition, the compensation committee charter must specify
that the compensation committee must adopt executive compensation
guidelines in accordance with proposed Rule 14A.405(b)(3) (Executive
Compensation Guidelines).\31\ An LTSE Listings Issuer would be required
to make both the audit committee charter and compensation committee
charter available on or through its website.\32\
---------------------------------------------------------------------------
\31\ See proposed Rule 14A.405(b)(2)(A)(ii). Proposed Rule
14A.405(b)(4) clarifies that ``Smaller Reporting Companies,'' as
defined in Rule 12b-2 under the Act, 17 CFR 240.12b-2, are not
exempt from these additional compensation committee requirements.
\32\ See proposed Rules 14A.405(a)(2) and 14A.405(b)(2)(B).
---------------------------------------------------------------------------
4. Committee Delegations and Third-Party Nominations
The proposed rules would allow the responsibilities of certain
committees to be delegated to other committees. Specifically, the
proposed rules would permit the board of directors to allocate the
responsibilities of the LTSP Committee, the nominating/corporate
governance committee, and compensation committee to committees of their
own denomination, provided that, in each case the committee with the
allocated committee responsibilities must satisfy the same
compositional requirements of the original committee and must be
subject to a formal written charter that satisfies the same committee
charter requirements of the original committee.\33\ Furthermore, if any
function of the LTSP Committee, the nominating/corporate governance
committee, or compensation committee has been delegated to another
committee, the charter of the committee receiving such delegation must
also be made available on or through the LTSE Listings Issuer's
website.\34\
---------------------------------------------------------------------------
\33\ See proposed Rules 14A.405(c)(2), 14A.405(d)(5), and
14A.405(b)(2)(B).
\34\ See proposed Rules 14A.405(c)(3)(C), 14A.405(d)(6)(B), and
14A.405(b)(2)(B).
---------------------------------------------------------------------------
Under the proposal, the charters of each committee of LTSE Listings
Issuers also would be permitted to address the authority of the
committee to delegate its responsibilities to subcommittees of the
committee, provided that any such subcommittee must meet the applicable
committee composition requirements with respect to independence.\35\
However, this LTSE Listings Rule would not apply in cases where the
right to nominate a director legally belongs to a third party, because
the right to nominate directors in such a case does not reside with the
LTSE Listings Issuer.\36\
---------------------------------------------------------------------------
\35\ See Supplementary Material .01 to proposed Rule 14A.405,
which would apply to LTSE Listings Issuers in lieu of existing
Supplementary Material .08 to IEX Rule 14.405 (Independent Director
Oversight of Director Nominations).
\36\ See proposed Rule 14A.405, Supplementary Material .01.
---------------------------------------------------------------------------
5. Corporate Governance Guidelines
Proposed Rule 14A.409 would require each LTSE Listings Issuer to
adopt and disclose certain corporate governance guidelines that address
director qualification standards, director responsibilities, director
access to management, director compensation, director orientation and
continuing education, management succession, and annual performance
evaluations of the board.\37\ Among other things, these corporate
governance guidelines must specify that no less than 40% of director
compensation must be paid in stock-based compensation tied to long-term
periods.\38\ In addition, LTSE Listings Issuers must adopt director
stock ownership guidelines, which must include minimum ownership
requirements that can be met over the length of board service.\39\
---------------------------------------------------------------------------
\37\ An LTSE Listings Issuer would be required to make its
corporate governance guidelines available on or through its website.
See proposed Rule 14A.409(b).
\38\ See proposed Rule 14A.409(a)(4). An LTSE Listings Issuer
would be required to disclose in its corporate governance guidelines
what it considers to be ``long-term'' for this purpose. See id.
\39\ See id.
---------------------------------------------------------------------------
C. Long-Term Strategy and Other Disclosure Requirements
The Exchange notes that, in addition to and separate from all
disclosures required under applicable securities laws, the Commission's
rules, and the Exchange's other rules, proposed Rule 14A.207 would
require LTSE Listings Issuers to provide certain supplemental
disclosures (``LTSP Disclosures'').\40\ The LTSP Disclosures would be
made publicly available pursuant to a supplement to the LTSE Listings
Issuer's Annual Report (``Annual Report Supplement'') that must be
distributed to shareholders along with, and in the same manner as, the
LTSE Listings Issuer's Annual Report.\41\ In addition, LTSE Listings
Issuers must make the Annual Report Supplement available on or through
the LTSE Listings Issuer's website.\42\ The LTSP Disclosures also must
be reviewed and approved by the LTSP Committee on at least an annual
basis.\43\
---------------------------------------------------------------------------
\40\ See Notice, supra note 3, at 14080. Proposed Rule
14A.207(a) specifies that nothing in the rule shall affect the
obligation of an LTSE Listings Issuer to comply with applicable
securities laws. In addition, proposed Rule 14A.207(b) states that
all disclosures must comply with applicable securities laws,
including rules and regulations pertaining to the use and
reconciliation of non-GAAP financial measures and any securities law
obligations regarding updating or correcting prior public statements
or disclosures.
\41\ See proposed Rule 14A.207(b). Proposed Rule 14A.002(a)(1)
states that ``Annual Report'' means ``consistent with IEX Rule
14.207(d), the annual report made available to Shareholders
containing audited financial statements of the LTSE Listings Issuer
and its subsidiaries (which, for example, may be on Form 10-K, 20-F,
40-F or N-CSR) within a reasonable period of time following the
filing of the annual report with the Commission.''
\42\ See id. In addition, ``[e]ach LTSE Listings Issuer must
include a statement in its Annual Report that the LTSP Disclosures
are available in the Annual Report Supplement and provide the
website address,'' as well as ``notify IEX Regulation once its
Annual Report Supplement has been made publicly available on its
website.'' Id.
\43\ Id. The LTSP Committee must determine whether to recommend
to the board of directors that the LTSP Disclosures be included in
the Annual Report Supplement, and any board and committee approvals
should be reflected in board resolutions as appropriate. See id.
---------------------------------------------------------------------------
1. Long-Term Growth Strategy
Proposed Rule 14A.207(c)(1) would require each LTSE Listings Issuer
to disclose its ``Long-Term Growth Strategy.'' Long-Term Growth
Strategy is defined as ``the strategy, as determined by management and
the board of directors and approved by the LTSP Committee, that is
focused on achieving long-term growth.'' \44\ The Exchange states that
this proposed requirement is designed to increase transparency for
shareholders on the strategic goals of the company's managers and
provide for greater alignment and accountability between a company's
long-term vision and investor expectations. An LTSE Listings Issuer
must include how it defines ``long-term'' for purposes of its Long-Term
Growth Strategy, including a discussion of how it made this
determination.\45\
---------------------------------------------------------------------------
\44\ See proposed Rule 14A.002(a)(11).
\45\ See proposed Rule 14A.207(c)(1)(A).
---------------------------------------------------------------------------
Proposed Rule 14A.207(c) outlines other required aspects of the
Long-Term Growth Strategy disclosure. This disclosure must include a
discussion of the LTSE Listings Issuer's ``Leading Indicators,'' \46\
as well as key milestones
[[Page 31618]]
that the LTSE Listings Issuer aims to achieve with respect to the
Leading Indicators.\47\ The LTSE Listings Issuer also must report on
the progress that the LTSE Listings Issuer has made in achieving these
key milestones.\48\ In addition, the Long-Term Growth Strategy must
include details relating to different businesses of the LTSE Listings
Issuer if the information is material to the overall strategy.\49\
Lastly, LTSE Listings Issuers must include a discussion of any changes
to the LTSE Listings Issuer's Long-Term Growth Strategy, Leading
Indicators, and/or key milestones since the publication of the LTSE
Listings Issuer's previous Long-Term Growth Strategy.\50\
---------------------------------------------------------------------------
\46\ Proposed Rule 14A.002(a)(10) defines ``Leading Indicators''
as ``quantitative metrics (financial or non-financial) that an LTSE
Listings Issuer's management uses to help forecast revenue, profit
or other common after-the-event measures of long-term success. These
current and predictive metrics [would be] used by management to
focus on day-to-day results as they work towards achieving the LTSE
Listings Issuer's Long-Term Growth Strategy, and provide useful
information for timely decision-making in the shorter term.''
\47\ See proposed Rule 14A.207(c)(1)(B).
\48\ See id.
\49\ See proposed Rule 14A.207(c)(2).
\50\ See proposed Rule 14A.207(c)(1)(C).
---------------------------------------------------------------------------
Proposed Rule 14A.207(c)(3) would provide an exception from the
requirement to disclose aspects of an LTSE Listings Issuer's Long-Term
Growth Strategy. Specifically, if the LTSE Listings Issuer's LTSP
Committee makes a determination that disclosure of any aspect of the
LTSE Listings Issuer's Long-Term Growth Strategy would be ``reasonably
likely to result in material harm'' to the LTSE Listing Issuer's
competitive position, the LTSE Listings Issuer could exclude such
information from its LTSP Disclosures. A process for making this
determination would be required to be disclosed in the issuer's LTSP
Committee Charter pursuant to proposed Rule 14A.405(c)(3)(B)(iv) and
any such determination must be documented by the LTSP Committee and be
made in accordance with its fiduciary duties.\51\ In addition, the LTSE
Listings Issuer must disclose in its LTSP Disclosures that it is
withholding certain aspects of its Long-Term Growth Strategy as a
result of competitive concerns.\52\ Upon the time that any withheld
information is no longer competitively sensitive, the LTSE Listings
Issuer would be required to disclose that information in its LTSP
Disclosures, even though this information may no longer be relevant to
its current Long-Term Growth Strategy.\53\
---------------------------------------------------------------------------
\51\ See Notice, supra note 3, at 14081.
\52\ See proposed Rule 14A.207(c)(3).
\53\ Id.
---------------------------------------------------------------------------
2. Other Supplemental Disclosure Requirements
In addition to the Long-Term Growth Strategy disclosure, proposed
Rule 14A.207 would require issuers to make disclosures relating to
buybacks, human capital investment, and research and development, as
described below:
Buybacks: Each LTSE Issuer must disclose its EPS Net of Buybacks,
defined as the quotient calculated by dividing (i) net income (as
reported in the LTSE Listings Issuer's financial statements in its most
recent Annual Report) by (ii) the sum of outstanding shares and shares
that were subject to a Buyback during the prior fiscal year.\54\
---------------------------------------------------------------------------
\54\ See proposed Rules 14A.002(a)(6) and 14A.207(d). Pursuant
to proposed Rule 14A.002(a)(3), ``Buybacks'' means issuer
repurchases that are required to be disclosed pursuant to Item 703
of Regulation S-K.
---------------------------------------------------------------------------
Human Capital Investment: Each LTSE Listings Issuer must disclose
the extent to which the LTSE Listings Issuer's selling, general, and
administrative expenses (as reported in the LTSE Listings Issuer's most
recent Annual Report) consisted of ``Human Capital Investment.'' \55\
---------------------------------------------------------------------------
\55\ See proposed Rules 14A.002(a)(7) and 14A.207(e). Proposed
Rule 14A.207(e) defines ``Human Capital Investment'' as the
aggregate amount an LTSE Listings Issuer spends on formal training
of workers in new skills to improve job performance, including,
among other things, amounts spent on fees or expenses related to
personnel hired or retained to train employees, training materials,
tuition assistance, and continuing education or similar programs.
Each LTSE Listings Issuer must also disclose the amount spent on
Human Capital Investment per full-time equivalent employee. Id.
---------------------------------------------------------------------------
Research and Development: Each LTSE Listings Issuer must disclose
the amount of research and development spending that is short-term
focused and the amount of such spending that is long-term focused.\56\
---------------------------------------------------------------------------
\56\ See proposed Rule 14A.207(f). Each LTSE Listings Issuer
must also disclose how it defines ``short-term'' and ``long-term''
for these purposes and how it determined such definitions. Id.
---------------------------------------------------------------------------
3. Timing for Supplemental Disclosures
Proposed Rule 14A.207(g) describes when these supplemental
disclosures must be made. An LTSE Listings Issuer must disclose its
Long-Term Growth Strategy on its website no later than at the time of
its initial listing, and it must remain on the LTSE Listings Issuer's
website until the LTSE Listings Issuer is required to make the
disclosure annually in its Annual Report Supplement.\57\ After initial
listing, an LTSE Listings Issuer must make the disclosures relating to
buybacks, human capital investment, and research and development
publicly available on its website by the earlier of when the LTSE
Listings Issuer files its Form 10-K or distributes its Annual Report
Supplement.\58\ Thereafter, the LTSE Listings Issuer must make this
disclosure annually in its Annual Report Supplement, as set forth in
proposed Rule 14A.207(b).\59\
---------------------------------------------------------------------------
\57\ See proposed Rule 14A.207(g)(1). The initial disclosure
must be made in compliance with the rules and regulations relating
to the dissemination of free writing prospectuses, if applicable.
Id.
\58\ See proposed Rule 14A.207(g)(2).
\59\ See id.
---------------------------------------------------------------------------
D. Executive Compensation Requirements
Proposed Rule 14A.405(b)(3) requires an LTSE Listings Issuer's
compensation committee to adopt a set of executive compensation
guidelines applicable to Executive Officers,\60\ which the Exchange
states are designed to link executive compensation to the long-term
value of the LTSE Listings Issuer. These guidelines must include
general principles for determining the form and amount of Executive
Officer compensation, and for reviewing those principles, as
appropriate. Specifically, the compensation committee must ensure that
the time periods and performance metrics used to determine Incentive-
Based Compensation \61\ for Executive Officers are consistent with the
LTSE Listings Issuer's Long-Term Growth Strategy, and may consult with
the LTSP Committee in assessing whether such time periods and
performance metrics are consistent with the LTSE Listings Issuer's
Long-Term Growth Strategy.\62\
---------------------------------------------------------------------------
\60\ IEX Rule 14.405(a)(1) defines ``Executive Officer'' as
persons meeting the definition of ``officer'' in Rule 16a-1(f) under
the Act, 17 CFR 240.16a-1(f).
\61\ Proposed Rule 14A.002(a)(8) defines ``Incentive-Based
Compensation'' as any variable compensation, fees, or benefits that
serve as an incentive or reward for performance.
\62\ See proposed Rule 14A.405(b)(3)(A)(i). In addition, the
LTSE Listings Issuer must disclose in its proxy statement, or Annual
Report Supplement if no proxy statement is filed, whether or not the
compensation committee has determined that such time periods and
performance metrics are consistent with the LTSE Listings Issuer's
Long-Term Growth Strategy. See id.
---------------------------------------------------------------------------
Proposed Rule 14A.405(b)(3)(B) imposes additional requirements
related to the compensation of Executive Officers. An LTSE Listings
Issuer may not provide Executive Officers with any Incentive-Based
Compensation that is tied to a financial or performance metric that is
measured over a time period of less than one year or grant any time-
based equity compensation that has any portion that vests in less than
a year from the grant date (or from the hire date, in the case of new
hire grants).\63\ In addition, equity compensation awarded to Executive
Officers must be subject to a period of vesting over at least five
years.\64\
---------------------------------------------------------------------------
\63\ See proposed Rule 14A.405(b)(3)(B)(i).
\64\ See proposed Rule 14A.405(b)(3)(B)(ii). The vesting
scheduling must reflect the long-term focus of the equity grant and
could allow for accelerated vesting only upon the death of the
Executive Officer or the occurrence of a disability that renders the
Executive Officer permanently unable to remain employed at the LTSE
Listings Issuer in any capacity. Id. The compensation committee must
determine appropriate Vesting Periods and amounts, as well as
holding periods, for equity compensation awarded to Executive
Officers that apply following an Executive Officer's retirement or
resignation. See proposed Rule 14A.405(b)(3)(B)(iv).
---------------------------------------------------------------------------
[[Page 31619]]
The proposed LTSE Listings Rules provide for two exceptions to the
executive compensation requirements discussed above. First, the
compensation committee may provide alternative time periods for
incentive and equity compensation if there is a ``business necessity,''
and the LTSE Listings Issuer discloses and explains such business
necessity.\65\ Second, any executive compensation that is subject to an
existing written agreement entered into at least one year prior to the
initial listing of an LTSE Listings Issuer on the Exchange need not
comply with the requirements, but usage of this exemption must be
disclosed in the Annual Report Supplement.\66\
---------------------------------------------------------------------------
\65\ See proposed Rule 14A.405(b)(3)(B)(iii). However, the
amount of equity awards granted in the aggregate that vests before
the first anniversary of the grant date, or that does not meet the
minimum five-year vesting schedule, cannot exceed 5% of the total
number of shares authorized for grant in any fiscal year. See id.
\66\ See proposed Rule 14A.405(b)(3)(C). Proposed Rule
14A.405(b)(4) clarifies that ``Smaller Reporting Companies,'' as
defined in Rule 12b-2 under the Act, 17 CFR 240.12b-2, are not
exempt from the executive compensation guidelines described in
proposed Rule 14A.405(b)(3).
---------------------------------------------------------------------------
E. Long-Term Shareholder Voting Structure
According to the Exchange, it is consistent with the focus of the
LTSE Listings category to provide a differentiated choice for issuers
and investors that prefer listing standards that are explicitly
designed to promote long-term value creation.\67\ Thus, the Exchange
proposes Rule 14A.413(b) to require that LTSE Listings Issuers maintain
certain voting rights provisions in their corporate organizational
documents that would provide shareholders with the ability, according
to the shareholder's option, to accrue additional voting power over
time.\68\ LTSE Listings Issuers would be required to comply with the
obligations set forth in IEX Rule 14.413 and in proposed Rule14A.413,
both of which relate to voting rights. Under proposed Rule 14A.413,
LTSE Listings Issuers would be required to include certain voting
rights provisions in their corporate organizational documents that
provide shareholders the ability to accrue additional voting power over
time.\69\ Under proposed Rule 14A.413(b)(2), all securities listed on
LTSE Listings, including securities issued by Foreign Private
Issuers,\70\ must be eligible for a Direct Registration Program
(``DRP'') operated by a clearing agency registered under Section 17A of
the Act.\71\
---------------------------------------------------------------------------
\67\ See Notice, supra note 3, at 14083.
\68\ Id.
\69\ See proposed Rule 14A.413(b).
\70\ Pursuant to IEX Rule 14.002(a)(15), the term ``Foreign
Private Issuer'' as used in the Exchange's rules has the same
meaning as in Rule 3b-4 under the Act, 17 CFR 240.3b-4.
\71\ 15 U.S.C. 78q-1. See also proposed Rules 14A.200(c)(1) and
14A.208.
---------------------------------------------------------------------------
Voting power would accrue only to shareholders who are beneficial
owners; register such shares in their name as ``record holders'' on the
books of the LTSE Listings Issuer (including through the use of a DRP);
and continue to hold such shares as record holders over a period of
time.\72\ Shares held in ``street name,'' that is, shares registered on
the books of an issuer's transfer agent in the name of a nominee
selected by the Depository Trust Company, would not accrue additional
voting power over time.\73\
---------------------------------------------------------------------------
\72\ See proposed Rule 14A.413(b)(2). For these purposes, record
owners of shares listed on LTSE Listings include those shareholders
holding a physical paper certificate of such shares and shareholders
holding shares through a DRP. See proposed Rule 14A.413(b)(3).
\73\ See Notice, supra note 3, at 14084.
---------------------------------------------------------------------------
As of the date of the company's initial listing on LTSE Listings,
each holder of equity securities listed on LTSE Listings must be
entitled to an equal number of votes per share (the ``Initial Voting
Power'') on a per class basis.\74\ For each full calendar month
following the date of the LTSE Listings Issuer's listing on the
Exchange during which a shareholder maintains continuous record
ownership of shares, the voting power of such shares for so long as
they are held of record by such shareholder would be required to
increase by at least one twelfth (1/12th) over the shares' Initial
Voting Power on the last business day of the month, up to an amount
that is ten times their Initial Voting Power.\75\ If, at any time, a
shareholder transfers shares out of record ownership, then on the date
of such transfer, such shares would revert to entitling the shareholder
to the Initial Voting Power of such shares.\76\
---------------------------------------------------------------------------
\74\ See proposed Rule 14A.413(b)(1).
\75\ See proposed Rule 14A.413(b)(3). Pursuant to proposed Rule
14A.413, Supplementary Material .01(b), an LTSE Listings Issuer
would be permitted to provide that the voting rights of shareholders
holding in record name increase at a rate greater than one twelfth
(1/12th) per month, provided that the voting power of such shares
may not increase to a level that exceeds ten times their Initial
Voting Power.
\76\ Proposed Rule 14A.413(b)(4). Proposed Rule 14A.413(b)(5)
requires that, prior to listing securities on LTSE Listings, a
prospective LTSE Listings Issuer must obtain from its transfer agent
a certification confirming that the transfer agent has software or
other systems or processes available to the LTSE Listings Issuer
that would enable the transfer agent and LTSE Listings Issuer to
determine, as of a particular record date, the LTSE Listings
Issuer's shareholder's voting rights calculated in accordance with
proposed Rule 14A.413(b) (Long-Term Voting).
---------------------------------------------------------------------------
In addition, although the requirements of proposed Rule 14A.413(b)
could be viewed as similar to time-phased voting plans, the Exchange
believes that proposed Rule 14A.413(b) is consistent with IEX Rule
14.413, which is the Exchange's Voting Rights Policy.\77\ IEX Rule
14.413 bars a company already listed on the Exchange from undertaking
any of the prohibited corporate actions specified therein, including
the adoption of time-phased voting plans.\78\ The Exchange notes that,
because LTSE Listings Issuers would be required as a pre-condition to
listing on LTSE Listings to have in place a voting rights structure as
of the date of its initial listing that complies with proposed Rule
14A.413(b), no new corporate action that disparately reduces voting
rights would be permitted to be taken subsequent to the LTSE Listings
Issuer's listing on the Exchange.\79\
---------------------------------------------------------------------------
\77\ See IEX Rule 14.413.
\78\ See id. Proposed Rule 14A.413, Supplementary Material
.01(a) states that, so long as not inconsistent with IEX Rule
14.413, an LTSE Listings Issuer could (i) maintain multiple classes
of securities, including shares that have voting power per share in
excess of the Initial Voting Power of the securities listed on the
Exchange, and/or (ii) establish or maintain classes of shares not
listed on the Exchange that do not comply with proposed Rule
14A.413(b).
\79\ See Notice, supra note 3, at 14085-86.
---------------------------------------------------------------------------
The proposed LTSE Listings Rules also contain various provisions
relating to the determination of record ownership for purposes of
accreting voting power:
Accreting Voting and the Exchange's Voting Rights Policy: The
proposed rules describe how to determine what is considered ``super-
voting'' stock for purposes of IEX Rule 14.413, which provides that
voting rights of existing shareholders of publicly traded common stock
registered under Section 12 of the Act cannot be disparately reduced or
restricted through any corporate action or issuance.\80\ Proposed Rule
14A.413, Supplementary Material .01(f) would prohibit an issuer from
disparately reducing or restricting the voting rights of existing
shareholders by issuing a
[[Page 31620]]
new class of super-voting stock.\81\ For purposes of LTSE Listings, a
class of securities shall be considered super-voting stock if (i) the
Initial Voting Power of such class of securities exceeds the Initial
Voting Power of any of the LTSE Listings Issuer's existing classes of
common stock listed on LTSE Listings or (ii) the rate at which the
voting power of such class may increase over time is greater than the
corresponding rate for any of the LTSE Listings Issuer's existing
classes of common stock listed on LTSE Listings.\82\
---------------------------------------------------------------------------
\80\ See IEX Rule 14.413. IEX Rule 14.413 notes that examples of
such corporate action or issuance include, but are not limited to,
the adoption of time-phased voting plans, the adopting of capped
voting rights, the issuance of super-voting stock, or the issuance
of stock with voting rights less than the per share voting rights of
the existing common stock through an exchange offer. Id.
\81\ See proposed Rule 14A.413, Supplementary Material .01(f).
\82\ See id.
---------------------------------------------------------------------------
Potential Evasion of Loss of Long-Term Voting Power: An LTSE
Listings Issuer may provide in its governance documents that if its
board of directors adopts a resolution reasonably determining that,
notwithstanding technical compliance with the provisions of the LTSE
Listings Issuer's governance documents relating to the increasing
voting power of long-term shareholders and continuity of record
ownership, there has in fact been a change in beneficial ownership with
respect to shares held of record that would evade the purposes of this
LTSE Listings Rule 14A.413(b), such shares may be treated as being
entitled only to their Initial Voting Power.\83\
---------------------------------------------------------------------------
\83\ See proposed Rule 14A.413, Supplementary Material .01(c).
Any LTSE Listings Issuer that provides in its governance documents
that the board of directors may make such a determination must also
adopt in its governance documents a process for any shareholders
directly affected by such determination to challenge such
determination. This process must provide the affected shareholders
with an opportunity to present additional information demonstrating
that a change of beneficial ownership has not occurred. See id.
---------------------------------------------------------------------------
Technical Changes in Ownership: An LTSE Listings Issuer may adopt a
process by which a shareholder may demonstrate that, notwithstanding a
technical change in record ownership, a change in beneficial ownership
has not occurred.\84\
---------------------------------------------------------------------------
\84\ See proposed Rule 14A.413, Supplementary Material .01(d).
The proposed rule further states that an example of this could be
where a shareholder changes its legal name, or where ownership of
shares by an individual is re-titled to reflect joint ownership with
a spouse. See id.
---------------------------------------------------------------------------
Shareholders Holding Through Custodians: In the case of a
shareholder that holds its shares in an LTSE Listings Issuer through a
custodian consistent with applicable regulatory requirements, an LTSE
Listings Issuer may recognize such shareholder as a holder of record
solely for purposes of proposed Rule 14A.413(b), so long as the
custodian becomes the shareholder of record in a manner that indicates
the name of the ultimate beneficial owner.\85\
---------------------------------------------------------------------------
\85\ See proposed Rule 14A.413, Supplementary Material .01(e).
The proposed rule further states that an example could be if
Investment Fund ABC maintains custody of its assets through Bank
XYZ, Investment Fund ABC may be recognized as the record holder of
the shares of an LTSE-Listed company solely for purposes of this
rule if Bank XYZ registers the shares on the books of the LTSE-
Listed Issuer as being owned by ``Bank XYZ, as custodian for
Investment Fund ABC.'' See id.
---------------------------------------------------------------------------
F. Proposed Rules Concerning the Application of Certain Existing
Exchange Rules
Certain of the proposed LTSE Listings Rules clarify the application
of existing Exchange listings rules to LTSE Listings Issuers, as
described further below.
1. General Procedures for Initial and Continued Listing on LTSE
Listings
A company seeking the initial listing of one or more classes of
securities on LTSE Listings must comply with the requirements and
procedures set forth in the IEX Rule Series 14.200, as well as the
supplemental requirements set forth in proposed Rule 14A.200.\86\ The
Exchange must first determine that a company is eligible for listing
under the LTSE Listings Rules and meets the Exchange's other listing
criteria before it would provide a clearance letter, as defined in IEX
Rule 14.201.\87\ After receiving a clearance letter pursuant to IEX
Rule 14.201, a company choosing to list as an LTSE Listings Issuer must
file an original listing application.\88\ To apply for listing on LTSE
Listings, a company must execute a Listing Agreement and a Listing
Application on the forms designated by the Exchange for an LTSE
Listings Issuer, which would provide the information required by
Section 12(b) of the Act.\89\ At the time of listing, the company may
not already have any security listed for trading on the Exchange or any
other national securities exchange and the company must be listing on
LTSE Listings in connection with its initial public offering.\90\
---------------------------------------------------------------------------
\86\ See proposed Rule 14A.200 and Amendment No. 1, supra note
6.
\87\ See proposed Rule 14A.200(a).
\88\ See proposed Rule 14A.200(b).
\89\ 15 U.S.C.781(b). See also proposed Rule 14A.200(b).
\90\ See proposed Rule 14A.200(c)(2) and Amendment No. 1, supra
note 6.
---------------------------------------------------------------------------
2. Dually-Listed Securities
The Exchange proposes to permit LTSE Listings Issuers to list a
class of securities that, in connection with its IPO, has been approved
for listing on another national securities exchange.\91\ The Exchange
would make an independent determination of whether any such companies
satisfy all applicable listing requirements and shall require companies
to enter into a dual-listing agreement with the Exchange.\92\ In the
event that an issuer chooses to dually list on both LTSE Listings and
another national securities exchange in connection with its IPO, the
Exchange would expect such other national securities exchange to be the
LTSE Listings Issuer's ``Primary Listing Market.'' \93\ The Exchange
states that when an LTSE Listings Issuer is dually-listed on another
national securities exchange, the initial trading of such issuer's
securities on the Exchange would not occur until after the completion
of the opening auction for such securities on the first day of listing
on the ``Primary Listing Market.'' \94\ The Exchange further states
that it would monitor the dually-listed LTSE Listings Issuer for
compliance with all applicable IEX Rules on an ongoing basis, as it
would for any other LTSE Listings Issuer.\95\ Proposed Supplementary
Material .01 to Rule 14A.210 would clarify the application of certain
IEX Rules, such as rules governing trading halts, for dually-listed
LTSE Listings Issuers.
---------------------------------------------------------------------------
\91\ See proposed Rule 14A.210(a).
\92\ See proposed Rule 14A.210, Supplementary Material .01.
\93\ See Notice, supra note 3, at 14087.
\94\ See id. at 14087 n.74. ``Primary Listing Market'' is
defined in proposed Rule 14A.002(a)(14) as having the same meaning
as that term is defined in the Nasdaq Unlisted Trading Privileges
national market system plan and consistent with the use of the term
``listing market'' in the Consolidated Quotation Service and
Consolidated Tape Association national market system plans.
\95\ See id. at 14087 n.73. In addition, proposed Rule
14A.210(b) imposes notification requirements on a dually-listed LTSE
Listings Issuer if its securities have fallen below the continued
listing requirements of LTSE Listings or the other market. Proposed
Rule 14A.210(c) also provides that, for an LTSE Listings Issuer with
a dually-listed security, if IEX is not the Primary Listing Market
and the Primary Listing Market requires a minimum number of market
makers, the minimum market maker requirements of IEX Rules 14.310
and 14.320 that require a company listed on the Exchange to maintain
a particular minimum number of registered and active Market Makers
would not be applicable to the LTSE Listings Issuer's dually-listed
security. See Amendment No. 1, supra note 6.
---------------------------------------------------------------------------
Proposed Rule 14A.435 would require LTSE Listings Issuers to
certify, at or before the time of listing, that all applicable listing
criteria have been satisfied, as set forth in IEX Rule 14.202(b).\96\
In addition, the Chief Executive Officer of each LTSE Listings
[[Page 31621]]
Issuer must annually certify to the Exchange that: (i) The LTSE
Listings Issuer is in compliance with the proposed Rule Series 14A.400,
qualifying the certification to the extent necessary, and (ii) the LTSE
Listings Issuer has designated an employee responsible for ensuring
that the voting power of the LTSE Listings Issuer's securities is
determined in accordance with proposed Rule 14A.413(b) (Long-Term
Voting).\97\
---------------------------------------------------------------------------
\96\ Proposed Rule 14A.401(b) provides that LTSE Listings
Issuers may request from IEX a written interpretation of the LTSE
Listings Rules, and a response to such request generally would be
provided within one week following receipt by IEX Regulation of all
information necessary to respond to the request.
\97\ See proposed Rule 14A.435(b). In addition, an LTSE Listings
Issuer must provide the Exchange with prompt notification after an
Executive Officer of the LTSE Listings Issuer becomes aware of any
noncompliance by the LTSE Listings Issuer with the requirements of
the proposed Rule Series 14A.400. See proposed Rule 14A.410.
---------------------------------------------------------------------------
LTSE Listings Issuers would not be required to pay the fees
described in IEX Rule Series 14.600.\98\ The Exchange represents that
it intends to file a separate proposed rule change that would address
listing fees applicable to LTSE Listings Issuers.\99\
---------------------------------------------------------------------------
\98\ See proposed Rule 14A.200(c)(3).
\99\ See Notice, supra note 3, at 14092.
---------------------------------------------------------------------------
3. Shareholder Approval Calculation
Proposed Rule 14A.412 describes the circumstances in which an
Exchange-listed company is required to obtain shareholder approval
prior to the issuance of securities in connection with certain
transactions. Under IEX Rule 14.412, an Exchange-listed company is
required to obtain shareholder approval in connection with: (1) The
acquisition of the stock or assets of another company; (2) a change of
control; (3) equity-based compensation of officers, directors,
employees, or consultants; and (4) private placements.\100\ Among the
potential triggers that would require shareholder approval, shareholder
approval is required if the common stock being issued ``has or will
have upon issuance voting power equal to or in excess of 20% of the
voting power outstanding before the issuance.'' \101\ In light of the
potential increased future voting power of new shares to be issued, the
Exchange believes that it is appropriate in calculating the shareholder
approval threshold to require that LTSE Listings Issuers assign a
greater level of voting power to the newly issued shares than the
Initial Voting Power of those shares, on the presumption that the
ultimate voting power of those shares would increase over time.\102\
Proposed Rule 14A.412 would implement a special calculation to
determine whether or not the issuance of new shares by an LTSE Listings
Issuer would surpass the 20% threshold.
---------------------------------------------------------------------------
\100\ See id. at 14090.
\101\ See id.; see also IEX Rule 14.412(a)(1)(A).
\102\ See Notice, supra note 3, at 14090.
---------------------------------------------------------------------------
Under current IEX Rule 14.412, determining whether an issuance
equals or exceeds this shareholder approval threshold is generally
calculated by multiplying the number of shares to be issued by the
voting power of such shares and dividing this number by the voting
power of the shares outstanding before the issuance.\103\ However,
because the shares of LTSE Listings Issuers would have accruing voting
power, the Exchange is proposing Rule 14A.412 to provide a different
means of calculating the numerator and denominator that would be
applied to LTSE Listings Issuers.\104\
---------------------------------------------------------------------------
\103\ See id. This general formula is subject to certain
exceptions. See IEX Rule 14.412.
\104\ See Notice, supra note 3, at 14090-91.
---------------------------------------------------------------------------
Pursuant to proposed Rule 14A.412(a)(1), for LTSE Listings Issuers
that have been listed on LTSE Listings for at least five years, the
numerator of the shareholder approval calculation would be the number
of shares to be issued multiplied by the product of the Initial Voting
Power of such shares and the Long-Term Voting Factor.\105\ For LTSE
Listings Issuers that have been listed on LTSE Listings for fewer than
five years, the numerator would be the greater of (i) the number of
shares to be issued multiplied by the product of the Initial Voting
Power of such shares and the Long-Term Voting Factor and (ii) the
number of shares to be issued multiplied by twice the Initial Voting
Power of such shares.\106\
---------------------------------------------------------------------------
\105\ See id. at 14091. Proposed Rule 14A.412(c)(1) defines
``Long-Term Voting Factor'' as the quotient calculated by dividing
(i) the voting power outstanding as of the Shareholder Approval
Calculation Date by (ii) the number of shares outstanding as of the
Shareholder Approval Calculation Date multiplied by the Initial
Voting Power of those outstanding shares.
\106\ See proposed Rule 14A.412(a)(2).
---------------------------------------------------------------------------
Instead of applying the existing rule for determining the
denominator of the calculation--the voting power of shares outstanding
at issuance as described in IEX Rule 14.412(e)(2)--proposed Rule
14A.412(b) states that the following provision shall apply, ``[v]oting
power outstanding refers to the aggregate number of votes which may be
cast by holders of those shares outstanding which entitle the holders
thereof to vote generally on all matters submitted to the company's
shareholders for a vote, as of the Shareholder Approval Calculation
Date.'' \107\ All other provisions of IEX Rule 14.412 would continue to
apply.\108\
---------------------------------------------------------------------------
\107\ Proposed 14A.412(c)(2) defines ``Shareholder Approval
Calculation Date'' as the date on which an LTSE Listings Issuer
enters into a binding agreement to conduct a transaction that may
require shareholder approval under IEX Rule 14.412 (Shareholder
Approval).
\108\ See Notice, supra note 3, at 14092.
---------------------------------------------------------------------------
The Exchange believes that the provisions of proposed Rule 14A.412
for calculating when shareholder approval would be required in
connection with certain transactions would be a reasonable and balanced
approach, while taking into account the potential increased future
voting power of new shares to be issued.\109\
---------------------------------------------------------------------------
\109\ See id.
---------------------------------------------------------------------------
4. Change of Control Transactions and Reverse Mergers
The proposed LTSE Listings Rules set forth procedures for change of
control transactions, which would operate in conjunction with existing
IEX Rule 14.102(a). Proposed Rule 14A.102(a)(1) would require an LTSE
Listings Issuer to apply for initial listing in connection with a
transaction whereby the LTSE Listings Issuer combines with, or into, an
entity that is not listed on LTSE Listings, resulting in a change of
control of the LTSE Listings Issuer and potentially allowing the non-
LTSE Listings entity to obtain a listing on LTSE Listings.\110\
Proposed Rule 14A.102(a)(2) describes the impact of a change of control
transaction on the proposed long-term voting provisions of LTSE
Listings and voting power of such shares.\111\ Proposed Rule 14A.102(b)
states that an entity formed by a Reverse Merger \112\ would not be
eligible to
[[Page 31622]]
apply for initial listing on LTSE Listings.
---------------------------------------------------------------------------
\110\ ``The Exchange shall consider the factors enumerated in
IEX Rule 14.102(a) for determining whether a change of control has
occurred.'' See proposed Rule 14A.102(a)(1). Any combined entity
applying for initial listing must agree to comply with all
applicable requirements of Chapter 14A, including requirements
relating to long-term voting set forth in proposed Rule 14A.413, to
apply to list as permitted by proposed Rule 14A.102. See id.
\111\ If an initial listing following a change of control meets
applicable listing requirements and the LTSE Listings Issuer is the
surviving entity following the business combination, any shares of
the LTSE Listings Issuer that have accrued additional voting power
pursuant to proposed Rule 14A.413(b) prior to the business
combination would retain such additional voting power following the
business combination. See proposed Rule 14A.102(a)(2). Conversely,
if the non-LTSE Listings Issuer is the surviving entity or a new
entity is formed following the business combination, all shares of
the class or classes of securities to be listed on LTSE Listings
would have voting power equal to their Initial Voting Power at the
time of such listing. See id.
\112\ A ``Reverse Merger'' is generally defined as ``any
transaction whereby an operating company becomes an Exchange Act
reporting company by combining, either directly or indirectly, with
a shell company which is an Exchange Act reporting company, whether
through a reverse merger, exchange offer, or otherwise.'' See IEX
Rule 14.002(a)(27).
---------------------------------------------------------------------------
5. Exemptions From Certain Corporate Governance Requirements
Proposed Rule 14A.407 modifies the exemptions from certain
governance requirements for LTSE Listings Issuers.
Applicability of Exemptions to Corporate Governance Requirements:
Proposed Rule 14A.407(a) would provide that an LTSE Listings Issuer may
not rely on the exemptions set forth in IEX Rule 14.407(a) with respect
to the requirements of Chapter 14A.\113\ Proposed Rule 14A.407(a)
clarifies that a Foreign Private Issuer who meets the requirements of
Chapter 14A, including the requirement to distribute an Annual Report
Supplement, may list on LTSE Listings.
---------------------------------------------------------------------------
\113\ See Notice, supra note 3, at 14089. IEX Rule 14.407(a)
provides exemptions to certain of the Exchange's corporate
governance requirements for asset-backed issuers and other passive
issuers, cooperatives, Foreign Private Issuers, limited partnerships
and management investment companies.
---------------------------------------------------------------------------
Phase-in of Compliance With LTSP Committee Composition
Requirements: In addition to the phase-in schedules provided in
existing IEX Rule 14.407(b),\114\ an LTSE Listings Issuer that is
listing in connection with its IPO or that is emerging from bankruptcy
would be permitted to phase-in its compliance with the LTSP Committee
composition requirements.\115\
---------------------------------------------------------------------------
\114\ IEX Rule 14.407(b) allows a company listed on the Exchange
to phase-in its compliance with certain Exchange rules over a period
of time in certain situations, for example, for a company emerging
from bankruptcy. See id.
\115\ See proposed Rule 14A.407(b). Specifically, that LTSE
Listings Issuer would be permitted to phase in its compliance with
the committee composition requirements set forth in proposed Rule
14A.405(c)(4) as follows: (1) At least one member of the LTSP
Committee must be an Independent Director at the time of listing,
and (2) a majority of the members of the LTSP Committee must be
Independent Directors within 90 days of listing. See id.
---------------------------------------------------------------------------
Controlled Companies: Proposed Rule 14A.407(c)(1) states that an
LTSE Listings Issuer that is a Controlled Company \116\ would be exempt
from the additional compensation committee requirements of proposed
Rule 14A.405(b) and the nominating/corporate governance committee
requirements of proposed Rule 14A.405(d).\117\
---------------------------------------------------------------------------
\116\ The term ``Controlled Company'' is defined in IEX Rule
14.407(c)(1) as an Exchange-listed company of which more than 50% of
the voting power for the election of directors is held by an
individual, a group or another company.
\117\ However, Controlled Companies would not be exempt from the
executive compensation requirements of proposed Rule 14A.405(b)(3).
See proposed Rule 14A.407(c)(1). If a Controlled Company does not
have a compensation committee, the Independent Directors on the LTSP
Committee, or the Independent Directors of the board, would be
responsible for compliance with the executive compensation
requirements. See proposed Rule 14A.407(c)(2).
---------------------------------------------------------------------------
G. Other Requirements for LTSE Listings Issuers
Earnings Guidance: Proposed Rule 14A.420 prohibits LTSE Listings
Issuers from providing Earnings Guidance more frequently than annually,
unless such disclosure would be required by IEX Rule 14.207(b)(1)
(Disclosure of Material Information), other applicable law or to make
the previously issued Earnings Guidance not misleading.\118\
---------------------------------------------------------------------------
\118\ Pursuant to proposed Rule 14A.002(a)(5), ``Earnings
Guidance'' means any public disclosure made to Shareholders
containing a projection of the LTSE Listings Issuer's revenues,
income (including income loss), or earnings (including earnings
loss) per share. Any Earnings Guidance, including updates and
supplementary disclosure related to Earnings Guidance, must also
comply with the disclosure and notification requirements of IEX Rule
14.207(b)(1). See proposed Rule 14A.420(b).
---------------------------------------------------------------------------
Long-Term Stakeholder Policies: Proposed Rule 14A.425 requires LTSE
Listings Issuers to develop and publish: (i) A policy regarding the
LTSE Listings Issuer's impact on the environment and community; and
(ii) a policy explaining the LTSE Listings Issuer's approach to
diversity throughout the LTSE Listings Issuer.\119\ The LTSE Listings
Issuer must review the policies required by proposed Rule 14A.425 at
least annually and make such policies available on or through its
website.
---------------------------------------------------------------------------
\119\ See Notice, supra note 3, at 14086.
---------------------------------------------------------------------------
Website Requirements: Several of the proposed LTSE Listings rules
require LTSE Listings Issuers to make certain disclosures or documents
publicly available on the LTSE Listings Issuer's website, and proposed
Rule 14A.430 would explicitly require LTSE Listings Issuers to have and
maintain a public available website.\120\ In addition, proposed Rule
14A.413 would require each LTSE Listings Issuer to prepare and maintain
an explanatory statement that must be written in plain English and
posted prominently on the LTSE Listings Issuer's website and that must
explain how a shareholder's voting power in the LTSE Listings Issuer's
securities may increase over time, and explain the particular
conditions that must be satisfied and the administrative steps that the
shareholder must take to hold shares in a manner that would allow such
voting power to increase over time.\121\
---------------------------------------------------------------------------
\120\ For documents available on or through an LTSE Listings
Issuer's website, such website must be accessible from the United
States, must clearly indicate in the English language the location
of such documents on the website and such documents must be
available in a printable version in the English language. See
proposed Rule 14A.430.
\121\ See Amendment No. 1, supra note 6.
---------------------------------------------------------------------------
H. Failure To Meet LTSE Listings Standards
Pursuant to IEX Rule 14.500(a), a failure to meet the listing
standards set forth in the LTSE Listings Rules would be treated as a
failure to meet the listing standards set forth in Chapter 14 of the
IEX Rules, for purposes of the IEX Rule Series 14.500. As a result, the
procedures for the independent review, suspension, and delisting of
companies that fail to satisfy one or more standards for continued
listing would apply to any LTSE Listings Issuer that fails to comply
with listing standards in the LTSE Listings Rules as well as in Chapter
14 of the IEX Rules.
Proposed Rule 14A.500(b) would provide that a failure to satisfy
one or more of the LTSE Listings Rules would be treated as a deficiency
for which a company may submit a plan to regain compliance in
accordance with IEX Rule 14.501(d)(2). Absent an extension, such a plan
must be provided within 45 calendar days of IEX Staff's notification of
deficiency in accordance with IEX Rule 14.501(d)(2)(C) (Timeline for
Submission of Compliance Plans).
Proposed Rule 14A.500 would permit an issuer to remain listed on
the Exchange as a standard IEX listed company should the LTSE Listings
Issuer become subject to delisting for failure to satisfy one or more
LTSE Listings Rules, but remains in compliance with all other
applicable listing rules of the Exchange.
IV. Summary of Comments and IEX's Response Letter
As noted above, the Commission received twenty-three comment
letters regarding the proposed rule change \122\ and one response
letter from the Exchange.\123\ All commenters expressed their support
for the proposed rule change, although two commenters indicated that
they generally preferred single class voting structures.\124\ Several
commenters suggested that IEX's proposed rule change may encourage
additional companies to pursue an initial public offering with an
increased focus on long-term objectives.\125\ Many
[[Page 31623]]
commenters expressed a related view that the current market structure
disproportionately encourages short-term outlooks.\126\ One commenter
suggested that the proposal would encourage additional new listings by
increasing competition and providing an alternative model in the
exchange market for listings.\127\ Another commenter commended IEX more
broadly for its proposal's innovation in areas such as increasing
transparency in reporting and disclosure of long-term strategy,
aligning board incentives with the interests of long-term shareholders,
aligning executive compensation with long-term performance, and
recognizing environmental, social, and governance priorities.\128\ Yet
another commenter remarked that founders today feel the need to grow
large in the private markets in order to sustain and protect their
cultures, thinking, and values when they enter the public markets.\129\
---------------------------------------------------------------------------
\122\ See supra note 4.
\123\ See supra note 5.
\124\ See Inherent Group Letter and Glass, Lewis Letter.
\125\ See Collaborative Fund Letter at 1; Costolo Letter; Case
Letter; Conference Board Letter at 2; Andreessen Horowitz Letter;
Obvious Ventures Letter; Founders Fund Letter; Descript Letter;
LinkedIn Letter; Y Combinator Letter at 1-2; Techstars Letter at 1;
Downtown Project Letter; CareJourney Letter; Brummer Letter at 3.
See also Greylock Partners Letter (expressing support for ``a new
option that aims to build an ecosystem that enables opportunity and
connects long-term visionaries from all sides of the economy''). Two
commenters supporting the proposal discussed the benefits of a new
exchange designed to promote long-term objectives. See Collaborative
Fund Letter at 1; Baillie Gifford Letter at 1-2. The Commission
notes that IEX's proposed rule change would simply provide an
additional listings tier on IEX, and that IEX is not proposing an
application for registration as a separate national securities
exchange.
\126\ See, e.g., Inherent Group Letter at 1; Buhl Letter;
Conference Board Letter at 1-2; Andreessen Horowitz Letter; Obvious
Ventures Letter; Greylock Partners Letter; Aspen Institute Letter;
Descript Letter; LinkedIn Letter; Techstars Letter at 1; Downtown
Project Letter; CareJourney Letter; Revolution Letter.
\127\ See Cboe Letter at 1.
\128\ See Glass, Lewis Letter at 1-2.
\129\ See Initialized Capital Letter.
---------------------------------------------------------------------------
Five commenters specifically supported providing longer-tenured
investors in a company with greater input in corporate governance.\130\
In addition to the proposed long-term voting system, two of these
commenters also highlighted the benefits of the additional disclosure
requirements that are focused on long-term growth.\131\ Three
commenters stated that the proposed listing standards would increase
transparency to investors, such as with respect to long-term goals,
metrics, and performance, and would help align executive compensation
with these long-term measures.\132\ One of these commenters suggested
that IEX's proposal to require a board committee focused on long-term
growth strategies and the disclosure of such strategies could better
encourage long-term relationships between issuers and their
shareholders through the increased transparency that the proposal would
promote.\133\ This commenter also highlighted the proposal's required
disclosure of human capital expenses and short-term vs. long-term
research and development spending as features that could provide
valuable insight into how issuers are effectively investing in their
long-term growth and thereby mitigate concerns about short-term
fluctuations in earnings.\134\ This commenter further noted that the
proposed executive compensation requirements would better tie
management's incentives to the listed company's disclosed long-term
growth strategy.\135\
---------------------------------------------------------------------------
\130\ See Revolution Letter; Inherent Group Letter at 1;
CareJourney Letter; Brummer Letter at 4-5; CalPERS Letter at 2.
\131\ See CalPERS Letter at 2; Brummer Letter at 3-4.
\132\ See Inherent Group Letter at 1; Andreessen Horowitz
Letter; Brummer Letter at 3-4.
\133\ See Brummer Letter at 4.
\134\ See id.
\135\ See id.
---------------------------------------------------------------------------
One commenter, while generally supporting IEX's proposal, expressed
concern about the proposed increasing voting rights that are based on
the length of time that the shares are held.\136\ This commenter noted
that dual-class voting structures ``are generally not in the best
interests of common shareholders; this includes any equity structures
providing unequal voting rights, regardless of the number of share
classes issued.'' \137\ This commenter acknowledged, however, that the
long-term shareholder voting feature of the IEX proposal may be
preferable to some investors compared to other existing unequal voting
structures.\138\ Another commenter, while not expressing a concern
specific to IEX's proposal, noted that it ``generally prefer[s] single-
class share structures,'' but ``support[s] mechanisms that reward long-
term shareholders with a greater say in corporate governance issues
than short-term shareholders.'' \139\ This commenter cautioned that any
such mechanisms ``must maintain management accountability, preserve
adequate liquidity in the public markets, and balance the interests of
small and large--and short-term and long-term--shareholders.'' \140\
---------------------------------------------------------------------------
\136\ See Glass, Lewis Letter at 2.
\137\ See id.
\138\ See id.
\139\ See Inherent Group Letter at 1.
\140\ See id.
---------------------------------------------------------------------------
In its response to the commenters, IEX stated that its proposed
long-term voting provisions differ from existing dual-class and uneven
voting structures because its proposed voting structure treats all
common shareholders equally in their ability to gain additional voting
power based on the length of time that their shares are held.\141\
According to the Exchange, this proposed structure is designed to more
directly align voting rights with long-term engagement with the
issuer.\142\ The Exchange further noted that the proposed voting
structure should not be mandated for any issuer but is an important
alternative that would be available to issuers that elect to list on
the proposed new IEX listings tier.\143\
---------------------------------------------------------------------------
\141\ See IEX Response Letter at 1.
\142\ See id. at 1-2.
\143\ See id. at 2.
---------------------------------------------------------------------------
V. Discussion and Commission Findings
After careful review and consideration of the comments received,
the Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\144\ In particular, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) of the Act.\145\ Section 6(b)(5) of the Act\146\ requires,
among other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest; and not be
designed to permit unfair discrimination between customers, issuers,
brokers or dealers.
---------------------------------------------------------------------------
\144\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\145\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5).
\146\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As noted above, the Commission received 23 comment letters on the
proposed rule change, as well as a response letter from the Exchange.
The commenters generally expressed support for the Exchange's proposal,
although two commenters indicated that they preferred single-class
voting structures, but acknowledged that they otherwise supported the
aim of the Exchange's proposal to favor long-term shareholder
value.\147\
---------------------------------------------------------------------------
\147\ See Section IV., supra.
---------------------------------------------------------------------------
The Exchange proposes to adopt listing rules for a new tier of
listings on its market, LTSE Listings. The Exchange states that it
believes that companies
[[Page 31624]]
should be able to maintain a public listing on an exchange that
provides a differentiated choice for issuers and investors that prefer
listing standards that the Exchange explicitly has designed with the
aim of promoting long-term value creation. Although companies today
could list on the Exchange and voluntarily choose to focus on long-term
value creation, the Exchange believes that providing a listing category
with listing rules that the Exchange has designed to address some of
the concerns regarding ``short-termism'' could encourage greater
participation in the public markets by long-term focused companies and
investors
In support of its proposal, the Exchange notes that many academics,
commentators, market participants, and others have expressed concerns
regarding ``short termism'' and the potential impact on issuers when
some investors' focus on short-term results. The Exchange points to
data indicating that the average number of IPOs per year from 2001
through 2016 was approximately one-third of the average number of IPOs
between 1998 and 2000, and that the number of listed companies fell by
nearly 50% from 1996 through 2016.
An analysis of IPO data,\148\ prepared by the Commission's Division
of Economic Research and Analysis, similarly points to a decline in the
number of IPOs and public companies compared to the nineties. For
example, the number of IPOs declined by approximately 77% from 1997 to
2017, while the average number of IPOs per year declined by
approximately 73% from 1990-1998 to 2001-2017.\149\ The number of
listed companies decreased by approximately 45% from 1997 to 2017 and
the average number of listed companies decreased by approximately 34%
from 1990-1998 to 2001-2017.\150\
---------------------------------------------------------------------------
\148\ See Ritter, J., Initial Public Offerings: Updated
Statistics, January 2018, https://site.warrington.ufl.edu/ritter/files/2018/01/IPOs2017Statistics_January17_2018.pdf (retrieved Jun.
20, 2018). The sample excludes IPOs with offers prices below $5,
ADRs, units, closed-end funds, REITs, natural resource limited
partnerships, small best efforts offers, banks and thrifts, and
stocks not listed on Amex, NYSE, and NASDAQ.
\149\ Id. Peak technology bubble years (1999 and 2000) are
excluded. If 2008 and 2009 are excluded, the decrease in the average
number of IPOs per year from 1990-1998 to 2001-2017 is estimated to
be approximately 70%.
The decline is smaller but still considerable when an earlier
time period is used for comparison. The average number of IPOs per
year decreased by approximately 47% from 1980-1989 to 2001-2017
(approximately 42%, excluding 2008-2009).
\150\ The estimate is based on Staff calculations based on World
Bank's World Development Indicators data on the number of domestic
listed companies in the US (retrieved April 23, 2018). The average
number of listed companies is estimated to have decreased by
approximately 23% from 1980-1989 to 2001-2017.
---------------------------------------------------------------------------
Academic studies have similarly demonstrated a decline in the
number of U.S. IPOs and listed companies in recent years and have cited
various potential reasons for this decline, including a high cost of
going public and being a reporting company,\151\ the advantages of
being acquired by a larger firm,\152\ and the expanding role of private
markets.\153\ Other studies generally note the cyclical nature of
offering activity.\154\
---------------------------------------------------------------------------
\151\ See, e.g., Engel, E., Hayes, R., Wang, X., 2007, The
Sarbanes-Oxley Act and Firms' Going-Private Decisions, Journal of
Accounting and Economics 44(1-2), 116-145; Kamar, E., Karaca-Mandic,
P., Talley, E., 2009, Going-Private Decisions and the Sarbanes-Oxley
Act of 2002: A Cross-Country Analysis, Journal of Law, Economics, &
Organization 25(1), 107-133; Bova, F., Minutti-Meza, M., Richardson,
G., Vyas, D., 2014, The Impact of SOX on the Exit Strategies of
Private Firms, Contemporary Accounting Research 31(3), 818-850.
\152\ See, e.g., Gao, X., Ritter, J., Zhu, Z., 2013, Where have
all the IPOs gone? Journal of Financial and Quantitative Analysis
48(6), 1663-1692.
\153\ See, e.g., Ewens, M., Farre-Mensa, J., 2018, The
deregulation of the private equity markets and the decline in IPOs,
Working paper, https://ssrn.com/abstract_id=3017610 (retrieved Jun.
20, 2018); Doidge, C., Kahle, K., Karolyi, A., Stulz, R., 2018,
Eclipse of the Public Corporation or Eclipse of the Public Markets?
Journal of Applied Corporate Finance 30(1), 8-16.
\154\ See, e.g., Lowry, M., 2003, Why does IPO volume fluctuate
so much? Journal of Financial Economics 67(1), 3-40; Alti, A., 2005,
IPO Market Timing, Review of Financial Studies 18(3), 1105-1138;
Yung, C., Colak, G., Wang, W., 2008, Cycles in the IPO market,
Journal of Financial Economics 89(1), 192-208.
---------------------------------------------------------------------------
Other observers have offered various reasons for the IPO decline,
including high costs of an IPO and of being a public company\155\ and
the attractiveness of private placements and of being acquired.\156\
---------------------------------------------------------------------------
\155\ See, e.g., IPO taskforce, Rebuilding the IPO On-Ramp:
Putting Emerging Companies and the Job Market Back on the Road to
Growth, October 20, 2011, https://www.sec.gov/info/smallbus/acsec/rebuilding_the_ipo_on-ramp.pdf (retrieved Jun. 27, 2018); Committee
on Capital Markets Regulation, U.S. Public Markets are Stagnating,
April 2017, https://www.capmktsreg.org/wp-content/uploads/2017/06/US-Public-Equity-Markets-are-Stagnating.pdf (retrieved Jun. 27, 2018).
Besides ongoing costs of periodic reporting, observers have pointed
to other considerations, such as the costs of the IPO, disclosure
requirements, audits, litigation, investor relations, shareholder
activism, etc.
\156\ See, e.g., Eule, A., Are Unicorns Killing the 2016 IPO
Market? June 4, 2016, Barron's, https://www.barrons.com/articles/are-unicorns-killing-the-2016-ipo-market-1465018470 (retrieved Jun. 27,
2018); Zanki, T., 4 Reasons Cos. Are Staying Private Longer, March
14, 2017, Law360, New York, https://www.law360.com/articles/901768?scroll=1 (retrieved Jun. 27, 2018); Hutchinson, J., Why Are
More Companies Staying Private? February 15, 2017, https://www.sec.gov/info/smallbus/acsec/hutchinson-goodwin-presentation-acsec-021517.pdf (retrieved Jun. 27, 2018). See also Notice, supra
note 3, at 14075 n.10.
---------------------------------------------------------------------------
Issuers that list on the LTSE Listings tier would be subject to the
listing standards in proposed Chapter 14A of IEX's rules, as well as
Chapter 14 of IEX's rules relating to its standard listing tier.
Significant features of proposed Chapter 14A, which are discussed in
more detail below, pertain to: (1) The opportunity for shareholders to
receive accreting voting rights; (2) an alternative calculation for
determining shareholder approval requirements; (3) additional corporate
governance and other requirements for LTSE Listings Issuers; and (4)
provisions pertaining to dually-listed securities.
A. Mandatory Accreting Voting Rights
A key feature of the Exchange's proposal is the requirement that
companies electing to list their common equity securities on the
Exchange's LTSE Listings tier must comply with the voting rights
requirements set forth in proposed Rule 14A.413 with respect to those
listed securities. In the Exchange's view, the proposed voting rights
structure is designed to more directly align shareholders' voting
rights with long-term issuer engagement.\157\ Specifically, proposed
Rule 14A.413(b) would require an LTSE Listings Issuer to establish an
Initial Voting Power\158\ associated with its listed securities, and
that Initial Voting Power would be required to increase at a rate of at
least 1/12th per month for each eligible shareholder \159\ that owns
the issuer's shares continuously as of the date that the shareholder
appears as the record owner on the LTSE Listings Issuer's books or
through DRP. Under Rule 14A.413(b), the voting power of the shares
would be required to accrete up to an amount that is ten times their
Initial Voting Power. However, if at any time, the shareholder ceases
to hold the LTSE Listing Issuer's shares in record form or transfers
those shares out of record ownership (whether for purposes of sale or
otherwise), then on the date of such transfer the increased voting
power of the shares would revert to their Initial Voting Power. The
Exchange states that the voting rights provisions are designed to align
with the long-term focus of the LTSE Listings category by providing
long-term investors in an LTSE Listings Issuer with a greater role in
corporate
[[Page 31625]]
governance than short-term shareholders.\160\
---------------------------------------------------------------------------
\157\ See supra notes 67-68 and accompanying text.
\158\ See supra note 74 and accompanying text.
\159\ Only shareholders of an LTSE Listings Issuer who register
such shares in their name as record holders on the books of the LTSE
Listings Issuer, including through the use of a DRP, would be
eligible for these accreting voting rights. See supra note 72 and
accompanying text.
\160\ See Notice, supra note 3, at 14083. The Exchange believes
that long-term investors in a public company are more likely than
short-term shareholders to exercise their voting rights in a manner
that prioritizes long-term growth over short-term results. See id.
---------------------------------------------------------------------------
Although the commenters generally supported the Exchange's
proposal, two commenters expressed a concern about the proposed voting
rights structure.\161\ Specifically, one commenter noted a concern that
dual-class voting structures generally are not in the best interests of
shareholders, and that skewing the alignment of ownership and voting
rights presents agency risks.\162\ The other commenter stated that
mechanisms that reward long-term shareholders with a greater say in
corporate governance nonetheless should balance the interests of small
and large, and short-term and long-term, shareholders.\163\ The
Exchange responded by noting that its proposal differs from existing
dual-class and uneven voting structures because its proposed voting
structure would treat the LTSE Listings Issuer's common shareholders
equally in their ability to gain additional voting power based on their
ownership tenure.\164\ The Exchange further noted that its proposed
voting structure would provide an alternative available to issuers that
elect to list on the proposed LTSE Listings tier.\165\ In its proposal,
the Exchange also stated that because LTSE Listings Issuers would be
required, as a pre-condition to listing on LTSE Listings, to already
have in place a voting rights structure as of the date of its initial
listing that complies with LTSE Listings Rule 14A.413(b), no new
corporate action that disparately reduces voting rights would be taken
subsequent to listing on the Exchange.\166\
---------------------------------------------------------------------------
\161\ See Inherent Group Letter and Glass, Lewis Letter at 2.
\162\ See Glass, Lewis Letter at 2.
\163\ See Inherent Group Letter.
\164\ See IEX Response Letter at 1.
\165\ See id. at 2.
\166\ See supra note 79 and accompanying text.
---------------------------------------------------------------------------
Section 6(b)(5) of the Exchange Act requires that an exchange's
rules be designed to promote just and equitable principles of trade and
not be designed to permit unfair discrimination between customers,
issuers, brokers, or dealers and, in general, to protect investors and
the public interest. The proposed voting rights structure rule would
require an LTSE Listings Issuer to differentiate in the allocation of
voting rights based on the manner in which its shareholders hold their
shares (whether in DRP or record name or whether in street name) and
for the length of time that they hold their shares. The proposed voting
rights rule is intended to allow shareholders of an LTSE Listings
Issuer to increase the voting power of their shares as long as they
continue to hold such shares as record holders on the books of the LTSE
Listings Issuer, including through DRP. The proposal does not make any
other distinction in voting rights among the LTSE Listings Issuer's
shareholders, and any shareholders that continuously hold their shares
in record form would be eligible to increase their voting power up to
the maximum allowable voting power consistent with proposed Rule
14A.413(b). LTSE Listings Issuers also would be required to comply with
IEX's existing voting rights policy, which provides that the voting
rights of existing shareholders of listed stock cannot be disparately
reduced or restricted through any corporate action or issuance,
including, but not limited to, the adoption of time-phased voting
plans, the adoption of capped voting rights plans, the issuance of
super-voting stock, or the issuance of stock with voting rights less
than the per share voting rights of the existing common stock through
an exchange offer.\167\ To address the restrictions in this voting
rights policy, the proposal prohibits an LTSE Listings Issuer from
issuing additional classes of common stock that exceeds the Initial
Voting Power of any of the LTSE Listings Issuer's existing classes of
common stock listed on LTSE Listings. In addition, the proposal
prohibits issuances where the rate at which the voting power of such
class may increase over time at a rate greater than the corresponding
rate for any of the LTSE Listings Issuer's existing classes of common
stock listed on LTSE Listings.\168\
---------------------------------------------------------------------------
\167\ See IEX Rule 14.413.
\168\ See supra note 81 and accompanying text; proposed Rule
14A.413, Supplementary Material .01(f).
---------------------------------------------------------------------------
The Commission also notes that, pursuant to proposed Rule
14A.200(c)(2), at the time that a company initially lists on the LTSE
Listings tier, that company may not have any securities listed for
trading on IEX or any other national securities exchange, and that a
company would be permitted to list on LTSE Listings only in connection
with its initial public offering.\169\ The proposal also would require
an LTSE Listings Issuer to prepare and maintain an explanatory
statement, written in plain-English, and posted prominently on its
website, which provides information regarding the rights of
shareholders under the issuer's long-term voting provisions, including,
at a minimum, explanations of how a shareholder's voting power may
increase over time, the particular conditions that must be satisfied in
order for such additional voting power to increase, and the
administrative steps that a shareholder must take to hold shares in a
manner that will allow their voting power to increase over time.\170\
In light of the foregoing, the Commission finds that the Exchange's
voting rights proposal is consistent with Section 6(b)(5) of the Act.
---------------------------------------------------------------------------
\169\ See Amendment No. 1, supra note 6.
\170\ See id.
---------------------------------------------------------------------------
B. Alternative Calculation for Requiring Shareholder Approval
The Exchange proposes a modified shareholder approval calculation
formula for LTSE Listings Issuers to be used for determining when
shareholder approval is required for additional issuances of
securities. While the calculation for shareholder approval ordinarily
would be based on the legal maximum potential voting power of the
shares to be issued (which in the case of the proposed rules would
multiply the Initial Voting Power by ten), the Exchange asserts that
this approach would not be appropriate because it believes that it
would be extremely unlikely that all shares of a new issuance would be
held in record name by the same shareholder uninterrupted for a period
of 10 years.\171\ The Exchange also states that it would be even more
unlikely for all shares of a new issuance to accrue votes up to the
maximum amount while the shares outstanding remain static and do not
accrue any additional voting rights. The Exchange therefore argues that
requiring issuers to make these particular assumptions would result in
LTSE Listings Issuers having to obtain shareholder approval for
transactions that would not be materially dilutive to existing
shareholders. The Exchange further contends that imposing the burden of
obtaining shareholder approval (including the monetary costs, as well
as the time involved and uncertainty of outcome) would not be justified
for transactions that, in the Exchange's view, are unlikely to be
materially dilutive to the voting power of existing shareholders.\172\
---------------------------------------------------------------------------
\171\ See Notice, supra note 3, at 14090. Under the proposal,
transferring shares out of record form or transferring ownership to
another person would revert the voting rights associated with the
shares to their Initial Voting Power.
\172\ See id. at 14090-91.
---------------------------------------------------------------------------
The Exchange notes that, because shareholders may or may not elect
to hold their shares in record ownership,
[[Page 31626]]
and may hold them in such manner for varying lengths of time, it is not
possible to determine with precision how many shares issued in any
transaction would accumulate additional voting power or the extent of
voting power that those shares eventually would attain.\173\ The
Exchange proposes two alternative means for calculating the maximum
potential voting power of the new shares: (i) for issuers that have
been listed on LTSE Listings for at least five years, this value would
be the number of shares to be issued multiplied by both the Initial
Voting Power and Long-Term Voting Factor,\174\ and (ii) for issuers
that have been listed on LTSE Listings for fewer than five years, this
value would be the greater of (x) the number of shares to be issued
multiplied by both the Initial Voting Power and Long-Term Voting Factor
or (y) the number of shares to be issued multiplied by the Initial
Voting Power, multiplied by two.
---------------------------------------------------------------------------
\173\ See id. at 14090.
\174\ See supra note 105 and accompanying text, for a
description of the Long-Term Voting Factor.
---------------------------------------------------------------------------
The Exchange states that the Long-Term Voting Factor is intended to
estimate the extent of the increase in voting power that the new shares
to be issued are likely to obtain based on the percentage of increased
voting power that existing issued shares have already obtained. The
Exchange also believes that, for companies that have been listed for a
shorter period of time, a minimum multiple of two is appropriate
because the actual Long-Term Voting Factor that these companies would
have experienced is likely to be lower than that of longer-listed
companies and may not be representative of the longer-term growth in
voting power that the new shares may ultimately attain.\175\
---------------------------------------------------------------------------
\175\ See Notice, supra note 3, at 14091.
---------------------------------------------------------------------------
The Commission notes that the rationale for the Exchange's proposed
modification to the shareholder approval calculation is based on the
unique features of the proposed voting rights structure. The
traditional shareholder approval calculation assumes that the maximum
voting rights of any newly issued shares definitely would be reached.
However, because of the way the Exchange's proposal would work (i.e.,
with the voting rights reverting to their Initial Voting Power upon any
trade, and accreting voting rights available only for record holders),
it is difficult to predict what the maximum voting rights of the newly-
issued shares would be. While the proposed formula for modifying the
calculation of the maximum potential voting power of the newly-issued
shares may appear reasonable, it is difficult to assess whether it is
in fact appropriate because there is no available data on the behavior
of securities subject to the proposed voting structure. The Commission
notes that the Exchange has represented that, if approved, it would
periodically assess whether a five year cut-off for applying a minimum
Long-Term Voting Factor and the minimum Long-Term Voting Factor of two
continue to be appropriate, or whether either element should be
modified based on the Exchange's experience with LTSE Listings Issuers.
For example, the Exchange would consider when the rate of growth of the
voting power of an LTSE Listings Issuer's shares typically becomes
relatively stable and at what level.\176\ The Commission believes that
that these representations by the Exchange are important for ensuring
that the calculation for shareholder approval is appropriately
established for LTSE Listings Issuers and that the requirement for
shareholder approval for required transactions remains robust. In
addition, the Commission notes that LTSE Listings Issuers would have to
comply with all the other provisions of the shareholder approval rules
that require a shareholder vote. For example, an issuance that results
in a change of control would need to have shareholder approval
irrespective of whether the issuance exceeded the 20% provision as
calculated under the LTSE Listings rules.
---------------------------------------------------------------------------
\176\ See id. at 14091 n.87.
---------------------------------------------------------------------------
For the foregoing reasons, the Commission finds that the Exchange's
proposal with regard to the proposed shareholder approval calculation
is consistent with the Act, particularly Section 6(b)(5) thereunder.
The Commission notes, however, that in the case of an LTSE Listings
Issuer whose securities are dually-listed under proposed Rule 14A.210,
such issuers would be required to comply with the stricter listing
standard for calculating the requirement for shareholder approval,
which could be the rule of the other listing exchange.
C. Additional Corporate Governance and Other Requirements
The Exchange's proposal contains a number of additional corporate
governance requirements for LTSE Listings issuers, which would be in
addition to or in lieu of the corporate governance requirements
contained in Chapter 14 of IEX's rules. The proposed new requirements
for boards of directors and board committees are designed to align the
board with the objectives of the LTSE Listings rules.\177\ The proposal
would require the boards of an LTSE Listings issuer to establish an
LTSP Committee, which would be dedicated to overseeing the issuer's
strategies for creating and sustaining long-term growth, and a
nominating/corporate governance committee. The proposal also would
require committees, including the audit and compensation committees, to
report to the board and to make their charters available on the
issuer's website, and would retain the composition and transparency
requirements of those committees, if their functions were transferred
to another committee. LTSE Listings Issuers would be required to
provide more transparency about their operations, and in particular
their long-term goals, strategies, and performance, in the form of
additional disclosures, i.e., the LTSP Disclosures, in an Annual Report
Supplement. The proposal also would require LTSE Listings Issuers to
adopt corporate governance guidelines and executive compensation
guidelines, which would impose certain requirements and restrictions on
executive compensation that the Exchange believes are measures intended
to capture the long-term performance of the issuer.
---------------------------------------------------------------------------
\177\ See id. at 14077.
---------------------------------------------------------------------------
These additional corporate governance requirements were supported
by the commenters. Commenters particularly supported the proposed
increased transparency for investors and the proposed requirements that
the Exchange has designed with the intent of aligning executive
compensation with long-term measures of the issuer's performance. The
Commission finds that the proposed additional corporate governance
requirements are consistent with the Act, particularly Section 6(b)(5)
thereunder.
D. Dual Listings
The Exchange proposes to allow an LTSE Listings Issuer to list a
class of securities that, in connection with its IPO, has been approved
for listing on another national securities exchange. The Exchange would
make an independent determination of whether such issuer satisfies all
the applicable listing requirements of the Exchange and would require
such issuer to enter into a dual-listing agreement with the Exchange.
The Exchange would expect the other national securities exchange to be
the LTSE Listings Issuer's primary listing market. The proposed rules
would require prompt notification by the LTSE Listings Issuer if it
falls below
[[Page 31627]]
the listing standards of the other exchange (and vice versa), and also
would honor the trade halt authority of Primary Listing Market, as
designated under the CQ and CTA Plans or the UTP Plan.
The Commission finds that the proposal to allow dual-listings of
securities listed on LTSE Listings, which would allow such dual-
listings to occur in connection with the initial public offering of
those securities, is consistent with the Exchange Act. The Commission
notes that dually-listed securities of LTSE Listings issuers would need
to satisfy the listing standards of both exchanges in order to maintain
both listings, and could not rely on satisfying one exchange's listing
standards to maintain its listing on the other exchange. The Commission
also notes that in instances where one exchange has a higher or more
stringent requirement than the other exchange, the issuer would be
required to comply with the higher or more stringent requirement. For
example, as noted above, if an LTSE Listings Issuer's security is also
listed on another exchange and that other exchange has a more stringent
requirement for applying its shareholder approval calculation
requirement, the more stringent requirement of the other exchange would
be applied to the LTSE Listings issuer. Similarly, if the other
exchange has a lower requirement or no requirement with respect to a
corporate governance requirement imposed by the Exchange for an LTSE
Listings Issuer, such as the LTSP Disclosures requirement, the LTSE
Listings Issuer would have to comply with the higher standard imposed
by the Exchange.
In light of the foregoing, the Commission finds that the Exchange's
proposal to adopt rules relating to supplemental listing standards for
LTSE Listings Issuers is consistent with the Act, particularly Section
6(b)(5) thereunder. The Commission believes that the proposed rules are
appropriate in that they aim to provide issuers that believe the LTSE
Listings standards to be better aligned with their objectives, and
potentially with the governance preferences of their shareholders, with
the option to comply with certain additional listing requirements,
which in turn would provide shareholders with the opportunity to
increase their voting power in the issuer's listed securities.
VI. Solicitation of Comments on Amendment No. 1 to the Proposed Rule
Change
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendment No. 1 is consistent with the
Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2018-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-IEX-2018-06. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE, Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-IEX-2018-06, and should be submitted on
or before July 27, 2018.
VII. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the thirtieth day
after the date of publication of notice of the filing of Amendment No.
1 in the Federal Register. As discussed above, Amendment No. 1 revises
the proposal to: (1) Clarify in proposed Rule 14A.001(a) that an LTSE
Listings Issuer must qualify for listing under Chapter 14 of the IEX
Rules and the LTSE Listings Rules, except as otherwise provided in the
LTSE Listings Rules; (2) specify in proposed Rule 14A.200(c)(2) that
when a company lists on LTSE Listings, in addition to the requirement
that the company must not have any security listed for trading on the
Exchange or any other national securities exchange, the company also
must be listing in connection with its initial public offering; (3) add
paragraph (c) to proposed Rule 14A.210 to provide that if dually-listed
securities are listed on another national securities exchange that is
the primary listing market and requires a minimum number of market
makers, the minimum market maker requirements of IEX Rules 14.310 and
14.320 would not be applicable to such dually-listed securities; and
(4) add paragraph (c) to proposed Rule 14A.413 to require each LTSE
Listings Issuer to prepare and maintain an explanatory statement that
must be written in plain English, made publicly available, and posted
prominently on its website and that must describe how the voting power
of the issuer's securities may increase over time, and the conditions
and administrative steps necessary for such voting power to increase.
With respect to not applying the minimum market maker requirements
of IEX Rules 14.310 and 14.320 when another national securities
exchange is the Primary Listing Market for the LTSE Listing Issuer's
dually-listed securities, the Exchange notes that such requirements are
not necessary if the Primary Listing Market imposes minimum market
maker requirements. With respect to requiring each LTSE Listings Issuer
to make an explanatory statement publicly available and posted
prominently on the issue's website explaining the long-term voting
provisions, the Exchange believes that the new rule language would help
ensure that an LTSE Listings Issuer's shareholders would be able to
easily obtain necessary information about the LTSE Listings Issuer's
long-term voting structure and how such shareholders, if they so
choose, may accrue additional voting power over time. With respect to
the amendments to proposed Rules 14A.001(a) and 14A.200(c)(2), the
Exchange notes that these are simply conforming and clarifying changes
to the proposed rule text.
The Commission believes that Amendment No. 1 would help increase
transparency by providing clear and easily accessible information to
[[Page 31628]]
shareholders and potential shareholders regarding an LTSE Listings
Issuer's long-term voting structure and regarding how they can accrue
additional voting power over time. The Commission also believes that it
is appropriate for the Exchange to not apply the minimum market maker
requirements of IEX Rules 14.310 and 14.320 when another national
securities exchange is the Primary Listing Market for the LTSE Listings
Issuer's dually-listed securities. The Commission believes that
Amendment No. 1 does not raise any new or novel regulatory issues, and
provides additional transparency to investors, further facilitating the
Commission's ability to make the findings set forth above to approve
the Exchange's proposed rule change. For these reasons, the Commission
finds good cause, pursuant to Section 19(b)(2) of the Act,\178\ to
approve the proposed rule change, as modified by Amendment No. 1, on an
accelerated basis.
---------------------------------------------------------------------------
\178\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
VIII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\179\ that the proposed rule change (SR-IEX-2018-06), as modified
by Amendment No. 1, be, and hereby is, approved on an accelerated
basis.
---------------------------------------------------------------------------
\179\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\180\
---------------------------------------------------------------------------
\180\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14461 Filed 7-5-18; 8:45 am]
BILLING CODE 8011-01-P
