Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Establish Listing Standards Related to Recovery of Erroneously Awarded Executive Compensation, 15500-15503 [2023-05040]

Download as PDF 15500 Federal Register / Vol. 88, No. 48 / Monday, March 13, 2023 / Notices individuals. The proposed amendments would also broaden the scope of information covered under these rules and extend application of these rules to cover transfer agents registered with the Commission or another appropriate regulatory authority. The Commission will also consider whether to propose corresponding amendments to recordkeeping rules under the Securities Exchange Act of 1934 (‘‘Exchange Act’’), Investment Company Act of 1940, and Investment Advisers Act of 1940. Finally, the Commission will also consider whether to propose amendments to conform annual privacy notice delivery provisions to the terms of an exception provided by a statutory amendment to the Gramm-Leach-Bliley Act. 2. The Commission will consider whether to propose a new rule and form and certain related rule and exemptive order amendments under the Exchange Act to require certain registrants under the Exchange Act to address their cybersecurity risks through policies and procedures, notification and reporting to the Commission, public disclosure, and record retention. The proposed cybersecurity requirements would apply to broker-dealers, clearing agencies, major security-based swap participants, the Municipal Securities Rulemaking Board, national securities associations, national securities exchanges, securitybased swap data repositories, securitybased swap dealers, and transfer agents. 3. The Commission will consider whether to propose amendments to Regulation SCI under the Exchange Act to expand the scope of entities subject to Regulation SCI and to update certain provisions of Regulation SCI. CONTACT PERSON FOR MORE INFORMATION: For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551–5400. Authority: 5 U.S.C. 552b. Dated: March 8, 2023. Vanessa A. Countryman, Secretary. ddrumheller on DSK120RN23PROD with NOTICES1 [FR Doc. 2023–05138 Filed 3–9–23; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–97060; File No. SR– NASDAQ–2023–005] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To Establish Listing Standards Related to Recovery of Erroneously Awarded Executive Compensation March 7, 2023. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 22, 2023, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to establish listing standards related to recovery of erroneously awarded executive compensation as required by SEC Rule 10D–1. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/nasdaq/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Wall Street Reform and Consumer Protection Act of 2010 (the ‘‘Dodd-Frank Act’’) added Section 10D to the Securities Exchange Act of 1934.3 In October 2022, the SEC adopted final Rule 10D–1 4 instructing national securities exchanges to establish specific listing standards that require each issuer to adopt and comply with a written executive compensation recovery policy.5 Under Rule 10D–1, listed companies must recover from current and former executive officers incentive-based compensation received during the three fiscal years preceding the date on which the issuer is required to prepare an accounting restatement to correct a material error. As required by Rule 10D–1 and the Listing Standards Release, Nasdaq proposes to adopt Listing Rule 5608 (the ‘‘Rule’’), titled, recovery of erroneously awarded compensation. Proposed Listing Rule 5608(a) would introduce the requirements of the Rule in accordance with the Listing Standards Release. Nasdaq also proposes to adopt Listing Rule 5608(b), which sets forth the substantive requirements of Rule 10D–1(b), and Listing Rule 5608(d), which sets forth the defined terms applicable to the Rule. As provided in Rule 10D–1, Nasdaq proposes to define the term ‘‘executive officer’’ to include the issuer’s president, principal financial officer, principal accounting officer, any vicepresident in charge of a principal business unit, division or function and any other person (including executive officers of a parent or subsidiary) who performs similar policy-making functions for the issuer. The term ‘‘policy-making function’’ is not intended to include policy-making functions that are not significant. The recovery of erroneously awarded compensation is required on a ‘‘no fault’’ basis, without regard to whether any misconduct occurred or an executive officer’s responsibility for the erroneous financial statements. A restatement due to material noncompliance with any financial reporting requirement under the securities laws triggers application of the recovery policy. As explained in the Listing 3 15 U.S.C. 78j–4. CFR 240.10D–1. 5 Securities Exchange Act Release No. 96159 (October 26, 2022), 87 FR 73076 (November 28, 2022)(‘‘Listing Standards Release’’). 4 17 1 15 2 17 VerDate Sep<11>2014 19:32 Mar 10, 2023 Jkt 259001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00132 Fmt 4703 Sfmt 4703 E:\FR\FM\13MRN1.SGM 13MRN1 ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 88, No. 48 / Monday, March 13, 2023 / Notices Standards Release, the determination regarding materiality of an error should be based on facts and circumstances and existing judicial and administrative interpretations. The proposed Rule requires recovery for restatements that correct errors that are material to previously issued financial statements (commonly referred to as ‘‘Big R’’ restatements), as well as for restatements that correct errors that are not material to previously issued financial statements but would result in a material misstatement if the errors were left uncorrected in the current report or the error correction was recognized in the current period (commonly referred to as ‘‘little r’’ restatement). Under the proposed Rule, listed companies will be required to recover the amount of incentive-based compensation received by an executive officer that exceeds the amount the executive officer would have received had the incentive-based compensation been determined based on the accounting restatement. Incentive-based compensation is deemed received 6 in the fiscal period during which the financial reporting measure specified in the incentive-based compensation award is attained, even if the grant or payment of the incentive-based compensation occurs after the end of that period. For incentive-based compensation based on stock price or total shareholder return, companies can use a reasonable estimate of the effect of the restatement on the applicable measure to determine the amount to be recovered. As provided in Rule 10D–1, Nasdaq proposes to define the term ‘‘Incentivebased compensation’’ to mean any compensation that is granted, earned or vested based wholly or in part upon the attainment of any financial reporting measure. The term ‘‘financial reporting measures’’ is defined as measures that are determined and presented in accordance with the accounting principles used in an issuer’s financial statements, and any measures that are derived wholly or in part from such measures, as well as an issuer’s stock price and total shareholder return. Equity awards that vest exclusively upon completion of a specified employment period, without any performance condition, and bonus awards that are discretionary or based on subjective goals or goals unrelated to financial reporting measures, do not constitute incentive-based 6 Nasdaq proposes to define the term ‘‘received’’ as provided in Rule 10D–1. VerDate Sep<11>2014 19:32 Mar 10, 2023 Jkt 259001 compensation.7 Incentive-based compensation received by an executive officer before the issuer had a class of securities listed on a national securities exchange or a national securities association would not be subject to the compensation recovery policy. As also provided in Rule 10D–1, Nasdaq proposes to set forth the circumstances where listed companies would have limited discretion not to recover the excess incentive-based compensation. Specifically, Nasdaq proposes to provide that a company is required to recover compensation in compliance with its recovery policy, except to the extent that pursuit of recovery would be impracticable because: (1) the direct expense paid to a third party to assist in enforcing the policy would exceed the amount to be recovered, (2) recovery would violate home country law, where that law was adopted prior to November 28, 2022, based on an opinion of counsel acceptable to Nasdaq or (3) recovery would cause a broad-based retirement plan to fail to meet the tax-qualification requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder. Before concluding that pursuit is impracticable, a company must first make a reasonable attempt to recover the incentive-based compensation and provide that documentation to Nasdaq. The listed company’s board is required to apply on a ‘‘no fault’’ basis any recovery policy consistently to executive officers and a listed company is prohibited from indemnifying any current or former executive officer for recovered compensation. As provided in Rule 10D–1, Nasdaq proposes to require each listed company to file all disclosures with respect to its erroneously awarded executive compensation recovery policy in accordance with the requirements of the Federal securities laws, including the disclosure required by the applicable Commission filings. As explained in the Listing Standards Release, each listed company is required to file its compensation recovery policy as an exhibit to its Exchange Act annual report. In addition, the Commission’s rules require disclosure pursuant to Item 402 of Regulation S–K of the following items, among others, if, during the prior fiscal year, either a triggering restatement occurred or any balance of excess incentive-based compensation was outstanding: • The date on which the listed issuer was required to prepare an accounting restatement and the aggregate dollar 7 See PO 00000 the Listing Standards Release, at 73094. Frm 00133 Fmt 4703 Sfmt 4703 15501 amount of erroneously awarded compensation attributable to such accounting restatement (including an analysis of how the recoverable amount was calculated) or, if the amount has not yet been determined, an explanation of the reasons and disclosure of the amount and related disclosures in the next filing that is subject to Item 402 of Regulation S–K; • The aggregate dollar amount of erroneously awarded compensation that remains outstanding at the end of its last completed fiscal year; • If the financial reporting measure related to a stock price or total shareholder return metric, the estimates used to determine the amount of erroneously awarded compensation attributable to such accounting restatement and an explanation of the methodology used for such estimates; • If recovery would be impracticable pursuant to Rule 10D–1(b)(1)(iv), for each current and former named executive officer and for all other current and former executive officers as a group, disclose the amount of recovery forgone and a brief description of the reason the listed registrant decided in each case not to pursue recovery; and • For each current and former named executive officer, disclose the amount of erroneously awarded compensation still owed that had been outstanding for 180 days or longer since the date the issuer determined the amount owed. The additional disclosure requirements apply immediately following the effective date of the applicable listing standards. Covered Companies As provided in Rule 10D–1, Nasdaq proposes to apply the proposed listing standards related to recovery of erroneously awarded executive compensation to all listed companies (including but not limited to, foreign private issuers, emerging growth companies, smaller reporting companies, controlled companies and issuers of listed debt whose stock is not also listed) except for certain registered investment companies to the extent they do not provide incentive-based compensation to their employees. As provided in Rule 10D–1, Nasdaq proposes to adopt Listing Rule 5608(c) to provide certain exemptions from the requirements related to recovery of erroneously awarded executive compensation. Specifically Rule 5608(c) will exempt any security issued by a unit investment trust, as defined in 15 U.S.C. 80a–4(2); and any security issued by a management company, as defined in 15 U.S.C. 80a–4(3), that is registered under section 8 of the Investment E:\FR\FM\13MRN1.SGM 13MRN1 15502 Federal Register / Vol. 88, No. 48 / Monday, March 13, 2023 / Notices Company Act of 1940 (15 U.S.C. 80a–8), if such management company has not awarded incentive-based compensation to any executive officer of the company in any of the last three fiscal years, or in the case of a company that has been listed for less than three fiscal years, since the listing of the company. For clarity, Nasdaq proposes to amend Listing Rule 5210 to indicate that any company newly listing on Nasdaq must comply with the requirements of proposed Listing Rule 5608 (Recovery of Erroneously Awarded Compensation). Nasdaq also proposes to similarly amend Listing Rule 5701 governing listing requirements for ‘‘other securities,’’ and Listing Rule 5702 governing listing requirements for ‘‘debt securities.’’ ddrumheller on DSK120RN23PROD with NOTICES1 Compliance With Compensation Recovery Policy As described above, Nasdaq proposes to require that a company will be subject to delisting if it does not adopt a compensation recovery policy that complies with the applicable listing standard, disclose the policy in accordance with Commission rules or comply with the policy’s recovery provisions. Rule 10D–1 requires that a listed company recover the amount of erroneously awarded incentive-based compensation reasonably promptly,8 but does not specify the time by which the issuer must complete the recovery of excess incentive-based compensation; rather, Nasdaq would determine whether the steps an issuer is taking constitute compliance with its compensation recovery policy. The issuer’s obligation to recover erroneously awarded incentive-based compensation reasonably promptly will be assessed on a holistic basis with respect to each such accounting restatement prepared by the issuer. In evaluating whether an issuer is recovering erroneously awarded incentive-based compensation reasonably promptly, the Exchange will consider whether the issuer is pursuing an appropriate balance of cost and speed in determining the appropriate means to seek recovery, and whether the issuer is securing recovery through means that are appropriate based on the particular facts and circumstances of 8 In that regard, the Commission stated that it ‘‘recognize[s] that what is reasonable may depend on the additional cost incident to recovery efforts. [The Commission] expect[s] that issuers and their directors and officers, in the exercise of their fiduciary duty to safeguard the assets of the issuer (including the time value of any potentially recoverable compensation), will pursue the most appropriate balance of cost and speed in determining the appropriate means to seek recovery.’’ The Listing Standards Release, at 73104. VerDate Sep<11>2014 19:32 Mar 10, 2023 Jkt 259001 each executive officer that owes a recoverable amount. Nasdaq proposes to amend Listing Rule 5810(c)(2)(A)(iii) to provide that a company that failed to comply with proposed Listing Rule 5608 is required to submit to Nasdaq Staff a plan to regain compliance. The administrative process for such deficiencies will follow the established pattern used for similar corporate governance deficiencies, and would allow Nasdaq Staff to provide the issuer up to 180 days to cure the deficiency. Thereafter, Nasdaq Staff would be required to issue a delisting letter,9 which the issuer could appeal to the Hearings Panel, as provided in Listing Rule 5815. The Hearings Panel could allow the issuer up to an additional 180 days to cure the deficiency. Implementation and Transition As provided in Rule 10D–1, Nasdaq proposes to require that each Company is required to (i) adopt a policy governing the recovery of erroneously awarded compensation as required by this rule no later than 60 days following the effective date of this rule, and (ii) provide the disclosures required by this rule and in the applicable Commission filings on or after the effective date of this rule. Notwithstanding the look-back requirement in Rule 5608(b)(1)(i)(D), as provided in the Listing Standards Release, Nasdaq proposes to provide that a company is only required to apply the recovery policy to incentive-based compensation received on or after the effective date of this rule. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,10 in general, and furthers the objectives of Section 6(b)(5) of the Act,11 in particular, in that it is designed to promote just and equitable principles of trade, 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. As required by the Dodd-Frank Act and Rule 10D–1, Nasdaq is proposing 9 Listing Rule 5810 provides that notifications of deficiencies that allow for submission of a compliance plan may result, after review of the compliance plan, in issuance of a Staff Delisting Determination or a Public Reprimand Letter. However Nasdaq believes that issuance of a Public Reprimand Letter is inconsistent with the provisions of Rule 10D–1 and, therefore, proposes to amend Listing Rule 5805(j) to provide that a Public Reprimand Letter may not be issued for violations of a listing standard required by Rule 10D–1. Nasdaq also proposes to modify Listing Rules 5810–5825 accordingly. 10 15 U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(5). PO 00000 Frm 00134 Fmt 4703 Sfmt 4703 amendments to its listing rules relating to recovery of erroneously awarded executive compensation. These proposals are, generally, required by SEC Rule 10D–1. Nasdaq believes that these proposals protect investors and the public interest by requiring companies, with certain exemptions, that, in the event the company is required to prepare an accounting restatement, the company will recover reasonably promptly erroneously awarded incentive-based compensation paid to its current or former executive officers based on any misstated financial reporting measure. Nasdaq also believes that these new requirements will help facilitate effective oversight of executive compensation and promote accountability to investors by not allowing executive officers to retain compensation that they were awarded erroneously. Finally, Nasdaq agrees with the Commission that the recovery requirement may provide executive officers with an increased incentive to take steps to reduce the likelihood of inadvertent misreporting and will reduce the financial benefits to executive officers who choose to pursue impermissible accounting methods, which the Commission expects will further discourage such behavior.12 Nasdaq believes that the proposal to amend Listing Rule 5810(c)(2)(A)(iii) to provide that a company that failed to comply with proposed Listing Rule 5608 is required to submit to Nasdaq Staff a plan to regain compliance and be subject to the appeal process described above, is consistent with the investor protection objectives of Section 6(b)(5) of the Act 13 because the administrative process for such deficiencies will follow the established pattern used for similar corporate governance deficiencies and Nasdaq has developed expertise administering this process. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The proposed amendments would not impose any burden on competition, not necessary or appropriate in furtherance of the purposes of the Act, because the proposed listing standards will apply to all listed companies, except in limited circumstances described above, as required by the Dodd-Frank Act and the SEC Rule 10D–1. 12 See 13 15 E:\FR\FM\13MRN1.SGM the Listing Standards Release, at 73077. U.S.C. 78f(b)(5). 13MRN1 Federal Register / Vol. 88, No. 48 / Monday, March 13, 2023 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) by order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change 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– NASDAQ–2023–005 on the subject line. ddrumheller on DSK120RN23PROD with NOTICES1 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–NASDAQ–2023–005. 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 VerDate Sep<11>2014 19:32 Mar 10, 2023 Jkt 259001 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–NASDAQ–2023–005, and should be submitted on or before April 3, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–05040 Filed 3–10–23; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration [Docket No. FAA–2022–1254] Agency Information Collection Activities: Requests for Comments; Clearance of a Renewed Approval of Information Collection: FAA Airport Data and Information Federal Aviation Administration (FAA), DOT. ACTION: Notice and request for comments. AGENCY: In accordance with the Paperwork Reduction Act of 1995, FAA invites public comments about our intention to request the Office of Management and Budget (OMB) approval to renew an information collection. The Federal Register Notice with a 60-day comment period soliciting comments on the following collection of information was published on September 23, 2022. The collection involves aeronautical information the FAA uses to carry out agency missions related to flight safety, flight planning, airport engineering and federal grant analysis, airport actions, aeronautical chart and flight information publications, and the promotion of air commerce as required by statute. The information will be used to process airport actions, studies, and analyses SUMMARY: 14 17 PO 00000 CFR 200.30–3(a)(12). Frm 00135 Fmt 4703 Sfmt 4703 15503 and for use when considering funding requests and published in flight information handbooks and charts for pilot use. We have renamed and updated the collection, previously called the FAA Airport Master Record, to incorporate several related tools using this data that are made available and processed via the same online system— the Airport Data and Information Portal (ADIP). DATES: Written comments should be submitted by April 12, 2023. ADDRESSES: Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/ PRAMain. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. FOR FURTHER INFORMATION CONTACT: Andrew Goldsmith by email at: Andrew.E.Goldsmith@faa.gov; phone: 202–267–6549. SUPPLEMENTARY INFORMATION: Public Comments Invited: You are asked to comment on any aspect of this information collection, including (a) Whether the proposed collection of information is necessary for FAA’s performance; (b) the accuracy of the estimated burden; (c) ways for FAA to enhance the quality, utility and clarity of the information collection; and (d) ways that the burden could be minimized without reducing the quality of the collected information. OMB Control Number: 2120–0015. Title: FAA Airport Data and Information. Form Numbers: 5010–1, 5010–2, 5010–3, 5010–4. Type of Review: Renewal of an information collection. Background: The Federal Register Notice with a 60-day comment period soliciting comments on the following collection of information was published on September 23, 2022 (87 FR 58178). 49 U.S.C. 329(b) empowers and directs the Secretary of Transportation to collect and disseminate information on civil aeronautics. Aeronautical information is required by the FAA to carry out agency missions agency missions related to flight safety, flight planning, airport engineering and federal grant analysis, aeronautical studies and airport actions, aeronautical chart and flight information publications, and the promotion of air commerce as required by statute. The existing FAA Airport Master Record is now fully online and part of a suite of tools using aeronautical data to support E:\FR\FM\13MRN1.SGM 13MRN1

Agencies

[Federal Register Volume 88, Number 48 (Monday, March 13, 2023)]
[Notices]
[Pages 15500-15503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05040]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97060; File No. SR-NASDAQ-2023-005]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Establish Listing Standards 
Related to Recovery of Erroneously Awarded Executive Compensation

March 7, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 22, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to establish listing standards related to 
recovery of erroneously awarded executive compensation as required by 
SEC Rule 10D-1.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Wall Street Reform and Consumer Protection Act of 2010 (the 
``Dodd-Frank Act'') added Section 10D to the Securities Exchange Act of 
1934.\3\ In October 2022, the SEC adopted final Rule 10D-1 \4\ 
instructing national securities exchanges to establish specific listing 
standards that require each issuer to adopt and comply with a written 
executive compensation recovery policy.\5\ Under Rule 10D-1, listed 
companies must recover from current and former executive officers 
incentive-based compensation received during the three fiscal years 
preceding the date on which the issuer is required to prepare an 
accounting restatement to correct a material error. As required by Rule 
10D-1 and the Listing Standards Release, Nasdaq proposes to adopt 
Listing Rule 5608 (the ``Rule''), titled, recovery of erroneously 
awarded compensation.
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    \3\ 15 U.S.C. 78j-4.
    \4\ 17 CFR 240.10D-1.
    \5\ Securities Exchange Act Release No. 96159 (October 26, 
2022), 87 FR 73076 (November 28, 2022)(``Listing Standards 
Release'').
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    Proposed Listing Rule 5608(a) would introduce the requirements of 
the Rule in accordance with the Listing Standards Release. Nasdaq also 
proposes to adopt Listing Rule 5608(b), which sets forth the 
substantive requirements of Rule 10D-1(b), and Listing Rule 5608(d), 
which sets forth the defined terms applicable to the Rule. As provided 
in Rule 10D-1, Nasdaq proposes to define the term ``executive officer'' 
to include the issuer's president, principal financial officer, 
principal accounting officer, any vice-president in charge of a 
principal business unit, division or function and any other person 
(including executive officers of a parent or subsidiary) who performs 
similar policy-making functions for the issuer. The term ``policy-
making function'' is not intended to include policy-making functions 
that are not significant.
    The recovery of erroneously awarded compensation is required on a 
``no fault'' basis, without regard to whether any misconduct occurred 
or an executive officer's responsibility for the erroneous financial 
statements. A restatement due to material non-compliance with any 
financial reporting requirement under the securities laws triggers 
application of the recovery policy. As explained in the Listing

[[Page 15501]]

Standards Release, the determination regarding materiality of an error 
should be based on facts and circumstances and existing judicial and 
administrative interpretations. The proposed Rule requires recovery for 
restatements that correct errors that are material to previously issued 
financial statements (commonly referred to as ``Big R'' restatements), 
as well as for restatements that correct errors that are not material 
to previously issued financial statements but would result in a 
material misstatement if the errors were left uncorrected in the 
current report or the error correction was recognized in the current 
period (commonly referred to as ``little r'' restatement).
    Under the proposed Rule, listed companies will be required to 
recover the amount of incentive-based compensation received by an 
executive officer that exceeds the amount the executive officer would 
have received had the incentive-based compensation been determined 
based on the accounting restatement. Incentive-based compensation is 
deemed received \6\ in the fiscal period during which the financial 
reporting measure specified in the incentive-based compensation award 
is attained, even if the grant or payment of the incentive-based 
compensation occurs after the end of that period. For incentive-based 
compensation based on stock price or total shareholder return, 
companies can use a reasonable estimate of the effect of the 
restatement on the applicable measure to determine the amount to be 
recovered.
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    \6\ Nasdaq proposes to define the term ``received'' as provided 
in Rule 10D-1.
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    As provided in Rule 10D-1, Nasdaq proposes to define the term 
``Incentive-based compensation'' to mean any compensation that is 
granted, earned or vested based wholly or in part upon the attainment 
of any financial reporting measure. The term ``financial reporting 
measures'' is defined as measures that are determined and presented in 
accordance with the accounting principles used in an issuer's financial 
statements, and any measures that are derived wholly or in part from 
such measures, as well as an issuer's stock price and total shareholder 
return. Equity awards that vest exclusively upon completion of a 
specified employment period, without any performance condition, and 
bonus awards that are discretionary or based on subjective goals or 
goals unrelated to financial reporting measures, do not constitute 
incentive-based compensation.\7\ Incentive-based compensation received 
by an executive officer before the issuer had a class of securities 
listed on a national securities exchange or a national securities 
association would not be subject to the compensation recovery policy.
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    \7\ See the Listing Standards Release, at 73094.
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    As also provided in Rule 10D-1, Nasdaq proposes to set forth the 
circumstances where listed companies would have limited discretion not 
to recover the excess incentive-based compensation. Specifically, 
Nasdaq proposes to provide that a company is required to recover 
compensation in compliance with its recovery policy, except to the 
extent that pursuit of recovery would be impracticable because: (1) the 
direct expense paid to a third party to assist in enforcing the policy 
would exceed the amount to be recovered, (2) recovery would violate 
home country law, where that law was adopted prior to November 28, 
2022, based on an opinion of counsel acceptable to Nasdaq or (3) 
recovery would cause a broad-based retirement plan to fail to meet the 
tax-qualification requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 
411(a) and regulations thereunder. Before concluding that pursuit is 
impracticable, a company must first make a reasonable attempt to 
recover the incentive-based compensation and provide that documentation 
to Nasdaq. The listed company's board is required to apply on a ``no 
fault'' basis any recovery policy consistently to executive officers 
and a listed company is prohibited from indemnifying any current or 
former executive officer for recovered compensation.
    As provided in Rule 10D-1, Nasdaq proposes to require each listed 
company to file all disclosures with respect to its erroneously awarded 
executive compensation recovery policy in accordance with the 
requirements of the Federal securities laws, including the disclosure 
required by the applicable Commission filings. As explained in the 
Listing Standards Release, each listed company is required to file its 
compensation recovery policy as an exhibit to its Exchange Act annual 
report. In addition, the Commission's rules require disclosure pursuant 
to Item 402 of Regulation S-K of the following items, among others, if, 
during the prior fiscal year, either a triggering restatement occurred 
or any balance of excess incentive-based compensation was outstanding:
     The date on which the listed issuer was required to 
prepare an accounting restatement and the aggregate dollar amount of 
erroneously awarded compensation attributable to such accounting 
restatement (including an analysis of how the recoverable amount was 
calculated) or, if the amount has not yet been determined, an 
explanation of the reasons and disclosure of the amount and related 
disclosures in the next filing that is subject to Item 402 of 
Regulation S-K;
     The aggregate dollar amount of erroneously awarded 
compensation that remains outstanding at the end of its last completed 
fiscal year;
     If the financial reporting measure related to a stock 
price or total shareholder return metric, the estimates used to 
determine the amount of erroneously awarded compensation attributable 
to such accounting restatement and an explanation of the methodology 
used for such estimates;
     If recovery would be impracticable pursuant to Rule 10D-
1(b)(1)(iv), for each current and former named executive officer and 
for all other current and former executive officers as a group, 
disclose the amount of recovery forgone and a brief description of the 
reason the listed registrant decided in each case not to pursue 
recovery; and
     For each current and former named executive officer, 
disclose the amount of erroneously awarded compensation still owed that 
had been outstanding for 180 days or longer since the date the issuer 
determined the amount owed.
    The additional disclosure requirements apply immediately following 
the effective date of the applicable listing standards.
Covered Companies
    As provided in Rule 10D-1, Nasdaq proposes to apply the proposed 
listing standards related to recovery of erroneously awarded executive 
compensation to all listed companies (including but not limited to, 
foreign private issuers, emerging growth companies, smaller reporting 
companies, controlled companies and issuers of listed debt whose stock 
is not also listed) except for certain registered investment companies 
to the extent they do not provide incentive-based compensation to their 
employees. As provided in Rule 10D-1, Nasdaq proposes to adopt Listing 
Rule 5608(c) to provide certain exemptions from the requirements 
related to recovery of erroneously awarded executive compensation. 
Specifically Rule 5608(c) will exempt any security issued by a unit 
investment trust, as defined in 15 U.S.C. 80a-4(2); and any security 
issued by a management company, as defined in 15 U.S.C. 80a-4(3), that 
is registered under section 8 of the Investment

[[Page 15502]]

Company Act of 1940 (15 U.S.C. 80a-8), if such management company has 
not awarded incentive-based compensation to any executive officer of 
the company in any of the last three fiscal years, or in the case of a 
company that has been listed for less than three fiscal years, since 
the listing of the company.
    For clarity, Nasdaq proposes to amend Listing Rule 5210 to indicate 
that any company newly listing on Nasdaq must comply with the 
requirements of proposed Listing Rule 5608 (Recovery of Erroneously 
Awarded Compensation). Nasdaq also proposes to similarly amend Listing 
Rule 5701 governing listing requirements for ``other securities,'' and 
Listing Rule 5702 governing listing requirements for ``debt 
securities.''
Compliance With Compensation Recovery Policy
    As described above, Nasdaq proposes to require that a company will 
be subject to delisting if it does not adopt a compensation recovery 
policy that complies with the applicable listing standard, disclose the 
policy in accordance with Commission rules or comply with the policy's 
recovery provisions. Rule 10D-1 requires that a listed company recover 
the amount of erroneously awarded incentive-based compensation 
reasonably promptly,\8\ but does not specify the time by which the 
issuer must complete the recovery of excess incentive-based 
compensation; rather, Nasdaq would determine whether the steps an 
issuer is taking constitute compliance with its compensation recovery 
policy. The issuer's obligation to recover erroneously awarded 
incentive-based compensation reasonably promptly will be assessed on a 
holistic basis with respect to each such accounting restatement 
prepared by the issuer. In evaluating whether an issuer is recovering 
erroneously awarded incentive-based compensation reasonably promptly, 
the Exchange will consider whether the issuer is pursuing an 
appropriate balance of cost and speed in determining the appropriate 
means to seek recovery, and whether the issuer is securing recovery 
through means that are appropriate based on the particular facts and 
circumstances of each executive officer that owes a recoverable amount.
---------------------------------------------------------------------------

    \8\ In that regard, the Commission stated that it ``recognize[s] 
that what is reasonable may depend on the additional cost incident 
to recovery efforts. [The Commission] expect[s] that issuers and 
their directors and officers, in the exercise of their fiduciary 
duty to safeguard the assets of the issuer (including the time value 
of any potentially recoverable compensation), will pursue the most 
appropriate balance of cost and speed in determining the appropriate 
means to seek recovery.'' The Listing Standards Release, at 73104.
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    Nasdaq proposes to amend Listing Rule 5810(c)(2)(A)(iii) to provide 
that a company that failed to comply with proposed Listing Rule 5608 is 
required to submit to Nasdaq Staff a plan to regain compliance. The 
administrative process for such deficiencies will follow the 
established pattern used for similar corporate governance deficiencies, 
and would allow Nasdaq Staff to provide the issuer up to 180 days to 
cure the deficiency. Thereafter, Nasdaq Staff would be required to 
issue a delisting letter,\9\ which the issuer could appeal to the 
Hearings Panel, as provided in Listing Rule 5815. The Hearings Panel 
could allow the issuer up to an additional 180 days to cure the 
deficiency.
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    \9\ Listing Rule 5810 provides that notifications of 
deficiencies that allow for submission of a compliance plan may 
result, after review of the compliance plan, in issuance of a Staff 
Delisting Determination or a Public Reprimand Letter. However Nasdaq 
believes that issuance of a Public Reprimand Letter is inconsistent 
with the provisions of Rule 10D-1 and, therefore, proposes to amend 
Listing Rule 5805(j) to provide that a Public Reprimand Letter may 
not be issued for violations of a listing standard required by Rule 
10D-1. Nasdaq also proposes to modify Listing Rules 5810-5825 
accordingly.
---------------------------------------------------------------------------

Implementation and Transition
    As provided in Rule 10D-1, Nasdaq proposes to require that each 
Company is required to (i) adopt a policy governing the recovery of 
erroneously awarded compensation as required by this rule no later than 
60 days following the effective date of this rule, and (ii) provide the 
disclosures required by this rule and in the applicable Commission 
filings on or after the effective date of this rule. Notwithstanding 
the look-back requirement in Rule 5608(b)(1)(i)(D), as provided in the 
Listing Standards Release, Nasdaq proposes to provide that a company is 
only required to apply the recovery policy to incentive-based 
compensation received on or after the effective date of this rule.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As required by the Dodd-Frank Act and Rule 10D-1, Nasdaq is 
proposing amendments to its listing rules relating to recovery of 
erroneously awarded executive compensation. These proposals are, 
generally, required by SEC Rule 10D-1. Nasdaq believes that these 
proposals protect investors and the public interest by requiring 
companies, with certain exemptions, that, in the event the company is 
required to prepare an accounting restatement, the company will recover 
reasonably promptly erroneously awarded incentive-based compensation 
paid to its current or former executive officers based on any misstated 
financial reporting measure. Nasdaq also believes that these new 
requirements will help facilitate effective oversight of executive 
compensation and promote accountability to investors by not allowing 
executive officers to retain compensation that they were awarded 
erroneously. Finally, Nasdaq agrees with the Commission that the 
recovery requirement may provide executive officers with an increased 
incentive to take steps to reduce the likelihood of inadvertent 
misreporting and will reduce the financial benefits to executive 
officers who choose to pursue impermissible accounting methods, which 
the Commission expects will further discourage such behavior.\12\
---------------------------------------------------------------------------

    \12\ See the Listing Standards Release, at 73077.
---------------------------------------------------------------------------

    Nasdaq believes that the proposal to amend Listing Rule 
5810(c)(2)(A)(iii) to provide that a company that failed to comply with 
proposed Listing Rule 5608 is required to submit to Nasdaq Staff a plan 
to regain compliance and be subject to the appeal process described 
above, is consistent with the investor protection objectives of Section 
6(b)(5) of the Act \13\ because the administrative process for such 
deficiencies will follow the established pattern used for similar 
corporate governance deficiencies and Nasdaq has developed expertise 
administering this process.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed amendments would 
not impose any burden on competition, not necessary or appropriate in 
furtherance of the purposes of the Act, because the proposed listing 
standards will apply to all listed companies, except in limited 
circumstances described above, as required by the Dodd-Frank Act and 
the SEC Rule 10D-1.

[[Page 15503]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-NASDAQ-2023-005 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-NASDAQ-2023-005. 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-NASDAQ-2023-005, and should be submitted 
on or before April 3, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05040 Filed 3-10-23; 8:45 am]
BILLING CODE 8011-01-P
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