Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Establish Listing Standards Related to Recovery of Erroneously Awarded Executive Compensation, 39295-39300 [2023-12757]
Download as PDF
<![CDATA[
Federal Register / Vol. 88, No. 115 / Thursday, June 15, 2023 / Notices
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–LTSE–2023–01, and should be
submitted on or before July 6, 2023.
lotter on DSK11XQN23PROD with NOTICES1
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment Nos. 1 and 2
43 15
Amendment No. 2, supra note 5.
U.S.C. 78s(b)(2).
VerDate Sep<11>2014
17:54 Jun 14, 2023
Jkt 259001
VI. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,44 that the
proposed rule change (SR–LTSE–2023–
01), as modified by Amendment Nos. 1
and 2, be, and hereby is, approved on
an accelerated basis.
For the Commission, by the Division
of Trading and Markets, pursuant to
delegated authority.45
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–12763 Filed 6–14–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97687; File No. SR–
NASDAQ–2023–005]
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment Nos. 1 and 2,
prior to the thirtieth day after the date
of publication of notice of the filing of
Amendment No. 2 in the Federal
Register. In Amendment No. 2, the
Exchange amended the proposal to (i)
propose that the effective date of LTSE
Rule 14.207(f) be October 2, 2023; (ii)
clarify, consistent with the requirements
of Rule 10D–1 and the rule language as
originally proposed, that each listed
issuer is required to comply with its
recovery policy for all incentive-based
compensation received (as such term is
defined in proposed 14.207(f)(1)) by
executive officers on or after October 2,
2023; and (iii) clarify, consistent with
the language of Rule 10D–1, that
notwithstanding the look-back
requirements in LTSE Rule 14.207(f), a
company is only required to apply the
recovery policy to incentive-based
executive compensation received on or
after the effective date.42 The changes in
Amendment No. 2 provide greater
clarity to the proposal. In addition, the
change to the effective date of the listing
standards is consistent with Rule 10D–
1 and language in the Adopting Release.
The additional clarifications to Rule
14.207(f)(10) will ensure that the
requirements of that Rule conform to the
requirements of Rule 10D–1.
Accordingly, the Commission finds
good cause, pursuant to section 19(b)(2)
of the Exchange Act,43 to approve the
proposed rule change, as modified by
42 See
Amendment Nos. 1 and 2, on an
accelerated basis.
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Amendment No. 1 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 1, To Establish Listing
Standards Related to Recovery of
Erroneously Awarded Executive
Compensation
June 9, 2023.
I. Introduction
On February 22, 2023, The Nasdaq
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
adopt Nasdaq Rule 5608 to establish
listing standards related to recovery of
erroneously awarded executive
compensation 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
44 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 97060
(March 7, 2023), 88 FR 15500 (‘‘Notice’’). Comments
received on the proposed rule change are available
at: https://www.sec.gov/comments/sr-nasdaq-2023005/srnasdaq2023005.htm.
45 17
PO 00000
Frm 00077
Fmt 4703
Sfmt 4703
39295
disapprove the proposed rule change.4
On June 6, 2023, the Exchange filed
partial Amendment No. 1 to the
proposed rule change.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
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, Nasdaq
proposed to adopt Nasdaq Rule 5608
4 See Securities Exchange Act Release No. 97353,
88 FR 26369 (April 28, 2023).
5 Amendment No. 1 is available on the
Commission’s website at https://www.sec.gov/
comments/sr-nasdaq-2023-005/srnasdaq2023005200459-401302.pdf. In Amendment No. 1, the
Exchange proposes to amend Rule 5608(e) to (i)
provide that the effective date of Rule 5608 would
be October 2, 2023; and (ii) clarify, consistent with
the requirements of Rule 10D–1 and the rule
language as originally proposed, that each company
is required to comply with its recovery policy for
all incentive-based compensation received (as such
term is defined in proposed Rule 5608(d)) by
executive officers on or after October 2, 2023.
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.
E:\FR\FM\15JNN1.SGM
15JNN1
39296
Federal Register / Vol. 88, No. 115 / Thursday, June 15, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
entitled ‘‘Recovery of Erroneously
Awarded Compensation.’’ Proposed
Nasdaq Rule 5608 (the ‘‘Rule’’) mirrors
the text of Rule 10D–1. Specifically,
proposed Nasdaq Rule 5608(a) would
require companies 8 to adopt a
compensation recovery policy, comply
with that policy, and provide the
compensation recovery policy
disclosures required by the Rule and in
the applicable Commission filings.
Proposed Nasdaq Rule 5608(b)(1)
would require that each company adopt
and comply with a written policy
providing that the company will recover
reasonably promptly the amount of
erroneously awarded incentive-based
compensation in the event that the
company is required to prepare an
accounting restatement due to the
material noncompliance of the company
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 company’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
company 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
company is required to prepare an
accounting restatement as described in
paragraph (b)(1) of the Rule.9 A
company’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 a
company is required to prepare an
accounting restatement as described in
8 For purposes of this order, ‘‘companies’’ or
‘‘company’’ refers to the issuer of a security listed
or an issuer who is applying to list on Nasdaq. See,
e.g., Nasdaq Rule 5005(a)(6).
9 See proposed Rule 5608(b)(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 company’s fiscal year)
within or immediately following those three
completed fiscal years. However, a transition period
between the last day of the company’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.
VerDate Sep<11>2014
17:54 Jun 14, 2023
Jkt 259001
paragraph (b)(1) of the Rule is the earlier
to occur of: (A) the date the company’s
board of directors, a committee of the
board of directors, or the officer or
officers of the company authorized to
take such action if board action is not
required, concludes, or reasonably
should have concluded, that the
company is required to prepare an
accounting restatement as described in
paragraph (b)(1) of this Rule; or (B) the
date a court, regulator, or other legally
authorized body directs the company to
prepare an accounting restatement as
described in paragraph (b)(1) of the
Rule.10
The amount of incentive-based
compensation that must be subject to
the company’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, 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 the
company must maintain documentation
of the determination of that reasonable
estimate and provide such
documentation to Nasdaq.11
The company 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 company’s Compensation
Committee, 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 company must make a
reasonable attempt to recover such
erroneously awarded compensation,
document such reasonable attempt(s) to
10 See
11 See
PO 00000
proposed Rule 5608(b)(1)(ii).
proposed Rule 5608(b)(1)(iii).
Frm 00078
Fmt 4703
Sfmt 4703
recover, and provide that
documentation to Nasdaq.
• 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 company must obtain an opinion of
home country counsel, acceptable to
Nasdaq, that recovery would result in
such a violation, and must provide such
opinion to Nasdaq.
• 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.12
The company is prohibited from
indemnifying any executive officer or
former executive officer against the loss
of erroneously awarded
compensation.13
Proposed Nasdaq Rule 5608(b)(2)
would require that each company 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 Nasdaq Rule 5608(c) would
provide that the requirements of the
Rule do not apply to the listing of: (1)
any security issued by a unit investment
trust, as defined in 15 U.S.C. 80a–4(2);
and (2) 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-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 Nasdaq Rule 5608(d) would
provide that, unless the context
otherwise requires, the following
definitions apply for purposes of the
Rule (and only for purposes of Rule
5608):
• Executive Officer. An executive
officer is the company’s president,
principal financial officer, principal
accounting officer (or if there is no such
accounting officer, the controller), any
vice-president of the company 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
12 See
13 See
E:\FR\FM\15JNN1.SGM
proposed Rule 5608(b)(1)(iv).
proposed Rule 5608(b)(1)(v).
15JNN1
lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 115 / Thursday, June 15, 2023 / Notices
any other person who performs similar
policy-making functions for the
company. Executive officers of the
company’s parent(s) or subsidiaries are
deemed executive officers of the
company if they perform such policy
making functions for the company. In
addition, when the company is a limited
partnership, officers or employees of the
general partner(s) who perform policymaking functions for the limited
partnership are deemed officers of the
limited partnership. When the company
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 company’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
company’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 incentivebased compensation occurs after the end
of that period.
Proposed Nasdaq Rule 5608(e) would
provide that the effective date of the
Rule (‘‘effective date’’) is October 2,
2023, and that each company is required
to (i) adopt a policy governing the
recovery of erroneously awarded
compensation as required by the Rule
no later than 60 days following October
2, 2023; (ii) comply with its recovery
policy for all incentive-based
compensation received (as such term is
defined in Rule 5608(d)) by executive
officers on or after October 2, 2023; and
(iii) provide the disclosures required by
the Rule and in the applicable
Commission filings on or after October
VerDate Sep<11>2014
17:54 Jun 14, 2023
Jkt 259001
2, 2023.14 Proposed Nasdaq Rule
5605(e) also states that notwithstanding
the look-back requirement in proposed
Rule 5608(b)(1)(i)(D), a company is only
required to apply the recovery policy to
incentive-based compensation received
on or after October 2, 2023.15
Nasdaq also proposes additional
clarifying changes to Nasdaq Rule 5210
(Prerequisites for Applying to List on
the Nasdaq Stock Market), Nasdaq Rule
5701 (Preamble to the Listing
Requirements to Other Securities) and
Nasdaq Rule 5702 governing listing
requirements for debt securities to make
clear the application of proposed
Nasdaq Rule 5608 under these
provisions.16
Nasdaq states that the new
requirements described above will help
facilitate effective oversight of executive
compensation and promote
accountability to investors by not
allowing executive officers to retain
compensation that they were awarded
erroneously.17
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. Nasdaq
proposes therefore to require that a
company will be subject to delisting if
it does not adopt a compensation
recovery policy that complies with the
applicable listing standard, disclose the
policy in accordance with Commission
rules or comply with its recovery policy.
Nasdaq states that the administrative
14 See
Amendment No. 1, supra note 5. 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 SEC Rule 10D–1 based on the issuers’
understanding of a statement made . . . in the
Listing Standards Release.’’ See id.
15 As described above, a Nasdaq listed company
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. Nasdaq Rule
5608). 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 Rule 5608, as
required by Rule 10D–1. See Adopting Release,
supra note 6, and also definitions of ‘‘incentive
based compensation’’ and ‘‘received’’ in proposed
Nasdaq Rule 5608(d).
16 Nasdaq states that the change to Nasdaq Rule
5210 will clarify that any company newly listing on
Nasdaq must comply with these requirements. The
proposed amendments to Nasdaq Rules 5701 and
5702 make clear that proposed Nasdaq Rule 5608
would apply, except to the extent exempted as set
forth above. See supra discussion of proposed Rule
5608(c).
17 See Notice, supra note 3, 88 FR at 15502.
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
39297
process for a company that fails to
comply with proposed Nasdaq Rule
5608 will follow the established pattern
used for similar corporate governance
deficiencies.18 Specifically, Nasdaq
proposes to amend Nasdaq Rule
5810(c)(2)(A)(iii) to provide that a
company that fails to comply with
proposed Nasdaq Rule 5608 may submit
to Nasdaq Staff 19 a plan to regain
compliance and, consistent with its
process for similar corporate governance
deficiencies, Nasdaq Staff may provide
the issuer up to 180 days to cure the
deficiency.20 Nasdaq Rule 5810(c)(2)(B)
further provides that notifications of
deficiencies that allow for submission of
a compliance plan may also result, after
review of the compliance plan, in
issuance of a Staff Delisting
Determination or a Public Reprimand
Letter. However, Nasdaq proposes to
amend Nasdaq Rules 5810(c)(4),
5815(c)(1)(D), 5820(d)(1) and 5825(d) to
provide that a Public Reprimand Letter
may not be issued for violations of a
listing standard required by Rule 10D–
1 or upon appeal of such violations.21 If
Nasdaq Staff provides the issuer with a
period to cure the deficiency, and if the
company does not regain compliance
within the time period provided,
Nasdaq Staff would be required to issue
a Staff Delisting Determination,22 which
the issuer could appeal to the Hearings
Panel, as provided in Nasdaq Rule 5815.
The Hearings Panel could allow the
issuer up to an additional 180 days to
cure the deficiency.23
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
18 See
id. See also Nasdaq Rule 5805(c)(2)(B).
Rule 5805(g) defines the term ‘‘Staff’’ as
employees of the Listing Qualifications Department
(the department of Nasdaq responsible for
evaluating company compliance with quantitative
and qualitative listing standards and determining
eligibility for initial and continued listing of a
company’s securities). See also Nasdaq Rule
5805(h).
20 See Notice, supra note 3, 88 FR at 15502. See
also Nasdaq Rule 5805(c)(2)(B).
21 Nasdaq also proposes to amend the definition
of ‘‘Public Reprimand Letter’’ in Rule 5805(j) to
provide that a Public Reprimand Letter may not be
issued for violations of a listing standard required
by Rule 10D–1. Under the existing definition in
Rule 5805(j), Public Reprimand Letters can be
issued for violations of Nasdaq corporate
governance or notification listing standards except
for violations of a listing standard required by Rule
10A–3 of the Act.
22 See Nasdaq Rule 5805(c)(2)(E).
23 See Nasdaq Rule 5815(c).
19 Nasdaq
E:\FR\FM\15JNN1.SGM
15JNN1
39298
Federal Register / Vol. 88, No. 115 / Thursday, June 15, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
securities exchange.24 In particular, the
Commission finds that the proposed
rule change is consistent with the
requirements of Section 6(b) of the
Act.25 Specifically, the Commission
finds that the proposed rule change is
consistent with Section 6(b)(5) of the
Act,26 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,27 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 28
and Rule 10D–1 thereunder, as further
described below.29
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.30 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
24 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).
25 15 U.S.C. 78f(b).
26 15 U.S.C. 78f(b)(5).
27 15 U.S.C. 78(b)(7).
28 15 U.S.C. 78j–4.
29 17 CFR 240.10D–1.
30 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).
VerDate Sep<11>2014
17:54 Jun 14, 2023
Jkt 259001
exchanges’ markets observe good
governance practices, including a fair
approach and greater accountability for
the recovery of erroneously awarded
compensation.31
In enacting Section 10D of the Act,32
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.33 In October
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
31 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).
32 Public Law 111–203, sec. 954, 124 Stat. 1376,
1904 (2010) (codified at 15 U.S.C. 78j–4).
33 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.’’’).
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
rules intended to comply with the
requirements of Rule 10D–1.
The Exchange’s proposed Rule 5608
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 34 and Rule 10D–
1 thereunder,35 and will therefore
further the protection of investors
consistent with Section 6(b)(5) of the
Act.36 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.37 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 Rule 5608
require that a listed issuer recover the
amount of erroneously awarded
incentive-based compensation
‘‘reasonably promptly.’’ One commenter
requested Nasdaq 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.38 As
discussed above, Nasdaq’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
34 15
U.S.C. 78j–4.
CFR 240.10D–1.
36 15 U.S.C. 78f(b)(5).
37 See Adopting Release, supra note 7, 87 FR at
73077. See also Notice, supra note 3, 88 FR at
15502, agreeing with the Commission’s statement
on the benefits of the recovery policy.
38 See Letter to Vanessa Countryman, Secretary,
Commission, from Wilson Sonsini Goodrich &
Rosati, dated April 4, 2024 [sic] (‘‘Wilson Sonsini
Letter’’), at 4.
35 17
E:\FR\FM\15JNN1.SGM
15JNN1
Federal Register / Vol. 88, No. 115 / Thursday, June 15, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
and method of recovery under their
rules in compliance with Section 19(b)
of the Exchange Act . . .’’ 39 Rule 10D–
1 also does not compel the exchanges to
adopt a more prescriptive approach to
the timing and method of recovery. In
its Notice, Nasdaq 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.’’ 40 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.41
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.42 Commenters stated that
39 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.
40 See Notice, supra note 3, 88 FR at 15502.
41 See Adopting Release, supra note 7, 87 FR
73104.
42 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
VerDate Sep<11>2014
17:54 Jun 14, 2023
Jkt 259001
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.43 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.’’ 44 The Commission
also received comment letters from
individual investors that requested the
Commission quickly implement the
proposal.45 The Exchange, in
Amendment No. 1, is proposing that the
effective date of Rule 5608 be October
2, 2023.46 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.47 This is
consistent with language in Rule 10D–
1 and the Adopting Release, while also
ensuring prompt implementation of this
proposed rule.
With respect to a listed issuer that
fails to comply with proposed Rule
5608, the Exchange has proposed to
apply its current procedures applicable
to companies with similar corporate
governance deficiencies in addition to
prohibiting the use of a Public
Reprimand Letter for violations of a
listing standard required by Rule 10D–
1.48 The Commission believes that these
procedures for listed issuers out of
compliance with proposed Nasdaq Rule
5608, which are consistent with the
procedures for similar corporate
governance deficiencies, adequately
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’’).
43 See, e.g., Society Letter at 1; ASA Letter at 2.
44 See Davis Polk Letter at 1 n.1 (citing to
Adopting Release, supra note 7, 87 FR at 73111).
45 See, e.g., Letters from Clarissa McLaughlin,
dated May 15, 2023; Deborah Temple, dated May
15, 2023; John Leonard, dated May 13, 2023.
46 See Amendment No. 1, supra note 5, amending
proposed Nasdaq Rule 5608(e).
47 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 6, and also definitions
of ‘‘incentive based compensation’’ and ‘‘received’’
in proposed Nasdaq Rule 5608(d). See also supra
note 15 and accompanying text.
48 See supra notes 18–23 and accompanying text.
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
39299
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 the listed
issuer will be delisted while helping to
ensure that listed issuers that are noncompliant will not remain listed for an
inappropriate amount of time.49
Additionally, the proposed delisting
process, including the cure period and
the right to appeal a delisting
determination to the Exchange’s Hearing
Panel, 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.
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 rule-comments@
sec.gov. Please include file number SR–
NASDAQ–2023–005 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–NASDAQ–2023–005. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
49 One commenter states its agreement that
issuers should be given an opportunity to submit
a plan of compliance and to cure noncompliance in
good faith and states that Nasdaq’s proposal ‘‘strikes
the right balance’’ in deterring issuers from
violating the proposed listing standards without
unnecessarily harming shareholders. See Wilson
Sonsini Letter, at 3. Another commenter that was
generally supportive of Nasdaq’s proposal states
that Nasdaq’s proposed delisting process involves
the use of Listing Qualifications Panels and a
Listing and Hearing Review Council with investor
representatives. See Letter to Vanessa Countryman,
Secretary, Commission, from Jeffrey P. Mahoney,
General Counsel, Council of Institutional Investors,
dated April 3, 2023, at 4 n.13.
E:\FR\FM\15JNN1.SGM
15JNN1
39300
Federal Register / Vol. 88, No. 115 / Thursday, June 15, 2023 / Notices
lotter on DSK11XQN23PROD with NOTICES1
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–NASDAQ–2023–005, and should be
submitted on or before July 6, 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 proposed Rule
5608(e) to (i) provide that the effective
date of Rule 5608 would be October 2,
2023; and (ii) clarify, consistent with the
requirements of Rule 10D–1 and the rule
language as originally proposed, that
each company is required to comply
with its recovery policy for all
incentive-based compensation received
(as such term is defined in proposed
Rule 5608(d)) by executive officers on or
after October 2, 2023.50 The changes in
Amendment No. 1 provide greater
clarity to the proposal. 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
additional clarification to Rule 5608(e)
will ensure that the requirements of that
Rule conform to the requirements of
Rule 10D–1. Accordingly, the
Commission finds good cause, pursuant
50 See
Amendment No. 1, supra note 5.
VerDate Sep<11>2014
17:54 Jun 14, 2023
Jkt 259001
to Section 19(b)(2) of the Exchange
Act,51 to approve the proposed rule
change, as modified by Amendment No.
1, on an accelerated basis.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,52 that the
proposed rule change (SR–NASDAQ–
2023–005), 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.53
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–12757 Filed 6–14–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97689; File No. SR–
NYSEAMER–2023–14]
Self-Regulatory Organizations; NYSE
American 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 811 of the NYSE American
Company Guide To Establish Listing
Standards Related to Recovery of
Erroneously Awarded Incentive-Based
Executive Compensation
June 9, 2023.
I. Introduction
On February 22, 2023, NYSE
American LLC (‘‘NYSE American’’ 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 811 of the NYSE
American Company Guide (‘‘Company
Guide’’) 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
51 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
53 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 97054
(March 7, 2023), 88 FR 15466 (‘‘Notice’’). No
comments were received in response to this Notice.
52 15
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
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 7, 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.
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–
4 See Securities Exchange Act Release No. 97361,
88 FR 26370 (April 28, 2023).
5 Amendment No. 1 is available on the
Commission’s website at https://www.sec.gov/
comments/sr-nyseamer-2023-14/srnyseamer202314201279-402762.pdf. In Amendment No. 1, the
Exchange (i) proposes to amend Section 801 of the
Company Guide to make it clear, consistent with
the language of proposed Section 811 of the
Company Guide (‘‘Section 811’’), that every listed
issuer is subject to Section 811 unless such issuer
is eligible for an exemption set forth in that rule;
(ii) amends proposed Section 811(b) to provide that
the effective date of Section 811 would be October
2, 2023; and (iii) amends proposed Section 811(h)
(Noncompliance with Section 811 (Erroneously
Awarded Compensation)) (‘‘Section 811(h)’’) to
provide that in the event of any failure by a listed
issuer to comply with any requirement of Section
811, 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
E:\FR\FM\15JNN1.SGM
15JNN1
]]>Agencies
[Federal Register Volume 88, Number 115 (Thursday, June 15, 2023)]
[Notices]
[Pages 39295-39300]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12757]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97687; File No. SR-NASDAQ-2023-005]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To
Establish Listing Standards Related to Recovery of Erroneously Awarded
Executive Compensation
June 9, 2023.
I. Introduction
On February 22, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt Nasdaq Rule 5608 to establish listing
standards related to recovery of erroneously awarded executive
compensation 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 6, 2023, the Exchange filed partial Amendment No. 1
to the proposed rule change.\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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 97060 (March 7,
2023), 88 FR 15500 (``Notice''). Comments received on the proposed
rule change are available at: https://www.sec.gov/comments/sr-nasdaq-2023-005/srnasdaq2023005.htm.
\4\ See Securities Exchange Act Release No. 97353, 88 FR 26369
(April 28, 2023).
\5\ Amendment No. 1 is available on the Commission's website at
https://www.sec.gov/comments/sr-nasdaq-2023-005/srnasdaq2023005-200459-401302.pdf. In Amendment No. 1, the Exchange proposes to
amend Rule 5608(e) to (i) provide that the effective date of Rule
5608 would be October 2, 2023; and (ii) clarify, consistent with the
requirements of Rule 10D-1 and the rule language as originally
proposed, that each company is required to comply with its recovery
policy for all incentive-based compensation received (as such term
is defined in proposed Rule 5608(d)) by executive officers on or
after October 2, 2023.
---------------------------------------------------------------------------
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 during the
three completed fiscal years preceding the date on which the issuer is
required to prepare an accounting restatement.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
As required by Rule 10D-1, Nasdaq proposed to adopt Nasdaq Rule
5608
[[Page 39296]]
entitled ``Recovery of Erroneously Awarded Compensation.'' Proposed
Nasdaq Rule 5608 (the ``Rule'') mirrors the text of Rule 10D-1.
Specifically, proposed Nasdaq Rule 5608(a) would require companies \8\
to adopt a compensation recovery policy, comply with that policy, and
provide the compensation recovery policy disclosures required by the
Rule and in the applicable Commission filings.
---------------------------------------------------------------------------
\8\ For purposes of this order, ``companies'' or ``company''
refers to the issuer of a security listed or an issuer who is
applying to list on Nasdaq. See, e.g., Nasdaq Rule 5005(a)(6).
---------------------------------------------------------------------------
Proposed Nasdaq Rule 5608(b)(1) would require that each company
adopt and comply with a written policy providing that the company will
recover reasonably promptly the amount of erroneously awarded
incentive-based compensation in the event that the company is required
to prepare an accounting restatement due to the material noncompliance
of the company 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 company'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 company 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 company is required to prepare an accounting restatement as
described in paragraph (b)(1) of the Rule.\9\ A company's obligation to
recover erroneously awarded compensation is not dependent on if or when
the restated financial statements are filed.
---------------------------------------------------------------------------
\9\ See proposed Rule 5608(b)(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 company's
fiscal year) within or immediately following those three completed
fiscal years. However, a transition period between the last day of
the company'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.
---------------------------------------------------------------------------
For purposes of determining the relevant recovery period, the date
that a company is required to prepare an accounting restatement as
described in paragraph (b)(1) of the Rule is the earlier to occur of:
(A) the date the company's board of directors, a committee of the board
of directors, or the officer or officers of the company authorized to
take such action if board action is not required, concludes, or
reasonably should have concluded, that the company is required to
prepare an accounting restatement as described in paragraph (b)(1) of
this Rule; or (B) the date a court, regulator, or other legally
authorized body directs the company to prepare an accounting
restatement as described in paragraph (b)(1) of the Rule.\10\
---------------------------------------------------------------------------
\10\ See proposed Rule 5608(b)(1)(ii).
---------------------------------------------------------------------------
The amount of incentive-based compensation that must be subject to
the company'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, 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 the company must maintain documentation of the
determination of that reasonable estimate and provide such
documentation to Nasdaq.\11\
---------------------------------------------------------------------------
\11\ See proposed Rule 5608(b)(1)(iii).
---------------------------------------------------------------------------
The company 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 company's Compensation
Committee, 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
company must make a reasonable attempt to recover such erroneously
awarded compensation, document such reasonable attempt(s) to recover,
and provide that documentation to Nasdaq.
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 company must obtain an
opinion of home country counsel, acceptable to Nasdaq, that recovery
would result in such a violation, and must provide such opinion to
Nasdaq.
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.\12\
---------------------------------------------------------------------------
\12\ See proposed Rule 5608(b)(1)(iv).
---------------------------------------------------------------------------
The company is prohibited from indemnifying any executive officer
or former executive officer against the loss of erroneously awarded
compensation.\13\
---------------------------------------------------------------------------
\13\ See proposed Rule 5608(b)(1)(v).
---------------------------------------------------------------------------
Proposed Nasdaq Rule 5608(b)(2) would require that each company
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 Nasdaq Rule 5608(c) would provide that the requirements of
the Rule do not apply to the listing of: (1) any security issued by a
unit investment trust, as defined in 15 U.S.C. 80a-4(2); and (2) 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-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 Nasdaq Rule 5608(d) would provide that, unless the context
otherwise requires, the following definitions apply for purposes of the
Rule (and only for purposes of Rule 5608):
Executive Officer. An executive officer is the company's
president, principal financial officer, principal accounting officer
(or if there is no such accounting officer, the controller), any vice-
president of the company 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
[[Page 39297]]
any other person who performs similar policy-making functions for the
company. Executive officers of the company's parent(s) or subsidiaries
are deemed executive officers of the company if they perform such
policy making functions for the company. In addition, when the company
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
company 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 company'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 company'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 Nasdaq Rule 5608(e) would provide that the effective date
of the Rule (``effective date'') is October 2, 2023, and that each
company is required to (i) adopt a policy governing the recovery of
erroneously awarded compensation as required by the Rule no later than
60 days following October 2, 2023; (ii) comply with its recovery policy
for all incentive-based compensation received (as such term is defined
in Rule 5608(d)) by executive officers on or after October 2, 2023; and
(iii) provide the disclosures required by the Rule and in the
applicable Commission filings on or after October 2, 2023.\14\ Proposed
Nasdaq Rule 5605(e) also states that notwithstanding the look-back
requirement in proposed Rule 5608(b)(1)(i)(D), a company is only
required to apply the recovery policy to incentive-based compensation
received on or after October 2, 2023.\15\
---------------------------------------------------------------------------
\14\ See Amendment No. 1, supra note 5. 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 SEC Rule 10D-1 based on the
issuers' understanding of a statement made . . . in the Listing
Standards Release.'' See id.
\15\ As described above, a Nasdaq listed company 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. Nasdaq Rule 5608). 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 Rule
5608, as required by Rule 10D-1. See Adopting Release, supra note 6,
and also definitions of ``incentive based compensation'' and
``received'' in proposed Nasdaq Rule 5608(d).
---------------------------------------------------------------------------
Nasdaq also proposes additional clarifying changes to Nasdaq Rule
5210 (Prerequisites for Applying to List on the Nasdaq Stock Market),
Nasdaq Rule 5701 (Preamble to the Listing Requirements to Other
Securities) and Nasdaq Rule 5702 governing listing requirements for
debt securities to make clear the application of proposed Nasdaq Rule
5608 under these provisions.\16\
---------------------------------------------------------------------------
\16\ Nasdaq states that the change to Nasdaq Rule 5210 will
clarify that any company newly listing on Nasdaq must comply with
these requirements. The proposed amendments to Nasdaq Rules 5701 and
5702 make clear that proposed Nasdaq Rule 5608 would apply, except
to the extent exempted as set forth above. See supra discussion of
proposed Rule 5608(c).
---------------------------------------------------------------------------
Nasdaq states that the new requirements described above will help
facilitate effective oversight of executive compensation and promote
accountability to investors by not allowing executive officers to
retain compensation that they were awarded erroneously.\17\
---------------------------------------------------------------------------
\17\ See Notice, supra note 3, 88 FR at 15502.
---------------------------------------------------------------------------
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. Nasdaq proposes therefore to require that a company will be
subject to delisting if it does not adopt a compensation recovery
policy that complies with the applicable listing standard, disclose the
policy in accordance with Commission rules or comply with its recovery
policy. Nasdaq states that the administrative process for a company
that fails to comply with proposed Nasdaq Rule 5608 will follow the
established pattern used for similar corporate governance
deficiencies.\18\ Specifically, Nasdaq proposes to amend Nasdaq Rule
5810(c)(2)(A)(iii) to provide that a company that fails to comply with
proposed Nasdaq Rule 5608 may submit to Nasdaq Staff \19\ a plan to
regain compliance and, consistent with its process for similar
corporate governance deficiencies, Nasdaq Staff may provide the issuer
up to 180 days to cure the deficiency.\20\ Nasdaq Rule 5810(c)(2)(B)
further provides that notifications of deficiencies that allow for
submission of a compliance plan may also result, after review of the
compliance plan, in issuance of a Staff Delisting Determination or a
Public Reprimand Letter. However, Nasdaq proposes to amend Nasdaq Rules
5810(c)(4), 5815(c)(1)(D), 5820(d)(1) and 5825(d) to provide that a
Public Reprimand Letter may not be issued for violations of a listing
standard required by Rule 10D-1 or upon appeal of such violations.\21\
If Nasdaq Staff provides the issuer with a period to cure the
deficiency, and if the company does not regain compliance within the
time period provided, Nasdaq Staff would be required to issue a Staff
Delisting Determination,\22\ which the issuer could appeal to the
Hearings Panel, as provided in Nasdaq Rule 5815. The Hearings Panel
could allow the issuer up to an additional 180 days to cure the
deficiency.\23\
---------------------------------------------------------------------------
\18\ See id. See also Nasdaq Rule 5805(c)(2)(B).
\19\ Nasdaq Rule 5805(g) defines the term ``Staff'' as employees
of the Listing Qualifications Department (the department of Nasdaq
responsible for evaluating company compliance with quantitative and
qualitative listing standards and determining eligibility for
initial and continued listing of a company's securities). See also
Nasdaq Rule 5805(h).
\20\ See Notice, supra note 3, 88 FR at 15502. See also Nasdaq
Rule 5805(c)(2)(B).
\21\ Nasdaq also proposes to amend the definition of ``Public
Reprimand Letter'' in Rule 5805(j) to provide that a Public
Reprimand Letter may not be issued for violations of a listing
standard required by Rule 10D-1. Under the existing definition in
Rule 5805(j), Public Reprimand Letters can be issued for violations
of Nasdaq corporate governance or notification listing standards
except for violations of a listing standard required by Rule 10A-3
of the Act.
\22\ See Nasdaq Rule 5805(c)(2)(E).
\23\ See Nasdaq Rule 5815(c).
---------------------------------------------------------------------------
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
[[Page 39298]]
securities exchange.\24\ In particular, the Commission finds that the
proposed rule change is consistent with the requirements of Section
6(b) of the Act.\25\ Specifically, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\26\
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,\27\ 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 \28\ and Rule 10D-1 thereunder,
as further described below.\29\
---------------------------------------------------------------------------
\24\ 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).
\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
\27\ 15 U.S.C. 78(b)(7).
\28\ 15 U.S.C. 78j-4.
\29\ 17 CFR 240.10D-1.
---------------------------------------------------------------------------
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.\30\ 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.\31\
---------------------------------------------------------------------------
\30\ 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).
\31\ 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).
---------------------------------------------------------------------------
In enacting Section 10D of the Act,\32\ 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.\33\ In
October 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.
---------------------------------------------------------------------------
\32\ Public Law 111-203, sec. 954, 124 Stat. 1376, 1904 (2010)
(codified at 15 U.S.C. 78j-4).
\33\ 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.''').
---------------------------------------------------------------------------
The Exchange's proposed Rule 5608 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 \34\ and Rule 10D-1
thereunder,\35\ and will therefore further the protection of investors
consistent with Section 6(b)(5) of the Act.\36\ 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.\37\ 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.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78j-4.
\35\ 17 CFR 240.10D-1.
\36\ 15 U.S.C. 78f(b)(5).
\37\ See Adopting Release, supra note 7, 87 FR at 73077. See
also Notice, supra note 3, 88 FR at 15502, agreeing with the
Commission's statement on the benefits of the recovery policy.
---------------------------------------------------------------------------
Rule 10D-1 and proposed Rule 5608 require that a listed issuer
recover the amount of erroneously awarded incentive-based compensation
``reasonably promptly.'' One commenter requested Nasdaq 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.\38\ As discussed above, Nasdaq'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
[[Page 39299]]
and method of recovery under their rules in compliance with Section
19(b) of the Exchange Act . . .'' \39\ Rule 10D-1 also does not compel
the exchanges to adopt a more prescriptive approach to the timing and
method of recovery. In its Notice, Nasdaq 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.'' \40\ 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.\41\
---------------------------------------------------------------------------
\38\ See Letter to Vanessa Countryman, Secretary, Commission,
from Wilson Sonsini Goodrich & Rosati, dated April 4, 2024 [sic]
(``Wilson Sonsini Letter''), at 4.
\39\ 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.
\40\ See Notice, supra note 3, 88 FR at 15502.
\41\ See Adopting Release, supra note 7, 87 FR 73104.
---------------------------------------------------------------------------
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.\42\
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.\43\ 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.'' \44\ The Commission also received comment letters
from individual investors that requested the Commission quickly
implement the proposal.\45\ The Exchange, in Amendment No. 1, is
proposing that the effective date of Rule 5608 be October 2, 2023.\46\
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.\47\ This
is consistent with language in Rule 10D-1 and the Adopting Release,
while also ensuring prompt implementation of this proposed rule.
---------------------------------------------------------------------------
\42\ 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'').
\43\ See, e.g., Society Letter at 1; ASA Letter at 2.
\44\ See Davis Polk Letter at 1 n.1 (citing to Adopting Release,
supra note 7, 87 FR at 73111).
\45\ See, e.g., Letters from Clarissa McLaughlin, dated May 15,
2023; Deborah Temple, dated May 15, 2023; John Leonard, dated May
13, 2023.
\46\ See Amendment No. 1, supra note 5, amending proposed Nasdaq
Rule 5608(e).
\47\ 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
6, and also definitions of ``incentive based compensation'' and
``received'' in proposed Nasdaq Rule 5608(d). See also supra note 15
and accompanying text.
---------------------------------------------------------------------------
With respect to a listed issuer that fails to comply with proposed
Rule 5608, the Exchange has proposed to apply its current procedures
applicable to companies with similar corporate governance deficiencies
in addition to prohibiting the use of a Public Reprimand Letter for
violations of a listing standard required by Rule 10D-1.\48\ The
Commission believes that these procedures for listed issuers out of
compliance with proposed Nasdaq Rule 5608, which are consistent with
the procedures for similar corporate governance deficiencies,
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 the listed issuer will be delisted while
helping to ensure that listed issuers that are non-compliant will not
remain listed for an inappropriate amount of time.\49\ Additionally,
the proposed delisting process, including the cure period and the right
to appeal a delisting determination to the Exchange's Hearing Panel, 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.
---------------------------------------------------------------------------
\48\ See supra notes 18-23 and accompanying text.
\49\ One commenter states its agreement that issuers should be
given an opportunity to submit a plan of compliance and to cure
noncompliance in good faith and states that Nasdaq's proposal
``strikes the right balance'' in deterring issuers from violating
the proposed listing standards without unnecessarily harming
shareholders. See Wilson Sonsini Letter, at 3. Another commenter
that was generally supportive of Nasdaq's proposal states that
Nasdaq's proposed delisting process involves the use of Listing
Qualifications Panels and a Listing and Hearing Review Council with
investor representatives. See Letter to Vanessa Countryman,
Secretary, Commission, from Jeffrey P. Mahoney, General Counsel,
Council of Institutional Investors, dated April 3, 2023, at 4 n.13.
---------------------------------------------------------------------------
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-NASDAQ-2023-005 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NASDAQ-2023-005. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/
[[Page 39300]]
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-NASDAQ-2023-005, and
should be submitted on or before July 6, 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
proposed Rule 5608(e) to (i) provide that the effective date of Rule
5608 would be October 2, 2023; and (ii) clarify, consistent with the
requirements of Rule 10D-1 and the rule language as originally
proposed, that each company is required to comply with its recovery
policy for all incentive-based compensation received (as such term is
defined in proposed Rule 5608(d)) by executive officers on or after
October 2, 2023.\50\ The changes in Amendment No. 1 provide greater
clarity to the proposal. 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
additional clarification to Rule 5608(e) will ensure that the
requirements of that Rule conform to the requirements of Rule 10D-1.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Exchange Act,\51\ to approve the proposed rule change,
as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------
\50\ See Amendment No. 1, supra note 5.
\51\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\52\ that the proposed rule change (SR-NASDAQ-2023-005), as
modified by Amendment No. 1, be, and hereby is, approved on an
accelerated basis.
---------------------------------------------------------------------------
\52\ 15 U.S.C. 78s(b)(2).
\53\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12757 Filed 6-14-23; 8:45 am]
BILLING CODE 8011-01-P
