Self-Regulatory Organizations; New York Stock 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 Adopt New Section 303A.14 of the NYSE Listed Company Manual To Establish Listing Standards Related to Recovery of Erroneously Awarded Incentive-Based Executive Compensation, 38907-38913 [2023-12758]
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Federal Register / Vol. 88, No. 114 / Wednesday, June 14, 2023 / Notices
POSTAL SERVICE
Product Change—Priority Mail
Express, Priority Mail, First-Class
Package Service, and Parcel Select
Service Negotiated Service Agreement
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2023–169,
CP2023–173.
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2023–12701 Filed 6–13–23; 8:45 am]
Postal ServiceTM.
ACTION: Notice.
AGENCY:
BILLING CODE 7710–12–P
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: June 14,
2023.
FOR FURTHER INFORMATION CONTACT:
Sean Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on June 5, 2023, it
filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Express, Priority Mail,
First-Class Package Service, and Parcel
Select Service Contract 121 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2023–170, CP2023–174.
SUMMARY:
Sean Robinson,
Attorney, Corporate and Postal Business Law.
[FR Doc. 2023–12702 Filed 6–13–23; 8:45 am]
BILLING CODE 7710–12–P
POSTAL SERVICE
Product Change—Priority Mail, FirstClass Package Service & Parcel Select
Negotiated Service Agreement
Postal ServiceTM.
Notice.
AGENCY:
ACTION:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Date of required notice: June 14,
2023.
FOR FURTHER INFORMATION CONTACT:
Sean C. Robinson, 202–268–8405.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on June 5, 2023, it
filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add Priority
Mail, First-Class Package Service &
Parcel Select Contract 28 to Competitive
ddrumheller on DSK120RN23PROD with NOTICES1
SUMMARY:
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97688; File No. SR–NYSE–
2023–12]
Self-Regulatory Organizations; New
York Stock 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 Adopt New
Section 303A.14 of the NYSE Listed
Company Manual To Establish Listing
Standards Related to Recovery of
Erroneously Awarded Incentive-Based
Executive Compensation
June 9, 2023.
I. Introduction
On February 22, 2023, New York
Stock Exchange LLC (‘‘NYSE’’ or the
‘‘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
adopt new Section 303A.14 of the NYSE
Listed Company Manual (‘‘Manual’’) to
require issuers to adopt and comply
with a policy providing for the recovery
of erroneously awarded incentive-based
compensation received by current or
former executive officers as required by
Rule 10D–1 under the Act (‘‘Rule 10D–
1’’). The proposed rule change was
published for comment in the Federal
Register on March 13, 2023.3 On April
24, 2023, the Commission extended the
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.4 On June 5, 2023, the
Exchange filed Amendment No. 1 to the
proposed rule change, which replaced
and superseded the proposed rule
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 97055
(March 7, 2023), 88 FR 15480 (‘‘Notice’’). Comments
received on the proposed rule change are available
at: https://www.sec.gov/comments/sr-nyse-2023-12/
srnyse202312.htm.
4 See Securities Exchange Act Release No. 97354,
88 FR 26371 (April 28, 2023).
2 17
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38907
change as originally filed.5 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified by Amendment No.
1, from interested persons and is
approving the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis.
II. Background and Description of the
Proposal, as Modified by Amendment
No. 1
On October 26, 2022, the Commission
adopted final Rule 10D–1 6 to
implement Section 954 of the DoddFrank Wall Street Reform and Consumer
Protection Act of 2010 (‘‘Dodd-Frank
Act’’), which added Section 10D to the
Act. Section 10D of the Act requires the
Commission to adopt rules directing the
national securities exchanges to prohibit
the listing of any security of an issuer
that is not in compliance with the
requirements of Section 10D of the Act.
Rule 10D–1 requires national securities
exchanges that list securities to establish
listing standards that require each issuer
to adopt and comply with a written
executive compensation recovery policy
and to provide the disclosures required
by Rule 10D–1 and in the applicable
Commission filings.7 Under Rule 10D–
1, listed companies must recover from
current and former executive officers
incentive-based compensation received
5 Amendment No. 1 is available on the
Commission’s website at https://www.sec.gov/
comments/sr-nyse-2023-12/srnyse202312-199379399262.pdf. In Amendment No. 1, the Exchange (i)
proposes to amend Section 303A.00 of the Manual
to make it clear, consistent with the language of
proposed Section 303A.14 of the Manual (‘‘Section
303A.14’’), that all listed issuers listing the
following securities are required to comply with the
requirements of Section 303A.14: (a) closed-end
and open-end funds, (b) passive business
organizations, listed derivative or special purpose
securities, (c) foreign private issuers, and (d) issuers
listing only preferred or debt securities on the
NYSE (including securities listed under NYSE Rule
5.2(j)); (ii) amends proposed Section 303A.14(b) to
provide that the effective date of Section 303A.14
would be October 2, 2023; and (iii) amends
proposed Section 802.01F of the Manual
(Noncompliance with Section 303A.14 (Erroneously
Awarded Compensation)) (‘‘Section 802.01F’’) to
provide that in the event of any failure by a listed
issuer to comply with any requirement of Section
303A.14, the Exchange may at its sole discretion
provide such issuer with an initial six-month cure
period and an additional six-month cure period.
6 17 CFR 240.10D–1.
7 See Securities Exchange Act Release No. 96159,
87 FR 73076 (November 28, 2022) (‘‘Adopting
Release’’). Rule 10D–1 requires such exchange
listing rules to be effective no later than one year
after November 28, 2022. Rule 10D–1 further
requires that each listed issuer: (i) adopt the
required recovery policy no later than 60 days
following the effective date of the listing standard;
(ii) comply with the recovery policy for all
incentive-based compensation received by
executive officers on or after the effective date of
the applicable listing standard; and (iii) provide the
required disclosures on or after the effective date of
the listing standard.
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during the three completed fiscal years
preceding the date on which the issuer
is required to prepare an accounting
restatement.
As required by Rule 10D–1, the
Exchange proposes to adopt Section
303A.14 entitled ‘‘Erroneously Awarded
Compensation.’’ Proposed Section
303A.14 (the ‘‘Rule’’) mirrors the text of
Rule 10D–1. Specifically, proposed
Section 303A.14 would require NYSE
listed issuers to adopt a recovery policy
that complies with the requirements of
the Rule (‘‘recovery policy’’), comply
with their recovery policy, and provide
the required disclosures in the
applicable Commission filing.8
Proposed Section 303A.14 would
prohibit the initial or continued listing
of any security of an issuer that is not
in compliance with the requirements of
any portion of the rule.9
Specifically, proposed Section
303A.14(c)(1) would require each issuer,
for initial and continued listing, to
adopt and comply with a written
recovery policy providing that the issuer
will recover reasonably promptly the
amount of erroneously awarded
incentive-based compensation in the
event that the issuer is required to
prepare an accounting restatement due
to the material noncompliance of the
issuer with any financial reporting
requirement under the securities laws,
including any required accounting
restatement to correct an error in
previously issued financial statements
that is material to the previously issued
financial statements, or that would
result in a material misstatement if the
error were corrected in the current
period or left uncorrected in the current
period.
The issuer’s recovery policy must
apply to all incentive-based
compensation received by a person: (A)
after beginning service as an executive
officer; (B) who served as an executive
officer at any time during the
performance period for that incentivebased compensation; (C) while the
issuer has a class of securities listed on
a national securities exchange or a
national securities association; and (D)
during the three completed fiscal years
immediately preceding the date that the
issuer is required to prepare an
accounting restatement as described in
paragraph (c)(1) of the Rule.10 An
8 See
proposed Section 303A.14(b) and (c).
proposed Section 303A.14(a).
10 See proposed Section 303A.14(c)(1)(i). In
addition to these last three completed fiscal years,
the recovery policy must apply to any transition
period (that results from a change in the issuer’s
fiscal year) within or immediately following those
three completed fiscal years. However, a transition
period between the last day of the issuer’s previous
9 See
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issuer’s obligation to recover
erroneously awarded compensation is
not dependent on if or when the
restated financial statements are filed.
For purposes of determining the
relevant recovery period, the date that
an issuer is required to prepare an
accounting restatement as described in
paragraph (c)(1) of the Rule is the earlier
to occur of: (A) the date the issuer’s
board of directors, a committee of the
board of directors, or the officer or
officers of the issuer authorized to take
such action if board action is not
required, concludes, or reasonably
should have concluded, that the issuer
is required to prepare an accounting
restatement as described in paragraph
(c)(1) of the Rule; or (B) the date a court,
regulator, or other legally authorized
body directs the issuer to prepare an
accounting restatement as described in
paragraph (c)(1) of the Rule.11
The amount of incentive-based
compensation that must be subject to
the issuer’s recovery policy
(‘‘erroneously awarded compensation’’)
is the amount of incentive-based
compensation received that exceeds the
amount of incentive-based
compensation that otherwise would
have been received had it been
determined based on the restated
amounts, and must be computed
without regard to any taxes paid. For
incentive-based compensation based on
stock price or total shareholder return,
where the amount of erroneously
awarded compensation is not subject to
mathematical recalculation directly
from the information in an accounting
restatement: (A) the amount must be
based on a reasonable estimate of the
effect of the accounting restatement on
the stock price or total shareholder
return upon which the incentive-based
compensation was received; and (B) the
issuer must maintain documentation of
the determination of that reasonable
estimate and provide such
documentation to the Exchange.12
The issuer must recover erroneously
awarded compensation in compliance
with its recovery policy except to the
extent that one of the conditions set
forth below is met, and the issuer’s
committee of independent directors
responsible for executive compensation
decisions, or in the absence of such a
committee, a majority of the
independent directors serving on the
board, has made a determination that
recovery would be impracticable.
fiscal year end and the first day of its new fiscal
year that comprises a period of nine to 12 months
would be deemed a completed fiscal year.
11 See proposed Section 303A.14(c)(1)(ii).
12 See proposed Section 303A.14(c)(1)(iii).
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• The direct expense paid to a third
party to assist in enforcing the policy
would exceed the amount to be
recovered. Before concluding that it
would be impracticable to recover any
amount of erroneously awarded
compensation based on expense of
enforcement, the issuer must make a
reasonable attempt to recover such
erroneously awarded compensation,
document such reasonable attempt(s) to
recover, and provide that
documentation to the Exchange.
• Recovery would violate home
country law where that law was adopted
prior to November 28, 2022. Before
concluding that it would be
impracticable to recover any amount of
erroneously awarded compensation
based on violation of home country law,
the issuer must obtain an opinion of
home country counsel, acceptable to the
Exchange, that recovery would result in
such a violation, and must provide such
opinion to the Exchange.
• Recovery would likely cause an
otherwise tax-qualified retirement plan,
under which benefits are broadly
available to employees of the registrant,
to fail to meet the requirements of 26
U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and
regulations thereunder.13
The issuer is prohibited from
indemnifying any executive officer or
former executive officer against the loss
of erroneously awarded
compensation.14
Proposed Section 303A.14(c)(2)
would require that each issuer file all
disclosures with respect to such
recovery policy in accordance with the
requirements of the federal securities
laws, including the disclosure required
by the applicable Commission filings.
Proposed Section 303A.14(d) would
provide that the requirements of the
Rule do not apply to the listing of: (1)
a security futures product cleared by a
clearing agency that is registered
pursuant to section 17A of the Act (15
U.S.C. 78q–1) or that is exempt from the
registration requirements of section
17A(b)(7)(A) (15 U.S.C. 78q–1(b)(7)(A));
(2) a standardized option, as defined in
17 CFR 240.9b–1(a)(4), issued by a
clearing agency that is registered
pursuant to section 17A of the Act (15
U.S.C. 78q–1); (3) any security issued by
a unit investment trust, as defined in 15
U.S.C. 80a–4(2); and (4) 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 Company Act of 1940 (15
U.S.C. 80a–8), if such management
company has not awarded incentive13 See
14 See
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proposed Section 303A.14(c)(1)(iv).
proposed Section 303A.14(c)(1)(v).
14JNN1
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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.
Proposed Section 303A.14(e) would
provide that, unless the context
otherwise requires, the following
definitions apply for purposes of the
Rule:
• Executive Officer. An executive
officer is the issuer’s president,
principal financial officer, principal
accounting officer (or if there is no such
accounting officer, the controller), any
vice-president of the issuer in charge of
a principal business unit, division, or
function (such as sales, administration,
or finance), any other officer who
performs a policy-making function, or
any other person who performs similar
policy-making functions for the issuer.
Executive officers of the issuer’s
parent(s) or subsidiaries are deemed
executive officers of the issuer if they
perform such policy making functions
for the issuer. In addition, when the
issuer is a limited partnership, officers
or employees of the general partner(s)
who perform policy-making functions
for the limited partnership are deemed
officers of the limited partnership.
When the issuer is a trust, officers, or
employees of the trustee(s) who perform
policy-making functions for the trust are
deemed officers of the trust. Policymaking function is not intended to
include policy-making functions that
are not significant. Identification of an
executive officer for purposes of the
Rule would include at a minimum
executive officers identified pursuant to
17 CFR 229.401(b).
• Financial reporting measures.
Financial reporting measures are
measures that are determined and
presented in accordance with the
accounting principles used in preparing
the issuer’s financial statements, and
any measures that are derived wholly or
in part from such measures. Stock price
and total shareholder return are also
financial reporting measures. A
financial reporting measure need not be
presented within the financial
statements or included in a filing with
the Commission.
• Incentive-based compensation.
Incentive-based compensation is any
compensation that is granted, earned, or
vested based wholly or in part upon the
attainment of a financial reporting
measure.
• Received. Incentive-based
compensation is deemed received in the
issuer’s fiscal period during which the
financial reporting measure specified in
the incentive-based compensation
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award is attained, even if the payment
or grant of the incentive-based
compensation occurs after the end of
that period.
Proposed Section 303A.14(b) would
provide that the effective date of the
Rule (‘‘effective date’’) is October 2,
2023 and that each listed issuer must (i)
adopt the recovery policy no later than
60 days following the effective date; (ii)
comply with its recovery policy for all
incentive-based compensation received
(as such term is defined in proposed
Section 303A.14(e)) by executive
officers on or after the effective date; 15
and (iii) provide the required
disclosures in the applicable
Commission filings required on or after
the effective date.16
The Exchange also proposes
additional clarifying changes to Section
303A.00 of the Manual (Introduction;
Preferred and Debt Listings) (‘‘Section
303A.00’’) to make clear, consistent
with the language of proposed Section
303A.14, that all listed issuers listing
the following securities are required to
comply with the requirements of
Section 303A.14: (i) closed-end and
open-end funds; (ii) passive business
organization, listed derivative or special
purpose securities; (iii) foreign private
issuers; and (iv) issuers listing only
preferred or debt securities on the NYSE
(including securities listed under NYSE
Rule 5.2(j)).17
The Exchange states that the proposed
new requirements described above are
consistent with the protection of
investors and the public interest
because they further the goal of ensuring
the accuracy of the financial disclosure
of listed issuers and may improve the
overall quality and reliability of
financial reporting as well as provide
clarification by conforming the text of
15 As described above, a NYSE listed issuer would
have to comply with its recovery policy for all
incentive-based compensation received by
executive officers on or after the effective date of
the applicable listing standard (i.e., Section
303A.14). Incentive-based compensation that is the
subject of a compensation contract or arrangement
that existed prior to the effective date of Rule 10D–
1 would still be subject to recovery under the
Exchange’s rule if such compensation was received
on or after the effective date of Section 303A.14, as
required by Rule 10D–1. See Adopting Release,
supra note 7, and also definitions of ‘‘incentive
based compensation’’ and ‘‘received’’ in proposed
Section 303A.14(e).
16 See Amendment No. 1, supra note 5, at 5–6. In
support of proposing an effective date of October 2,
2023, the Exchange states it believes this is
consistent with Section 10D ‘‘and the goal of
implementing the proposed rule promptly while
also being consistent with the expectations of listed
issuer that the proposed rules would take effect a
year after the adoption of Rule 10D–1 based on the
issuers’ understanding of a statement made . . . in
the Rule 10D–1 Adopting Release.’’ See id.
17 See id. at 12.
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38909
Section 303A.00 to the requirements of
proposed Section 303A.14.18
As described above, Rule 10D–1
requires national securities exchanges to
prohibit the initial or continued listing
of any security of an issuer not in
compliance with its rules adopted to
comply with Rule 10D–1. The Exchange
proposes therefore to require that a
listed issuer will be subject to delisting
in the event of any failure by such listed
issuer to comply with any requirement
of Section 303A.14, including the
requirement to adopt a recovery policy
that complies with the applicable listing
standard, disclose the policy in
accordance with Commission rules or
comply with its recovery policy. The
Exchange states that the proposed
delisting process that sets forth
procedures that would apply if an issuer
failed to comply with Section 303A.14
is closely modeled on the provisions
with respect to late filings set forth in
Section 802.01E of the Manual.19
Specifically, the Exchange proposes to
adopt proposed Section 802.01F of the
Manual (Noncompliance with Section
303A.14 (Erroneously Awarded
Compensation)) to provide that a listed
issuer that is out of compliance with the
Rule 20 and fails to regain compliance
within any cure period provided by the
Exchange (as further described below)
would have its listed securities
immediately suspended and the
18 See
id. at 12–13.
id. at 13. NYSE’s original filing included
provisions establishing cure periods to be applied
in the event of a listed issuer’s failure to adopt a
recovery policy within the required time period, but
did not establish cure periods for other incidents of
noncompliance with Section 303A.14. Amendment
No. 1 revised these cure period provisions so that
they are now applicable to all incidents of
noncompliance with Section 303A.14 and not just
delayed adoption of recovery policies. See id. at 4
n.4. The Exchange states that it believes the
compliance procedures, as amended, ‘‘are
appropriately rigorous and are consistent with the
public interest and the interests of investors.’’ See
id. at 13.
20 Proposed Section 802.01F(b) provides that a
listed issuer will be deemed to be below standards
in the event of any failure by such listed issuer to
comply with any requirement of the Rule. The
listed issuer would be required to notify the
Exchange in writing within five days of any type
of delinquency. When the Exchange determines that
a delinquency has occurred, it will promptly send
written notification to a listed issuer of the
procedures set forth in the rule and, within five
days of the date of receipt of such notification, the
listed issuer will be required to (i) contact the
Exchange to discuss the status of resolution of the
delinquency and (ii) issue a press release disclosing
the occurrence of the delinquency, the reason for
the delinquency and, if known, the anticipated date
the delinquency will be cured. If the listed issuer
has not issued the required press release within five
days of the date of the delinquency notification, the
Exchange will issue a press release stating that the
issuer has incurred a delinquency and providing a
description thereof. See proposed Section
802.01F(b).
19 See
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Exchange would immediately
commence delisting procedures with
respect to all such listed securities.21
Proposed Section 802.01F(c) would
provide that the Exchange may afford a
listed issuer that fails to comply with
any of the requirements of the Rule an
initial six-month period to cure the
deficiency.22 If the issuer fails to cure
the delinquency within the initial cure
period, the Exchange may either afford
the issuer up to an additional six
months to cure the deficiency or, if the
Exchange determines that an additional
cure period is not appropriate,23
commence suspension and delisting
procedures in accordance with Section
804.00 of the Manual.24
Notwithstanding the foregoing, the
Exchange may in its sole discretion
decide (i) not to afford a listed issuer
any initial cure period or additional
cure period, or (ii) at any time during
such cure period, to truncate the cure
period and immediately commence
suspension and delisting procedures if
the listed issuer is subject to delisting
pursuant to any other provision of the
Manual, including if the Exchange
believes, in the Exchange’s sole
discretion, that continued listing and
trading of a listed issuer’s securities on
the Exchange is inadvisable or
unwarranted.25 In determining whether
an initial or additional cure period is
appropriate, or whether either such
period should be truncated, the
Exchange will consider the likelihood
that the delinquency can be cured
during such period.26 The Exchange
may also commence suspension and
delisting procedures without affording
any cure period at all or at any time
21 See proposed Sections 303A.14(a) and (d).
Such listed issuer would not be eligible to follow
the procedures outlined in Sections 802.02 and
802.03 of the Manual with respect to such a
delisting determination, and any such listed issuer
would be subject to delisting procedures as set forth
in Section 804.00 of the Manual. Section 804.00 of
the Manual (Procedure for Delisting) provides that
an issuer subject to a delisting determination has a
right to a review of the determination by a
committee of the Board of Directors of the
Exchange, provided a written request for such a
review is filed with the Secretary of the Exchange
within ten business days after receiving written
notice of the delisting. See Section 804.00 of the
Manual.
22 During such six-month period, the Exchange
would monitor the listed issuer and the status of
resolution of the delinquency until the delinquency
is cured. See proposed Section 802.01F(c).
23 In determining whether an additional cure
period is appropriate, the Exchange will consider
the likelihood that the delinquency can be cured
during the additional cure period. See proposed
Section 802.01F(d).
24 An issuer would not be eligible to follow the
procedures outlined in Sections 802.02 and 802.03
of the Manual. See proposed Section 802.01F(c).
25 See id.
26 See id.
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19:24 Jun 13, 2023
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during the initial or additional cure
period if the Exchange believes, in the
Exchange’s sole discretion, that it is
advisable to do so on the basis of an
analysis of all relevant factors.27 In no
event would the Exchange continue to
trade a listed issuer’s securities if that
listed issuer has failed to cure its
delinquency with the Rule on the date
that is twelve months after the date the
Exchange notified the issuer of the
delinquency.28
III. Discussion and Commission
Findings
After careful review, 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.29 In particular, the
Commission finds that the proposed
rule change is consistent with the
requirements of Section 6(b) of the
Act.30 Specifically, the Commission
finds that the proposed rule change is
consistent with Section 6(b)(5) of the
Act,31 which 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 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 are not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
In addition, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(7) of the Act,32 which
requires, among other things, that the
rules of a national securities exchange
provide a fair procedure for the
prohibition or limitation by the
exchange of any person with respect to
access to services offered by the
exchange. The proposed rule change, as
modified by Amendment No. 1, is also
consistent with Section 10D of the Act 33
and Rule 10D–1 thereunder, as further
described below.34
The development and enforcement of
meaningful listing standards for a
27 See
id.
proposed Section 802.01F(d).
29 15 U.S.C. 78f(b). In approving this proposed
rule change, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. See 15 U.S.C.
78c(f).
30 15 U.S.C. 78f(b).
31 15 U.S.C. 78f(b)(5).
32 15 U.S.C. 78(b)(7).
33 15 U.S.C. 78j–4.
34 17 CFR 240.10D–1.
28 See
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national securities exchange is of
substantial importance to financial
markets and the investing public.
Meaningful listing standards are
especially important given investor
expectations regarding the nature of
companies that have achieved an
exchange listing for their securities, and
the role of an exchange in overseeing its
market and assuring compliance with its
listing standards.35 The corporate
governance standards embodied in the
listing rules of national securities
exchanges, in particular, play an
important role in assuring that
companies listed for trading on the
exchanges’ markets observe good
governance practices, including a fair
approach and greater accountability for
the recovery of erroneously awarded
compensation.36
In enacting Section 10D of the Act,37
Congress resolved to require national
securities exchanges to establish listing
standards to require listed issuers to
develop and comply with a policy to
recover incentive-based compensation
erroneously awarded on the basis of
financial information that requires an
accounting restatement.38 In October
35 See, e.g., Securities Exchange Release Nos.
65708 (November 8, 2011), 76 FR 70799 70802
(November 15, 2011) (SR–NASDAQ–2011–073);
63607 (December 23, 2010), 75 FR 82420, 82422
(December 30, 2010) (SR–NASDAQ–2010–137);
57785 (May 6, 2008), 73 FR 27597, 27599 (May 13,
2008) (SR–NYSE–2008–17); and 93256 (October 4,
2021), 86 FR 56338 (October 8, 2021) (SR–
NASDAQ–2021–007).
36 See, e.g., Securities Exchange Release No.
68639 (January 11, 2013), 78 FR 4570, 4579 (January
22, 2013) (SR–NYSE–2012–49) (stating, in
connection with the modification of exchange rules
for compensation committees of listed issuers to
comply with Rule 10C–1 of the Act, that corporate
governance listing standards ‘‘play an important
role in assuring that companies listed for trading on
the exchanges’ markets observe good governance
practices, including a reasoned, fair, and impartial
approach for determining the compensation of
corporate executives’’ and stating that the proposal
would foster ‘‘greater transparency, accountability
and objectivity’’ in oversight of compensation
practices.).
37 Public Law 111–203, sec. 954, 124 Stat. 1376,
1904 (2010) (codified at 15 U.S.C. 78j–4).
38 As a part of the Dodd-Frank Act legislative
process, in a 2010 report, the Senate Committee on
Banking, Housing and Urban Affairs stated that it
is ‘‘unfair to shareholders for corporations to allow
executive officers to retain compensation that they
were awarded erroneously.’’ See Report of the
Senate Committee on Banking, Housing, and Urban
Affairs, S. 3217, Report No. 111–176 at 135–36
(Apr. 30, 2010) (‘‘Senate Report’’) at 135. See also
Adopting Release, supra note 7, 87 FR at 73077
(citing to the Senate Report) (‘‘The language and
legislative history of the Dodd-Frank Act make clear
that Section 10D is premised on the notion that an
executive officer should not retain incentive-based
compensation that, had the issuer’s accounting been
correct in the first instance, would not have been
received by the executive officer, regardless of any
fault of the executive officer for the accounting
errors. The Senate Report also indicates that
shareholders should not ‘have to embark on costly
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Federal Register / Vol. 88, No. 114 / Wednesday, June 14, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES1
2022, as required by this legislation, the
Commission adopted Rule 10D–1 under
the Act, which directs the national
securities exchanges to establish listing
standards that require issuers to: (i)
develop and comply with written
policies for recovery of incentive-based
compensation based on financial
information required to be reported
under the securities laws, applicable to
the issuers’ executive officers, during
the three completed fiscal years
immediately preceding the date that the
issuer is required to prepare an
accounting restatement; and (ii) disclose
those compensation recovery policies in
accordance with Commission rules. In
response, the Exchange has filed the
proposed rule change, which includes
rules intended to comply with the
requirements of Rule 10D–1.
The Exchange’s proposed Section
303A.14 incorporates the requirements
of Rule 10D–1. The Commission
believes that the Exchange’s proposal
will foster greater fairness,
accountability, and transparency to
shareholders of listed issuers by
advancing the recovery of incentivebased compensation that was
erroneously awarded on the basis of
financial information that requires an
accounting restatement, consistent with
Section 10D of the Act 39 and Rule 10D–
1 thereunder,40 and will therefore
further the protection of investors
consistent with Section 6(b)(5) of the
Act.41 In addition, as the Commission
stated in the Adopting Release, the
recovery requirements 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 can further discourage such
behavior.42 The Commission believes
that these benefits of the Exchange’s
new rules on the recovery of
erroneously awarded compensation will
protect investors and the public interest
as required under Section 6(b)(5) of the
Act.
Rule 10D–1 and proposed Section
303A.14 require that a listed issuer
recover the amount of erroneously
awarded incentive-based compensation
‘‘reasonably promptly.’’ One commenter
legal expenses to recoup their losses’ and that
‘executives must return monies that should belong
to the shareholders.’ ’’).
39 15 U.S.C. 78j–4.
40 17 CFR 240.10D–1.
41 15 U.S.C. 78f(b)(5).
42 See Adopting Release, supra note 7, 87 FR at
73077. See also Amendment No. 1, supra note 5,
at 12–13, agreeing with the Commission’s statement
on the benefits of the recovery policy.
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requested NYSE include guidance in its
proposed listing standards regarding
what the exchange will consider in
evaluating whether an issuer is pursuing
recovery ‘‘reasonably promptly’’ under
its policy and provided a non-exclusive
list of factors the Exchange could
consider and set forth in its rules.43 As
discussed above, NYSE’s proposed rule
mirrors the language in Rule 10D–1 and
such guidance is not included in the
rule text of Rule 10D–1. The Adopting
Release stated that whether an issuer is
acting reasonably promptly ‘‘will
depend on the particular facts and
circumstances applicable to that issuer’’
and ‘‘the final rules do not restrict
exchanges from adopting more
prescriptive approaches to the timing
and method of recovery under their
rules in compliance with Section 19(b)
of the Exchange Act . . .’’ 44 Rule 10D–
1 also does not compel the exchanges to
adopt a more prescriptive approach to
the timing and method of recovery. In
its proposal, NYSE stated that ‘‘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’’ and
that ‘‘[i]n 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.’’ 45 The
Commission believes this guidance
provided by the Exchange is consistent
with the Commission’s statements
regarding when an issuer is acting
‘‘reasonably promptly’’ as expressed in
the Adopting Release, with Rule 10D–1
and with the Act.46
Rule 10D–1 requires issuers subject to
the listing standards to adopt a recovery
policy no later than 60 days following
the date on which the applicable listing
standards become effective and to
43 See Letter to Vanessa Countryman, Secretary,
Commission, from Wilson Sonsini Goodrich &
Rosati, dated April 4, 2024 [sic] (‘‘Wilson Sonsini
Letter’’), at 4.
44 See Adopting Release, supra note 7, 87 FR at
73104. For example, the Commission stated that
after the exchanges have observed issuer
performance they can use any resulting data to
assess the need for further guidelines to ensure
prompt and effective recovery. See id.
45 See Amendment No. 1, supra note 5, at 5.
46 See Adopting Release, supra note 7, 87 FR
73104.
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38911
comply with their recovery policy, and
provide the required disclosures, on or
after the effective date. The Commission
received comment letters requesting the
Commission not approve the proposal
before November 28, 2023, citing
burdens to issuers, including with
respect to assessing the impact of the
new listing standards on their existing
executive compensation programs,
developing and implementing
compliant policies, and obtaining board
(and in some cases shareholder)
approval.47 Commenters stated that
listed issuers anticipated an effective
date of November 28, 2023 based on the
language in Rule 10D–1 requiring that
the new listing standards become
effective by no later than one year
following the publication of the final
rules in the Federal Register.48 One
commenter stated that the Adopting
Release stated that ‘‘issuers will have
more than a year from the date the final
rules are published in the Federal
Register to prepare and adopt compliant
recovery policies.’’ 49 The Exchange, in
Amendment No. 1, is proposing that the
effective date of Section 303A.14 be
October 2, 2023.50 The Exchange
believes that setting this date as the
effective date will ensure that issuers
have more than a year from the date
Rule 10D–1 was published in the
Federal Register to adopt recovery
policies.51 This is consistent with
language in Rule 10D–1 and the
Adopting Release, while also ensuring
47 See, e.g., Wilson Sonsini Letter at 5; Letter to
Vanessa Countryman, Secretary, Commission, from
Davis Polk Wardwell LLP et al., submitted on behalf
of 39 law firms, dated April 3, 2023 (‘‘Davis Polk
Letter’’); Letter to Vanessa Countryman, Secretary,
Commission, from C. Edward Allen, Vice President,
Policy & Advocacy, and Christina Maguire,
President & CEO, Society for Corporate Governance,
dated April 3, 2023 (‘‘Society Letter’’); Letter to
Vanessa Countryman, Secretary, Commission, from
American Securities Association, Business
Roundtable, Center On Executive Compensation,
National Association of Manufacturers, and U.S.
Chamber of Commerce, dated April 3, 2023 (‘‘ASA
Letter’’).
48 See, e.g., Society Letter at 1; ASA Letter at 2.
49 See Davis Polk Letter at 1 n.1 (citing to
Adopting Release, supra note 7, 87 FR at 73111).
50 See Amendment No. 1, supra note 5, amending
proposed Section 303A.14(b).
51 Listed issuers will need to have their recovery
policy in place no later than 60 days following the
effective date of October 2, 2023, which would be
more than a year after publication of Rule 10D–1
in the Federal Register. Listed issuers will also
have to comply with their recovery policy for all
incentive-based compensation received by
executive officers on or after the effective date of
October 2, 2023, and provide the required
disclosures in the applicable Commission filings on
or after the effective date of October 2, 2023. See
Adopting Release, supra note 7, and also definitions
of ‘‘incentive based compensation’’ and ‘‘received’’
in proposed Section 303A.14(e). See also supra
notes 15–16 and accompanying text.
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Federal Register / Vol. 88, No. 114 / Wednesday, June 14, 2023 / Notices
prompt implementation of this
proposed rule.
With respect to a listed issuer that
fails to comply with proposed Section
303A.14, the Exchange has proposed
delisting procedures that are closely
modeled on its current procedures
applicable to listed issuers subject to a
filing delinquency set forth in Section
802.01E of the Manual.52 The
Commission believes that these
procedures, as modified by Amendment
No. 1, for listed issuers out of
compliance with proposed Section
303A.14, which are consistent with the
procedures for filing delinquencies,
adequately meet the mandate of Rule
10D–1 and are consistent with investor
protection and the public interest, since
they give a listed issuer a reasonable
time period to cure non-compliance
with these important requirements
before they will be delisted while
helping to ensure that listed issuers that
are non-compliant will not remain listed
for an inappropriate amount of time.53
Additionally, the proposed delisting
process, including the cure period and
the right to a review of a delisting
determination by a committee of the
Board of Directors of the Exchange, is
consistent with Section 6(b)(7) of the
Act in that it provides a fair procedure
for the review of delisting
determinations based on violations of
the Exchange’s rules for recovering
erroneous compensation.
52 See
supra notes 19–28 and accompanying text.
Exchange originally proposed that if an
issuer was non-compliant with any of the
provisions of the Rule (except for a delayed
adoption of a recovery policy), the Exchange would
immediately suspend and commence delisting
procedures with respect to such issuer’s listed
securities. See Notice, supra note 3, at 15482. One
commenter stated that the Exchange’s proposal
should be amended to allow issuers a period of time
to submit a plan of compliance and to cure any
failure to comply with the listing standards before
being delisted. See Wilson Sonsini Letter, at 2–3.
Another commenter also criticized the Exchange’s
proposed delisting procedure and stated its concern
that ‘‘in knowing that immediate suspension will be
the outcome for noncompliance under the NYSE
[p]roposal, NYSE staff would be more likely to
determine that the required recovery of erroneously
awarded compensation was performed ‘reasonably
promptly’ even when most investors would
conclude otherwise.’’ See Letter to Vanessa
Countryman, Secretary, Commission, from Jeffrey P.
Mahoney, General Counsel, Council of Institutional
Investors, dated April 3, 2023, at 4. As discussed
above, Amendment No. 1 amended the Exchange’s
proposed delisting provisions to provide to that in
the event of any failure by a listed issuer to comply
with any requirement of Section 303A.14, the
Exchange may provide such issuer with an initial
six-month cure period and an additional six-month
cure period. See Amendment No. 1, supra note 5.
The Commission believes that Amendment No. 1
appropriately addresses these commenters’
concerns.
ddrumheller on DSK120RN23PROD with NOTICES1
53 The
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IV. Solicitation of Comments on
Amendment No. 1 to the Proposed Rule
Change
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
Interested persons are invited to
submit written data, views, and
arguments concerning whether the
proposed rule change, as modified by
Amendment No. 1, is consistent with
the Exchange Act. Comments may be
submitted by any of the following
methods:
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. In Amendment No. 1, the
Exchange amended the proposal to (i)
add a clarifying amendment to Section
303A.00 to make it clear that, consistent
with the language of proposed Section
303A.14, all listed issuers listing the
following securities are required to
comply with the requirements of
Section 303A.14: (a) closed-end and
open-end funds, (b) passive business
organization, listed derivative or special
purpose securities, (c) foreign private
issuers, and (d) issuers listing only
preferred or debt securities on the
NYSE; (ii) propose that the effective
date of Section 303A.14 be October 2,
2023; and (iii) allow the Exchange, in its
sole discretion, to provide a listed issuer
that fails to comply with any
requirement of Section 303A.14 an
initial six-month cure period and an
additional six-month cure period.54
The changes in Amendment No. 1
provide greater clarity to the proposal.
The changes to Section 303A.00 will
ensure that the requirements of that
section of the Manual conform to the
requirements of proposed Section
303A.14. The change to the effective
date of the listing standards is
consistent with Rule 10D–1 and
language in the Adopting Release and is
responsive to comments stating that
listed issuers anticipated an effective
date of November 28, 2023. The change
to the delisting procedures is responsive
to comments recommending NYSE
allow a listed issuer to cure any failure
to comply with Section 303A.14 before
being delisted, rather than only
providing a cure period for noncompliance with adoption of a recovery
policy, as originally proposed. The cure
periods for non-compliance being
proposed by NYSE are similar to those
that exist under NYSE’s rules for the
late filing of annual and quarterly
reports that the Commission has
previously approved as consistent with
the Act.55 The amended proposal also
provides for a cure period for any
violations of Section 303A.14 similar to
the approach taken by Nasdaq in its
proposal to adopt rules to comply with
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–
NYSE–2023–12 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–NYSE–2023–12. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NYSE–2023–12, and should be
submitted on or before July 5, 2023.
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54 See
55 See
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Amendment No. 1, supra note 5.
Section 804.01E of the Manual.
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Federal Register / Vol. 88, No. 114 / Wednesday, June 14, 2023 / Notices
Rule 10D–1.56 Nasdaq’s proposal has
also been approved by the Commission
as consistent the Act.57 Accordingly, the
Commission finds good cause, pursuant
to Section 19(b)(2) of the Exchange
Act,58 to approve the proposed rule
change, as modified by Amendment No.
1, on an accelerated basis.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,59 that the
proposed rule change (SR–NYSE–2023–
12), 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.60
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–12758 Filed 6–13–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97674; File No. SR–BOX–
2023–13]
Self-Regulatory Organizations; BOX
Exchange LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Fee
Schedule for Trading on the BOX
Options Market LLC Facility To Amend
Certain Rebates for Qualified
Contingent Cross Transactions
June 8, 2023.
ddrumheller on DSK120RN23PROD with NOTICES1
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 May 31,
2023, BOX Exchange LLC (‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Exchange filed the proposed rule
change pursuant to Section
19(b)(3)(A)(ii) of the Act,3 and Rule
19b–4(f)(2) thereunder,4 which renders
the proposal effective upon filing with
the Commission. 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 the Substance
of the Proposed Rule Change
The Exchange is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to amend the Fee Schedule to amend
the Fee Schedule [sic] for trading on
BOX to amend certain rebates for
Qualified Contingent Cross (‘‘QCC’’)
transactions on the BOX Options Market
LLC (‘‘BOX’’) options facility. While
changes to the fee schedule pursuant to
this proposal will be effective upon
filing, the changes will become
operative on June 1, 2023. The text of
the proposed rule change is available
from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s internet website at https://
boxexchange.com.
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 Exchange proposes to amend the
Fee Schedule for trading on BOX to
amend certain rebates for Qualified
Contingent Cross (‘‘QCC’’) transactions.
A QCC Order is defined as an
originating order (Agency Order) to buy
or sell at least 1,000 standard option
contracts, or 10,000 mini-option
contracts, that is identified as being part
of a qualified contingent trade, coupled
with a contra side order to buy or sell
an equal number of contracts.5
Currently, BOX assesses $0.20 per
contract to Broker Dealers and Market
Makers for both the Agency Order and
contra order of a QCC transaction.
Public Customers and Professional
Customers are not assessed a QCC
Transaction Fee. Further, rebates are
paid on all qualifying orders pursuant to
Section IV.D.1 of the BOX Fee Schedule.
Specifically, a QCC Rebate is paid to the
Participant that entered the order into
the BOX system when at least one party
to the QCC transaction is a Broker
Dealer or Market Maker. The Participant
receives a per contract rebate on QCC
transactions according to the tier
achieved. Volume thresholds are
calculated on a monthly basis by
totaling the Participant’s QCC Agency
Order volume on BOX. The Exchange
notes that the QCC Rebate is intended
to incentivize the sending of more QCC
Orders to BOX.
The Exchange now proposes to amend
the QCC Rebate structure in Section
IV.D.1 of the BOX Fee Schedule.
Specifically, the Exchange proposes to
amend the volume thresholds in Tiers 1,
2, and 3 and proposes to eliminate Tier
4 entirely. For Tier 1, the Exchange
proposes to amend the volume
threshold to 0 to 999,999 contracts. For
Tier 2, the Exchange proposes to amend
the volume threshold to 1,000,000 to
1,999,999 contracts. For Tier 3, the
Exchange proposes to amend the
volume threshold to 2,000,000+
contracts. Additionally, the Exchange
proposes to amend the rebates in Tiers
2 and 3. Specifically, in Tier 2, the
Exchange proposes to increase Rebate 2
to $0.25 from $0.24. In Tier 3, the
Exchange proposes to increase Rebate 1
to $0.17 from $0.16 and increase Rebate
2 to $0.27 from $0.25.
The QCC Rebate tier structure will be
as follows:
Tier
QCC Agency order volume on BOX
(per month)
1 ......................................................
2 ......................................................
3 ......................................................
0 to 999,999 contracts ............................................................................
1,000,000 to 1,999,999 contracts ...........................................................
2,000,000+ contracts ..............................................................................
56 See Securities Exchange Act Release No. 97060
(March 7, 2023), 88 FR 15500 (March 13, 2023) (SR–
Nasdaq–2023–005).
57 See Notice of Filing of Amendment No. 1 and
Order Granting Accelerated Approval of a Proposed
Rule Change to Establish Listing Standards Related
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19:24 Jun 13, 2023
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to Recovery of Erroneously Awarded Executive
Compensation (June 9, 2023) (SR–Nasdaq–2023–
005).
58 15 U.S.C. 78s(b)(2).
59 15 U.S.C. 78s(b)(2).
60 17 CFR 200.30–3(a)(12).
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Fmt 4703
Sfmt 4703
Rebate 1
(per contract)
1 15
($0.14)
(0.16)
(0.17)
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
5 See BOX Rule 7110(c)(6).
2 17
E:\FR\FM\14JNN1.SGM
14JNN1
Rebate 2
(per contract)
($0.22)
(0.25)
(0.27)
]]>Agencies
[Federal Register Volume 88, Number 114 (Wednesday, June 14, 2023)]
[Notices]
[Pages 38907-38913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12758]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97688; File No. SR-NYSE-2023-12]
Self-Regulatory Organizations; New York Stock 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
Adopt New Section 303A.14 of the NYSE Listed Company Manual To
Establish Listing Standards Related to Recovery of Erroneously Awarded
Incentive-Based Executive Compensation
June 9, 2023.
I. Introduction
On February 22, 2023, New York Stock Exchange LLC (``NYSE'' or the
``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 adopt new Section 303A.14 of the NYSE Listed
Company Manual (``Manual'') to require issuers to adopt and comply with
a policy providing for the recovery of erroneously awarded incentive-
based compensation received by current or former executive officers as
required by Rule 10D-1 under the Act (``Rule 10D-1''). The proposed
rule change was published for comment in the Federal Register on March
13, 2023.\3\ On April 24, 2023, the Commission extended the 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.\4\ On June 5, 2023, the
Exchange filed Amendment No. 1 to the proposed rule change, which
replaced and superseded the proposed rule change as originally
filed.\5\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as modified by Amendment No. 1, from
interested persons and is approving the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 97055 (March 7,
2023), 88 FR 15480 (``Notice''). Comments received on the proposed
rule change are available at: https://www.sec.gov/comments/sr-nyse-2023-12/srnyse202312.htm.
\4\ See Securities Exchange Act Release No. 97354, 88 FR 26371
(April 28, 2023).
\5\ Amendment No. 1 is available on the Commission's website at
https://www.sec.gov/comments/sr-nyse-2023-12/srnyse202312-199379-399262.pdf. In Amendment No. 1, the Exchange (i) proposes to amend
Section 303A.00 of the Manual to make it clear, consistent with the
language of proposed Section 303A.14 of the Manual (``Section
303A.14''), that all listed issuers listing the following securities
are required to comply with the requirements of Section 303A.14: (a)
closed-end and open-end funds, (b) passive business organizations,
listed derivative or special purpose securities, (c) foreign private
issuers, and (d) issuers listing only preferred or debt securities
on the NYSE (including securities listed under NYSE Rule 5.2(j));
(ii) amends proposed Section 303A.14(b) to provide that the
effective date of Section 303A.14 would be October 2, 2023; and
(iii) amends proposed Section 802.01F of the Manual (Noncompliance
with Section 303A.14 (Erroneously Awarded Compensation)) (``Section
802.01F'') to provide that in the event of any failure by a listed
issuer to comply with any requirement of Section 303A.14, the
Exchange may at its sole discretion provide such issuer with an
initial six-month cure period and an additional six-month cure
period.
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II. Background and Description of the Proposal, as Modified by
Amendment No. 1
On October 26, 2022, the Commission adopted final Rule 10D-1 \6\ to
implement Section 954 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (``Dodd-Frank Act''), which added Section 10D to
the Act. Section 10D of the Act requires the Commission to adopt rules
directing the national securities exchanges to prohibit the listing of
any security of an issuer that is not in compliance with the
requirements of Section 10D of the Act. Rule 10D-1 requires national
securities exchanges that list securities to establish listing
standards that require each issuer to adopt and comply with a written
executive compensation recovery policy and to provide the disclosures
required by Rule 10D-1 and in the applicable Commission filings.\7\
Under Rule 10D-1, listed companies must recover from current and former
executive officers incentive-based compensation received
[[Page 38908]]
during the three completed fiscal years preceding the date on which the
issuer is required to prepare an accounting restatement.
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\6\ 17 CFR 240.10D-1.
\7\ See Securities Exchange Act Release No. 96159, 87 FR 73076
(November 28, 2022) (``Adopting Release''). Rule 10D-1 requires such
exchange listing rules to be effective no later than one year after
November 28, 2022. Rule 10D-1 further requires that each listed
issuer: (i) adopt the required recovery policy no later than 60 days
following the effective date of the listing standard; (ii) comply
with the recovery policy for all incentive-based compensation
received by executive officers on or after the effective date of the
applicable listing standard; and (iii) provide the required
disclosures on or after the effective date of the listing standard.
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As required by Rule 10D-1, the Exchange proposes to adopt Section
303A.14 entitled ``Erroneously Awarded Compensation.'' Proposed Section
303A.14 (the ``Rule'') mirrors the text of Rule 10D-1. Specifically,
proposed Section 303A.14 would require NYSE listed issuers to adopt a
recovery policy that complies with the requirements of the Rule
(``recovery policy''), comply with their recovery policy, and provide
the required disclosures in the applicable Commission filing.\8\
Proposed Section 303A.14 would prohibit the initial or continued
listing of any security of an issuer that is not in compliance with the
requirements of any portion of the rule.\9\
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\8\ See proposed Section 303A.14(b) and (c).
\9\ See proposed Section 303A.14(a).
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Specifically, proposed Section 303A.14(c)(1) would require each
issuer, for initial and continued listing, to adopt and comply with a
written recovery policy providing that the issuer will recover
reasonably promptly the amount of erroneously awarded incentive-based
compensation in the event that the issuer is required to prepare an
accounting restatement due to the material noncompliance of the issuer
with any financial reporting requirement under the securities laws,
including any required accounting restatement to correct an error in
previously issued financial statements that is material to the
previously issued financial statements, or that would result in a
material misstatement if the error were corrected in the current period
or left uncorrected in the current period.
The issuer's recovery policy must apply to all incentive-based
compensation received by a person: (A) after beginning service as an
executive officer; (B) who served as an executive officer at any time
during the performance period for that incentive-based compensation;
(C) while the issuer has a class of securities listed on a national
securities exchange or a national securities association; and (D)
during the three completed fiscal years immediately preceding the date
that the issuer is required to prepare an accounting restatement as
described in paragraph (c)(1) of the Rule.\10\ An issuer's obligation
to recover erroneously awarded compensation is not dependent on if or
when the restated financial statements are filed.
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\10\ See proposed Section 303A.14(c)(1)(i). In addition to these
last three completed fiscal years, the recovery policy must apply to
any transition period (that results from a change in the issuer's
fiscal year) within or immediately following those three completed
fiscal years. However, a transition period between the last day of
the issuer's previous fiscal year end and the first day of its new
fiscal year that comprises a period of nine to 12 months would be
deemed a completed fiscal year.
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For purposes of determining the relevant recovery period, the date
that an issuer is required to prepare an accounting restatement as
described in paragraph (c)(1) of the Rule is the earlier to occur of:
(A) the date the issuer's board of directors, a committee of the board
of directors, or the officer or officers of the issuer authorized to
take such action if board action is not required, concludes, or
reasonably should have concluded, that the issuer is required to
prepare an accounting restatement as described in paragraph (c)(1) of
the Rule; or (B) the date a court, regulator, or other legally
authorized body directs the issuer to prepare an accounting restatement
as described in paragraph (c)(1) of the Rule.\11\
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\11\ See proposed Section 303A.14(c)(1)(ii).
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The amount of incentive-based compensation that must be subject to
the issuer's recovery policy (``erroneously awarded compensation'') is
the amount of incentive-based compensation received that exceeds the
amount of incentive-based compensation that otherwise would have been
received had it been determined based on the restated amounts, and must
be computed without regard to any taxes paid. For incentive-based
compensation based on stock price or total shareholder return, where
the amount of erroneously awarded compensation is not subject to
mathematical recalculation directly from the information in an
accounting restatement: (A) the amount must be based on a reasonable
estimate of the effect of the accounting restatement on the stock price
or total shareholder return upon which the incentive-based compensation
was received; and (B) the issuer must maintain documentation of the
determination of that reasonable estimate and provide such
documentation to the Exchange.\12\
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\12\ See proposed Section 303A.14(c)(1)(iii).
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The issuer must recover erroneously awarded compensation in
compliance with its recovery policy except to the extent that one of
the conditions set forth below is met, and the issuer's committee of
independent directors responsible for executive compensation decisions,
or in the absence of such a committee, a majority of the independent
directors serving on the board, has made a determination that recovery
would be impracticable.
The direct expense paid to a third party to assist in
enforcing the policy would exceed the amount to be recovered. Before
concluding that it would be impracticable to recover any amount of
erroneously awarded compensation based on expense of enforcement, the
issuer must make a reasonable attempt to recover such erroneously
awarded compensation, document such reasonable attempt(s) to recover,
and provide that documentation to the Exchange.
Recovery would violate home country law where that law was
adopted prior to November 28, 2022. Before concluding that it would be
impracticable to recover any amount of erroneously awarded compensation
based on violation of home country law, the issuer must obtain an
opinion of home country counsel, acceptable to the Exchange, that
recovery would result in such a violation, and must provide such
opinion to the Exchange.
Recovery would likely cause an otherwise tax-qualified
retirement plan, under which benefits are broadly available to
employees of the registrant, to fail to meet the requirements of 26
U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.\13\
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\13\ See proposed Section 303A.14(c)(1)(iv).
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The issuer is prohibited from indemnifying any executive officer or
former executive officer against the loss of erroneously awarded
compensation.\14\
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\14\ See proposed Section 303A.14(c)(1)(v).
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Proposed Section 303A.14(c)(2) would require that each issuer file
all disclosures with respect to such recovery policy in accordance with
the requirements of the federal securities laws, including the
disclosure required by the applicable Commission filings.
Proposed Section 303A.14(d) would provide that the requirements of
the Rule do not apply to the listing of: (1) a security futures product
cleared by a clearing agency that is registered pursuant to section 17A
of the Act (15 U.S.C. 78q-1) or that is exempt from the registration
requirements of section 17A(b)(7)(A) (15 U.S.C. 78q-1(b)(7)(A)); (2) a
standardized option, as defined in 17 CFR 240.9b-1(a)(4), issued by a
clearing agency that is registered pursuant to section 17A of the Act
(15 U.S.C. 78q-1); (3) any security issued by a unit investment trust,
as defined in 15 U.S.C. 80a-4(2); and (4) 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 Company Act of 1940 (15
U.S.C. 80a-8), if such management company has not awarded incentive-
[[Page 38909]]
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.
Proposed Section 303A.14(e) would provide that, unless the context
otherwise requires, the following definitions apply for purposes of the
Rule:
Executive Officer. An executive officer is the issuer's
president, principal financial officer, principal accounting officer
(or if there is no such accounting officer, the controller), any vice-
president of the issuer in charge of a principal business unit,
division, or function (such as sales, administration, or finance), any
other officer who performs a policy-making function, or any other
person who performs similar policy-making functions for the issuer.
Executive officers of the issuer's parent(s) or subsidiaries are deemed
executive officers of the issuer if they perform such policy making
functions for the issuer. In addition, when the issuer is a limited
partnership, officers or employees of the general partner(s) who
perform policy-making functions for the limited partnership are deemed
officers of the limited partnership. When the issuer is a trust,
officers, or employees of the trustee(s) who perform policy-making
functions for the trust are deemed officers of the trust. Policy-making
function is not intended to include policy-making functions that are
not significant. Identification of an executive officer for purposes of
the Rule would include at a minimum executive officers identified
pursuant to 17 CFR 229.401(b).
Financial reporting measures. Financial reporting measures
are measures that are determined and presented in accordance with the
accounting principles used in preparing the issuer's financial
statements, and any measures that are derived wholly or in part from
such measures. Stock price and total shareholder return are also
financial reporting measures. A financial reporting measure need not be
presented within the financial statements or included in a filing with
the Commission.
Incentive-based compensation. Incentive-based compensation
is any compensation that is granted, earned, or vested based wholly or
in part upon the attainment of a financial reporting measure.
Received. Incentive-based compensation is deemed received
in the issuer's fiscal period during which the financial reporting
measure specified in the incentive-based compensation award is
attained, even if the payment or grant of the incentive-based
compensation occurs after the end of that period.
Proposed Section 303A.14(b) would provide that the effective date
of the Rule (``effective date'') is October 2, 2023 and that each
listed issuer must (i) adopt the recovery policy no later than 60 days
following the effective date; (ii) comply with its recovery policy for
all incentive-based compensation received (as such term is defined in
proposed Section 303A.14(e)) by executive officers on or after the
effective date; \15\ and (iii) provide the required disclosures in the
applicable Commission filings required on or after the effective
date.\16\
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\15\ As described above, a NYSE listed issuer would have to
comply with its recovery policy for all incentive-based compensation
received by executive officers on or after the effective date of the
applicable listing standard (i.e., Section 303A.14). Incentive-based
compensation that is the subject of a compensation contract or
arrangement that existed prior to the effective date of Rule 10D-1
would still be subject to recovery under the Exchange's rule if such
compensation was received on or after the effective date of Section
303A.14, as required by Rule 10D-1. See Adopting Release, supra note
7, and also definitions of ``incentive based compensation'' and
``received'' in proposed Section 303A.14(e).
\16\ See Amendment No. 1, supra note 5, at 5-6. In support of
proposing an effective date of October 2, 2023, the Exchange states
it believes this is consistent with Section 10D ``and the goal of
implementing the proposed rule promptly while also being consistent
with the expectations of listed issuer that the proposed rules would
take effect a year after the adoption of Rule 10D-1 based on the
issuers' understanding of a statement made . . . in the Rule 10D-1
Adopting Release.'' See id.
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The Exchange also proposes additional clarifying changes to Section
303A.00 of the Manual (Introduction; Preferred and Debt Listings)
(``Section 303A.00'') to make clear, consistent with the language of
proposed Section 303A.14, that all listed issuers listing the following
securities are required to comply with the requirements of Section
303A.14: (i) closed-end and open-end funds; (ii) passive business
organization, listed derivative or special purpose securities; (iii)
foreign private issuers; and (iv) issuers listing only preferred or
debt securities on the NYSE (including securities listed under NYSE
Rule 5.2(j)).\17\
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\17\ See id. at 12.
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The Exchange states that the proposed new requirements described
above are consistent with the protection of investors and the public
interest because they further the goal of ensuring the accuracy of the
financial disclosure of listed issuers and may improve the overall
quality and reliability of financial reporting as well as provide
clarification by conforming the text of Section 303A.00 to the
requirements of proposed Section 303A.14.\18\
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\18\ See id. at 12-13.
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As described above, Rule 10D-1 requires national securities
exchanges to prohibit the initial or continued listing of any security
of an issuer not in compliance with its rules adopted to comply with
Rule 10D-1. The Exchange proposes therefore to require that a listed
issuer will be subject to delisting in the event of any failure by such
listed issuer to comply with any requirement of Section 303A.14,
including the requirement to adopt a recovery policy that complies with
the applicable listing standard, disclose the policy in accordance with
Commission rules or comply with its recovery policy. The Exchange
states that the proposed delisting process that sets forth procedures
that would apply if an issuer failed to comply with Section 303A.14 is
closely modeled on the provisions with respect to late filings set
forth in Section 802.01E of the Manual.\19\ Specifically, the Exchange
proposes to adopt proposed Section 802.01F of the Manual (Noncompliance
with Section 303A.14 (Erroneously Awarded Compensation)) to provide
that a listed issuer that is out of compliance with the Rule \20\ and
fails to regain compliance within any cure period provided by the
Exchange (as further described below) would have its listed securities
immediately suspended and the
[[Page 38910]]
Exchange would immediately commence delisting procedures with respect
to all such listed securities.\21\ Proposed Section 802.01F(c) would
provide that the Exchange may afford a listed issuer that fails to
comply with any of the requirements of the Rule an initial six-month
period to cure the deficiency.\22\ If the issuer fails to cure the
delinquency within the initial cure period, the Exchange may either
afford the issuer up to an additional six months to cure the deficiency
or, if the Exchange determines that an additional cure period is not
appropriate,\23\ commence suspension and delisting procedures in
accordance with Section 804.00 of the Manual.\24\ Notwithstanding the
foregoing, the Exchange may in its sole discretion decide (i) not to
afford a listed issuer any initial cure period or additional cure
period, or (ii) at any time during such cure period, to truncate the
cure period and immediately commence suspension and delisting
procedures if the listed issuer is subject to delisting pursuant to any
other provision of the Manual, including if the Exchange believes, in
the Exchange's sole discretion, that continued listing and trading of a
listed issuer's securities on the Exchange is inadvisable or
unwarranted.\25\ In determining whether an initial or additional cure
period is appropriate, or whether either such period should be
truncated, the Exchange will consider the likelihood that the
delinquency can be cured during such period.\26\ The Exchange may also
commence suspension and delisting procedures without affording any cure
period at all or at any time during the initial or additional cure
period if the Exchange believes, in the Exchange's sole discretion,
that it is advisable to do so on the basis of an analysis of all
relevant factors.\27\ In no event would the Exchange continue to trade
a listed issuer's securities if that listed issuer has failed to cure
its delinquency with the Rule on the date that is twelve months after
the date the Exchange notified the issuer of the delinquency.\28\
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\19\ See id. at 13. NYSE's original filing included provisions
establishing cure periods to be applied in the event of a listed
issuer's failure to adopt a recovery policy within the required time
period, but did not establish cure periods for other incidents of
noncompliance with Section 303A.14. Amendment No. 1 revised these
cure period provisions so that they are now applicable to all
incidents of noncompliance with Section 303A.14 and not just delayed
adoption of recovery policies. See id. at 4 n.4. The Exchange states
that it believes the compliance procedures, as amended, ``are
appropriately rigorous and are consistent with the public interest
and the interests of investors.'' See id. at 13.
\20\ Proposed Section 802.01F(b) provides that a listed issuer
will be deemed to be below standards in the event of any failure by
such listed issuer to comply with any requirement of the Rule. The
listed issuer would be required to notify the Exchange in writing
within five days of any type of delinquency. When the Exchange
determines that a delinquency has occurred, it will promptly send
written notification to a listed issuer of the procedures set forth
in the rule and, within five days of the date of receipt of such
notification, the listed issuer will be required to (i) contact the
Exchange to discuss the status of resolution of the delinquency and
(ii) issue a press release disclosing the occurrence of the
delinquency, the reason for the delinquency and, if known, the
anticipated date the delinquency will be cured. If the listed issuer
has not issued the required press release within five days of the
date of the delinquency notification, the Exchange will issue a
press release stating that the issuer has incurred a delinquency and
providing a description thereof. See proposed Section 802.01F(b).
\21\ See proposed Sections 303A.14(a) and (d). Such listed
issuer would not be eligible to follow the procedures outlined in
Sections 802.02 and 802.03 of the Manual with respect to such a
delisting determination, and any such listed issuer would be subject
to delisting procedures as set forth in Section 804.00 of the
Manual. Section 804.00 of the Manual (Procedure for Delisting)
provides that an issuer subject to a delisting determination has a
right to a review of the determination by a committee of the Board
of Directors of the Exchange, provided a written request for such a
review is filed with the Secretary of the Exchange within ten
business days after receiving written notice of the delisting. See
Section 804.00 of the Manual.
\22\ During such six-month period, the Exchange would monitor
the listed issuer and the status of resolution of the delinquency
until the delinquency is cured. See proposed Section 802.01F(c).
\23\ In determining whether an additional cure period is
appropriate, the Exchange will consider the likelihood that the
delinquency can be cured during the additional cure period. See
proposed Section 802.01F(d).
\24\ An issuer would not be eligible to follow the procedures
outlined in Sections 802.02 and 802.03 of the Manual. See proposed
Section 802.01F(c).
\25\ See id.
\26\ See id.
\27\ See id.
\28\ See proposed Section 802.01F(d).
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III. Discussion and Commission Findings
After careful review, 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.\29\ In particular, the
Commission finds that the proposed rule change is consistent with the
requirements of Section 6(b) of the Act.\30\ Specifically, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\31\ which 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 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 are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. In addition, the Commission finds that the
proposed rule change is consistent with Section 6(b)(7) of the Act,\32\
which requires, among other things, that the rules of a national
securities exchange provide a fair procedure for the prohibition or
limitation by the exchange of any person with respect to access to
services offered by the exchange. The proposed rule change, as modified
by Amendment No. 1, is also consistent with Section 10D of the Act \33\
and Rule 10D-1 thereunder, as further described below.\34\
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\29\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
\32\ 15 U.S.C. 78(b)(7).
\33\ 15 U.S.C. 78j-4.
\34\ 17 CFR 240.10D-1.
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The development and enforcement of meaningful listing standards for
a national securities exchange is of substantial importance to
financial markets and the investing public. Meaningful listing
standards are especially important given investor expectations
regarding the nature of companies that have achieved an exchange
listing for their securities, and the role of an exchange in overseeing
its market and assuring compliance with its listing standards.\35\ The
corporate governance standards embodied in the listing rules of
national securities exchanges, in particular, play an important role in
assuring that companies listed for trading on the exchanges' markets
observe good governance practices, including a fair approach and
greater accountability for the recovery of erroneously awarded
compensation.\36\
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\35\ See, e.g., Securities Exchange Release Nos. 65708 (November
8, 2011), 76 FR 70799 70802 (November 15, 2011) (SR-NASDAQ-2011-
073); 63607 (December 23, 2010), 75 FR 82420, 82422 (December 30,
2010) (SR-NASDAQ-2010-137); 57785 (May 6, 2008), 73 FR 27597, 27599
(May 13, 2008) (SR-NYSE-2008-17); and 93256 (October 4, 2021), 86 FR
56338 (October 8, 2021) (SR-NASDAQ-2021-007).
\36\ See, e.g., Securities Exchange Release No. 68639 (January
11, 2013), 78 FR 4570, 4579 (January 22, 2013) (SR-NYSE-2012-49)
(stating, in connection with the modification of exchange rules for
compensation committees of listed issuers to comply with Rule 10C-1
of the Act, that corporate governance listing standards ``play an
important role in assuring that companies listed for trading on the
exchanges' markets observe good governance practices, including a
reasoned, fair, and impartial approach for determining the
compensation of corporate executives'' and stating that the proposal
would foster ``greater transparency, accountability and
objectivity'' in oversight of compensation practices.).
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In enacting Section 10D of the Act,\37\ Congress resolved to
require national securities exchanges to establish listing standards to
require listed issuers to develop and comply with a policy to recover
incentive-based compensation erroneously awarded on the basis of
financial information that requires an accounting restatement.\38\ In
October
[[Page 38911]]
2022, as required by this legislation, the Commission adopted Rule 10D-
1 under the Act, which directs the national securities exchanges to
establish listing standards that require issuers to: (i) develop and
comply with written policies for recovery of incentive-based
compensation based on financial information required to be reported
under the securities laws, applicable to the issuers' executive
officers, during the three completed fiscal years immediately preceding
the date that the issuer is required to prepare an accounting
restatement; and (ii) disclose those compensation recovery policies in
accordance with Commission rules. In response, the Exchange has filed
the proposed rule change, which includes rules intended to comply with
the requirements of Rule 10D-1.
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\37\ Public Law 111-203, sec. 954, 124 Stat. 1376, 1904 (2010)
(codified at 15 U.S.C. 78j-4).
\38\ As a part of the Dodd-Frank Act legislative process, in a
2010 report, the Senate Committee on Banking, Housing and Urban
Affairs stated that it is ``unfair to shareholders for corporations
to allow executive officers to retain compensation that they were
awarded erroneously.'' See Report of the Senate Committee on
Banking, Housing, and Urban Affairs, S. 3217, Report No. 111-176 at
135-36 (Apr. 30, 2010) (``Senate Report'') at 135. See also Adopting
Release, supra note 7, 87 FR at 73077 (citing to the Senate Report)
(``The language and legislative history of the Dodd-Frank Act make
clear that Section 10D is premised on the notion that an executive
officer should not retain incentive-based compensation that, had the
issuer's accounting been correct in the first instance, would not
have been received by the executive officer, regardless of any fault
of the executive officer for the accounting errors. The Senate
Report also indicates that shareholders should not `have to embark
on costly legal expenses to recoup their losses' and that
`executives must return monies that should belong to the
shareholders.' '').
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The Exchange's proposed Section 303A.14 incorporates the
requirements of Rule 10D-1. The Commission believes that the Exchange's
proposal will foster greater fairness, accountability, and transparency
to shareholders of listed issuers by advancing the recovery of
incentive-based compensation that was erroneously awarded on the basis
of financial information that requires an accounting restatement,
consistent with Section 10D of the Act \39\ and Rule 10D-1
thereunder,\40\ and will therefore further the protection of investors
consistent with Section 6(b)(5) of the Act.\41\ In addition, as the
Commission stated in the Adopting Release, the recovery requirements
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 can further discourage
such behavior.\42\ The Commission believes that these benefits of the
Exchange's new rules on the recovery of erroneously awarded
compensation will protect investors and the public interest as required
under Section 6(b)(5) of the Act.
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\39\ 15 U.S.C. 78j-4.
\40\ 17 CFR 240.10D-1.
\41\ 15 U.S.C. 78f(b)(5).
\42\ See Adopting Release, supra note 7, 87 FR at 73077. See
also Amendment No. 1, supra note 5, at 12-13, agreeing with the
Commission's statement on the benefits of the recovery policy.
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Rule 10D-1 and proposed Section 303A.14 require that a listed
issuer recover the amount of erroneously awarded incentive-based
compensation ``reasonably promptly.'' One commenter requested NYSE
include guidance in its proposed listing standards regarding what the
exchange will consider in evaluating whether an issuer is pursuing
recovery ``reasonably promptly'' under its policy and provided a non-
exclusive list of factors the Exchange could consider and set forth in
its rules.\43\ As discussed above, NYSE's proposed rule mirrors the
language in Rule 10D-1 and such guidance is not included in the rule
text of Rule 10D-1. The Adopting Release stated that whether an issuer
is acting reasonably promptly ``will depend on the particular facts and
circumstances applicable to that issuer'' and ``the final rules do not
restrict exchanges from adopting more prescriptive approaches to the
timing and method of recovery under their rules in compliance with
Section 19(b) of the Exchange Act . . .'' \44\ Rule 10D-1 also does not
compel the exchanges to adopt a more prescriptive approach to the
timing and method of recovery. In its proposal, NYSE stated that ``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'' and that ``[i]n 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.'' \45\ The Commission believes this guidance provided by the
Exchange is consistent with the Commission's statements regarding when
an issuer is acting ``reasonably promptly'' as expressed in the
Adopting Release, with Rule 10D-1 and with the Act.\46\
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\43\ See Letter to Vanessa Countryman, Secretary, Commission,
from Wilson Sonsini Goodrich & Rosati, dated April 4, 2024 [sic]
(``Wilson Sonsini Letter''), at 4.
\44\ See Adopting Release, supra note 7, 87 FR at 73104. For
example, the Commission stated that after the exchanges have
observed issuer performance they can use any resulting data to
assess the need for further guidelines to ensure prompt and
effective recovery. See id.
\45\ See Amendment No. 1, supra note 5, at 5.
\46\ See Adopting Release, supra note 7, 87 FR 73104.
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Rule 10D-1 requires issuers subject to the listing standards to
adopt a recovery policy no later than 60 days following the date on
which the applicable listing standards become effective and to comply
with their recovery policy, and provide the required disclosures, on or
after the effective date. The Commission received comment letters
requesting the Commission not approve the proposal before November 28,
2023, citing burdens to issuers, including with respect to assessing
the impact of the new listing standards on their existing executive
compensation programs, developing and implementing compliant policies,
and obtaining board (and in some cases shareholder) approval.\47\
Commenters stated that listed issuers anticipated an effective date of
November 28, 2023 based on the language in Rule 10D-1 requiring that
the new listing standards become effective by no later than one year
following the publication of the final rules in the Federal
Register.\48\ One commenter stated that the Adopting Release stated
that ``issuers will have more than a year from the date the final rules
are published in the Federal Register to prepare and adopt compliant
recovery policies.'' \49\ The Exchange, in Amendment No. 1, is
proposing that the effective date of Section 303A.14 be October 2,
2023.\50\ The Exchange believes that setting this date as the effective
date will ensure that issuers have more than a year from the date Rule
10D-1 was published in the Federal Register to adopt recovery
policies.\51\ This is consistent with language in Rule 10D-1 and the
Adopting Release, while also ensuring
[[Page 38912]]
prompt implementation of this proposed rule.
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\47\ See, e.g., Wilson Sonsini Letter at 5; Letter to Vanessa
Countryman, Secretary, Commission, from Davis Polk Wardwell LLP et
al., submitted on behalf of 39 law firms, dated April 3, 2023
(``Davis Polk Letter''); Letter to Vanessa Countryman, Secretary,
Commission, from C. Edward Allen, Vice President, Policy & Advocacy,
and Christina Maguire, President & CEO, Society for Corporate
Governance, dated April 3, 2023 (``Society Letter''); Letter to
Vanessa Countryman, Secretary, Commission, from American Securities
Association, Business Roundtable, Center On Executive Compensation,
National Association of Manufacturers, and U.S. Chamber of Commerce,
dated April 3, 2023 (``ASA Letter'').
\48\ See, e.g., Society Letter at 1; ASA Letter at 2.
\49\ See Davis Polk Letter at 1 n.1 (citing to Adopting Release,
supra note 7, 87 FR at 73111).
\50\ See Amendment No. 1, supra note 5, amending proposed
Section 303A.14(b).
\51\ Listed issuers will need to have their recovery policy in
place no later than 60 days following the effective date of October
2, 2023, which would be more than a year after publication of Rule
10D-1 in the Federal Register. Listed issuers will also have to
comply with their recovery policy for all incentive-based
compensation received by executive officers on or after the
effective date of October 2, 2023, and provide the required
disclosures in the applicable Commission filings on or after the
effective date of October 2, 2023. See Adopting Release, supra note
7, and also definitions of ``incentive based compensation'' and
``received'' in proposed Section 303A.14(e). See also supra notes
15-16 and accompanying text.
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With respect to a listed issuer that fails to comply with proposed
Section 303A.14, the Exchange has proposed delisting procedures that
are closely modeled on its current procedures applicable to listed
issuers subject to a filing delinquency set forth in Section 802.01E of
the Manual.\52\ The Commission believes that these procedures, as
modified by Amendment No. 1, for listed issuers out of compliance with
proposed Section 303A.14, which are consistent with the procedures for
filing delinquencies, adequately meet the mandate of Rule 10D-1 and are
consistent with investor protection and the public interest, since they
give a listed issuer a reasonable time period to cure non-compliance
with these important requirements before they will be delisted while
helping to ensure that listed issuers that are non-compliant will not
remain listed for an inappropriate amount of time.\53\ Additionally,
the proposed delisting process, including the cure period and the right
to a review of a delisting determination by a committee of the Board of
Directors of the Exchange, is consistent with Section 6(b)(7) of the
Act in that it provides a fair procedure for the review of delisting
determinations based on violations of the Exchange's rules for
recovering erroneous compensation.
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\52\ See supra notes 19-28 and accompanying text.
\53\ The Exchange originally proposed that if an issuer was non-
compliant with any of the provisions of the Rule (except for a
delayed adoption of a recovery policy), the Exchange would
immediately suspend and commence delisting procedures with respect
to such issuer's listed securities. See Notice, supra note 3, at
15482. One commenter stated that the Exchange's proposal should be
amended to allow issuers a period of time to submit a plan of
compliance and to cure any failure to comply with the listing
standards before being delisted. See Wilson Sonsini Letter, at 2-3.
Another commenter also criticized the Exchange's proposed delisting
procedure and stated its concern that ``in knowing that immediate
suspension will be the outcome for noncompliance under the NYSE
[p]roposal, NYSE staff would be more likely to determine that the
required recovery of erroneously awarded compensation was performed
`reasonably promptly' even when most investors would conclude
otherwise.'' See Letter to Vanessa Countryman, Secretary,
Commission, from Jeffrey P. Mahoney, General Counsel, Council of
Institutional Investors, dated April 3, 2023, at 4. As discussed
above, Amendment No. 1 amended the Exchange's proposed delisting
provisions to provide to that in the event of any failure by a
listed issuer to comply with any requirement of Section 303A.14, the
Exchange may provide such issuer with an initial six-month cure
period and an additional six-month cure period. See Amendment No. 1,
supra note 5. The Commission believes that Amendment No. 1
appropriately addresses these commenters' concerns.
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IV. 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 the proposed rule change, as modified by
Amendment No. 1, is consistent with the Exchange 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-NYSE-2023-12 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-NYSE-2023-12. 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSE-2023-12, and should be
submitted on or before July 5, 2023.
V. 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. In Amendment No. 1, the Exchange amended the
proposal to (i) add a clarifying amendment to Section 303A.00 to make
it clear that, consistent with the language of proposed Section
303A.14, all listed issuers listing the following securities are
required to comply with the requirements of Section 303A.14: (a)
closed-end and open-end funds, (b) passive business organization,
listed derivative or special purpose securities, (c) foreign private
issuers, and (d) issuers listing only preferred or debt securities on
the NYSE; (ii) propose that the effective date of Section 303A.14 be
October 2, 2023; and (iii) allow the Exchange, in its sole discretion,
to provide a listed issuer that fails to comply with any requirement of
Section 303A.14 an initial six-month cure period and an additional six-
month cure period.\54\
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\54\ See Amendment No. 1, supra note 5.
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The changes in Amendment No. 1 provide greater clarity to the
proposal. The changes to Section 303A.00 will ensure that the
requirements of that section of the Manual conform to the requirements
of proposed Section 303A.14. The change to the effective date of the
listing standards is consistent with Rule 10D-1 and language in the
Adopting Release and is responsive to comments stating that listed
issuers anticipated an effective date of November 28, 2023. The change
to the delisting procedures is responsive to comments recommending NYSE
allow a listed issuer to cure any failure to comply with Section
303A.14 before being delisted, rather than only providing a cure period
for non-compliance with adoption of a recovery policy, as originally
proposed. The cure periods for non-compliance being proposed by NYSE
are similar to those that exist under NYSE's rules for the late filing
of annual and quarterly reports that the Commission has previously
approved as consistent with the Act.\55\ The amended proposal also
provides for a cure period for any violations of Section 303A.14
similar to the approach taken by Nasdaq in its proposal to adopt rules
to comply with
[[Page 38913]]
Rule 10D-1.\56\ Nasdaq's proposal has also been approved by the
Commission as consistent the Act.\57\ Accordingly, the Commission finds
good cause, pursuant to Section 19(b)(2) of the Exchange Act,\58\ to
approve the proposed rule change, as modified by Amendment No. 1, on an
accelerated basis.
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\55\ See Section 804.01E of the Manual.
\56\ See Securities Exchange Act Release No. 97060 (March 7,
2023), 88 FR 15500 (March 13, 2023) (SR-Nasdaq-2023-005).
\57\ See Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of a Proposed Rule Change to Establish Listing
Standards Related to Recovery of Erroneously Awarded Executive
Compensation (June 9, 2023) (SR-Nasdaq-2023-005).
\58\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\59\ that the proposed rule change (SR-NYSE-2023-12), as modified
by Amendment No. 1, be, and hereby is, approved on an accelerated
basis.
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\59\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
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\60\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12758 Filed 6-13-23; 8:45 am]
BILLING CODE 8011-01-P
