Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Corporate Governance Requirements, as Provided Under Exchange Rule 14.10 and Make Certain Other Changes to Its Listing Rules as Provided Under Exchange Rules 14.3, 14.6, 14.7, and 14.12, 12919-12937 [2024-03336]

Download as PDF Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NYSEARCA–2024–15 on the subject line. ddrumheller on DSK120RN23PROD with NOTICES1 Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–NYSEARCA–2024–15. 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–NYSEARCA–2024–15 and should be submitted on or before March 12, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–03337 Filed 2–16–24; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99524; File No. SR– CboeBZX–2024–010] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Corporate Governance Requirements, as Provided Under Exchange Rule 14.10 and Make Certain Other Changes to Its Listing Rules as Provided Under Exchange Rules 14.3, 14.6, 14.7, and 14.12 February 13, 2024. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 29, 2024, Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) proposes to amend its Corporate Governance Requirements, as provided under Exchange Rule 14.10 and make certain other changes to its listing rules as provided under Exchange Rules 14.3, 14.6, 14.7, and 14.12. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is also available on the Exchange’s website (https://markets.cboe.com/us/ equities/regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set BILLING CODE 8011–01–P 1 15 17 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:54 Feb 16, 2024 2 17 Jkt 262001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00108 Fmt 4703 Sfmt 4703 12919 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 corporate governance requirements as provided under Exchange Rule 14.10 and make certain other related changes to its listing rules as provided under Exchange Rules 14.3, 14.6, 14.7, and 14.12. The proposed changes are substantively similar to the equivalent rule on another exchange.3 Specifically, the proposed changes will (1) modify the compensation-related listing rules to align with that of other exchanges; (2) modify the exemption to the Direct Registration Program (‘‘DRP’’) requirement as it pertains to foreign issuers; (3) require listed Companies to publicly disclose compensation or other payments by third parties to any nominee for director or sitting director in connection with their candidacy for or service on the Companies’ Board of Directors; (4) modify the listing requirements to change the definition of market value for purposes of the shareholder approval rules and eliminate the requirement for shareholder approval of issuances at a price less than book value but greater than market value; (5) modify and clarify the exemptions from certain corporate governance requirements; (6) modify the definition of a ‘‘Family Member’’ as defined in Rule 14.10; (7) modify the quorum requirement applicable to a non-U.S. company where such company’s home country law is in direct conflict with the Exchange’s quorum requirement; and (8) modify rule numbers and make other ministerial clarifying changes. As noted above, the proposed changes would result in Exchange Rules that are substantively similar to the existing rules of Nasdaq and are supported by prior Commission approval orders and immediately effective exchange proposals, as discussed in further detail below. 3 See the Nasdaq Stock Market LLC (‘‘Nasdaq’’) listing rules series 5200 (General Procedures and Prerequisites for Initial and Continued Listing on the Nasdaq Stock Market), 5600 (Corporate Governance Requirements), and 5800 (Failure to Meeting Listing Standards). Additionally, the chart provided in Item 8 below summarizes each Nasdaq Rule and each corresponding proposed Exchange Rule. E:\FR\FM\20FEN1.SGM 20FEN1 12920 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices (1) Compensation-Related Listing Rules First, the Exchange proposes to amend Rule 14.10 to require a Company listed on the Exchange to have a compensation committee and to update its requirements for a compensation committee. In addition to being consistent with the rules of another exchange,4 The Exchange believes the proposed rule will be in accordance with Rule 10C–1 of the Act. (a) Requirement To Have a Compensation Committee The Exchange’s current listing rules require that compensation of the chief executive officer and all other Executive Officers 5 of a Company must be determined, or recommended to the board for determination, either by: (i) a compensation committee comprised solely of Independent Directors; 6 or as an alternative by (ii) Independent Directors constituting a majority of the board’s Independent Directors in a vote in which only Independent Directors participate (the ‘‘Alternative’’).7 Now, the Exchange proposes to eliminate the Alternative and instead require Exchange-listed Companies to have a standing compensation committee with the responsibility for determining, or recommending to the full board for determination, the compensation of the chief executive officer and all other Executive Officers of the Company. The Exchanges believes there are several benefits from a board having a standing committee dedicated solely to oversight of executive compensation. Specifically, directors on a standing compensation committee may develop expertise in a Company’s executive compensation program in the same way that directors on a standing audit committee develop expertise in a Company’s accounting and financial reporting processes. In addition, a formal committee structure may help promote accountability to stockholders for executive compensation decisions.8 Furthermore, no Company listed on the Exchange 4 See Nasdaq listing rule 5605. Officer’’ means those officers covered in Rule 16a–1(f) under the Act. See Exchange Rule 14.10(c)(1)(A). 6 See Exchanger Rule 14.10(c)(1)(B). 7 See Exchange Rule 14.10(c)(4)(B). 8 See Securities Exchange Act Nos. 68013 (October 9, 2012) 77 FR 62563 (October 15, 2012) (SR–NASDAQ–2012–109) (Notice of Filing of Proposed Rule Change To Modify the Listing Rules for Compensation Committees To Comply With Rule 10C–1 Under the Exchange Act and Make Other Related Changes) 68640 (January 11, 2013) 78 FR 4554 (January 22, 2013) (Order Granting Accelerated Approval of Proposed Rule Change as Modified by Amendment Nos. 1 and 2 To Amend the Listing Rules for Compensation Committees To Comply With Rule 10C–1 Under the Act and Make Other Related Changes). ddrumheller on DSK120RN23PROD with NOTICES1 5 ‘‘Executive VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 relies on the Alternative. Given this, the Exchange does not believe that eliminating the Alternative on the Exchange would impose any undue burden to Companies listed on the Exchange. The proposal would rename existing Rule 14.10(c)(4) ‘‘Compensation Committee Requirements’’ and would describe such requirements, many of which are included under existing Rule 14.10(c)(4), as discussed further below. The proposal to require Exchange-listed Companies to have a standing compensation committee with the responsibility for determining, or recommending to the full board for determination, the compensation of the chief executive officer and all other Executive Officers of the Company, is substantively similar to existing rules of another Exchange 9 that were approved by the Commission.10 (b) Compensation Committee Charter The Exchange proposes to require each Company to certify that it has adopted a formal written compensation committee charter and that the compensation committee will review and reassess the adequacy of the formal written charter on an annual basis, as provided under proposed Rule 14.10(c)(4)(A).11 This proposal is similar to the Exchange’s current requirement for Companies to certify as to the adoption of a formal written audit committee charter, except that the proposed requirement for annual review and reassessment of the adequacy of the compensation committee charter is written prospectively, rather than retrospectively.12 In other words, the proposed compensation committee charter requirement states that the compensation committee will review and reassess the adequacy of the charter on an annual basis, while the current audit committee charter requirement states that the audit committee has reviewed and reassessed the adequacy of the charter on an annual basis.13 9 See Nasdaq Listing Rule 5605(d). note 10. 11 Smaller Reporting Companies may adopt either a formal written compensation committee charter or a board resolution that specifies the committee’s responsibilities and authority, except Smaller Reporting Companies are not required to specify the specific compensation responsibilities and authority set forth in proposed Exchange Rule 14.10(d)(4)(D). For further discussion, see the section entitled ‘‘Smaller Reporting Companies’’ below. 12 See Exchange Rule 14.10(c)(3)(A). The proposed Rule is substantively identical to Nasdaq Rule 5605(d)(1). 13 The Exchange proposes to make a conforming change and technical and grammar corrections to its audit committee charter requirement to clarify that Companies’ annual review and reassessment of the 10 Supra PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 The Exchange proposes that the compensation committee charter must specify: • the scope of the compensation committee’s responsibilities, and how it carries out those responsibilities, including structure, processes and membership requirements; • the compensation committee’s responsibility for determining, or recommending to the board for determination, the compensation of the chief executive officer and all other Executive Officers of the Company; • that the chief executive officer of the Company may not be present during voting or deliberations by the compensation committee on his or her compensation; and • the specific compensation committee responsibilities and authority set forth in proposed Exchange Rule 14.10(c)(4)(D). The requirement for the charter to specify the scope of the compensation committee’s responsibilities, and how it carries out those responsibilities, including structure, processes and membership requirements, is copied from the Exchange’s similar listing rule relating to audit committee charters.14 Furthermore, this requirement is substantively similar to requirements on another exchange.15 The requirement for the charter to specify the compensation committee’s responsibility for determining, or recommending to the board for determination, the compensation of the chief executive officer and all other Executive Officers of the Company, is based upon the Exchange’s current compensation-related listing rules.16 These listing rules require that the compensation of a Company’s chief executive officer and all other Executive Officers must be determined by (i) a compensation committee comprised solely of Independent Directors or (ii) the Independent Directors constituting a majority of the board’s Independent Directors in a vote in which only Independent Directors participate. As discussed above, the Exchange proposes to eliminate the Alternative, and therefore, the compensation of a Company’s chief executive officer and all other Executive Officers must be audit committee charter should be prospective. This is consistent with the Exchange’s current interpretation of its audit committee charter requirement. By proposing this amendment, the Exchange seeks to minimize differences between the audit committee and compensation committee charter requirements and to eliminate potential questions as to whether the Exchange intended a discrepancy between these two requirements. 14 See Exchange Rule 14.10(c)(3)(A)(i). 15 See Nasdaq Listing Rule 5605(d)(1)(A). 16 See Exchange Rule 14.10(c)(4)(B)(i) and (ii). E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices determined, or recommended to the board for determination, by a compensation committee comprised of Independent Directors. Going forward, the Exchange proposes to implement this requirement by requiring Companies to include it in their formal written compensation committee charters. The requirement for the charter to specify that the chief executive officer of the Company may not be present during voting or deliberations by the compensation committee on his or her compensation is based upon the Exchange’s current compensationrelated listing rules.17 Going forward, the Exchange proposes to implement this requirement by requiring Companies to include it in their formal written compensation committee charters as applicable. Finally, the requirement for the charter to specify the specific compensation committee responsibilities and authority set forth in proposed Exchange Rule 14.10(c)(4)(D) is modeled after the Exchange’s similar listing rule relating to audit committee charters.18 Moreover, it is substantively similar to rules of another exchange.19 (c) Compensation Committee Size Next, the Exchange proposes to impose a minimum size requirement of the compensation committee of at least two members under proposed Rule 14.10(c)(4)(B). The proposal would move existing Rule 14.10(c)(4)(A) to paragraph (B) and incorporate the proposed compensation committee size requirement. Given the importance of compensation decisions to stockholders, the Exchange believes that it is appropriate to have more than one director responsible for these decisions. No Company currently listed on the Exchange has a compensation committee of fewer than two members. Given this, combined with the fact that another exchange 20 also requires a minimum compensation committee size 17 See Exchange Rule 14.10(c)(4)(B)(i). Exchange Rule 14.10(c)(3(A)(iv), which requires that an audit committee charter set forth the specific audit committee responsibilities and authority set forth in Exchange Rule 14.10(c)(3)(C). Exchange Rule 14.10(c)(3)(C) states that an audit committee must have the specific responsibilities and authority necessary to comply with Rule 10A– 3(b)(2), (3), (4) and (5) under the Exchange Act, with certain exemptions. Rule 10A–3(b)(2), (3), (4) and (5) under the Exchange Act concerns responsibilities relating to: (i) registered public accounting firms; (ii) complaints relating to accounting, internal accounting controls or auditing matters; (iii) authority to engage advisors; and (iv) funding as determined by the audit committee. 19 See Nasdaq Listing Rule 5605(d)(3). 20 See Nasdaq Listing Rule 5605(d)(2). ddrumheller on DSK120RN23PROD with NOTICES1 18 See VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 of two members, the Exchange does not believe the proposal would cause undue hardship for Exchange-listed companies. (d) Exceptional and Limited Circumstances Exception The Exchange proposes to adopt Rule 14.10(c)(4)(C), which will provide that notwithstanding proposed Rule 14.10(c)(4)(B) (Compensation Committee Composition) if the compensation committee is comprised of at least three members, one director who does not meet the requirements of paragraph 14.10(c)(4)(B) and is not currently an Executive Officer or employee or a Family Member of an Executive Officer, may be appointed to the compensation committee if the board, under exceptional and limited circumstances, determines that such individual’s membership on the committee is required by the best interests of the Company and its Shareholders. A Company that relies on this exception must disclose either on or through the Company’s website or in the proxy statement for the next annual meeting subsequent to such determination (or, if the Company does not file a proxy, in its Form 10–K or 20– F), the nature of the relationship and the reasons for the determination. In addition, the Company must provide any disclosure required by Instruction 1 to Item 407(a) of Regulation S–K regarding its reliance on this exception. A member appointed under this exception may not serve longer than two years. The Exchange’s current listing rules include similar exceptions for audit and nominations committees.21 The Exchange believes such an exception provides an important means to allow Companies flexibility as to board and committee membership and composition in unusual circumstances, which may be particularly important for smaller Companies. Moreover, the proposed rule is substantively similar to existing rules of another exchange.22 (e) Compensation Committee Responsibilities and Authority The Exchange proposes to keep the Compensation Committee Responsibilities and Authority provided under existing Rule 14.10(c)(4)(C) largely the same under proposed Rule 14.10(c)(4)(D), but to make small modifications to restructure and organize the rule. Specifically, the Exchange proposes to add a paragraph following proposed Rule 21 See 22 See PO 00000 Exchange Rule 14.10(c)(3)(B)(ii). Nasdaq Listing Rule 5605(d)(2)(B). Frm 00110 Fmt 4703 Sfmt 4703 12921 14.10(c)(4)(D)(iv) providing that for the purposes of this Rule, the compensation committee is not required to conduct an independence assessment for a compensation adviser that acts in a role limited to the following activities for which no disclosure is required under Item 407(e)(3)(iii) of Regulation S–K: (a) consulting on any broad-based plan that does not discriminate in scope, terms, or operation, in favor of Executive Officers or directors of the Company, and that is available generally to all salaried employees; and/or (b) providing information that either is not customized for a particular issuer or that is customized based on parameters that are not developed by the adviser, and about which the adviser does not provide advice. The proposed language is identical to that included in another exchanges rules.23 (f) Compensatory Fees Existing Rule 14.10(c)(4)(A)(i) provides that in addition to meeting the criteria listed under Rule 14.10(c)(1)(B), in evaluating the independence of a director to determine if such director is permitted to determine the compensation of Executive Officers as described in Rule 14.10(c)(4)(B), the board of directors of a Company shall consider the following factors: (a) the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by the Company to such director; and (b) whether the director is affiliated with the Company, a subsidiary of the Company, or an affiliate of a subsidiary of the company. Now, the Exchange proposes to move existing Rule 14.10(c)(4)(A)(i) to Rule 14.10(c)(4)(B) and to note within the paragraph the requirement that each Company must have and certify that it has and will continue to have a compensation committee of at least two members. The Exchange also proposes to make other non-substantive changes to Rule 14.10(c)(4)(B) to add clarity and so that it is substantively identical to the equivalent Nasdaq rule.24 Additionally, the Exchange proposes to amend Interpretation and Policy .07 to Rule 14.10 so that it is substantively identical to Nasdaq Listing IM–5605–6. Currently, Interpretation and Policy .07 provides that independent director oversight of executive officer compensation helps assure that appropriate incentives are in place, consistent with the board’s responsibility to maximize shareholder value. The rule is intended to provide 23 See 24 See E:\FR\FM\20FEN1.SGM Nasdaq Listing Rule 5605(d)(3). Nasdaq Rule 5605(d)(2)(A). 20FEN1 ddrumheller on DSK120RN23PROD with NOTICES1 12922 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices flexibility for a Company to choose an appropriate board structure and to reduce resource burdens, while ensuring Independent Director control of compensation decisions. The Exchange proposes to modify Interpretation and Policy .07 to provide that independent director oversight of executive officer compensation helps assure that appropriate incentives are in place, consistent with the board’s responsibility to act in the best interests of the corporation. Compensation committees are required to have a minimum of two members and be comprised only of Independent Directors as defined under Rule 14.10(c)(1)(B). In addition, proposed Rule 14.10(c)(4)(B) includes an additional independence test for compensation committee members. When considering the sources of a director’s compensation for this purpose, the board should consider whether the director receives compensation from any person or entity that would impair the director’s ability to make independent judgments about the Company’s executive compensation. Similarly, when considering any affiliate relationship a director has with the Company, a subsidiary of the Company, or an affiliate of a subsidiary of the Company, in determining independence for purposes of compensation committee service, the board should consider whether the affiliate relationship places the director under the direct or indirect control of the Company or its senior management, or creates a direct relationship between the director and members of senior management, in each case of a nature that would impair the director’s ability to make independent judgments about the Company’s executive compensation. In that regard, while a board may conclude differently with respect to individual facts and circumstances, the Exchange does not believe that ownership of Company stock by itself, or possession of a controlling interest through ownership of Company stock by itself, precludes a board finding that it is appropriate for a director to serve on the compensation committee. In fact, it may be appropriate for certain affiliates, such as representatives of significant stockholders, to serve on compensation committees since their interests are likely aligned with those of other stockholders in seeking an appropriate executive compensation program. For purposes of the additional independence test for compensation committee members described in proposed Rule 14.10(c)(4)(B), any reference to the ‘‘Company’’ includes any parent or subsidiary of the VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 Company. The term ‘‘parent or subsidiary’’ is intended to cover entities the Company controls and consolidates with the Company’s financial statements as filed with the Commission (but not if the Company reflects such entity solely as an investment in its financial statements). Proposed Interpretation and Policy .07 would set forth the compensation committee composition requirements for Smaller Reporting Companies. Specifically, a Smaller Reporting Company must have a compensation committee with a minimum of two members. Each compensation committee member must be an Independent Director as defined under Rule 14.10(c)(1)(B). In addition, each such Smaller Reporting Company must have a formal written compensation committee charter or board resolution that specifies the committee’s responsibilities and authority set forth in proposed Rule 14.10(c)(4)(A)(i)–(iii). However, in recognition of the fact that Smaller Reporting Companies may have fewer resources than larger Companies, Smaller Reporting Companies are not required to adhere to the additional compensation committee eligibility requirements in proposed Rule 14.10(c)(4)(B), or to incorporate into their formal written compensation committee charter or board resolution the specific compensation committee responsibilities and authority set forth in proposed Rule 14.10(c)(4)(D). The Exchange also proposes to allow a Company that has ceased to be a Smaller Reporting Company to phase-in a fully-compliant compensation committee. Pursuant to Rule 12b–2 under the Act, a Company tests its status as a Smaller Reporting Company on an annual basis at the end of its most recently completed second fiscal quarter.25 A Company which ceases to meet the requirements for Smaller Reporting Company status as of the Determination Date will cease to be a Smaller Reporting Company as of the beginning of the fiscal year following the Determination Date (the ‘‘Start Date’’). By six months from the Start Date (i.e., by six months after the beginning of its fiscal year), a Company that has ceased to be a Smaller Reporting Company must comply with the requirements of Rule 14.10(c)(4)(D) relating to certain compensation committee responsibilities and authority.26 In addition, such a 25 See 17 CFR 240.12b–2. six months from the Start Date, such a Company also must certify to the Exchange that: (i) it has complied with the requirement in Rule 26 By PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 Company may phase in its compliance with the additional compensation committee composition requirements of Rule 14.10(c)(4)(B) relating to the receipt of compensatory fees and affiliation as follows: (1) one member must satisfy the requirements by six months from the Start Date; (2) a majority of members must satisfy the requirements by nine months from the Start Date; and (3) all members must satisfy the requirements by one year from the Start Date. Since a Smaller Reporting Company is required to have a compensation committee comprised of at least two Independent Directors, a Company that has ceased to be a Smaller Reporting Company may not use the phase-in schedule for the minimum size requirement or the requirement that the committee consist only of Independent Directors as defined under 14.10(c)(1)(B). During the phase-in schedule, a Company that has ceased to be a Smaller Reporting Company must continue to comply with the requirement to have a compensation committee comprised of at least two Independent Directors as defined under the Exchange’s existing listing rules. (g) Smaller Reporting Companies Exemption The Exchange proposes to move existing Rule 14.10(e)(1)(F) to proposed Rule 14.10(c)(4)(F) with amendments to conform to Nasdaq Listing Rule 5605(d)(5). Current Rule 14.10(e)(1)(F) provides that Smaller reporting companies, as defined in Rule 12b–2 under the Act, are exempt from the Independent Director Oversight of Executive Officer Compensation requirements set forth in Rule 14.10(c)(4), except that compensation of the chief executive officer and all other Executive Officers of the Company must be determined, or recommended to the Board for determination, either by: (i) Independent Directors constituting a majority of the Board’s Independent Directors in a vote in which only Independent Directors meeting the definition of Independent Director in Rule 14.10(c)(1)(B) participate; or (ii) a compensation committee comprised solely of Independent Directors meeting the definition of Independent Director in Rule 14.10(c)(1)(B). The rule further provides that the chief executive officer may not be present during voting or deliberations. 14.10(c)(4)(A) to have a compensation committee charter including the content specified in Rule 14.110(c)(4)(A)(i)–(iv); and (ii) it has complied, or will within the applicable phase-in schedule comply, with the requirement in Rule 14.10(c)(4)(B) regarding compensation committee composition. E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Now, the Exchange proposes to delete subparagraphs (i) and (ii) in existing Rule 14.10(e)(1)(F) and modify the proposed Rule to provide that a Smaller Reporting Company is not subject to the requirements of Rule 14.10(c)(4) except that a Smaller Reporting Company must have, and certify that it has and will continue to have, a compensation committee of at least two members, each of whom must be an Independent Director as defined under Rule 14.10(c)(1)(B). Proposed Rule 14.10(c)(4)(F) would also provide that a Smaller Reporting Company may rely on the exception in Rule 14.10(c)(4)(C) and the cure period in Rule 14.10(c)(4)(E). In addition, a Smaller Reporting Company must certify that it has adopted a formal written compensation committee charter or board resolution that specifies the content set forth in Rule 14.10(c)(4)(A)(i)–(iii). A Smaller Reporting Company does not need to include in its formal written compensation committee charter or board resolution the specific compensation committee responsibilities and authority set forth in Rule 14.10(c)(4)(D). As discussed above, the proposed amendments to Interpretation and Policy .07 to Rule 14.10 would provide additional clarity to the requirements for Smaller Reporting Companies and would make the policy substantively similar to Nasdaq IM–5605–6. (h) Conforming Changes and Correction of Typographical Errors The Exchange proposes to capitalize the term ‘‘Independent Director’’ throughout Rule 14.10(c)(3)(B) (Audit Committee Composition) and the term ‘‘Company’’ throughout Rule 14.10. The Exchange proposes to modify the Audit Committee Charter requirement provided in Rule 14.10(c)(3)(A) to require a prospective review of the adequacy of the formal written charter on an annual basis,27 similar to that proposed for the Compensation Committee Charter requirement under proposed Rule 14.10(c)(4)(A). Thus, proposed Rule 14.10(c)(3)(A) would provide that Each Company must certify that it has adopted a formal written audit committee charter and that the audit committee will review and reassess the adequacy of the formal written charter on an annual basis. Existing Rule 14.10(c)(1)(B) includes a paragraph that provides that in addition to the requirements contained in this Rule 14.10(c)(1)(B), directors of a 27 The proposed Rule is substantively identical to Nasdaq Rule 5605(d)(1). VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 12923 Company, in determining compensation of Executive Officers as described in Rule 14.10(c)(4)(B) (relating to compensation of Executive Officers), are also subject to additional factors for determining independence under Rule 14.10(c)(4). The Exchange proposes to delete this paragraph to conform to Nasdaq Rule 5605(a)(2)(G) and because the proposed compensation committee rules would already address this issue in proposed Rule14.10(c)(4)(B). The Exchange also proposes to correct certain typographical errors in Rule 14.10(c)(1)(3) to maintain a clear Rulebook. As discussed above, the Exchange notes that all of the proposed changes to Rule 14.10(c) described above are substantively similar to existing rules of another Exchange 28 that were approved by the Commission.29 a foreign jurisdiction but which does not qualify for Foreign Private Issuer status as is the case for a Foreign Private Issuer incorporated in the same jurisdiction which is currently eligible to utilize the existing exemption. Absent this extension of the scope of the exemption, the DRP eligibility requirement would render it impossible for a foreign issuer to list if it was not a Foreign Private Issuer but was incorporated in a foreign jurisdiction whose law or regulation made compliance with the DRP requirement impossible. As under the current exemption, a foreign issuer will have to submit to the Exchange a written statement from an independent counsel in the company’s home country certifying that a law or regulation in the home country prohibits compliance with the DRP requirement in order to utilize the exemption. (2) Direct Registration Program The Exchange also proposes to amend Exchange Rules 14.3(b)(3) and 14.7(c) the exemptions provided under Rule provide that all securities listed on the 14.3(b)(3) to conform with those Exchange, with certain exceptions, must provided in existing Rule 14.7. be eligible for a DRP operated by a Specifically, Exchange Rule 14.7(a) clearing agency registered under Section provides that except as indicated in 17A of the Act.30 When this requirement Rule 14.7(c), all securities listed on the Exchange (except securities which are was initially adopted, the Exchange book-entry only) must be eligible for a recognized that the laws or regulations DRP operated by a clearing agency of certain foreign countries might make registered under Section 17A of the Act. it impossible for companies Existing Rule 14.3(b)(3) provides that all incorporated in those countries to securities initially listing on the comply. Consequently, the rule permits Exchange must be eligible for a DRP a Foreign Private Issuer 31 to follow its operated by a clearing agency registered home country practice in lieu of this under Section 17A of the Act. It also requirement when prohibited from provides that this provision does not complying by a law or regulation in its extend to: (i) additional classes of home country. The Exchange now proposes to amend securities of Companies which already this exemption to extend its application have securities listed on the Exchange; (ii) Companies which immediately prior to all ‘‘foreign issuers’’ as that term is to such listing had securities listed on used in Securities Exchange Act Rule another registered securities exchange 3b–4 32 rather than only to Foreign Private Issuers.33 The Exchange believes in the U.S.; or, (iii) non-equity securities that are book-entry only. As these this amendment is necessary because exemptions are not provided in existing the same legal or regulatory impediments to DRP eligibility exist for Rule 14.7 or other exchange rules, the a foreign issuer which is incorporated in Exchange proposed to delete them from Rule 14.3(b)(3). The proposed rule 28 See Nasdaq Listing Rule 5605(d). changes are substantively similar to 29 Supra notes 10 and 11. existing rules on another exchange.34 30 15 U.S.C. 78q–1. Exchange Rule 14.10(e)(1)(C) provides 31 See Exchange Rule 14.1(a)(14). limited exemptions with respect to 32 Exchange Act Rule 3b–4, 17 CFR 240.3b–4, certain corporate governance and defines the term ‘‘foreign issuer’’ as any issuer reporting requirements for Foreign which is a foreign government, a national of any Private Issuers and also provides that a foreign country or a corporation or other Foreign Private Issuer may follow its organization incorporated or organized under the laws of any foreign country. home country practice in lieu of the 33 The proposed amendments to the Exchange’s DRP requirement set forth in Rules DRP are substantively similar to changes made by 14.3(b)(3) and 14.7. As the proposed Nasdaq. See Securities and Exchange Act Release exemption to the DRP requirement No. 68238 (November 15, 2012) 77 FR 69911 (November 21, 2012) (SR–NASDAQ–2012–128) expands beyond Foreign Private Issuers, (Notice of Filing and Immediate Effectiveness of the Exchange proposes to delete the Proposed Rule Change To Expand the Exemption to reference to Rules 14.3(b)(3) and 14.7 the Direct Registration Program Requirement to All Foreign Issuers Rather Than Only Foreign Private Issuers). PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 34 See E:\FR\FM\20FEN1.SGM Nasdaq Listing Rules 5210(c) and 5255(c). 20FEN1 12924 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices from Rule 14.10(e)(1)(C) and Interpretation and Policy .12 of Rule 14.10 to minimize confusion about the availability of such exemptions to foreign issuers that do not qualify for Foreign Private Issuer status.35 The Exchange also proposes to correct Rule inaccurate references in Interpretation and Policy .12 to Rule 14.10 and Rule 14.10(e)(1)(C)(i). Specifically, the Exchange proposes to make non-substantive changes to modify incorrect references from Rule 14.7 to Rule 14.10 and from Rule 14.3(e)(4) to 14.6(d). Additionally, the Exchange proposes to correct a title reference in Exchange Rule 14.10(e)(1)(C)(i) to correctly reflect the title of Rule 14.10(g) (Notification of Noncompliance). The Exchange also proposes to amend Interpretation and Policy .12 to Rule 14.10 to provide a more granular and accurate rule cite to the applicable audit committee requirement for Foreign Private Issuers provided under Rule 14.10(c)(3)(B)(i)(b). As discussed above, the Exchange also proposes to delete references to the Exchange’s DRP from Interpretation and Policy .12. In place of the reference to the DRP provided in Interpretation and Policy .12, the Exchange proposes to reiterate the requirement that a Foreign Private Issuer must comply with the voting rights requirement under Rule 14.10(j). Further, as discussed below, the Exchange also proposes to add references to proposed Rule 14.6(b)(3) to proposed Interpretation and Policy .12. These proposed changes are also substantively similar to existing rules on another exchange.36 (3) Public Disclosure ddrumheller on DSK120RN23PROD with NOTICES1 The Exchange proposes to add an additional obligation to make public disclosure under proposed Rule 14.6(b)(3), which would require the disclosure of third party director and nominee compensation,37 and is substantively similar to existing rules of 35 The proposed rule changes are substantively identical to Nasdaq Rule 5615(a)(3) and IM–5613– 3. 36 Id. 37 The Exchange notes that the proposal is substantively similar to other proposed rules approved by the Commission. See Securities and Exchange Act Nos. 77481 (March 30, 2016) 81 FR 19678 (April 5, 2016) (SR–NASDAQ–2016–013) (Notice of Filing of Proposed Rule Change To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director’s Members or Nominees); 78223 (July 1, 2016) 81 FR 44400 (July 7, 2016) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director’s Members or Nominees). VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 another exchange.38 Current Exchange Rules require listed companies to make public disclosure in several areas. For example, a listed company is required to publicly disclose material information that would reasonably be expected to affect the value of its securities or influence investors’ decisions as well as when non-independent directors serve on a committee that generally requires only independent directors, such as for a controlled company or under exceptional and limited circumstances.39 A listed company is also required to file required periodic reports with the Commission.40 A principal purpose of these disclosure requirements is to protect investors and ensure these investors have necessary information to make informed investment and voting decisions. As noted above, now the Exchange proposes to adopt Rule 14.6(b)(3) which would require the disclosure of third party director and nominee compensation. The preamble to proposed Rule 14.6(b)(3) would provide that Companies must disclose all agreements and arrangements in accordance with this rule by no later than the date on which the Company files or furnishes a proxy or information statement subject to Regulation 14A or 14C under the Act in connection with the Company’s next shareholders’ meeting at which directors are elected (or, if they do not file proxy or information statements, no later than when the Company files its next Form 10–K or Form 20–F).41 Proposed Rule 14.6(b)(3)(A) would require a Company to disclose either on or through the Company’s website or in the proxy or information statement for the next shareholders’ meeting at which directors are elected (or, if the Company does not file proxy or information statements, in its Form 10–K or 20–F), the material terms of all agreements and arrangements between any director or nominee for director, and any person or entity other than the Company (the ‘‘Third Party’’), relating to compensation or other payment in connection with such person’s candidacy or service as a director of the Company. A Company need not disclose pursuant to this rule agreements and arrangements that: (i) relate only to reimbursement of expenses in connection with candidacy as a director; (ii) existed prior to the nominee’s candidacy (including as an 38 See Nasdaq Listing Rule 5250(b)(3). Exchange Rules 14.6(b)(1), 14.10(e)(3)(B), 14.10(c)(3)(B)(ii), and 14.10 (c)(5)(C). 40 See Exchange Rule 14.6(c). 41 The proposed rule is substantively identical to the preamble of Nasdaq Rule 5250(b)(3). 39 See PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 employee of the other person or entity) and the nominee’s relationship with the Third Party has been publicly disclosed in a proxy or information statement or annual report (such as in the director or nominee’s biography); or (iii) have been disclosed under Item 5(b) of Schedule 14A of the Act or Item 5.02(d)(2) of Form 8–K in the current fiscal year. Proposed Rule 14.6(b)(3)(A) would further provide that disclosure pursuant to Commission rule shall not relieve a Company of its annual obligation to make disclosure under proposed subparagraph (B).42 Proposed Rule 14.6(b)(3)(B) would provide that a Company must make the disclosure required in proposed subparagraph (A) at least annually until the earlier of the resignation of the director or one year following the termination of the agreement or arrangement.43 In recognition that a company, despite reasonable efforts, may not be able to identify all such agreements and arrangements, proposed Rule 14.6(b)(3)(C) would provide that if a Company discovers an agreement or arrangement that should have been disclosed pursuant to proposed subparagraph (A) but was not, the Company must promptly make the required disclosure by filing a Form 8– K or 6–K, where required by SEC rules, or by issuing a press release. Remedial disclosure under this proposed subparagraph, regardless of its timing, does not satisfy the annual disclosure requirements under proposed subparagraph (B).44 Proposed Rule 14.6(b)(3)(D) would provide that a Company shall not be considered deficient with respect to this paragraph for purposes of Rule 14.12 if the Company has undertaken reasonable efforts to identify all such agreements or arrangements, including asking each director or nominee in a manner designed to allow timely disclosure, and makes the disclosure required by proposed subparagraph (C) promptly upon discovery of the agreement or arrangement. In all other cases, the Company must submit a plan sufficient to satisfy Exchange staff that the Company has adopted processes and procedures designed to identify and disclose relevant agreements or arrangements.45 In cases where a company is considered deficient for purposes of Rule 14.12, the company 42 The proposed rule is substantively identical to Nasdaq Rule 5250(b)(3)(A). 43 The proposed rule is substantively identical to Nasdaq Rule 5250(b)(3)(B). 44 The proposed rule is substantively identical to Nasdaq Rule 5250(b)(3)(C). 45 The proposed rule is substantively identical to Nasdaq Rule 5250(b)(3)(D). E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 must provide a plan to regain compliance as provided under proposed Rule 14.12(f)(2)(A)(iv). Consistent with deficiencies from most other rules that allow a company to submit a plan to regain compliance,46 the Exchange proposes to allow companies deficient under the proposed rule 45 calendar days to submit a plan sufficient to satisfy Exchange staff that the company has adopted processes and procedures designed to identify and disclose relevant agreements and arrangements in the future.47 If the company does not do so, it would be issued a Staff Delisting Determination, which the company could appeal to a Hearings Panel pursuant to Rule 14.12. This proposal to adopt new Exchange Rule 14.12(f)(2)(A)(iv) and to modify and renumber existing Rules 14.12(f)(2)(A)(iv) and (v) to provide for the proposed Rule 14.12(f)(2)(A)(iv) is substantively similar to existing rules on another exchange.48 Finally, proposed Rule 14.6(b)(3)(E) would provide that a Foreign Private Issuer may follow its home country practice in lieu of the requirements of Rule 14.6(b)(3) by utilizing the process described in Rule 14.10(e)(1)(C). Consistent with other exemptions afforded certain types of companies, the Exchange is also proposing to amend Exchange Rule 14.10(e)(1)(C) to provide that a Foreign Private Issuer may follow home country practice in lieu of the requirements of proposed Rule 14.6(b)(3). The proposal for this exemption is identical to an existing exemption provided on another exchange.49 The Exchange also proposes to adopt Interpretation and Policy .03 to Rule 14.6 to add clarity and additional guidance to the requirements of proposed Rule 14.6(b)(3). Specifically, proposed Interpretation and Policy .03 would provide that the terms ‘‘compensation’’ and ‘‘other payment’’ 46 Pursuant to Rule 14.12(f)(2)(A), a company is provided 45 days to submit a plan to regain compliance with Rules 14.10(f)(3) (Quorum), 14.10(h) (Review of Related Party Transactions), 14.10(i) (Shareholder Approval), 14.6(c)(3) (Auditor Registration), 14.7 (Direct Registration Program), 14.10(d) (Code of Conduct), 14.10(e)(1)(D)(v) (Quorum of Limited Partnerships), 14.10(e)(1)(D)(vii) (Related Party Transactions of Limited Partnerships), or 14.10(j) (Voting Rights). A company is generally provided 60 days to submit a plan to regain compliance with the requirement to timely file periodic reports contained in Rule 14.12(f)(2)(F). 47 The proposed rule is substantively identical to Nasdaq Rule 5810(c)(2), except as for the reference to board disclosure rules which the Exchange is not proposing to adopte. 48 See Nasdaq Listing Rule 5810(c)(2)(A)(i) through (v). 49 See Nasdaq Listing Rule 5615(a)(3). VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 as used in this proposed rule are intended to be construed broadly. Therefore, the terms would apply to agreements and arrangements that provide for non-cash compensation and other payment obligations, such as health insurance premiums or indemnification, made in connection with a person’s candidacy or service as a director. Further, at a minimum, the disclosure should identify the parties to and the material terms of the agreement or arrangement relating to compensation.50 Proposed Interpretation and Policy .03 to Rule 14.6 would also provide that Subject to exceptions provided in the rule, the disclosure must be made on or through the Company’s website or in the proxy or information statement for the next shareholders’ meeting at which directors are elected in order to provide shareholders with information and sufficient time to help them make meaningful voting decisions. A Company posting the requisite disclosure on or through its website must make it publicly available no later than the date on which the Company files a proxy or information statement in connection with such shareholders’ meeting (or, if they do not file proxy or information statements, no later than when the Company files its next Form 10–K or Form 20–F). Disclosure made available on the Company’s website or through it by hyperlinking to another website, must be continuously accessible. If the website hosting the disclosure subsequently becomes inaccessible or that hyperlink inoperable, the company must promptly restore it or make other disclosure in accordance with this rule. Rule 14.6(b)(3) does not separately require the initial disclosure of newly entered into agreements or arrangements, provided that disclosure is made pursuant to this rule for the next shareholders’ meeting at which directors are elected. In addition, for publicly disclosed agreements and arrangements that existed prior to the nominee’s candidacy and thus not required to be disclosed in accordance 50 The Exchange notes that the proposal is substantively similar to other proposed rules approved by the Commission. See Securities and Exchange Act Nos. 77481 (March 30, 2016) 81 FR 19678 (April 5, 2016) (SR–NASDAQ–2016–013) (Notice of Filing of Proposed Rule Change To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director’s Members or Nominees); 78223 (July 1, 2016) 81 FR 44400 (July 7, 2016) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director’s Members or Nominees). PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 12925 with proposed Rule 14.6(b)(3)(A)(ii) but where the director or nominee’s remuneration is thereafter materially increased specifically in connection with such person’s candidacy or service as a director of the Company, only the difference between the new and previous level of compensation or other payment obligation needs be disclosed. All references in this rule to proxy or information statements are to the definitive versions thereof.51 (4) Market Value Definition and Shareholder Approval Exchange Rule 14.10(i) sets forth the circumstances under which shareholder approval is required prior to an issuance of securities in connection with (1) the acquisition of the stock or assets of another company; (2) a change of control; (3) equity-based compensation of officers, directors, employees or consultants; and (4) private placements. Specifically, under current Rule 14.10(i)(4), shareholder approval is required prior to the issuance of securities in connection with a transaction other than a public offering involving: (A) the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which together with sales by officers, directors or Substantial Shareholders 52 of the Company equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or (B) the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. Exchange Rule 14.1(a)(19) defines ‘‘market value’’ as the closing bid price. Now, the Exchange proposes to make certain changes to Rule 14.10(i) as described below, and to modify the measure of market value for the purpose of Rule 14.10(i)(4) from the closing bid price to the lower of: (i) BZX Official Closing Price 53 as reflected on Cboe.com or (ii) the average BZX Official Closing Price of the common stock as available on Cboe.com for the five trading days immediately preceding the signing of the binding agreement. The Exchange also proposes to amend the preamble and to Rule 14.10(i) and 51 Id. 52 See 53 See E:\FR\FM\20FEN1.SGM Exchange Rule 14.10(i)(5)(C). Exchange Rule 11.23(a)(3). 20FEN1 12926 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices the title of Rule 14.10(i)(4) to replace references to ‘‘private placements’’ with ‘‘transactions other than public offerings’’, which conforms the language to that in existing Interpretation and Policy .18 to Rule 14.10. Private placements would continue to be considered ‘‘transactions other than public offerings’’ under the proposed rule change, and the proposed change does not change the essence of the current rule. The Exchange notes that the proposed changes to Exchange Rule 14.10(i) and Interpretation and Policy .18 to Rule 14.10 are substantively similar to rules of another Exchange that were previously approved by the Commission.54 (a) Closing Price The BZX Official Closing Price refers to the price disseminated to the consolidated tape as the market center closing trade, which is derived from the closing auction on the Exchange if a closing auction occurs.55 The Exchange’s closing auction is designed to gather the maximum liquidity available for execution at the close of trading, and to maximize the number of shares executed at a single price at the close of the trading day. The closing auction promotes accurate closing prices by offering specialized orders available only during the closing auction and integrating those orders with regular orders submitted during the trading day that are still available at the close. Further, the Exchange believes the price of an executed trade is generally viewed as a more reliable indicator of value than a bid quotation. ddrumheller on DSK120RN23PROD with NOTICES1 54 See Securities Exchange Act Nos. 82702 (February 13, 2018) 83 FR 7269 (February 20, 2018) (SR–NASDAQ–2018–008) (Notice of Filing of Proposed Rule Change To Modify the Listing Requirements Contained in Listing Rule 5635(d) To Change the Definition of Market Value for Purposes of the Shareholder Approval Rules and Eliminate the Requirement for Shareholder Approval of Issuances at a Price Less Than Book Value but Greater Than Market Value) and 84287 (September 26, 2018) 83 FR 49599 (October 2, 2018) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Modify the Listing Requirements Contained in Listing Rule 5635(d) To Change the Definition of Market Value for Purposes of the Shareholder Approval Rule and Eliminate the Requirement for Shareholder Approval of Issuances at a Price Less Than Book Value but Greater Than Market Value). See also Securities Exchange Act No. 88056 (January 28, 2020) 85 FR 6003 (February 3, 2020) (SR– NASDAQ–2020–004) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Clarify the Term ‘‘Closing Price’’ in Rule 5635(d)(1)(A) Relating to Shareholder Approval for Transactions Other Than Public Offerings). 55 If an issue does not have a closing auction (e.g., there is insufficient interest to conduct a closing auction), the BZX Official Closing Price will be the Final Last Sale Eligible Trade. VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 Given this combined with the fact that the proposal to use the official closing price rather than the closing bid price is similar to the rules of another exchange (except that it uses its own closing price) 56 the Exchange believes it is appropriate to use the BZX Official Closing Price rather than the closing bid price. In addition, because prices are displayed from numerous data sources on different websites, to provide transparency within the rule to the appropriate price and assure that companies and investors use the BZX Official Closing Price when pricing transactions, the Exchange proposes to codify within the proposed Rule 14.10(i)(4)(A)(i) that Cboe.com is the appropriate source of the closing price information. (b) Five-Day Average Price The Exchange proposes to amend Rule 14.10(i)(4) to define a new concept as the ‘‘Minimum Price’’ and eliminate references to book value and eliminating the current definition of market value 57 from Rule 14.10(i)(4). Minimum Price would be defined under proposed Rule 14.10(i)(4)(A)(i) as price that is the lower of: (a) the BZX Official Closing Price (as reflected on Cboe.com) for the five trading immediately preceding the signing of the binding agreement; or (b) the average BZX Official Closing Price of the common stock as reflected on (Cboe.com) for the five trading days immediately preceding the signing of the binding agreement. This means that the issuance would not require an approval by company’s shareholders, so long as it is at a price that is greater than the lower of those measures. The Exchange believes that while investors and companies sometimes prefer to use an average when pricing transactions, there are potential negative consequences to using a five-day average as the sole measure of whether shareholder approval is required. For example, in a declining market, the fiveday average closing price will be above the current market price, which could make it difficult for companies to close transactions because investors could buy shares at a lower price in the market. Conversely, using a five-day average in a rising market the five-day average closing price will appear to be at a discount to the closing current market price. Further, if material news is announced during the five-day period, the average price could be a 56 See Nasdaq Listing Rule 5635(d). value’’ is defined in Exchange Rule 14.1(a)(19) and is applicable to the shareholder approval rules as well as other listing rules. 57 ‘‘Market PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 worse reflection of market value than the closing price after the news is disclosed. The Exchange believes that these risks of using the five-day average closing price are already accepted by the market, as evidenced by the use of an average price in transactions that do not require shareholder approval, such as those transactions where less than 20% of the outstanding shares are being issued. Nonetheless, the Exchange believes the proposal balances this risk because an issuance would not require shareholder approval as long as the issuance occurs at a price greater than the lower of the two proposed measures. To improve the readability of the rule, the Exchange proposes to eliminate references to book value and current definition of market value from Rule 14.10(i)(4) and to instead reference the defined term Minimum Price. The Exchange notes that the proposal is substantively similar to existing rules of another exchange.58 (c) Book Value The Exchange proposes to eliminate the requirement for shareholder approval of issuances at a price less than book value but greater than market value. Book value is an accounting measure and its calculation is based on the historic cost of assets, not their current value. As such the Exchange believes that book value is not an appropriate measure of whether a transaction is dilutive or should otherwise require shareholder approval. Further, the proposal is substantively similar to existing rules of another exchange.59 (d) Other Changes to the Shareholder Approval Requirement The Exchange proposes to revise Exchange Rule 14.10(i)(4) to provide that shareholder approval is required prior to a 20% issuance at a price that is less than the Minimum Price. To improve the readability of Exchange Rule 14.10(i)(4), the Exchange proposes to define ‘‘20% Issuance’’ as ‘‘a transaction, other than a public offering 60 as defined in Rule 14.10, Interpretation and Policy .18, involving the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable for common stock), which alone or together with sales by officers, directors or Substantial Shareholders of the Company, equals 20% or more of the common stock or 20% or more of the 58 See Nasdaq Listing Rule 5635(d)(1)(A). Nasdaq Listing Rule 5635(d)(1)(B). 60 Transactions other than public offerings is also the proposed title to Rule 14.10(i)(4). 59 See E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices voting power outstanding before the issuance.’’ This definition combines the situations described in existing Rule 14.10(i)(4)(A) and (B) into one provision and makes no substantive change to the threshold for quantity or voting power of shares being sold that would give rise to the need for shareholder approval, although as described above, the applicable pricing test will change. Finally, the Exchange proposes to amend Rule 14.10 Interpretations and Policies .18 and .19, which describe how the Exchange applies the shareholder approval requirements, to conform references to book and market value with the new definition of Minimum Price, as described above, and to utilize the newly defined term 20% Issuance. The Exchange also proposes to correct an incorrect reference to the Exchange’s rules relating to a Company’s failure to meeting listing standards from Rule 14.9 to 14.12. As noted above, the proposed changes to Exchange Rule 14.10(i) and Interpretation and Policy .18 to Rule 14.10 are substantively similar to rules of another Exchange that were previously approved by the Commission.61 (5) Exemptions to Certain Corporate Governance Requirements The Exchange proposes to amend and expand the exemptions available to issuers of certain securities from some of the Exchange’s corporate governance requirements and to define certain of those securities as ‘‘Derivative Securities’’. The Exchange also proposes to amend Exchange Rule 14.10 Interpretation and Policy .15 to modify the exemptions from the annual meeting requirements. The Exchange notes that the proposed changes would result in rules that are substantively similar to the existing rules of other exchanges.62 Exchange Rule 14.10(e) currently provides exemptions to issuers of certain securities listed on the Exchange from portions of the corporate governance requirements. Specifically, Exchange Rule 14.10(e)(1)(A) provides exemptions for asset-backed issuers 63 61 Supra notes 55 and 56. Nasdaq Listing Rules 5615(a), IM–5615–4, and IM–5620; NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule 5.3–E. 63 Rule 14.10 Interpretation and Policy .10 defines as issuers ‘‘that are organized as trusts or other unincorporated associations that do not have a board of directors or persons acting in a similar capacity and whose activities are limited to passively owning or holding (as well as administering and distributing amounts in respect of) securities, rights, collateral or other assets on behalf of or for the benefit of the holders of the listed securities.’’ ddrumheller on DSK120RN23PROD with NOTICES1 62 See VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 and other passive issuers 64 from the provisions of Exchange Rule 14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(3) (Audit Committee Requirements), Exchange Rule 14.10(c)(4) (Independent Director Oversight of Executive Officer Compensation), Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director Nominations), Exchange Rule 14.10(d) (Code of Conduct), and Exchange Rule 14.10(e)(3) (Controlled Company Exemption). Exchange Rule 14.10(e)(1)(E) provides exemptions for management investment companies registered under the Investment Company Act of 1940 65 from the provisions of Exchange Rule 14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(4) (Independent Director Oversight of Executive Officer Compensation), Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director Nominations), and Exchange Rule 14.10(d) (Code of Conduct). In addition, under Exchange Rule 14.10(e)(1)(E), management investment companies are exempt from Exchange Rule 14.10(c)(3) (Audit Committee Requirements), except for the provisions of Rule 10A–3 under the Exchange Act.66 Currently, products that can rely on the exemptions within Exchange Rule 14.10(e)(1)(E) are Index Fund Shares (Exchange Rule 14.11(c)), Managed Fund Shares (Exchange Rule 14.11(i)), Managed Portfolio Shares (Exchange Rule 14.11(k)), ETF Shares (Exchange Rule 14.11(l)), and Tracking Fund Shares (Exchange Rule 14.11(m)). Additionally, Rule 14.10 Interpretation and Policy .15 provides exemptions to issuers of certain securities listed pursuant to the requirements of Exchange Rule 14.10(f) (Meetings of Shareholders). Currently, Portfolio Depositary Receipts (Exchange Rule 14.11(b)), Index Fund Shares (Exchange Rule 14.11(c)), and Trust Issued Receipts (Exchange Rule 14.11(f)) are exempt from the annual meeting requirements.67 The Exchange now proposes to add a definition of ‘‘Derivative Securities’’ to Exchange Rule 14.10(e)(1)(F)(ii) (the ‘‘Proposed Definition’’), as discussed in the ‘‘Definition of Derivative Securities’’ section below. Further, the Exchange 64 Exchange Rule 14.10(e)(1)(A)(i)(b) includes Portfolio Depositary Receipts as an example of a passive issuer. 65 15 U.S.C. 80a. 66 17 CFR 240.10A–3. 67 Rule 14.10 Interpretation and Policy .15 also exempts securities listed pursuant to Exchange Rule 14.11(h) (unless the listed security is a common stock or voting preferred stock equivalent). PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 12927 proposes to adopt Rule 14.10(e)(1)(F)(i), which would provide that issuers whose only securities listed on the Exchange are non-voting preferred securities, debt securities or Derivative Securities, are exempt from the requirements relating to Independent Directors (as set forth in Rule 14.10(c)(2)), Independent Director Oversight of Executive Officer Compensation (as set forth in Rule 14.10(c)(4)), Director Nominations (as set forth in Rule 14.10(c)(5)), Code of Conduct (as set forth in Rule 14.10(d)), and Meetings of Shareholders (as set forth in Rule 14.10(f)). In addition, these issuers are exempt from the requirements relating to Audit Committees (as set forth in Rule 14.10(c)(3)), except for the applicable requirements of SEC Rule 10A–3. Notwithstanding, if the issuer also lists its common stock or voting preferred stock, or their equivalent on the Exchange it will be subject to all the requirements of Exchange Rule 14.10. Rule 14.10(e)(1)(F)(i) will continue to require such companies to comply with the requirements of Exchange Rule 14.10(g), pursuant to which an issuer will provide the Exchange with prompt notification after an executive officer of the company becomes aware of any noncompliance by the company with the requirements of Exchange Rule 14.10. The Exchange notes that proposed Rule 14.10(e)(1)(F)(i) and (ii) are substantively similar to rules on other exchanges.68 The Exchange also proposes to amend Exchange Rule 14.10 Interpretation and Policy .15 to amend the annual meeting requirements of Exchange Rule 14.10(f) to clarify that issuers of only non-voting preferred securities, debt securities or Derivative Securities 69 are not subject 68 See Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3–E. See also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) (SR–NASDAQ–2019–039) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow Additional Issuers Who List Only Specific Securities To Be Able To Avail Themselves of Certain Exemptions Under Corporate Governance Requirements and To Amend Nasdaq Rule IM–5620 To Exclude Additional Categories of Issuers Listing Only Specific Securities From the Annual Shareholder Meeting Requirement); Securities Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) (SR–NYSEArca–2018–31) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca Rule 5.3–E To Exclude Certain Categories of Issuers From the Exchange’s Annual Meeting Requirement). 69 The Exchange is proposing to expand the list of products that are exempt from the annual meeting requirements of Exchange Rule 14.10(f). The proposed list of products consists of: Commodity Futures Trust Shares; Commodity Index Trust Shares; Commodity-Based Trust Shares; Commodity-Linked Securities; Currency Trust Shares; Equity Gold Shares; Equity Index-Linked E:\FR\FM\20FEN1.SGM Continued 20FEN1 12928 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices to the rule. The Exchange believes that the proposed amendment is appropriate because the holders of non-voting preferred securities, debt securities or Derivative Securities do not have voting rights with respect to the election of directors except in very limited circumstances as required by federal or state law or their governing documents. The rule will continue to state that if the Company also lists common stock or voting preferred stock, or their equivalent, on the Exchange, the Company will be subject to the annual Index Fund Shares; Index-Linked Exchangeable Notes; Managed Fund Shares; Managed Portfolio Shares; Managed Trust Securities; Multifactor Index-Linked Securities; Partnership Units; Portfolio Depository Receipts; Selected Equity-linked Debt Securities (‘‘SEEDS’’); Tracking Fund Shares; Trust Certificates; and Trust Issued Receipts. Each of these types of securities is similarly exempt from the corporate governance requirements as proposed herein on another exchange,71 as summarized in the table below: meeting requirements of Exchange Rule 14.10(f). The proposed change is substantively identical to an existing rule on another exchange.70 Definition of ‘‘Derivative Security’’ The proposed definition of Derivative Security will include: Commodity Futures Trust Shares; Commodity Index Trust Shares; Commodity-Based Trust Shares; Commodity-Linked Securities; Currency Trust Shares; Equity Gold Shares; Equity Index-Linked Securities; ETF Shares; Fixed Income Index-Linked Securities; Futures-Linked Securities; Product type Exchange rule Nasdaq rule Commodity Futures Trust Shares ................................... Commodity Index Trust Shares ....................................... Commodity-Based Trust Shares ..................................... Commodity-Linked Securities .......................................... Currency Trust Shares .................................................... Equity Gold Shares ......................................................... Equity Index-Linked Securities ........................................ Exchange-Traded Fund Shares ...................................... Fixed Income Index-Linked Securities ............................ Futures-Linked Securities ................................................ Index Fund Shares * ........................................................ Index-Linked Exchangeable Notes .................................. Managed Fund Shares .................................................... Managed Portfolio Shares ............................................... Managed Trust Securities ............................................... Multifactor Index-Linked Securities ................................. Partnership Units ............................................................. Portfolio Depository Receipts .......................................... SEEDS ............................................................................. Tracking Fund Shares ** .................................................. Trust Certificates ............................................................. Trust Issued Receipts ...................................................... 14.11(e)(7) ......................... 14.11(e)(6) ......................... 14.11(e)(4) ......................... 14.11(d) ............................. 14.11(e)(5) ......................... 14.11(e)(2) ......................... 14.11(d) ............................. 14.11(l) .............................. 14.11(d) ............................. 14.11(d) ............................. 14.11(c) ............................. 14.11(e)(1) ......................... 14.11(i) .............................. 14.11(k) ............................. 14.11(e)(10) ....................... 14.11(d) ............................. 14.11(e)(8) ......................... 14.11(b) ............................. 14.11(e)(12) ....................... 14.11(m) ............................ 14.11(e)(3) ......................... 14.11(f) .............................. Rule 5711(g) ...................... Rule 5711(f) ....................... Rule 5711(d) ...................... Rule 5710(k)(ii) .................. Rule 5711(e) ...................... Rule 5711(b) ...................... Rule 5710(k)(i) ................... Rule 5704 .......................... 5710(k)(iii) .......................... 5710(k)(iv) ......................... Rule 5750 .......................... Rule 5711(a) ...................... Rule 5735 .......................... Rule 5745 .......................... Rule 5711(j) ....................... 5710(k)(v) .......................... Rule 5711(h) ...................... Rule 5705 .......................... Rule 5715 .......................... Rule 5750 .......................... Rule 5711(c) ...................... Rule 5720 .......................... NYSE arca rule 8.204–E. 8.203–E. 8.201–E. 5.2–E(j)(6)(B)(II). 8.202–E. 5.2–E(j)(5). 5.2E(j)(6)(B)(I). 5.2–E(j)(8). 5.2E(j)(6)(B)(IV). 5.2E(j)(6)(B)(V). 5.2E(j)(3). 5.2–E(j)(4). 8.600–E. 8.900–E. 8.700–E. 5.2E(j)(6)(B)(VI). 8.300–E. 8.100–E. 5.2–E(j)(2). 8.601–E. 5.2–E(j)(7). 8.200–E. * Index Fund Shares are generally equivalent to Investment Company Units listed pursuant to NYSE Arca Rule 5.2–E(j)(3). ** Tracking Fund Shares are generally equivalent to Active Proxy Portfolio Shares listed pursuant to NYSE Arca Rule 8.601–E and Proxy Portfolio Shares listed pursuant to Nasdaq Rule 5750. Portfolio Depositary Receipts & Index Fund Shares ddrumheller on DSK120RN23PROD with NOTICES1 The Exchange believes it is appropriate that Portfolio Depositary Receipts and Index Fund Shares are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because these securities are currently exempt from the provisions Exchange Rule 14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(4) (Independent Securities; Exchange-Traded Fund Shares; Fixed Income Index-Linked Securities; Futures-Linked Securities; Index Fund Shares; Index-Linked Exchangeable Notes; Managed Fund Shares; Managed Portfolio Shares; Managed Trust Securities; Multifactor Index-Linked Securities; Partnership Units; Portfolio Depository Receipts; SEEDS; Tracking Fund Shares; Trust Certificates; and Trust Issued Receipts. Portfolio Depositary Receipts, Index Fund Shares and Trust Issued Receipts are currently excluded from the annual meeting requirement Exchange Rule 14.10(f). 70 See Nasdaq Listing Rule IM–5620. See also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) (SR–NASDAQ–2019– VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 Director Oversight of Executive Officer Compensation), Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director Nominations), Exchange Rule 14.10(d) (Code of Conduct), and Exchange Rule 14.10(f) (Meetings of Shareholders).72 Further, both Portfolio Depositary Receipts and Index Fund Shares are exempt from the same corporate governance requirements on another exchange.73 Equity Index-Linked Securities, Commodity-Linked Securities, Fixed Income Index-Linked Securities, Futures-Linked Securities, Multifactor Index-Linked Securities, Index-Linked Exchangeable Notes, and SEEDs 039) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow Additional Issuers Who List Only Specific Securities To Be Able To Avail Themselves of Certain Exemptions Under Corporate Governance Requirements and To Amend Nasdaq Rule IM–5620 To Exclude Additional Categories of Issuers Listing Only Specific Securities From the Annual Shareholder Meeting Requirement). 71 See Nasdaq Listing Rules 5615(a), IM–5615–4, and IM–5620; NYSE Arca Rule 5.3–E. 72 See Exchange Rule 14.10(e)(1)(E) and Interpretation and Policy .15 to Rule 14.10 for the exemptions for Index Fund Shares and 14.10(e)(1)(A) and Interpretation and Policy .15 to Rule 14.10 for the exemptions regarding Portfolio Depositary Receipts. 73 See Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– NASDAQ–2019–039) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow Additional Issuers Who List Only Specific Securities To Be Able To Avail Themselves of Certain Exemptions Under Corporate Governance Requirements and To Amend Nasdaq Rule IM–5620 To Exclude Additional Categories of Issuers Listing Only Specific Securities From the Annual Shareholder Meeting Requirement). PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 The Exchange also believes it is appropriate that Equity Index-Linked Securities, Commodity-Linked Securities, Fixed Income Index-Linked Securities, Futures-Linked Securities, Multifactor Index-Linked Securities, E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Index-Linked Exchangeable Notes and SEEDS are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because each are separate forms of unsecured debt of an issuer that is already subject to the corporate governance and annual meeting requirements of a national securities exchange and will continue to be required under such rules.74 If the issuer is listed on the Exchange, it is already subject to the requirements of Exchange Rule 14.10. If the issuer is listed on Nasdaq or NYSE Arca, it is already subject to corporate governance standards that are substantively similar to the Exchange’s corporate governance rules as proposed herein. In addition, the Exchange believes that it is appropriate to exempt these securities from the annual meeting requirements of Exchange Rule 14.10(f) because the holders of these securities have economic interests and other limited rights that do not include voting rights. The Exchange notes that these issuers may still be required to hold shareholder meetings, including special meetings, as required by federal or state law or their governing documents. In addition, while unlike traditional debt securities, these securities derive their value from the performance of an underlying index or reference asset, they retain many of the same characteristics as traditional debt securities 75 and, therefore, the Exchange believes it is consistent to treat them accordingly with regard to the corporate governance and annual meeting requirements. The Exchange notes that these securities are already similarly exempted from the same corporate governance requirements on other exchanges.76 74 Exchange Rule 14.11(h)(1)(E), with which securities listed pursuant to Rule 14.11(d), 14.11(f), and 14.11(h) must comply, states, in part, the issuers of these securities must be ‘‘listed on the Exchange, the NYSE or NASDAQ, or must be an affiliate of a Company listed on the Exchange, the NYSE or NASDAQ’’. 75 Like traditional debt securities, these securities are debt of the issuer and have a specific date of maturity. 76 Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3–E. See also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– NASDAQ–2019–039) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow Additional Issuers Who List Only Specific Securities To Be Able To Avail Themselves of Certain Exemptions Under Corporate Governance Requirements and To Amend Nasdaq Rule IM–5620 To Exclude Additional Categories of Issuers Listing Only Specific Securities From the Annual Shareholder Meeting Requirement); Securities Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) (SR–NYSEArca–2018–31) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca Rule 5.3–E To Exclude VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 Equity Gold Shares Similarly, the Exchange believes it is appropriate that Equity Gold Shares are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because like such classes of derivative securities, Equity Gold Shares are passive investment vehicles that hold a beneficial interest in a specified commodity trust. In addition, Equity Gold Shares are treated in a similar fashion to Index Fund Shares under the existing Exchange rules.77 Therefore, the Exchange believes it is appropriate that Equity Gold Shares are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein as Index Fund Shares are already exempt from certain provisions of Exchange Rule 14.10. The Exchange notes that Equity Gold Shares are already similarly exempted from the same corporate governance requirements on other exchanges.78 Trust Certificates The Exchange believes it is appropriate that Trust Certificates are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because these securities represent an interest in a passive investment vehicle that are issued by entities created solely to issue securities and invest in the underlying index or reference assets. The trust does not have a board of directors and the holders of Trust Certificates have no voting rights, unless required under state law, with regard to corporate matters, including election of trustees. Therefore, the Exchange believes that Trust Certificates should be included in the Proposed Definition and should not be subject to the annual meeting Certain Categories of Issuers From the Exchange’s Annual Meeting Requirement). 77 Exchange Rule 14.11(e)(2)(A) states that ‘‘while Equity Gold Shares are not technically Index Fund Shares and thus not are not covered by 14.11(c), all other rules that reference ‘‘Index Fund Shares’’ shall also apply to Equity Gold Shares.’’ 78 Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3–E. See also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– NASDAQ–2019–039) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow Additional Issuers Who List Only Specific Securities To Be Able To Avail Themselves of Certain Exemptions Under Corporate Governance Requirements and To Amend Nasdaq Rule IM–5620 To Exclude Additional Categories of Issuers Listing Only Specific Securities From the Annual Shareholder Meeting Requirement); Securities Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) (SR–NYSEArca–2018–31) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca Rule 5.3–E To Exclude Certain Categories of Issuers From the Exchange’s Annual Meeting Requirement). PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 12929 requirements of Exchange Rule 14.10(f). The Exchange notes that these issuers may still be required to hold shareholder meetings, including special meetings, as required by federal or state law or their governing documents. The Exchange further notes that Trust Certificates are already similarly exempted from the same corporate governance requirements on other exchanges.79 Commodity-Based Trust Shares, Currency Trust Shares, Commodity Index Trust Shares, and Commodity Futures Trust Shares The Exchange also believes it is appropriate that Commodity-Based Trust Shares, Currency Trust Shares, Commodity Index Trust Shares, and Commodity Futures Trust Shares are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because shares of these securities are passive investment vehicles that hold a beneficial interest in a specified commodity trust that is not managed like a corporation and does not have officers or a board of directors. These securities are already exempt from Exchange Rule 14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(4) (Independent Director Oversight of Executive Officer Compensation), Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director Nominations), and Exchange Rule 14.10(d) (Code of Conduct). In addition, while shareholders may have limited voting rights in certain circumstances, they do not have the right to elect directors. Therefore, given the limited voting rights, lack of directors or officers, and the passive nature of the trust, the Exchange believes these securities should not be subject to the annual meeting requirements of Exchange Rule 14.10(f). The Exchange notes that these issuers may still be required to hold shareholder meetings, including special meetings, as required by federal or state law or their governing documents. The Exchange also notes that these securities are already similarly exempted from the same corporate governance requirements on other exchanges.80 Partnership Units The Exchange also believes that it is appropriate that Partnership Units are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because Partnership Units are passive 79 Id. 80 Id. E:\FR\FM\20FEN1.SGM 20FEN1 12930 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices investment vehicles that hold a beneficial interest in a specified partnership that is not managed like a corporation and does not have a board of directors. In addition, the Exchange believes Partnership Units should not be subject to the annual meeting requirements of Exchange Rule 14.10(f) because holders have limited voting rights and the general partner oversees the operation of the partnership. The Exchange notes that these issuers may still be required to hold shareholder meetings, including special meetings, as required by federal or state law or their governing documents. The Exchange notes that Partnership Units are already similarly exempted from the same corporate governance requirements on other exchanges.81 Trust Issued Receipts The Exchange believes it is appropriate that Trust Issued Receipts are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because Trust Issued Receipts are passive investment vehicles that hold a beneficial interest in a specified partnership that is not managed like a corporation and does not have a board of directors. In addition, the Exchange believes that Trust Issued Receipts should not be subject to the annual meeting requirements of Exchange Rule 14.10(f) because these securities are currently exempt from this rule.82 The Exchange notes that Trust Issued Receipts are already similarly exempted from the same corporate governance requirements on other exchanges.83 Managed Fund Shares and ETF Shares The Exchange believes it is appropriate that Managed Fund Shares and ETF Shares are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because they currently exempt ddrumheller on DSK120RN23PROD with NOTICES1 84 See Exchange Rule 14.10(e)(1)(E). Listing Rule 5615(a)(6) and Arca Rule 5.3–E. See also Securities Exchange Act Nos. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– NASDAQ–2019–039) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow Additional Issuers Who List Only Specific Securities To Be Able To Avail Themselves of Certain Exemptions Under Corporate Governance Requirements and To Amend Nasdaq Rule IM–5620 To Exclude Additional Categories of Issuers Listing Only Specific Securities From the Annual Shareholder Meeting Requirement); 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) (SR–NYSEArca–2018–31) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca Rule 5.3–E To Exclude Certain Categories of Issuers From the Exchange’s Annual Meeting Requirement); 88561 (April 3, 2020) 85 FR 19984 (April 9, 2020) (SR–NASDAQ–2019–090) (Notice of Filing of Amendment No. 4 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 4, To Adopt Nasdaq Rule 5704 85 Nasdaq 81 Id. 82 See Exchange Rule 14.10 Interpretation and Policy .15. 83 Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3–E. See also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) (SR– NASDAQ–2019–039) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow Additional Issuers Who List Only Specific Securities To Be Able To Avail Themselves of Certain Exemptions Under Corporate Governance Requirements and To Amend Nasdaq Rule IM–5620 To Exclude Additional Categories of Issuers Listing Only Specific Securities From the Annual Shareholder Meeting Requirement); Securities Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) (SR–NYSEArca–2018–31) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca Rule 5.3–E To Exclude Certain Categories of Issuers From the Exchange’s Annual Meeting Requirement). VerDate Sep<11>2014 from the provisions of Exchange Rule 14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(4) (Independent Director Oversight of Executive Officer Compensation), Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director Nominations), and Exchange Rule 14.10(d) (Code of Conduct).84 In addition, the Exchange believes that it is appropriate to exempt Managed Fund Shares and ETF Shares from the annual meeting requirements of Exchange Rule 14.10(f) because like Index Fund Shares (which are currently provided an exemption from the annual meeting) the aforementioned securities are issued by an open-end investment company registered under the 1940 Act that are available for creation and redemption on a continuous basis, and require dissemination of an intraday portfolio value. These requirements provide important investor protections and ensure that the net asset value and the market price remain closely tied to one another while maintaining a liquid market for the security. These protections, along with the disclosure documents regularly received by investors, allow shareholders of Managed Fund Shares and ETF Shares to value their holdings on an ongoing basis and lessen the need for shareholders to directly deal with management at an annual meeting. Therefore, the Exchange further believes it is appropriate that these be afforded the proposed exemptions to the annual meeting requirements. The Exchange notes that these issuers may still be required to hold shareholder meetings, including special meetings, as required by federal or state law or their governing documents. The Exchange notes that Managed Fund Shares and ETF Shares are already similarly exempted from the same corporate governance requirements on other exchanges.85 16:54 Feb 16, 2024 Jkt 262001 PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 Managed Portfolio Shares and Tracking Fund Shares The Exchange believes it is appropriate that Managed Portfolio Shares and Tracking Fund Shares are included in the Proposed Definition and, therefore, entitled to the exemptions proposed herein because it is currently exempt from certain provisions of Rule 14.10.86 In addition, the Exchange believes that it is appropriate to exempt Managed Portfolio Shares and Tracking Fund Shares from the annual meeting requirements of Exchange Rule 14.10(f) because like Index Fund Shares (which are currently provided an exemption from the annual meeting) the aforementioned securities are issued by an open-end investment company registered under the 1940 Act that are available for creation and redemption on a continuous basis, and require dissemination of an intraday portfolio value. These requirements provide important investor protections and ensure that the net asset value and the market price remain closely tied to one another while maintaining a liquid market for the security. These protections, along with the disclosure documents regularly received by investors, allow shareholders of Managed Portfolio Shares and Tracking Fund Shares to value their holdings on an ongoing basis and lessen the need for shareholders to directly deal with management at an annual meeting. Therefore, the Exchange further believes it is appropriate that these be afforded the proposed exemptions to the annual meeting requirements. The Exchange notes that these issuers may still be required to hold shareholder meetings, including special meetings, as required by federal or state law or their governing documents. The Exchange also notes that Managed Portfolio Shares and Tracking Fund Shares are already similarly exempted from the same corporate governance requirements on another exchange.87 Governing the Listing and Trading of Exchange Traded Fund Shares); and 88625 (April 13, 2020) 85 FR 21479 (April 17, 2020) (SR–NYSEArca–2019– 81) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, to Adopt NYSE Arca Rule 5.2–E(j)(8) Governing the Listing and Trading of Exchange-Traded Fund Shares). 86 See Exchange Rule 14.10(e)(1)(E). 87 See Nasdaq Rule 5615(6)(B). See also Securities Exchange Act No. 93467 (October 29, 2021) 86 FR 60930 (November 4, 2021) (SR–NASDAQ–2021– 083) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Exempt Certain Categories of Investment Companies Registered Under the Investment Company Act of 1940 From the Requirements To Obtain Shareholder Approval Prior to the Issuance of Securities in Connection E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices Managed Trust Securities The Exchange believes that it is appropriate to exempt Managed Trust Securities from the annual meeting requirements of Exchange Rule 14.10(f) because like Index Fund Shares (which are currently provided an exemption from the annual meeting) the aforementioned securities are issued by an open-end investment company registered under the 1940 Act that are available for creation and redemption on a continuous basis and require dissemination of an intraday portfolio value. These requirements provide important investor protections and ensure that the net asset value and the market price remain closely tied to one another while maintaining a liquid market for the security. These protections, along with the disclosure documents regularly received by investors, allow shareholders of Managed Trust Securities to value their holdings on an ongoing basis and lessen the need for shareholders to directly deal with management at an annual meeting. Therefore, the Exchange further believes it is appropriate that these be afforded the proposed exemptions to the annual meeting requirements. The Exchange notes that these issuers may still be required to hold shareholder meetings, including special meetings, as required by federal or state law or their governing documents. The Exchange also notes that Managed Trust Securities are already similarly exempted from the same corporate governance requirements on other exchanges.88 ddrumheller on DSK120RN23PROD with NOTICES1 (6) Definition of ‘‘Family Member’’ The Exchange is proposing to modify the definition of ‘‘Family Member’’ for purposes of director independence under Rule 14.10(c)(1)(B) to mean a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and With Acquisitions of the Stock or Assets of an Affiliated Registered Investment Company Under Certain Conditions). 88 See Nasdaq Listing Rule 5615(a)(6)(B). See also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) (SR–NASDAQ–2019– 039) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow Additional Issuers Who List Only Specific Securities To Be Able To Avail Themselves of Certain Exemptions Under Corporate Governance Requirements and To Amend Nasdaq Rule IM–5620 To Exclude Additional Categories of Issuers Listing Only Specific Securities From the Annual Shareholder Meeting Requirement); Securities Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) (SR–NYSEArca–2018–31) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NYSE Arca Rule 5.3–E To Exclude Certain Categories of Issuers From the Exchange’s Annual Meeting Requirement). VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 sisters-in-law, and anyone (other than domestic employees) who shares such person’s home. The purpose of this rule change is to exclude domestic employees who share the director’s home, and stepchildren who do not share the director’s home, from the type of relationships that always preclude a board from finding that a director is independent, as described below. The proposed definition is substantively similar to a proposal that has been considered and approved by the Commission.89 Rule 14.10(c)(1)(B) provides a list of certain relationships that preclude a board from finding that a director is independent (the ‘‘Bright-Line Independence Test’’). These objective measures provide transparency to investors and companies, facilitate uniform application of the rules, and ease administration. The Exchange’s Rules preclude a director from being considered independent if the director has a family member who, among other things, (i) accepted any compensation from the Company in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence (with certain exceptions); 90 (ii) is, or at any time during the past three years was, employed by the company as an Executive Officer; 91 (iii) is a partner in, or a controlling Shareholder or an Executive Officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more (with certain exceptions); 92 (iv) is employed as an Executive Officer of another entity where at any time during the past three years any of the Executive Officers of the Company served on the compensation committee of such other entity; 93 or (v) is a current partner of the Company’s outside auditor, or was a partner or employee of the Company’s 89 See Nasdaq Listing Rule 5605(a)(2). See also Securities and Exchange Act Nos. 86095 (June 12, 2019) 84 FR 28379 (June 18, 2019) (SR–NASDAQ– 2019–049) (Notice of Filing of Proposed Rule Change To Amend the Definition of Family Member in Listing Rule 5605(a)(2) for Purposes of the Definition of Independent Director); and 88210 (February 13, 2020) 52 FR 9816 (February 20, 2020) (Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To Amend the Definition of Family Member in Listing Rule 5605(a)(2) for Purposes of the Definition of Independent Director). 90 Rule 14.10(c)(1)(B)(ii). 91 Rule 14.10(c)(1)(B)(iii). 92 Rule 14.10(c)(1)(B)(iv). 93 Rule 14.10(c)(1)(B)(v). PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 12931 outside auditor who worked on the Company’s audit at any time during any of the past three years.94 Currently, for purposes of the Exchange’s Rules, Family Member means a person’s spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person’s home.95 This definition includes stepchildren, as they are ‘‘children by . . . marriage.’’ As noted above, the Exchange proposes to define a Family Member to mean a person’s spouse, parents, children, siblings, mothers and fathersin-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home. The Exchange also proposes to interpret the term ‘‘children’’ to exclude stepchildren except that a relationship with a stepchild who shares a home with the director would continue to fall under the Bright-line Independence Test because the definition of a Family Member will include anyone (other than domestic employees) who shares the director’s home. To comply with the Exchange’s rules, it will expect the Boards of its listed companies to continue to elicit through director questionnaires the information necessary to make independence determinations, which will need to include questions about stepchild relationships. As noted in the order approving a substantively similar rule, the Commission stated that it ‘‘believes that this should help to ensure that listed companies inquire about stepchild relationships so that such companies can discern the essential facts and circumstances to be able to make the affirmative findings necessary under Nasdaq rules to determine a director is independent.’’ 96 The Exchange has concluded that inclusion of stepchildren in the definition of a Family Member makes the definition over-inclusive. The Bright-line Independence Test is intended to identify relationships that are likely to interfere with the exercise of independent judgment in carrying out the director’s responsibilities. In that regard the Exchange believes that a director’s relationship with their stepchildren may or may not interfere 94 Rule 14.10(c)(1)(B)(vi). 14.10(c)(1)(B) 96 See Securities Exchange Act No. 88210 (February 13, 2020) 52 FR 9816 (February 20, 2020) (Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To Amend the Definition of Family Member in Listing Rule 5605(a)(2) for Purposes of the Definition of Independent Director). 95 Rule E:\FR\FM\20FEN1.SGM 20FEN1 ddrumheller on DSK120RN23PROD with NOTICES1 12932 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices with the director’s exercise of independent judgment based on the particular facts and circumstances of the situation. If a stepchild has been a dependent of a director or was a part of the director’s household since being a minor, the director’s relationship with that stepchild is likely to be similar to that with a biological child. However, the Exchange believes if the director marries a person who has an adult child, the director never acted in any capacity as a parent of this stepchild, and the stepchild never shared the director’s household, then the director and stepchild are likely to have an attenuated relationship that is unlike the relationship of a parent and child. Because the determination as to whether such relationship is likely to interfere with the exercise of independent judgment in carrying out the director’s responsibilities is based on facts and circumstances, the Exchange believes a company’s board is in the best position to make such a determination. Accordingly, the Exchange believes that a stepchild relationship should not preclude a director from being considered independent in all circumstances. Notwithstanding, if a stepchild shares a home with the director, such a relationship would continue to fall under the Bright-line Independence Test because the definition of a Family Member will include anyone (other than domestic employees) who shares the director’s home. In addition, the Exchange believes that the proposed change would align the language in its definition of a Family Member with the comparable definition of a Family Member or an immediate family member of the Nasdaq.97 When each market has a different definition, it complicates the preparation by listed companies of director and officer questionnaires that the companies need in order to analyze director independence. In particular, this creates an added and unnecessary burden when a company transfers its listing from one national securities exchange to another. In such case, a director may have already filled out an annual questionnaire based on the prior listing exchange’s definition of a family member but need to answer additional questions because the definition of the exchange the listing is transferred to is phrased differently. The Exchange is also proposing to modify the definition of a ‘‘Family Member’’ for purposes of director independence under Rule 14.10(c)(1)(B) to exclude domestic employees who 97 See Nasdaq Listing Rule 5605(a)(2). VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 share a director’s home. The Exchange believes that the definition of a Family Member should not include a domestic employee who shares a director’s home because this definition is not intended to capture commercial relationships. Accordingly, as described above the Exchange is proposing to modify the definition of a Family Member for purposes of director independence under Rule 14.10(c)(1)(B) to mean a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home. This definition is identical to the Nasdaq definition of a Family Member.98 Additionally, the Exchange notes that the proposed rule change to Rule 14.10(c)(1)(B) will not affect the additional independence criteria for audit committee members set forth in Rule 14.10(c)(3), which incorporate the independence requirements of SEC Rule 10A–3.99 Thus, the broader exclusion from the definition of Family Member, as it applies to minor stepchildren not sharing the director’s home, may not be applied for purposes of determining the independence of audit committee members, where the stricter standards of Rule 10A–3, as well as Exchange Rule 14.10(c)(3), still apply.100 Notwithstanding these changes, the Exchange notes that a company’s board must, under 14.10(c)(3)(B) and Interpretation and Policy .05, affirmatively determine that no relationship exists that would interfere with the exercise of independent judgment in carrying out the director’s responsibilities. To comply with the Exchange’s rules, the Exchange will expect listed companies’ boards to continue to elicit through director and officer questionnaires the information necessary for the boards to make such determinations, which will need to include questions about stepchild relationships. The Exchange believes that it is appropriate for the board to 98 Id. 99 Rule 14.10(c)(3)(B) requires that each Company must have, and certify that it has and will continue to have, an audit committee of at least three members, each of whom must, among other requirements, meet the criteria for independence set forth in Rule 10A–3(b)(1) under the Act, in addition to the requirements of Rule 14.10(c)(3)(B). See also Exchange Rule 14.10 Interpretation and Policy .05 (Audit Committee Composition). 100 See Securities Exchange Act No. 88210 (February 13, 2020) 52 FR 9816 (February 20, 2020) (Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To Amend the Definition of Family Member in Listing Rule 5605(a)(2) for Purposes of the Definition of Independent Director). PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 review a relationship between a director and a stepchild who does not share a home with the director or a relationship between a director and a domestic employee under such facts and circumstances test. (7) Quorum Requirement The Exchange is proposing to modify Exchange Rules 14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) (the ‘‘Quorum Rules’’) to allow the Exchange to accept a quorum less than 331⁄3% of the outstanding shares of a company’s common voting stock where the Company is incorporated outside of the U.S. and such Company’s home country law prohibits the company from establishing a quorum that satisfies the Quorum Rules. The Exchange notes that these proposed rules are substantively similar to existing rules of another exchange.101 Exchange Rule 14.10(f)(3) establishes quorum requirements for an annual meeting of shareholders for Exchange Companies listing common stock or voting preferred stock, and their equivalents.102 Under this rule, each company that is not a limited partnership must provide for a quorum as specified in its by-laws for any meeting of the holders of common stock; provided, however, that in no case shall such quorum be less than 331⁄3% of the outstanding shares of the company’s common voting stock (the ‘‘Exchange Quorum Requirement’’). The Exchange notes that domestic listed companies are subject to quorum requirements under the laws of their states of incorporation.103 Now, the Exchange proposes to modify the Exchange Quorum Requirement to allow the Exchange to accept any quorum requirement for a non-U.S. company if such company’s home country law mandates such quorum for the shareholders’ meeting and prohibits the company from establishing the higher quorum required 101 See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158 (January 15, 2021) (SR–NASDAQ–2020–100) (Notice of Filing of Proposed Rule Change To Modify the Quorum Requirement for Non-U.S. Companies Under Certain Limited Circumstances); and 91567 (April 14, 2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Modify the Quorum Requirement). 102 See Exchange Rule 14.10(f)(1). 103 For example, Delaware allows companies to establish their own quorum requirements in their certificates of incorporation or bylaws, provided that the quorum must be at least one-third of the shares entitled to vote on the matter. In the absence of a quorum provision in the company’s certificate of incorporation or bylaws, Delaware requires a quorum of 50% of the shares entitled to vote on the matter. See Del. Code Sec. 216. E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices by the Exchange Quorum Requirement. The Exchange proposes to require that a company relying on this provision shall submit to the Exchange a written statement from an independent counsel in such company’s home country describing the home country law that conflicts with the Exchange quorum requirement. The Exchange also proposes to require such counsel to certify that, as the result of the conflict with the home country law, the company is prohibited from complying with the Exchange Quorum Requirement, and the company cannot obtain an exemption or waiver from that law. Finally, to assure appropriate disclosure, the Exchange proposes to require that any company relying on this exception from the Exchange Quorum Requirement must make a public announcement as promptly as possible but not more than four business days following the submission of the independent counsel’s statement to the Exchange, as described above, on or through the Company’s website and either by filing a Form 8–K, where required by SEC rules, or by issuing a press release explaining the Company’s reliance on the exception.104 In addition, to help assure continuous transparency, the Exchange proposes to require that such website disclosure is maintained for the period of time the company continues to rely on the exception from the quorum requirements. Finally, to help assure the exception remains appropriate, the Exchange proposes to require the company to update the website disclosure at least annually to indicate that the company continues to be prohibited under its home country law from complying with the Exchange’s quorum requirements as of the date of such update.105 The Exchange also proposes to modify Exchange Rule 14.10(e)(1)(D)(iv) governing the quorum requirements for limited partnerships listed on the Exchange to also reflect this change to the Exchange Quorum Requirement. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.106 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 107 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) 108 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. (1) Compensation-Related Listing Rules The proposal first requires that the compensation of Executive Officers must be determined by a compensation committee and eliminates the existing Alternative for such compensation. Although the Alternative to a formal committee in the Exchange’s current rules may be useful to a small number of prospective companies, the Exchange believes that the heightened importance of compensation decisions and oversight of executive compensation in today’s environment, as well as the benefits that can result for investors of having a standing committee overseeing compensation matters, makes it appropriate and consistent with investor protection and the public interest under Section 6(b)(5) of the Act for the Exchange to raise its standards in this regard.109 In the Commission’s approval order for a similar proposed rule change to Nasdaq rules, the Commission stated: In making this determination the Commission is aware that Rule 10C–1 does not require listed companies of national 106 15 107 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 108 Id. ddrumheller on DSK120RN23PROD with NOTICES1 104 See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158 (January 15, 2021) (SR–NASDAQ–2020–100) (Notice of Filing of Proposed Rule Change To Modify the Quorum Requirement for Non-U.S. Companies Under Certain Limited Circumstances); and 91567 (April 14, 2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Modify the Quorum Requirement). 105 Id. VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 109 See Securities Exchange Act Nos. 68013 (October 9, 2012) 77 FR 62563 (October 15, 2012) (SR–NASDAQ–2012–109) (Notice of Filing of Proposed Rule Change To Modify the Listing Rules for Compensation Committees To Comply With Rule 10C–1 Under the Exchange Act and Make Other Related Changes) 68640 (January 11, 2013) 78 FR 4554 (January 22, 2013) (Order Granting Accelerated Approval of Proposed Rule Change as Modified by Amendment Nos. 1 and 2 To Amend the Listing Rules for Compensation Committees To Comply With Rule 10C–1 Under the Act and Make Other Related Changes). PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 12933 securities exchanges to have a committee dedicated to compensation matters. Nevertheless, it is consistent with Section 6(b)(5) of the Act for Nasdaq to require all its listed companies to have an independent compensation committee overseeing executive compensation matters because of the importance and accountability to investors that such a formal structure can provide. The Commission also notes that some of the other requirements of Rule 10C– 1 apply only when a company has a committee overseeing compensation matters. Thus, the requirement to have a compensation committee will trigger the additional protections for shareholders created by these requirements.110 The Exchange also believes it is appropriate to raise its standards to require the compensation committee of each issuer to have at least two members, instead of permitting a sole individual to be responsible for compensation policy, and that this furthers investor protection and the public interest in accordance with Section 6(b)(5).111 The Commission agreed in its approval of a substantively similar rule on Nasdaq when it stated: In light of the importance of compensation matters, the added thought and objectivity that is likely to result when two or more individuals deliberate over how much a listed company should pay its executives, and what form such compensation should take, is consistent with the goal of promoting more accountability to shareholders on executive compensation matters. Moreover, given the complexity of executive compensation packages for corporate executives, it is reasonable for Nasdaq to require listed companies to have the input of more than one committee member on such matters.112 Moreover, no Companies currently listed on the Exchange has a compensation committee of only one member. Therefore, the two-member requirement will not be an onerous burden for Companies listed on the Exchange and should strength their review of compensation matters. The Exchange’s proposal to require a compensation committee to have a written charter detailing the committee’s authority and responsibility is also consistent with Section 6(b)(5) of the Act and will provide added transparency for shareholders regarding how a company determines compensation and may clarify and improved the process itself. In an approval order for a substantively similar rule on Nasdaq, the Commission stated that ‘‘the requirement that listed companies review and reassess the adequacy of the compensation’s 110 Id. 111 Id. 112 Id. E:\FR\FM\20FEN1.SGM 20FEN1 ddrumheller on DSK120RN23PROD with NOTICES1 12934 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices committee charter on an annual basis will also help to ensure accountability and transparency on an on-going basis.’’ 113 The Exchange believes that the proposed ‘‘Exceptional and Limited Circumstances’’ provision, which allows one director who fails to meet the Exchange’s Independent Director definition to serve on a compensation committee under certain conditions, is an appropriate means to allow Companies flexibility as to board and committee membership and composition in unusual circumstances, which may be particularly important for smaller Companies. Further, the Commission long ago approved as consistent with the Act the same exception and concept in the context of the Exchange’s Independent Director under Exchange Rule 14.10(c)(1)(B), with respect to nominations committees and audit committees, and approved a substantively similar provision on another exchange.114 The Exchange believes the proposal to provide under proposed Rule 14.10(c)(4)(D), that for purposes of this Rule, the compensation committee is not required to conduct an independence assessment for a compensation adviser that acts in a role limited to certain activities provided under Item 407(e)(3)(iii) of Regulation S–K will add clarity to the Exchange’s rules. The Exchange believes its proposal to prohibit a director who receives compensation or fees from a listed company (other than, among other things, director compensation) from serving on the Company’s compensation committee will protect investors and the public interest. Specifically, a director’s receipt of compensatory fees from a company (other than compensation for board and board committee service or compensation under a retirement plan or prior service with the company as described above) could render the member unwilling or unable to provide a truly independent voice on executive compensation decisions. The Exchange believes the restriction is warranted given the heightened importance of executive compensation decisions in today’s business environment. Moreover, in its approval order of a similar Nasdaq proposal,115 the Commission stated that it believes the restriction will ‘‘help to ensure that compensation committee members cannot receive directly or indirectly fees 113 Id. 114 Id. 115 Id. VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 that could potentially influence their decisions on compensation matters.’’ The Exchange believes its proposal to move Rule 14.10(e)(1)(F) to proposed Rule 14.10(c)(4)(F) and to clarify the specific provisions under which a Smaller Reporting Company is exempt from the requirements of Rule 14.10(c) will provide additional clarity to the Exchange’s rulebook. As discussed above, Smaller Reporting Companies will continue to be subject to the same requirements as all other Companies, except the requirements relating to compensatory fees, affiliation and the specific compensation committee responsibilities and authority set forth in proposed Exchange Rule 14.10(c)(4)(C)(iv). The Exchange believes that this hybrid approach does not discriminate unfairly between issuers because it recognizes the fact that the ‘‘ ‘executive compensation arrangements of [Smaller Reporting Companies] generally are so much less complex than those of other public companies that they do not warrant the more extensive disclosure requirements imposed on companies that are not [Smaller Reporting Companies] and related regulatory burdens that could be disproportionate for [Smaller Reporting Companies].’ ’’ 116 In addition, the Exchange notes that the Commission exempted Smaller Reporting Companies from Rule 10C–1.117 As a result, this distinction does not discriminate unfairly among issuers. Finally, the Exchange believes the proposed non-substantive ministerial changes to the language of Rule 14.10(c) will add clarity to the Exchange’s rulebook. As noted above, all of the proposed changes to the Exchange’s compensation committee requirements are substantively similar to proposed rules already considered and approved by the Commission.118 (2) Direct Registration Program The proposed rule change as it pertains to the Exchange’s DRP is 116 See Securities Exchange Act Release No. 67220 (June 20, 2012), 77 FR 38422, 38425 (June 27, 2012), at 38438 (quoting Securities Exchange Act Release No. 54302A (August 29, 2006), 71 FR 53158, 53192 (September 8, 2006)). 117 See 17 CFR 240.10C–1(b)(5)(ii). 118 See Securities Exchange Act Nos. 68013 (October 9, 2012) 77 FR 62563 (October 15, 2012) (SR–NASDAQ–2012–109) (Notice of Filing of Proposed Rule Change To Modify the Listing Rules for Compensation Committees To Comply With Rule 10C–1 Under the Exchange Act and Make Other Related Changes) 68640 (January 11, 2013) 78 FR 4554 (January 22, 2013) (Order Granting Accelerated Approval of Proposed Rule Change as Modified by Amendment Nos. 1 and 2 To Amend the Listing Rules for Compensation Committees To Comply With Rule 10C–1 Under the Act and Make Other Related Changes). PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 consistent with the investor protection objectives of the Act in that it will provide a very limited exemption to the Exchange’s DRP eligibility requirements for foreign issuers that provide a letter from home country counsel certifying that compliance with that requirement is prohibited by home country law or regulation. Further, the proposed rule change should facilitate cooperation and coordination among clearing agencies, transfer agents, and broker-dealers by explaining the basis upon which certain foreign issuers are not required to participate in the DRP. This, in turn, should facilitate better efficiency in the clearance and settlement of securities transactions involving the securities of these foreign issuers and should facilitate better efficiency in the transfer of such securities. The Exchange notes that its proposal is substantively similar to proposed amendments Nasdaq made to its Rules 5210(c) and 5255(c),119 and thus raises no novel issues. (3) Public Disclosure The proposal to require an additional public disclosure accomplishes the objectives of the Act by enhancing transparency around third party compensation and payments made in connection with board service. The Exchange believes such disclosure has several benefits. First, it would provide information to investors to help them make meaningful investing and voting decisions. It would also address potential concerns that undisclosed third-party compensation arrangements may lead to conflicts of interest among directors and call into question their ability to satisfy fiduciary duties. In an approval for a substantively similar proposed rule change on another exchange, the Commission stated ‘‘to the extent that [the proposal] would, in certain situations, provide investors and market participants additional information to make informed investment and voting decisions, we believe it is consistent with the requirements of Section 6(b)(5) of the Act.’’ 120 119 See Securities and Exchange Act Release No. 68238 (November 15, 2012) 77 FR 69911 (November 21, 2012) (SR–NASDAQ–2012–128) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Expand the Exemption to the Direct Registration Program Requirement to All Foreign Issuers Rather Than Only Foreign Private Issuers). 120 See Securities and Exchange Act Nos. 77481 (March 30, 2016) 81 FR 19678 (April 5, 2016) (SR– NASDAQ–2016–013) (Notice of Filing of Proposed Rule Change To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director’s Members or Nominees); 78223 (July 1, 2016) 81 FR 44400 (July 7, 2016) (Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices While there may be some overlap in the proposed disclosure requirement with existing Commission disclosure requirements, it is not unusual for a national securities exchange to adopt disclosure requirements in their listing rules that supplement or overlap with disclosure requirements otherwise imposed under federal securities laws. Such disclosure-related listing standards ‘‘help to ensure that listed companies maintain compliance with the disclosure requirements under the federal securities laws and contribute to the maintenance of fair and orderly markets by providing investors with material and current information necessary for informed investment and voting decisions.’’ 121 Further, as the proposed public disclosure requirement is substantively similar to a proposal already considered and approved by the Commission, it raises no novel issues.122 ddrumheller on DSK120RN23PROD with NOTICES1 (4) Market Value Definition and Shareholder Approval The Exchange believes that the proposal to modify the measure of market value for the purpose of Rule 14.10(i)(4) from the closing bid price to the lower of: (i) the closing price (as reflected on Cboe.com); or (ii) the average closing price of the common stock (as reflected on Cboe.com) for the five trading days immediately preceding the signing of the binding agreement will perfect the mechanism of a free and open market and protect investors and the public interest. Furthermore, the proposal is substantively similar to a proposed rule that was previously approved by the Commission.123 Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director’s Members or Nominees). 121 Id. 122 Id. 123 See Securities Exchange Act Nos. 82702 (February 13, 2018) 83 FR 7269 (February 20, 2018) (SR–NASDAQ–2018–008) (Notice of Filing of Proposed Rule Change To Modify the Listing Requirements Contained in Listing Rule 5635(d) To Change the Definition of Market Value for Purposes of the Shareholder Approval Rules and Eliminate the Requirement for Shareholder Approval of Issuances at a Price Less Than Book Value but Greater Than Market Value) and 84287 (September 26, 2018) 83 FR 49599 (October 2, 2018) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Modify the Listing Requirements Contained in Listing Rule 5635(d) To Change the Definition of Market Value for Purposes of the Shareholder Approval Rule and Eliminate the Requirement for Shareholder Approval of Issuances at a Price Less Than Book Value but Greater Than Market Value). See also Securities Exchange Act No. 88056 (January 28, 2020) 85 FR 6003 (February 3, 2020) (SR– NASDAQ–2020–004) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Clarify the Term ‘‘Closing Price’’ in Rule VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 First, the Exchange believes using the proposed method for determining the market value has the potential to provide a better indication of the actual market value than the current use of closing bid price under certain market conditions. The Exchange also believes that the BZX Official Closing Price is less prone to manipulation than are bid prices. In addition, the Exchange believes the proposal to use the BZX Official Closing Price for purposes of market value should help to ensure transparency to investors in calculating market value for purposes of the proposed rule. Second, allowing share issuances to be priced at the five-day average of the closing price will further align the Exchange’s requirements with how many transactions are structured, such as transactions where Exchange Rule 14.10(i) is not implicated because the issuance is for less than 20% of the common stock and the parties rely on the five-day average for pricing to smooth out unusual fluctuations in price. In so doing, the proposed rule change will perfect the mechanism of a free and open market. Further, allowing a five-day average price continues to protect investors and the public interest because it will allow companies and investors to price transactions in a manner designed to eliminate aberrant pricing resulting from unusual transactions on the day of a transaction. Maintaining the allowable average at just a five-day period also protects investors by ensuring the period is not too long, such that it would result in the price being distorted by ordinary past market movements and other outdated events. In a market that rises each day of the period, the five-day average will be less than the price at the end of the period, but would still be higher than the price at the start of such period. The Exchange believes that where two alternative measures of value exist that both reasonably approximate the value of listed securities, defining the Minimum Price as the lower of those values allows issuers the flexibility to use either measure because they can also sell securities at a price greater than the Minimum Price without needing shareholder approval. This flexibility, and the certainty that a transaction can be structured at either value in a manner that will not require shareholder approval, further perfects the mechanism of a free and open market without diminishing the existing investor protections of the 14.10(i). 5635(d)(1)(A) Relating to Shareholder Approval for Transactions Other Than Public Offerings). PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 12935 The Exchange also believes that eliminating the requirement for shareholder approval of issuances at a price less than book value but greater than market value does not diminish the existing investor protections of Exchange Rule 14.10(i)(4). Book value is primarily an accounting measure calculated based on historic cost and is generally perceived as an inappropriate measure of the current value of a stock. Because book value is not an appropriate measure of the current value of a stock, the elimination of the requirement for shareholder approval of issuances at a price less than book value but greater than market value will remove an impediment to, and perfect the mechanism of, a free and open market, which currently unfairly burdens companies in certain industries, without meaningfully diminishing investor protections of Exchange Rule 14.10(i)(4). The Exchange also believes that amending the title of 14.10(i)(4) and the preamble to replace references to ‘‘private placements’’ to ‘‘transactions other than public offerings’’ to conform the language in the title of 14.10(i)(4) and the preamble to the language in the rule text and that of Rule 14.10 Interpretation and Policy .18, which provides the definition of a public offering, will perfect the mechanism of a free and open market by making the rule easier to understand and apply. Private placements would continue to be considered ‘‘transactions other than public offerings’’ under the proposed rule change, and the proposed change does not change the essence of the current rule. The Exchange believes that amending Exchange Rule 14.10 Interpretation and Policy .18 and .19, which describe how the Exchange applies the shareholder approval requirements, to conform references to book and market value with the new definition of Minimum Price, as described above, and to utilize the newly defined term 20% Issuance will perfect the mechanism of a free and open market by eliminating confusion caused by references to a measure that is no longer applicable and by making the rule easier to understand and apply. (5) Exemptions to Certain Corporate Governance Requirements The Exchange believes that the proposed amendments to modify and expand the exemptions available to issuers of certain securities from some of the Exchange’s corporate governance requirements are consistent with the protection of investors. The Exchange believes that the proposed exemptions for issuers of only non-voting preferred E:\FR\FM\20FEN1.SGM 20FEN1 ddrumheller on DSK120RN23PROD with NOTICES1 12936 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices stock, debt securities and Derivative Securities are consistent with the protection of investors, as the holders of these securities do not have voting rights with respect to the election of directors, except in very limited circumstances, as required by state or federal law or their governing documents. Moreover, such securities are generally issued by an entity that is either (i) structured solely as vehicles for the issuance of non-voting or derivative securities, or (ii) issued by an operating company primarily listed on a national securities exchange and therefore subject to the full corporate governance and annual meeting requirements of that exchange. Additionally, the net asset value of Derivative Securities that the Exchange proposes to exclude from its annual meeting requirement is determined by the market price of each fund’s underlying securities or other reference asset. Shareholders of such securities products listed on the Exchange receive regular disclosure documents describing the pricing mechanism for their securities and detailing how they can value their holdings. Accordingly, holders of such securities can value their investment on an ongoing basis. Because of these factors, the Exchange believes there is a reduced need for shareholders to engage with management of issuers of these securities and thus no need for the issuers of such securities to hold annual shareholder meetings absent the existence of other listed securities with director election voting rights. Further, although the Exchange proposes to exclude issuers of such securities from holding an annual meeting, such issuers may still be required to hold special meetings as required by state or federal law or their governing documents. The Exchange further notes that issuers of only non-voting preferred stock, debt securities and Derivative Securities are excluded from complying with substantially similar requirements on other national securities exchanges.124 An issuer that has non-voting preferred stock, debt securities and Derivative Securities listed on the Exchange that also lists the issuers common stock or voting preferred stock or their equivalent on the Exchange will be subject to all the requirements of Exchange Rule 14.10. (6) Definition Family Member The Exchange believes the proposal to modify the definition of Family Member as provided in Exchange Rule 124 See Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3–E. VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 14.10(c)(1)(B) will 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. In particular, the Exchange’s rules currently prohibit a director from being deemed independent in certain circumstances by including director’s stepchildren in the definition of a Family Member, as described in more detail above. The rule also includes a domestic employee who shares the director’s home in the definition of a Family Member, even though the relationship between the director and such employee is commercial in nature. Independent directors over time became a linchpin in the American corporate governance. It is important for investors to have confidence that individuals serving as independent directors do not have a relationship with the listed company that would impair their independence. As the importance of independent directors for listed companies increased, so did the directors’ workload and the risk of litigation. In this environment, the Exchange believes that it is appropriate not to prohibit directors from being considered independent based on the aforementioned commercial or attenuated stepchild relationships, but instead allow the board to review such a relationship and determine whether a relationship exists that would interfere with the exercise of independent judgment in carrying out the director’s responsibilities. Additionally, the Exchange notes that the proposed rule change to Rule 14.10(c)(1)(B) will not affect the additional independence criteria for audit committee members set forth in Rule 14.10(c)(3), which incorporate the independence requirements of SEC Rule 10A–3.125 Following the proposed rule change, the Exchange’s definition of Family Member will become identical with Nasdaq definition of a Family Member, which the Commission has previously approved.126 125 Rule 14.10(c)(3)(B) requires that each Company must have, and certify that it has and will continue to have, an audit committee of at least three members, each of whom must, among other requirements, meet the criteria for independence set forth in Rule 10A–3(b)(1) under the Act, in addition to the requirements of Rule 14.10(c)(3)(B). See also Exchange Rule 14.10 Interpretation and Policy .05 (Audit Committee Composition). 126 See Nasdaq Listing Rule 5605(a)(2). See also Securities and Exchange Act Nos. 86095 (June 12, 2019) 84 FR 28379 (June 18, 2019) (SR–NASDAQ– 2019–049) (Notice of Filing of Proposed Rule Change To Amend the Definition of Family Member in Listing Rule 5605(a)(2) for Purposes of the Definition of Independent Director); and 88210 (February 13, 2020) 52 FR 9816 (February 20, 2020) PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 (7) Quorum The Exchange believes that the proposed amendments to Exchange Rules 14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) are designed to protect interests and the public interest because the proposal would eliminate a conflict forcing a company to choose between following the Exchange’s rules or the law in its home jurisdiction. Further, while the Exchange’s Quorum Requirement would not apply, there would continue to be other protections for shareholders provided by the company’s home country laws. The Exchange also believes the proposed amendments to Exchange Rules 14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) are designed to protect investors and the public interest because any company relying on the proposed exception from the Exchange’s Quorum Requirement will be required to make public disclosure on or through the Company’s website and either by filing a Form 8– K, where required by SEC rules, or by issuing a press release explaining the company’s reliance on the exception. The Exchange believes that the proposed requirement that such website disclosure is maintained for the period of time the company continues to rely on the exception from the quorum requirements is designed to protect investors and the public interest because such website disclosure would help assure continuous transparency. The Exchange also believes that the proposed requirement to update the website disclosure at least annually to indicate that the company continues to be prohibited under its home country law from complying with the Exchange’s quorum requirements as of the date of such update is designed to protect investors and the public interest because such disclosure would help the Exchange assure that the exception remains appropriate. The Exchange believes that the proposed amendments to correct grammatical errors or incorrect rule references will improve the readability and clarity of the Exchanges rulebook. The Exchange notes that the proposed changes to the Exchange’s quorum requirements are substantively similar to existing rules on Nasdaq, and thus do not present any new or novel issues.127 (Notice of Filing of Amendment No. 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 3, To Amend the Definition of Family Member in Listing Rule 5605(a)(2) for Purposes of the Definition of Independent Director). 127 See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158 (January 15, 2021) (SR–NASDAQ–2020–100) (Notice of Filing of E:\FR\FM\20FEN1.SGM 20FEN1 Federal Register / Vol. 89, No. 34 / Tuesday, February 20, 2024 / Notices B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Instead, the Exchange believes the proposed rule changes to conform certain applicable listing rules so that they are substantively similar to corresponding Nasdaq rules may enhance intermarket competition since the Exchange and Nasdaq will have substantially similar listing requirements for issuers. Moreover, none of the proposed changes will unduly burden intramarket competition. Participants will experience no competitive impact from the proposed amendments as they are merely intended to the Exchange’s corporate governance requirements so that they are substantively similar to those of other exchanges. Further, the Exchange anticipates that all issuers with Companies listed on the Exchange already comply with the proposed rules. Thus, the proposal will have no material impact to such issuers. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. ddrumheller on DSK120RN23PROD with NOTICES1 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 128 and subparagraph (f)(6) of Rule 19b–4 thereunder.129 Proposed Rule Change To Modify the Quorum Requirement for Non-U.S. Companies Under Certain Limited Circumstances); and 91567 (April 14, 2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Modify the Quorum Requirement). 128 15 U.S.C. 78s(b)(3)(A)(iii). 129 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires the Exchange to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. VerDate Sep<11>2014 16:54 Feb 16, 2024 Jkt 262001 A proposed rule change filed under Rule 19b–4(f)(6) 130 normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),131 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay to allow the Exchange to implement the proposal as soon as possible. The Exchange states that the proposal is substantively similar or identical to Nasdaq listing rules series 5200 (General Procedures and Prerequisites for Initial and Continued Listing on the Nasdaq Stock Market), 5600 (Corporate Governance Requirements), and 5800 (Failure to Meeting Listing Standards). The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because the proposal does not raise any new or novel issues. The proposed changes have also previously been subject to notice and comment.132 Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.133 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments 12937 • Send an email to rule-comments@ sec.gov. Please include file number SR– CboeBZX–2024–010 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–CboeBZX–2024–010. 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–CboeBZX–2024–010 and should be submitted on or before March 12, 2024. Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.134 Sherry R. Haywood, Assistant Secretary. Electronic Comments [FR Doc. 2024–03336 Filed 2–16–24; 8:45 am] • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or 130 17 CFR 240.19b–4(f)(6). CFR 240.19b–4(f)(6)(iii). 132 See Section II. A, supra. As described above, some of the proposed changes were also previously approved by the Commission. 133 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). BILLING CODE 8011–01–P DEPARTMENT OF STATE [Public Notice: 12329] 131 17 PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 Exchange Visitor Program Notice of an arrangement through a Memorandum of ACTION: 134 17 E:\FR\FM\20FEN1.SGM CFR 200.30–3(a)(12). 20FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 34 (Tuesday, February 20, 2024)]
[Notices]
[Pages 12919-12937]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-03336]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99524; File No. SR-CboeBZX-2024-010]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Its Corporate Governance Requirements, as Provided Under Exchange Rule 
14.10 and Make Certain Other Changes to Its Listing Rules as Provided 
Under Exchange Rules 14.3, 14.6, 14.7, and 14.12

February 13, 2024.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 29, 2024, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to 
amend its Corporate Governance Requirements, as provided under Exchange 
Rule 14.10 and make certain other changes to its listing rules as 
provided under Exchange Rules 14.3, 14.6, 14.7, and 14.12. The text of 
the proposed rule change is provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the corporate governance 
requirements as provided under Exchange Rule 14.10 and make certain 
other related changes to its listing rules as provided under Exchange 
Rules 14.3, 14.6, 14.7, and 14.12. The proposed changes are 
substantively similar to the equivalent rule on another exchange.\3\ 
Specifically, the proposed changes will (1) modify the compensation-
related listing rules to align with that of other exchanges; (2) modify 
the exemption to the Direct Registration Program (``DRP'') requirement 
as it pertains to foreign issuers; (3) require listed Companies to 
publicly disclose compensation or other payments by third parties to 
any nominee for director or sitting director in connection with their 
candidacy for or service on the Companies' Board of Directors; (4) 
modify the listing requirements to change the definition of market 
value for purposes of the shareholder approval rules and eliminate the 
requirement for shareholder approval of issuances at a price less than 
book value but greater than market value; (5) modify and clarify the 
exemptions from certain corporate governance requirements; (6) modify 
the definition of a ``Family Member'' as defined in Rule 14.10; (7) 
modify the quorum requirement applicable to a non-U.S. company where 
such company's home country law is in direct conflict with the 
Exchange's quorum requirement; and (8) modify rule numbers and make 
other ministerial clarifying changes. As noted above, the proposed 
changes would result in Exchange Rules that are substantively similar 
to the existing rules of Nasdaq and are supported by prior Commission 
approval orders and immediately effective exchange proposals, as 
discussed in further detail below.
---------------------------------------------------------------------------

    \3\ See the Nasdaq Stock Market LLC (``Nasdaq'') listing rules 
series 5200 (General Procedures and Prerequisites for Initial and 
Continued Listing on the Nasdaq Stock Market), 5600 (Corporate 
Governance Requirements), and 5800 (Failure to Meeting Listing 
Standards). Additionally, the chart provided in Item 8 below 
summarizes each Nasdaq Rule and each corresponding proposed Exchange 
Rule.

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[[Page 12920]]

(1) Compensation-Related Listing Rules
    First, the Exchange proposes to amend Rule 14.10 to require a 
Company listed on the Exchange to have a compensation committee and to 
update its requirements for a compensation committee. In addition to 
being consistent with the rules of another exchange,\4\ The Exchange 
believes the proposed rule will be in accordance with Rule 10C-1 of the 
Act.
---------------------------------------------------------------------------

    \4\ See Nasdaq listing rule 5605.
---------------------------------------------------------------------------

(a) Requirement To Have a Compensation Committee
    The Exchange's current listing rules require that compensation of 
the chief executive officer and all other Executive Officers \5\ of a 
Company must be determined, or recommended to the board for 
determination, either by: (i) a compensation committee comprised solely 
of Independent Directors; \6\ or as an alternative by (ii) Independent 
Directors constituting a majority of the board's Independent Directors 
in a vote in which only Independent Directors participate (the 
``Alternative'').\7\ Now, the Exchange proposes to eliminate the 
Alternative and instead require Exchange-listed Companies to have a 
standing compensation committee with the responsibility for 
determining, or recommending to the full board for determination, the 
compensation of the chief executive officer and all other Executive 
Officers of the Company. The Exchanges believes there are several 
benefits from a board having a standing committee dedicated solely to 
oversight of executive compensation. Specifically, directors on a 
standing compensation committee may develop expertise in a Company's 
executive compensation program in the same way that directors on a 
standing audit committee develop expertise in a Company's accounting 
and financial reporting processes. In addition, a formal committee 
structure may help promote accountability to stockholders for executive 
compensation decisions.\8\ Furthermore, no Company listed on the 
Exchange relies on the Alternative. Given this, the Exchange does not 
believe that eliminating the Alternative on the Exchange would impose 
any undue burden to Companies listed on the Exchange.
---------------------------------------------------------------------------

    \5\ ``Executive Officer'' means those officers covered in Rule 
16a-1(f) under the Act. See Exchange Rule 14.10(c)(1)(A).
    \6\ See Exchanger Rule 14.10(c)(1)(B).
    \7\ See Exchange Rule 14.10(c)(4)(B).
    \8\ See Securities Exchange Act Nos. 68013 (October 9, 2012) 77 
FR 62563 (October 15, 2012) (SR-NASDAQ-2012-109) (Notice of Filing 
of Proposed Rule Change To Modify the Listing Rules for Compensation 
Committees To Comply With Rule 10C-1 Under the Exchange Act and Make 
Other Related Changes) 68640 (January 11, 2013) 78 FR 4554 (January 
22, 2013) (Order Granting Accelerated Approval of Proposed Rule 
Change as Modified by Amendment Nos. 1 and 2 To Amend the Listing 
Rules for Compensation Committees To Comply With Rule 10C-1 Under 
the Act and Make Other Related Changes).
---------------------------------------------------------------------------

    The proposal would rename existing Rule 14.10(c)(4) ``Compensation 
Committee Requirements'' and would describe such requirements, many of 
which are included under existing Rule 14.10(c)(4), as discussed 
further below. The proposal to require Exchange-listed Companies to 
have a standing compensation committee with the responsibility for 
determining, or recommending to the full board for determination, the 
compensation of the chief executive officer and all other Executive 
Officers of the Company, is substantively similar to existing rules of 
another Exchange \9\ that were approved by the Commission.\10\
---------------------------------------------------------------------------

    \9\ See Nasdaq Listing Rule 5605(d).
    \10\ Supra note 10.
---------------------------------------------------------------------------

(b) Compensation Committee Charter
    The Exchange proposes to require each Company to certify that it 
has adopted a formal written compensation committee charter and that 
the compensation committee will review and reassess the adequacy of the 
formal written charter on an annual basis, as provided under proposed 
Rule 14.10(c)(4)(A).\11\ This proposal is similar to the Exchange's 
current requirement for Companies to certify as to the adoption of a 
formal written audit committee charter, except that the proposed 
requirement for annual review and reassessment of the adequacy of the 
compensation committee charter is written prospectively, rather than 
retrospectively.\12\ In other words, the proposed compensation 
committee charter requirement states that the compensation committee 
will review and reassess the adequacy of the charter on an annual 
basis, while the current audit committee charter requirement states 
that the audit committee has reviewed and reassessed the adequacy of 
the charter on an annual basis.\13\
---------------------------------------------------------------------------

    \11\ Smaller Reporting Companies may adopt either a formal 
written compensation committee charter or a board resolution that 
specifies the committee's responsibilities and authority, except 
Smaller Reporting Companies are not required to specify the specific 
compensation responsibilities and authority set forth in proposed 
Exchange Rule 14.10(d)(4)(D). For further discussion, see the 
section entitled ``Smaller Reporting Companies'' below.
    \12\ See Exchange Rule 14.10(c)(3)(A). The proposed Rule is 
substantively identical to Nasdaq Rule 5605(d)(1).
    \13\ The Exchange proposes to make a conforming change and 
technical and grammar corrections to its audit committee charter 
requirement to clarify that Companies' annual review and 
reassessment of the audit committee charter should be prospective. 
This is consistent with the Exchange's current interpretation of its 
audit committee charter requirement. By proposing this amendment, 
the Exchange seeks to minimize differences between the audit 
committee and compensation committee charter requirements and to 
eliminate potential questions as to whether the Exchange intended a 
discrepancy between these two requirements.
---------------------------------------------------------------------------

    The Exchange proposes that the compensation committee charter must 
specify:
     the scope of the compensation committee's 
responsibilities, and how it carries out those responsibilities, 
including structure, processes and membership requirements;
     the compensation committee's responsibility for 
determining, or recommending to the board for determination, the 
compensation of the chief executive officer and all other Executive 
Officers of the Company;
     that the chief executive officer of the Company may not be 
present during voting or deliberations by the compensation committee on 
his or her compensation; and
     the specific compensation committee responsibilities and 
authority set forth in proposed Exchange Rule 14.10(c)(4)(D).
    The requirement for the charter to specify the scope of the 
compensation committee's responsibilities, and how it carries out those 
responsibilities, including structure, processes and membership 
requirements, is copied from the Exchange's similar listing rule 
relating to audit committee charters.\14\ Furthermore, this requirement 
is substantively similar to requirements on another exchange.\15\
---------------------------------------------------------------------------

    \14\ See Exchange Rule 14.10(c)(3)(A)(i).
    \15\ See Nasdaq Listing Rule 5605(d)(1)(A).
---------------------------------------------------------------------------

    The requirement for the charter to specify the compensation 
committee's responsibility for determining, or recommending to the 
board for determination, the compensation of the chief executive 
officer and all other Executive Officers of the Company, is based upon 
the Exchange's current compensation-related listing rules.\16\ These 
listing rules require that the compensation of a Company's chief 
executive officer and all other Executive Officers must be determined 
by (i) a compensation committee comprised solely of Independent 
Directors or (ii) the Independent Directors constituting a majority of 
the board's Independent Directors in a vote in which only Independent 
Directors participate. As discussed above, the Exchange proposes to 
eliminate the Alternative, and therefore, the compensation of a 
Company's chief executive officer and all other Executive Officers must 
be

[[Page 12921]]

determined, or recommended to the board for determination, by a 
compensation committee comprised of Independent Directors. Going 
forward, the Exchange proposes to implement this requirement by 
requiring Companies to include it in their formal written compensation 
committee charters.
---------------------------------------------------------------------------

    \16\ See Exchange Rule 14.10(c)(4)(B)(i) and (ii).
---------------------------------------------------------------------------

    The requirement for the charter to specify that the chief executive 
officer of the Company may not be present during voting or 
deliberations by the compensation committee on his or her compensation 
is based upon the Exchange's current compensation-related listing 
rules.\17\ Going forward, the Exchange proposes to implement this 
requirement by requiring Companies to include it in their formal 
written compensation committee charters as applicable.
---------------------------------------------------------------------------

    \17\ See Exchange Rule 14.10(c)(4)(B)(i).
---------------------------------------------------------------------------

    Finally, the requirement for the charter to specify the specific 
compensation committee responsibilities and authority set forth in 
proposed Exchange Rule 14.10(c)(4)(D) is modeled after the Exchange's 
similar listing rule relating to audit committee charters.\18\ 
Moreover, it is substantively similar to rules of another exchange.\19\
---------------------------------------------------------------------------

    \18\ See Exchange Rule 14.10(c)(3(A)(iv), which requires that an 
audit committee charter set forth the specific audit committee 
responsibilities and authority set forth in Exchange Rule 
14.10(c)(3)(C). Exchange Rule 14.10(c)(3)(C) states that an audit 
committee must have the specific responsibilities and authority 
necessary to comply with Rule 10A-3(b)(2), (3), (4) and (5) under 
the Exchange Act, with certain exemptions. Rule 10A-3(b)(2), (3), 
(4) and (5) under the Exchange Act concerns responsibilities 
relating to: (i) registered public accounting firms; (ii) complaints 
relating to accounting, internal accounting controls or auditing 
matters; (iii) authority to engage advisors; and (iv) funding as 
determined by the audit committee.
    \19\ See Nasdaq Listing Rule 5605(d)(3).
---------------------------------------------------------------------------

(c) Compensation Committee Size
    Next, the Exchange proposes to impose a minimum size requirement of 
the compensation committee of at least two members under proposed Rule 
14.10(c)(4)(B). The proposal would move existing Rule 14.10(c)(4)(A) to 
paragraph (B) and incorporate the proposed compensation committee size 
requirement. Given the importance of compensation decisions to 
stockholders, the Exchange believes that it is appropriate to have more 
than one director responsible for these decisions. No Company currently 
listed on the Exchange has a compensation committee of fewer than two 
members. Given this, combined with the fact that another exchange \20\ 
also requires a minimum compensation committee size of two members, the 
Exchange does not believe the proposal would cause undue hardship for 
Exchange-listed companies.
---------------------------------------------------------------------------

    \20\ See Nasdaq Listing Rule 5605(d)(2).
---------------------------------------------------------------------------

(d) Exceptional and Limited Circumstances Exception
    The Exchange proposes to adopt Rule 14.10(c)(4)(C), which will 
provide that notwithstanding proposed Rule 14.10(c)(4)(B) (Compensation 
Committee Composition) if the compensation committee is comprised of at 
least three members, one director who does not meet the requirements of 
paragraph 14.10(c)(4)(B) and is not currently an Executive Officer or 
employee or a Family Member of an Executive Officer, may be appointed 
to the compensation committee if the board, under exceptional and 
limited circumstances, determines that such individual's membership on 
the committee is required by the best interests of the Company and its 
Shareholders. A Company that relies on this exception must disclose 
either on or through the Company's website or in the proxy statement 
for the next annual meeting subsequent to such determination (or, if 
the Company does not file a proxy, in its Form 10-K or 20-F), the 
nature of the relationship and the reasons for the determination. In 
addition, the Company must provide any disclosure required by 
Instruction 1 to Item 407(a) of Regulation S-K regarding its reliance 
on this exception. A member appointed under this exception may not 
serve longer than two years.
    The Exchange's current listing rules include similar exceptions for 
audit and nominations committees.\21\ The Exchange believes such an 
exception provides an important means to allow Companies flexibility as 
to board and committee membership and composition in unusual 
circumstances, which may be particularly important for smaller 
Companies. Moreover, the proposed rule is substantively similar to 
existing rules of another exchange.\22\
---------------------------------------------------------------------------

    \21\ See Exchange Rule 14.10(c)(3)(B)(ii).
    \22\ See Nasdaq Listing Rule 5605(d)(2)(B).
---------------------------------------------------------------------------

(e) Compensation Committee Responsibilities and Authority
    The Exchange proposes to keep the Compensation Committee 
Responsibilities and Authority provided under existing Rule 
14.10(c)(4)(C) largely the same under proposed Rule 14.10(c)(4)(D), but 
to make small modifications to restructure and organize the rule. 
Specifically, the Exchange proposes to add a paragraph following 
proposed Rule 14.10(c)(4)(D)(iv) providing that for the purposes of 
this Rule, the compensation committee is not required to conduct an 
independence assessment for a compensation adviser that acts in a role 
limited to the following activities for which no disclosure is required 
under Item 407(e)(3)(iii) of Regulation S-K: (a) consulting on any 
broad-based plan that does not discriminate in scope, terms, or 
operation, in favor of Executive Officers or directors of the Company, 
and that is available generally to all salaried employees; and/or (b) 
providing information that either is not customized for a particular 
issuer or that is customized based on parameters that are not developed 
by the adviser, and about which the adviser does not provide advice. 
The proposed language is identical to that included in another 
exchanges rules.\23\
---------------------------------------------------------------------------

    \23\ See Nasdaq Listing Rule 5605(d)(3).
---------------------------------------------------------------------------

(f) Compensatory Fees
    Existing Rule 14.10(c)(4)(A)(i) provides that in addition to 
meeting the criteria listed under Rule 14.10(c)(1)(B), in evaluating 
the independence of a director to determine if such director is 
permitted to determine the compensation of Executive Officers as 
described in Rule 14.10(c)(4)(B), the board of directors of a Company 
shall consider the following factors: (a) the source of compensation of 
the director, including any consulting, advisory or other compensatory 
fee paid by the Company to such director; and (b) whether the director 
is affiliated with the Company, a subsidiary of the Company, or an 
affiliate of a subsidiary of the company. Now, the Exchange proposes to 
move existing Rule 14.10(c)(4)(A)(i) to Rule 14.10(c)(4)(B) and to note 
within the paragraph the requirement that each Company must have and 
certify that it has and will continue to have a compensation committee 
of at least two members. The Exchange also proposes to make other non-
substantive changes to Rule 14.10(c)(4)(B) to add clarity and so that 
it is substantively identical to the equivalent Nasdaq rule.\24\
---------------------------------------------------------------------------

    \24\ See Nasdaq Rule 5605(d)(2)(A).
---------------------------------------------------------------------------

    Additionally, the Exchange proposes to amend Interpretation and 
Policy .07 to Rule 14.10 so that it is substantively identical to 
Nasdaq Listing IM-5605-6. Currently, Interpretation and Policy .07 
provides that independent director oversight of executive officer 
compensation helps assure that appropriate incentives are in place, 
consistent with the board's responsibility to maximize shareholder 
value. The rule is intended to provide

[[Page 12922]]

flexibility for a Company to choose an appropriate board structure and 
to reduce resource burdens, while ensuring Independent Director control 
of compensation decisions. The Exchange proposes to modify 
Interpretation and Policy .07 to provide that independent director 
oversight of executive officer compensation helps assure that 
appropriate incentives are in place, consistent with the board's 
responsibility to act in the best interests of the corporation. 
Compensation committees are required to have a minimum of two members 
and be comprised only of Independent Directors as defined under Rule 
14.10(c)(1)(B).
    In addition, proposed Rule 14.10(c)(4)(B) includes an additional 
independence test for compensation committee members. When considering 
the sources of a director's compensation for this purpose, the board 
should consider whether the director receives compensation from any 
person or entity that would impair the director's ability to make 
independent judgments about the Company's executive compensation. 
Similarly, when considering any affiliate relationship a director has 
with the Company, a subsidiary of the Company, or an affiliate of a 
subsidiary of the Company, in determining independence for purposes of 
compensation committee service, the board should consider whether the 
affiliate relationship places the director under the direct or indirect 
control of the Company or its senior management, or creates a direct 
relationship between the director and members of senior management, in 
each case of a nature that would impair the director's ability to make 
independent judgments about the Company's executive compensation. In 
that regard, while a board may conclude differently with respect to 
individual facts and circumstances, the Exchange does not believe that 
ownership of Company stock by itself, or possession of a controlling 
interest through ownership of Company stock by itself, precludes a 
board finding that it is appropriate for a director to serve on the 
compensation committee. In fact, it may be appropriate for certain 
affiliates, such as representatives of significant stockholders, to 
serve on compensation committees since their interests are likely 
aligned with those of other stockholders in seeking an appropriate 
executive compensation program.
    For purposes of the additional independence test for compensation 
committee members described in proposed Rule 14.10(c)(4)(B), any 
reference to the ``Company'' includes any parent or subsidiary of the 
Company. The term ``parent or subsidiary'' is intended to cover 
entities the Company controls and consolidates with the Company's 
financial statements as filed with the Commission (but not if the 
Company reflects such entity solely as an investment in its financial 
statements).
    Proposed Interpretation and Policy .07 would set forth the 
compensation committee composition requirements for Smaller Reporting 
Companies. Specifically, a Smaller Reporting Company must have a 
compensation committee with a minimum of two members. Each compensation 
committee member must be an Independent Director as defined under Rule 
14.10(c)(1)(B). In addition, each such Smaller Reporting Company must 
have a formal written compensation committee charter or board 
resolution that specifies the committee's responsibilities and 
authority set forth in proposed Rule 14.10(c)(4)(A)(i)-(iii). However, 
in recognition of the fact that Smaller Reporting Companies may have 
fewer resources than larger Companies, Smaller Reporting Companies are 
not required to adhere to the additional compensation committee 
eligibility requirements in proposed Rule 14.10(c)(4)(B), or to 
incorporate into their formal written compensation committee charter or 
board resolution the specific compensation committee responsibilities 
and authority set forth in proposed Rule 14.10(c)(4)(D).
    The Exchange also proposes to allow a Company that has ceased to be 
a Smaller Reporting Company to phase-in a fully-compliant compensation 
committee. Pursuant to Rule 12b-2 under the Act, a Company tests its 
status as a Smaller Reporting Company on an annual basis at the end of 
its most recently completed second fiscal quarter.\25\ A Company which 
ceases to meet the requirements for Smaller Reporting Company status as 
of the Determination Date will cease to be a Smaller Reporting Company 
as of the beginning of the fiscal year following the Determination Date 
(the ``Start Date'').
---------------------------------------------------------------------------

    \25\ See 17 CFR 240.12b-2.
---------------------------------------------------------------------------

    By six months from the Start Date (i.e., by six months after the 
beginning of its fiscal year), a Company that has ceased to be a 
Smaller Reporting Company must comply with the requirements of Rule 
14.10(c)(4)(D) relating to certain compensation committee 
responsibilities and authority.\26\ In addition, such a Company may 
phase in its compliance with the additional compensation committee 
composition requirements of Rule 14.10(c)(4)(B) relating to the receipt 
of compensatory fees and affiliation as follows: (1) one member must 
satisfy the requirements by six months from the Start Date; (2) a 
majority of members must satisfy the requirements by nine months from 
the Start Date; and (3) all members must satisfy the requirements by 
one year from the Start Date. Since a Smaller Reporting Company is 
required to have a compensation committee comprised of at least two 
Independent Directors, a Company that has ceased to be a Smaller 
Reporting Company may not use the phase-in schedule for the minimum 
size requirement or the requirement that the committee consist only of 
Independent Directors as defined under 14.10(c)(1)(B). During the 
phase-in schedule, a Company that has ceased to be a Smaller Reporting 
Company must continue to comply with the requirement to have a 
compensation committee comprised of at least two Independent Directors 
as defined under the Exchange's existing listing rules.
---------------------------------------------------------------------------

    \26\ By six months from the Start Date, such a Company also must 
certify to the Exchange that: (i) it has complied with the 
requirement in Rule 14.10(c)(4)(A) to have a compensation committee 
charter including the content specified in Rule 14.110(c)(4)(A)(i)-
(iv); and (ii) it has complied, or will within the applicable phase-
in schedule comply, with the requirement in Rule 14.10(c)(4)(B) 
regarding compensation committee composition.
---------------------------------------------------------------------------

(g) Smaller Reporting Companies Exemption
    The Exchange proposes to move existing Rule 14.10(e)(1)(F) to 
proposed Rule 14.10(c)(4)(F) with amendments to conform to Nasdaq 
Listing Rule 5605(d)(5). Current Rule 14.10(e)(1)(F) provides that 
Smaller reporting companies, as defined in Rule 12b-2 under the Act, 
are exempt from the Independent Director Oversight of Executive Officer 
Compensation requirements set forth in Rule 14.10(c)(4), except that 
compensation of the chief executive officer and all other Executive 
Officers of the Company must be determined, or recommended to the Board 
for determination, either by: (i) Independent Directors constituting a 
majority of the Board's Independent Directors in a vote in which only 
Independent Directors meeting the definition of Independent Director in 
Rule 14.10(c)(1)(B) participate; or (ii) a compensation committee 
comprised solely of Independent Directors meeting the definition of 
Independent Director in Rule 14.10(c)(1)(B). The rule further provides 
that the chief executive officer may not be present during voting or 
deliberations.

[[Page 12923]]

    Now, the Exchange proposes to delete subparagraphs (i) and (ii) in 
existing Rule 14.10(e)(1)(F) and modify the proposed Rule to provide 
that a Smaller Reporting Company is not subject to the requirements of 
Rule 14.10(c)(4) except that a Smaller Reporting Company must have, and 
certify that it has and will continue to have, a compensation committee 
of at least two members, each of whom must be an Independent Director 
as defined under Rule 14.10(c)(1)(B). Proposed Rule 14.10(c)(4)(F) 
would also provide that a Smaller Reporting Company may rely on the 
exception in Rule 14.10(c)(4)(C) and the cure period in Rule 
14.10(c)(4)(E). In addition, a Smaller Reporting Company must certify 
that it has adopted a formal written compensation committee charter or 
board resolution that specifies the content set forth in Rule 
14.10(c)(4)(A)(i)-(iii). A Smaller Reporting Company does not need to 
include in its formal written compensation committee charter or board 
resolution the specific compensation committee responsibilities and 
authority set forth in Rule 14.10(c)(4)(D). As discussed above, the 
proposed amendments to Interpretation and Policy .07 to Rule 14.10 
would provide additional clarity to the requirements for Smaller 
Reporting Companies and would make the policy substantively similar to 
Nasdaq IM-5605-6.
(h) Conforming Changes and Correction of Typographical Errors
    The Exchange proposes to capitalize the term ``Independent 
Director'' throughout Rule 14.10(c)(3)(B) (Audit Committee Composition) 
and the term ``Company'' throughout Rule 14.10.
    The Exchange proposes to modify the Audit Committee Charter 
requirement provided in Rule 14.10(c)(3)(A) to require a prospective 
review of the adequacy of the formal written charter on an annual 
basis,\27\ similar to that proposed for the Compensation Committee 
Charter requirement under proposed Rule 14.10(c)(4)(A). Thus, proposed 
Rule 14.10(c)(3)(A) would provide that Each Company must certify that 
it has adopted a formal written audit committee charter and that the 
audit committee will review and reassess the adequacy of the formal 
written charter on an annual basis.
---------------------------------------------------------------------------

    \27\ The proposed Rule is substantively identical to Nasdaq Rule 
5605(d)(1).
---------------------------------------------------------------------------

    Existing Rule 14.10(c)(1)(B) includes a paragraph that provides 
that in addition to the requirements contained in this Rule 
14.10(c)(1)(B), directors of a Company, in determining compensation of 
Executive Officers as described in Rule 14.10(c)(4)(B) (relating to 
compensation of Executive Officers), are also subject to additional 
factors for determining independence under Rule 14.10(c)(4). The 
Exchange proposes to delete this paragraph to conform to Nasdaq Rule 
5605(a)(2)(G) and because the proposed compensation committee rules 
would already address this issue in proposed Rule14.10(c)(4)(B).
    The Exchange also proposes to correct certain typographical errors 
in Rule 14.10(c)(1)(3) to maintain a clear Rulebook.
    As discussed above, the Exchange notes that all of the proposed 
changes to Rule 14.10(c) described above are substantively similar to 
existing rules of another Exchange \28\ that were approved by the 
Commission.\29\
---------------------------------------------------------------------------

    \28\ See Nasdaq Listing Rule 5605(d).
    \29\ Supra notes 10 and 11.
---------------------------------------------------------------------------

(2) Direct Registration Program
    Exchange Rules 14.3(b)(3) and 14.7(c) provide that all securities 
listed on the Exchange, with certain exceptions, must be eligible for a 
DRP operated by a clearing agency registered under Section 17A of the 
Act.\30\ When this requirement was initially adopted, the Exchange 
recognized that the laws or regulations of certain foreign countries 
might make it impossible for companies incorporated in those countries 
to comply. Consequently, the rule permits a Foreign Private Issuer \31\ 
to follow its home country practice in lieu of this requirement when 
prohibited from complying by a law or regulation in its home country.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78q-1.
    \31\ See Exchange Rule 14.1(a)(14).
---------------------------------------------------------------------------

    The Exchange now proposes to amend this exemption to extend its 
application to all ``foreign issuers'' as that term is used in 
Securities Exchange Act Rule 3b-4 \32\ rather than only to Foreign 
Private Issuers.\33\ The Exchange believes this amendment is necessary 
because the same legal or regulatory impediments to DRP eligibility 
exist for a foreign issuer which is incorporated in a foreign 
jurisdiction but which does not qualify for Foreign Private Issuer 
status as is the case for a Foreign Private Issuer incorporated in the 
same jurisdiction which is currently eligible to utilize the existing 
exemption. Absent this extension of the scope of the exemption, the DRP 
eligibility requirement would render it impossible for a foreign issuer 
to list if it was not a Foreign Private Issuer but was incorporated in 
a foreign jurisdiction whose law or regulation made compliance with the 
DRP requirement impossible. As under the current exemption, a foreign 
issuer will have to submit to the Exchange a written statement from an 
independent counsel in the company's home country certifying that a law 
or regulation in the home country prohibits compliance with the DRP 
requirement in order to utilize the exemption.
---------------------------------------------------------------------------

    \32\ Exchange Act Rule 3b-4, 17 CFR 240.3b-4, defines the term 
``foreign issuer'' as any issuer which is a foreign government, a 
national of any foreign country or a corporation or other 
organization incorporated or organized under the laws of any foreign 
country.
    \33\ The proposed amendments to the Exchange's DRP are 
substantively similar to changes made by Nasdaq. See Securities and 
Exchange Act Release No. 68238 (November 15, 2012) 77 FR 69911 
(November 21, 2012) (SR-NASDAQ-2012-128) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Expand the 
Exemption to the Direct Registration Program Requirement to All 
Foreign Issuers Rather Than Only Foreign Private Issuers).
---------------------------------------------------------------------------

    The Exchange also proposes to amend the exemptions provided under 
Rule 14.3(b)(3) to conform with those provided in existing Rule 14.7. 
Specifically, Exchange Rule 14.7(a) provides that except as indicated 
in Rule 14.7(c), all securities listed on the Exchange (except 
securities which are book-entry only) must be eligible for a DRP 
operated by a clearing agency registered under Section 17A of the Act. 
Existing Rule 14.3(b)(3) provides that all securities initially listing 
on the Exchange must be eligible for a DRP operated by a clearing 
agency registered under Section 17A of the Act. It also provides that 
this provision does not extend to: (i) additional classes of securities 
of Companies which already have securities listed on the Exchange; (ii) 
Companies which immediately prior to such listing had securities listed 
on another registered securities exchange in the U.S.; or, (iii) non-
equity securities that are book-entry only. As these exemptions are not 
provided in existing Rule 14.7 or other exchange rules, the Exchange 
proposed to delete them from Rule 14.3(b)(3). The proposed rule changes 
are substantively similar to existing rules on another exchange.\34\
---------------------------------------------------------------------------

    \34\ See Nasdaq Listing Rules 5210(c) and 5255(c).
---------------------------------------------------------------------------

    Exchange Rule 14.10(e)(1)(C) provides limited exemptions with 
respect to certain corporate governance and reporting requirements for 
Foreign Private Issuers and also provides that a Foreign Private Issuer 
may follow its home country practice in lieu of the DRP requirement set 
forth in Rules 14.3(b)(3) and 14.7. As the proposed exemption to the 
DRP requirement expands beyond Foreign Private Issuers, the Exchange 
proposes to delete the reference to Rules 14.3(b)(3) and 14.7

[[Page 12924]]

from Rule 14.10(e)(1)(C) and Interpretation and Policy .12 of Rule 
14.10 to minimize confusion about the availability of such exemptions 
to foreign issuers that do not qualify for Foreign Private Issuer 
status.\35\
---------------------------------------------------------------------------

    \35\ The proposed rule changes are substantively identical to 
Nasdaq Rule 5615(a)(3) and IM-5613-3.
---------------------------------------------------------------------------

    The Exchange also proposes to correct Rule inaccurate references in 
Interpretation and Policy .12 to Rule 14.10 and Rule 14.10(e)(1)(C)(i). 
Specifically, the Exchange proposes to make non-substantive changes to 
modify incorrect references from Rule 14.7 to Rule 14.10 and from Rule 
14.3(e)(4) to 14.6(d). Additionally, the Exchange proposes to correct a 
title reference in Exchange Rule 14.10(e)(1)(C)(i) to correctly reflect 
the title of Rule 14.10(g) (Notification of Noncompliance). The 
Exchange also proposes to amend Interpretation and Policy .12 to Rule 
14.10 to provide a more granular and accurate rule cite to the 
applicable audit committee requirement for Foreign Private Issuers 
provided under Rule 14.10(c)(3)(B)(i)(b). As discussed above, the 
Exchange also proposes to delete references to the Exchange's DRP from 
Interpretation and Policy .12. In place of the reference to the DRP 
provided in Interpretation and Policy .12, the Exchange proposes to 
reiterate the requirement that a Foreign Private Issuer must comply 
with the voting rights requirement under Rule 14.10(j). Further, as 
discussed below, the Exchange also proposes to add references to 
proposed Rule 14.6(b)(3) to proposed Interpretation and Policy .12. 
These proposed changes are also substantively similar to existing rules 
on another exchange.\36\
---------------------------------------------------------------------------

    \36\ Id.
---------------------------------------------------------------------------

(3) Public Disclosure
    The Exchange proposes to add an additional obligation to make 
public disclosure under proposed Rule 14.6(b)(3), which would require 
the disclosure of third party director and nominee compensation,\37\ 
and is substantively similar to existing rules of another exchange.\38\ 
Current Exchange Rules require listed companies to make public 
disclosure in several areas. For example, a listed company is required 
to publicly disclose material information that would reasonably be 
expected to affect the value of its securities or influence investors' 
decisions as well as when non-independent directors serve on a 
committee that generally requires only independent directors, such as 
for a controlled company or under exceptional and limited 
circumstances.\39\ A listed company is also required to file required 
periodic reports with the Commission.\40\ A principal purpose of these 
disclosure requirements is to protect investors and ensure these 
investors have necessary information to make informed investment and 
voting decisions.
---------------------------------------------------------------------------

    \37\ The Exchange notes that the proposal is substantively 
similar to other proposed rules approved by the Commission. See 
Securities and Exchange Act Nos. 77481 (March 30, 2016) 81 FR 19678 
(April 5, 2016) (SR-NASDAQ-2016-013) (Notice of Filing of Proposed 
Rule Change To Require Listed Companies to Publicly Disclose 
Compensation or Other Payments by Third Parties to Board of 
Director's Members or Nominees); 78223 (July 1, 2016) 81 FR 44400 
(July 7, 2016) (Notice of Filing of Amendment No. 2 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 2, To Require Listed Companies to Publicly Disclose 
Compensation or Other Payments by Third Parties to Board of 
Director's Members or Nominees).
    \38\ See Nasdaq Listing Rule 5250(b)(3).
    \39\ See Exchange Rules 14.6(b)(1), 14.10(e)(3)(B), 
14.10(c)(3)(B)(ii), and 14.10 (c)(5)(C).
    \40\ See Exchange Rule 14.6(c).
---------------------------------------------------------------------------

    As noted above, now the Exchange proposes to adopt Rule 14.6(b)(3) 
which would require the disclosure of third party director and nominee 
compensation. The preamble to proposed Rule 14.6(b)(3) would provide 
that Companies must disclose all agreements and arrangements in 
accordance with this rule by no later than the date on which the 
Company files or furnishes a proxy or information statement subject to 
Regulation 14A or 14C under the Act in connection with the Company's 
next shareholders' meeting at which directors are elected (or, if they 
do not file proxy or information statements, no later than when the 
Company files its next Form 10-K or Form 20-F).\41\
---------------------------------------------------------------------------

    \41\ The proposed rule is substantively identical to the 
preamble of Nasdaq Rule 5250(b)(3).
---------------------------------------------------------------------------

    Proposed Rule 14.6(b)(3)(A) would require a Company to disclose 
either on or through the Company's website or in the proxy or 
information statement for the next shareholders' meeting at which 
directors are elected (or, if the Company does not file proxy or 
information statements, in its Form 10-K or 20-F), the material terms 
of all agreements and arrangements between any director or nominee for 
director, and any person or entity other than the Company (the ``Third 
Party''), relating to compensation or other payment in connection with 
such person's candidacy or service as a director of the Company. A 
Company need not disclose pursuant to this rule agreements and 
arrangements that: (i) relate only to reimbursement of expenses in 
connection with candidacy as a director; (ii) existed prior to the 
nominee's candidacy (including as an employee of the other person or 
entity) and the nominee's relationship with the Third Party has been 
publicly disclosed in a proxy or information statement or annual report 
(such as in the director or nominee's biography); or (iii) have been 
disclosed under Item 5(b) of Schedule 14A of the Act or Item 5.02(d)(2) 
of Form 8-K in the current fiscal year. Proposed Rule 14.6(b)(3)(A) 
would further provide that disclosure pursuant to Commission rule shall 
not relieve a Company of its annual obligation to make disclosure under 
proposed subparagraph (B).\42\
---------------------------------------------------------------------------

    \42\ The proposed rule is substantively identical to Nasdaq Rule 
5250(b)(3)(A).
---------------------------------------------------------------------------

    Proposed Rule 14.6(b)(3)(B) would provide that a Company must make 
the disclosure required in proposed subparagraph (A) at least annually 
until the earlier of the resignation of the director or one year 
following the termination of the agreement or arrangement.\43\ In 
recognition that a company, despite reasonable efforts, may not be able 
to identify all such agreements and arrangements, proposed Rule 
14.6(b)(3)(C) would provide that if a Company discovers an agreement or 
arrangement that should have been disclosed pursuant to proposed 
subparagraph (A) but was not, the Company must promptly make the 
required disclosure by filing a Form 8-K or 6-K, where required by SEC 
rules, or by issuing a press release. Remedial disclosure under this 
proposed subparagraph, regardless of its timing, does not satisfy the 
annual disclosure requirements under proposed subparagraph (B).\44\
---------------------------------------------------------------------------

    \43\ The proposed rule is substantively identical to Nasdaq Rule 
5250(b)(3)(B).
    \44\ The proposed rule is substantively identical to Nasdaq Rule 
5250(b)(3)(C).
---------------------------------------------------------------------------

    Proposed Rule 14.6(b)(3)(D) would provide that a Company shall not 
be considered deficient with respect to this paragraph for purposes of 
Rule 14.12 if the Company has undertaken reasonable efforts to identify 
all such agreements or arrangements, including asking each director or 
nominee in a manner designed to allow timely disclosure, and makes the 
disclosure required by proposed subparagraph (C) promptly upon 
discovery of the agreement or arrangement. In all other cases, the 
Company must submit a plan sufficient to satisfy Exchange staff that 
the Company has adopted processes and procedures designed to identify 
and disclose relevant agreements or arrangements.\45\ In cases where a 
company is considered deficient for purposes of Rule 14.12, the company

[[Page 12925]]

must provide a plan to regain compliance as provided under proposed 
Rule 14.12(f)(2)(A)(iv). Consistent with deficiencies from most other 
rules that allow a company to submit a plan to regain compliance,\46\ 
the Exchange proposes to allow companies deficient under the proposed 
rule 45 calendar days to submit a plan sufficient to satisfy Exchange 
staff that the company has adopted processes and procedures designed to 
identify and disclose relevant agreements and arrangements in the 
future.\47\ If the company does not do so, it would be issued a Staff 
Delisting Determination, which the company could appeal to a Hearings 
Panel pursuant to Rule 14.12. This proposal to adopt new Exchange Rule 
14.12(f)(2)(A)(iv) and to modify and renumber existing Rules 
14.12(f)(2)(A)(iv) and (v) to provide for the proposed Rule 
14.12(f)(2)(A)(iv) is substantively similar to existing rules on 
another exchange.\48\
---------------------------------------------------------------------------

    \45\ The proposed rule is substantively identical to Nasdaq Rule 
5250(b)(3)(D).
    \46\ Pursuant to Rule 14.12(f)(2)(A), a company is provided 45 
days to submit a plan to regain compliance with Rules 14.10(f)(3) 
(Quorum), 14.10(h) (Review of Related Party Transactions), 14.10(i) 
(Shareholder Approval), 14.6(c)(3) (Auditor Registration), 14.7 
(Direct Registration Program), 14.10(d) (Code of Conduct), 
14.10(e)(1)(D)(v) (Quorum of Limited Partnerships), 
14.10(e)(1)(D)(vii) (Related Party Transactions of Limited 
Partnerships), or 14.10(j) (Voting Rights). A company is generally 
provided 60 days to submit a plan to regain compliance with the 
requirement to timely file periodic reports contained in Rule 
14.12(f)(2)(F).
    \47\ The proposed rule is substantively identical to Nasdaq Rule 
5810(c)(2), except as for the reference to board disclosure rules 
which the Exchange is not proposing to adopte.
    \48\ See Nasdaq Listing Rule 5810(c)(2)(A)(i) through (v).
---------------------------------------------------------------------------

    Finally, proposed Rule 14.6(b)(3)(E) would provide that a Foreign 
Private Issuer may follow its home country practice in lieu of the 
requirements of Rule 14.6(b)(3) by utilizing the process described in 
Rule 14.10(e)(1)(C). Consistent with other exemptions afforded certain 
types of companies, the Exchange is also proposing to amend Exchange 
Rule 14.10(e)(1)(C) to provide that a Foreign Private Issuer may follow 
home country practice in lieu of the requirements of proposed Rule 
14.6(b)(3). The proposal for this exemption is identical to an existing 
exemption provided on another exchange.\49\
---------------------------------------------------------------------------

    \49\ See Nasdaq Listing Rule 5615(a)(3).
---------------------------------------------------------------------------

    The Exchange also proposes to adopt Interpretation and Policy .03 
to Rule 14.6 to add clarity and additional guidance to the requirements 
of proposed Rule 14.6(b)(3). Specifically, proposed Interpretation and 
Policy .03 would provide that the terms ``compensation'' and ``other 
payment'' as used in this proposed rule are intended to be construed 
broadly. Therefore, the terms would apply to agreements and 
arrangements that provide for non-cash compensation and other payment 
obligations, such as health insurance premiums or indemnification, made 
in connection with a person's candidacy or service as a director. 
Further, at a minimum, the disclosure should identify the parties to 
and the material terms of the agreement or arrangement relating to 
compensation.\50\
---------------------------------------------------------------------------

    \50\ The Exchange notes that the proposal is substantively 
similar to other proposed rules approved by the Commission. See 
Securities and Exchange Act Nos. 77481 (March 30, 2016) 81 FR 19678 
(April 5, 2016) (SR-NASDAQ-2016-013) (Notice of Filing of Proposed 
Rule Change To Require Listed Companies to Publicly Disclose 
Compensation or Other Payments by Third Parties to Board of 
Director's Members or Nominees); 78223 (July 1, 2016) 81 FR 44400 
(July 7, 2016) (Notice of Filing of Amendment No. 2 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 2, To Require Listed Companies to Publicly Disclose 
Compensation or Other Payments by Third Parties to Board of 
Director's Members or Nominees).
---------------------------------------------------------------------------

    Proposed Interpretation and Policy .03 to Rule 14.6 would also 
provide that Subject to exceptions provided in the rule, the disclosure 
must be made on or through the Company's website or in the proxy or 
information statement for the next shareholders' meeting at which 
directors are elected in order to provide shareholders with information 
and sufficient time to help them make meaningful voting decisions. A 
Company posting the requisite disclosure on or through its website must 
make it publicly available no later than the date on which the Company 
files a proxy or information statement in connection with such 
shareholders' meeting (or, if they do not file proxy or information 
statements, no later than when the Company files its next Form 10-K or 
Form 20-F). Disclosure made available on the Company's website or 
through it by hyperlinking to another website, must be continuously 
accessible. If the website hosting the disclosure subsequently becomes 
inaccessible or that hyperlink inoperable, the company must promptly 
restore it or make other disclosure in accordance with this rule. Rule 
14.6(b)(3) does not separately require the initial disclosure of newly 
entered into agreements or arrangements, provided that disclosure is 
made pursuant to this rule for the next shareholders' meeting at which 
directors are elected. In addition, for publicly disclosed agreements 
and arrangements that existed prior to the nominee's candidacy and thus 
not required to be disclosed in accordance with proposed Rule 
14.6(b)(3)(A)(ii) but where the director or nominee's remuneration is 
thereafter materially increased specifically in connection with such 
person's candidacy or service as a director of the Company, only the 
difference between the new and previous level of compensation or other 
payment obligation needs be disclosed. All references in this rule to 
proxy or information statements are to the definitive versions 
thereof.\51\
---------------------------------------------------------------------------

    \51\ Id.
---------------------------------------------------------------------------

(4) Market Value Definition and Shareholder Approval
    Exchange Rule 14.10(i) sets forth the circumstances under which 
shareholder approval is required prior to an issuance of securities in 
connection with (1) the acquisition of the stock or assets of another 
company; (2) a change of control; (3) equity-based compensation of 
officers, directors, employees or consultants; and (4) private 
placements. Specifically, under current Rule 14.10(i)(4), shareholder 
approval is required prior to the issuance of securities in connection 
with a transaction other than a public offering involving:
    (A) the sale, issuance or potential issuance by the Company of 
common stock (or securities convertible into or exercisable for common 
stock) at a price less than the greater of book or market value which 
together with sales by officers, directors or Substantial Shareholders 
\52\ of the Company equals 20% or more of common stock or 20% or more 
of the voting power outstanding before the issuance; or (B) the sale, 
issuance or potential issuance by the Company of common stock (or 
securities convertible into or exercisable common stock) equal to 20% 
or more of the common stock or 20% or more of the voting power 
outstanding before the issuance for less than the greater of book or 
market value of the stock. Exchange Rule 14.1(a)(19) defines ``market 
value'' as the closing bid price. Now, the Exchange proposes to make 
certain changes to Rule 14.10(i) as described below, and to modify the 
measure of market value for the purpose of Rule 14.10(i)(4) from the 
closing bid price to the lower of: (i) BZX Official Closing Price \53\ 
as reflected on Cboe.com or (ii) the average BZX Official Closing Price 
of the common stock as available on Cboe.com for the five trading days 
immediately preceding the signing of the binding agreement.
---------------------------------------------------------------------------

    \52\ See Exchange Rule 14.10(i)(5)(C).
    \53\ See Exchange Rule 11.23(a)(3).
---------------------------------------------------------------------------

    The Exchange also proposes to amend the preamble and to Rule 
14.10(i) and

[[Page 12926]]

the title of Rule 14.10(i)(4) to replace references to ``private 
placements'' with ``transactions other than public offerings'', which 
conforms the language to that in existing Interpretation and Policy .18 
to Rule 14.10. Private placements would continue to be considered 
``transactions other than public offerings'' under the proposed rule 
change, and the proposed change does not change the essence of the 
current rule.
    The Exchange notes that the proposed changes to Exchange Rule 
14.10(i) and Interpretation and Policy .18 to Rule 14.10 are 
substantively similar to rules of another Exchange that were previously 
approved by the Commission.\54\
---------------------------------------------------------------------------

    \54\ See Securities Exchange Act Nos. 82702 (February 13, 2018) 
83 FR 7269 (February 20, 2018) (SR-NASDAQ-2018-008) (Notice of 
Filing of Proposed Rule Change To Modify the Listing Requirements 
Contained in Listing Rule 5635(d) To Change the Definition of Market 
Value for Purposes of the Shareholder Approval Rules and Eliminate 
the Requirement for Shareholder Approval of Issuances at a Price 
Less Than Book Value but Greater Than Market Value) and 84287 
(September 26, 2018) 83 FR 49599 (October 2, 2018) (Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Modify the 
Listing Requirements Contained in Listing Rule 5635(d) To Change the 
Definition of Market Value for Purposes of the Shareholder Approval 
Rule and Eliminate the Requirement for Shareholder Approval of 
Issuances at a Price Less Than Book Value but Greater Than Market 
Value). See also Securities Exchange Act No. 88056 (January 28, 
2020) 85 FR 6003 (February 3, 2020) (SR-NASDAQ-2020-004) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Clarify the Term ``Closing Price'' in Rule 5635(d)(1)(A) Relating to 
Shareholder Approval for Transactions Other Than Public Offerings).
---------------------------------------------------------------------------

(a) Closing Price
    The BZX Official Closing Price refers to the price disseminated to 
the consolidated tape as the market center closing trade, which is 
derived from the closing auction on the Exchange if a closing auction 
occurs.\55\ The Exchange's closing auction is designed to gather the 
maximum liquidity available for execution at the close of trading, and 
to maximize the number of shares executed at a single price at the 
close of the trading day. The closing auction promotes accurate closing 
prices by offering specialized orders available only during the closing 
auction and integrating those orders with regular orders submitted 
during the trading day that are still available at the close. Further, 
the Exchange believes the price of an executed trade is generally 
viewed as a more reliable indicator of value than a bid quotation. 
Given this combined with the fact that the proposal to use the official 
closing price rather than the closing bid price is similar to the rules 
of another exchange (except that it uses its own closing price) \56\ 
the Exchange believes it is appropriate to use the BZX Official Closing 
Price rather than the closing bid price.
---------------------------------------------------------------------------

    \55\ If an issue does not have a closing auction (e.g., there is 
insufficient interest to conduct a closing auction), the BZX 
Official Closing Price will be the Final Last Sale Eligible Trade.
    \56\ See Nasdaq Listing Rule 5635(d).
---------------------------------------------------------------------------

    In addition, because prices are displayed from numerous data 
sources on different websites, to provide transparency within the rule 
to the appropriate price and assure that companies and investors use 
the BZX Official Closing Price when pricing transactions, the Exchange 
proposes to codify within the proposed Rule 14.10(i)(4)(A)(i) that 
Cboe.com is the appropriate source of the closing price information.
(b) Five-Day Average Price
    The Exchange proposes to amend Rule 14.10(i)(4) to define a new 
concept as the ``Minimum Price'' and eliminate references to book value 
and eliminating the current definition of market value \57\ from Rule 
14.10(i)(4). Minimum Price would be defined under proposed Rule 
14.10(i)(4)(A)(i) as price that is the lower of: (a) the BZX Official 
Closing Price (as reflected on Cboe.com) for the five trading 
immediately preceding the signing of the binding agreement; or (b) the 
average BZX Official Closing Price of the common stock as reflected on 
(Cboe.com) for the five trading days immediately preceding the signing 
of the binding agreement. This means that the issuance would not 
require an approval by company's shareholders, so long as it is at a 
price that is greater than the lower of those measures.
---------------------------------------------------------------------------

    \57\ ``Market value'' is defined in Exchange Rule 14.1(a)(19) 
and is applicable to the shareholder approval rules as well as other 
listing rules.
---------------------------------------------------------------------------

    The Exchange believes that while investors and companies sometimes 
prefer to use an average when pricing transactions, there are potential 
negative consequences to using a five-day average as the sole measure 
of whether shareholder approval is required. For example, in a 
declining market, the five-day average closing price will be above the 
current market price, which could make it difficult for companies to 
close transactions because investors could buy shares at a lower price 
in the market. Conversely, using a five-day average in a rising market 
the five-day average closing price will appear to be at a discount to 
the closing current market price. Further, if material news is 
announced during the five-day period, the average price could be a 
worse reflection of market value than the closing price after the news 
is disclosed. The Exchange believes that these risks of using the five-
day average closing price are already accepted by the market, as 
evidenced by the use of an average price in transactions that do not 
require shareholder approval, such as those transactions where less 
than 20% of the outstanding shares are being issued. Nonetheless, the 
Exchange believes the proposal balances this risk because an issuance 
would not require shareholder approval as long as the issuance occurs 
at a price greater than the lower of the two proposed measures.
    To improve the readability of the rule, the Exchange proposes to 
eliminate references to book value and current definition of market 
value from Rule 14.10(i)(4) and to instead reference the defined term 
Minimum Price. The Exchange notes that the proposal is substantively 
similar to existing rules of another exchange.\58\
---------------------------------------------------------------------------

    \58\ See Nasdaq Listing Rule 5635(d)(1)(A).
---------------------------------------------------------------------------

(c) Book Value
    The Exchange proposes to eliminate the requirement for shareholder 
approval of issuances at a price less than book value but greater than 
market value. Book value is an accounting measure and its calculation 
is based on the historic cost of assets, not their current value. As 
such the Exchange believes that book value is not an appropriate 
measure of whether a transaction is dilutive or should otherwise 
require shareholder approval. Further, the proposal is substantively 
similar to existing rules of another exchange.\59\
---------------------------------------------------------------------------

    \59\ See Nasdaq Listing Rule 5635(d)(1)(B).
---------------------------------------------------------------------------

(d) Other Changes to the Shareholder Approval Requirement
    The Exchange proposes to revise Exchange Rule 14.10(i)(4) to 
provide that shareholder approval is required prior to a 20% issuance 
at a price that is less than the Minimum Price. To improve the 
readability of Exchange Rule 14.10(i)(4), the Exchange proposes to 
define ``20% Issuance'' as ``a transaction, other than a public 
offering \60\ as defined in Rule 14.10, Interpretation and Policy .18, 
involving the sale, issuance or potential issuance by the Company of 
common stock (or securities convertible into or exercisable for common 
stock), which alone or together with sales by officers, directors or 
Substantial Shareholders of the Company, equals 20% or more of the 
common stock or 20% or more of the

[[Page 12927]]

voting power outstanding before the issuance.'' This definition 
combines the situations described in existing Rule 14.10(i)(4)(A) and 
(B) into one provision and makes no substantive change to the threshold 
for quantity or voting power of shares being sold that would give rise 
to the need for shareholder approval, although as described above, the 
applicable pricing test will change.
---------------------------------------------------------------------------

    \60\ Transactions other than public offerings is also the 
proposed title to Rule 14.10(i)(4).
---------------------------------------------------------------------------

    Finally, the Exchange proposes to amend Rule 14.10 Interpretations 
and Policies .18 and .19, which describe how the Exchange applies the 
shareholder approval requirements, to conform references to book and 
market value with the new definition of Minimum Price, as described 
above, and to utilize the newly defined term 20% Issuance. The Exchange 
also proposes to correct an incorrect reference to the Exchange's rules 
relating to a Company's failure to meeting listing standards from Rule 
14.9 to 14.12.
    As noted above, the proposed changes to Exchange Rule 14.10(i) and 
Interpretation and Policy .18 to Rule 14.10 are substantively similar 
to rules of another Exchange that were previously approved by the 
Commission.\61\
---------------------------------------------------------------------------

    \61\ Supra notes 55 and 56.
---------------------------------------------------------------------------

(5) Exemptions to Certain Corporate Governance Requirements
    The Exchange proposes to amend and expand the exemptions available 
to issuers of certain securities from some of the Exchange's corporate 
governance requirements and to define certain of those securities as 
``Derivative Securities''. The Exchange also proposes to amend Exchange 
Rule 14.10 Interpretation and Policy .15 to modify the exemptions from 
the annual meeting requirements. The Exchange notes that the proposed 
changes would result in rules that are substantively similar to the 
existing rules of other exchanges.\62\
---------------------------------------------------------------------------

    \62\ See Nasdaq Listing Rules 5615(a), IM-5615-4, and IM-5620; 
NYSE Arca, Inc. (``NYSE Arca'') Rule 5.3-E.
---------------------------------------------------------------------------

    Exchange Rule 14.10(e) currently provides exemptions to issuers of 
certain securities listed on the Exchange from portions of the 
corporate governance requirements. Specifically, Exchange Rule 
14.10(e)(1)(A) provides exemptions for asset-backed issuers \63\ and 
other passive issuers \64\ from the provisions of Exchange Rule 
14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(3) (Audit 
Committee Requirements), Exchange Rule 14.10(c)(4) (Independent 
Director Oversight of Executive Officer Compensation), Exchange Rule 
14.10(c)(5) (Independent Director Oversight of Director Nominations), 
Exchange Rule 14.10(d) (Code of Conduct), and Exchange Rule 14.10(e)(3) 
(Controlled Company Exemption). Exchange Rule 14.10(e)(1)(E) provides 
exemptions for management investment companies registered under the 
Investment Company Act of 1940 \65\ from the provisions of Exchange 
Rule 14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(4) 
(Independent Director Oversight of Executive Officer Compensation), 
Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director 
Nominations), and Exchange Rule 14.10(d) (Code of Conduct). In 
addition, under Exchange Rule 14.10(e)(1)(E), management investment 
companies are exempt from Exchange Rule 14.10(c)(3) (Audit Committee 
Requirements), except for the provisions of Rule 10A-3 under the 
Exchange Act.\66\
---------------------------------------------------------------------------

    \63\ Rule 14.10 Interpretation and Policy .10 defines as issuers 
``that are organized as trusts or other unincorporated associations 
that do not have a board of directors or persons acting in a similar 
capacity and whose activities are limited to passively owning or 
holding (as well as administering and distributing amounts in 
respect of) securities, rights, collateral or other assets on behalf 
of or for the benefit of the holders of the listed securities.''
    \64\ Exchange Rule 14.10(e)(1)(A)(i)(b) includes Portfolio 
Depositary Receipts as an example of a passive issuer.
    \65\ 15 U.S.C. 80a.
    \66\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    Currently, products that can rely on the exemptions within Exchange 
Rule 14.10(e)(1)(E) are Index Fund Shares (Exchange Rule 14.11(c)), 
Managed Fund Shares (Exchange Rule 14.11(i)), Managed Portfolio Shares 
(Exchange Rule 14.11(k)), ETF Shares (Exchange Rule 14.11(l)), and 
Tracking Fund Shares (Exchange Rule 14.11(m)). Additionally, Rule 14.10 
Interpretation and Policy .15 provides exemptions to issuers of certain 
securities listed pursuant to the requirements of Exchange Rule 
14.10(f) (Meetings of Shareholders). Currently, Portfolio Depositary 
Receipts (Exchange Rule 14.11(b)), Index Fund Shares (Exchange Rule 
14.11(c)), and Trust Issued Receipts (Exchange Rule 14.11(f)) are 
exempt from the annual meeting requirements.\67\
---------------------------------------------------------------------------

    \67\ Rule 14.10 Interpretation and Policy .15 also exempts 
securities listed pursuant to Exchange Rule 14.11(h) (unless the 
listed security is a common stock or voting preferred stock 
equivalent).
---------------------------------------------------------------------------

    The Exchange now proposes to add a definition of ``Derivative 
Securities'' to Exchange Rule 14.10(e)(1)(F)(ii) (the ``Proposed 
Definition''), as discussed in the ``Definition of Derivative 
Securities'' section below. Further, the Exchange proposes to adopt 
Rule 14.10(e)(1)(F)(i), which would provide that issuers whose only 
securities listed on the Exchange are non-voting preferred securities, 
debt securities or Derivative Securities, are exempt from the 
requirements relating to Independent Directors (as set forth in Rule 
14.10(c)(2)), Independent Director Oversight of Executive Officer 
Compensation (as set forth in Rule 14.10(c)(4)), Director Nominations 
(as set forth in Rule 14.10(c)(5)), Code of Conduct (as set forth in 
Rule 14.10(d)), and Meetings of Shareholders (as set forth in Rule 
14.10(f)). In addition, these issuers are exempt from the requirements 
relating to Audit Committees (as set forth in Rule 14.10(c)(3)), except 
for the applicable requirements of SEC Rule 10A-3. Notwithstanding, if 
the issuer also lists its common stock or voting preferred stock, or 
their equivalent on the Exchange it will be subject to all the 
requirements of Exchange Rule 14.10. Rule 14.10(e)(1)(F)(i) will 
continue to require such companies to comply with the requirements of 
Exchange Rule 14.10(g), pursuant to which an issuer will provide the 
Exchange with prompt notification after an executive officer of the 
company becomes aware of any noncompliance by the company with the 
requirements of Exchange Rule 14.10. The Exchange notes that proposed 
Rule 14.10(e)(1)(F)(i) and (ii) are substantively similar to rules on 
other exchanges.\68\
---------------------------------------------------------------------------

    \68\ See Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See 
also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To 
Allow Additional Issuers Who List Only Specific Securities To Be 
Able To Avail Themselves of Certain Exemptions Under Corporate 
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude 
Additional Categories of Issuers Listing Only Specific Securities 
From the Annual Shareholder Meeting Requirement); Securities 
Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) 
(SR-NYSEArca-2018-31) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude 
Certain Categories of Issuers From the Exchange's Annual Meeting 
Requirement).
---------------------------------------------------------------------------

    The Exchange also proposes to amend Exchange Rule 14.10 
Interpretation and Policy .15 to amend the annual meeting requirements 
of Exchange Rule 14.10(f) to clarify that issuers of only non-voting 
preferred securities, debt securities or Derivative Securities \69\ are 
not subject

[[Page 12928]]

to the rule. The Exchange believes that the proposed amendment is 
appropriate because the holders of non-voting preferred securities, 
debt securities or Derivative Securities do not have voting rights with 
respect to the election of directors except in very limited 
circumstances as required by federal or state law or their governing 
documents. The rule will continue to state that if the Company also 
lists common stock or voting preferred stock, or their equivalent, on 
the Exchange, the Company will be subject to the annual meeting 
requirements of Exchange Rule 14.10(f). The proposed change is 
substantively identical to an existing rule on another exchange.\70\
---------------------------------------------------------------------------

    \69\ The Exchange is proposing to expand the list of products 
that are exempt from the annual meeting requirements of Exchange 
Rule 14.10(f). The proposed list of products consists of: Commodity 
Futures Trust Shares; Commodity Index Trust Shares; Commodity-Based 
Trust Shares; Commodity-Linked Securities; Currency Trust Shares; 
Equity Gold Shares; Equity Index-Linked Securities; Exchange-Traded 
Fund Shares; Fixed Income Index-Linked Securities; Futures-Linked 
Securities; Index Fund Shares; Index-Linked Exchangeable Notes; 
Managed Fund Shares; Managed Portfolio Shares; Managed Trust 
Securities; Multifactor Index-Linked Securities; Partnership Units; 
Portfolio Depository Receipts; SEEDS; Tracking Fund Shares; Trust 
Certificates; and Trust Issued Receipts. Portfolio Depositary 
Receipts, Index Fund Shares and Trust Issued Receipts are currently 
excluded from the annual meeting requirement Exchange Rule 14.10(f).
    \70\ See Nasdaq Listing Rule IM-5620. See also Securities 
Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) 
(SR-NASDAQ-2019-039) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow 
Additional Issuers Who List Only Specific Securities To Be Able To 
Avail Themselves of Certain Exemptions Under Corporate Governance 
Requirements and To Amend Nasdaq Rule IM-5620 To Exclude Additional 
Categories of Issuers Listing Only Specific Securities From the 
Annual Shareholder Meeting Requirement).
---------------------------------------------------------------------------

Definition of ``Derivative Security''
    The proposed definition of Derivative Security will include: 
Commodity Futures Trust Shares; Commodity Index Trust Shares; 
Commodity-Based Trust Shares; Commodity-Linked Securities; Currency 
Trust Shares; Equity Gold Shares; Equity Index-Linked Securities; ETF 
Shares; Fixed Income Index-Linked Securities; Futures-Linked 
Securities; Index Fund Shares; Index-Linked Exchangeable Notes; Managed 
Fund Shares; Managed Portfolio Shares; Managed Trust Securities; 
Multifactor Index-Linked Securities; Partnership Units; Portfolio 
Depository Receipts; Selected Equity-linked Debt Securities 
(``SEEDS''); Tracking Fund Shares; Trust Certificates; and Trust Issued 
Receipts. Each of these types of securities is similarly exempt from 
the corporate governance requirements as proposed herein on another 
exchange,\71\ as summarized in the table below:
---------------------------------------------------------------------------

    \71\ See Nasdaq Listing Rules 5615(a), IM-5615-4, and IM-5620; 
NYSE Arca Rule 5.3-E.

----------------------------------------------------------------------------------------------------------------
             Product type                   Exchange rule             Nasdaq rule             NYSE arca rule
----------------------------------------------------------------------------------------------------------------
Commodity Futures Trust Shares.......  14.11(e)(7)............  Rule 5711(g)...........  8.204-E.
Commodity Index Trust Shares.........  14.11(e)(6)............  Rule 5711(f)...........  8.203-E.
Commodity-Based Trust Shares.........  14.11(e)(4)............  Rule 5711(d)...........  8.201-E.
Commodity-Linked Securities..........  14.11(d)...............  Rule 5710(k)(ii).......  5.2-E(j)(6)(B)(II).
Currency Trust Shares................  14.11(e)(5)............  Rule 5711(e)...........  8.202-E.
Equity Gold Shares...................  14.11(e)(2)............  Rule 5711(b)...........  5.2-E(j)(5).
Equity Index-Linked Securities.......  14.11(d)...............  Rule 5710(k)(i)........  5.2E(j)(6)(B)(I).
Exchange-Traded Fund Shares..........  14.11(l)...............  Rule 5704..............  5.2-E(j)(8).
Fixed Income Index-Linked Securities.  14.11(d)...............  5710(k)(iii)...........  5.2E(j)(6)(B)(IV).
Futures-Linked Securities............  14.11(d)...............  5710(k)(iv)............  5.2E(j)(6)(B)(V).
Index Fund Shares *..................  14.11(c)...............  Rule 5750..............  5.2E(j)(3).
Index-Linked Exchangeable Notes......  14.11(e)(1)............  Rule 5711(a)...........  5.2-E(j)(4).
Managed Fund Shares..................  14.11(i)...............  Rule 5735..............  8.600-E.
Managed Portfolio Shares.............  14.11(k)...............  Rule 5745..............  8.900-E.
Managed Trust Securities.............  14.11(e)(10)...........  Rule 5711(j)...........  8.700-E.
Multifactor Index-Linked Securities..  14.11(d)...............  5710(k)(v).............  5.2E(j)(6)(B)(VI).
Partnership Units....................  14.11(e)(8)............  Rule 5711(h)...........  8.300-E.
Portfolio Depository Receipts........  14.11(b)...............  Rule 5705..............  8.100-E.
SEEDS................................  14.11(e)(12)...........  Rule 5715..............  5.2-E(j)(2).
Tracking Fund Shares **..............  14.11(m)...............  Rule 5750..............  8.601-E.
Trust Certificates...................  14.11(e)(3)............  Rule 5711(c)...........  5.2-E(j)(7).
Trust Issued Receipts................  14.11(f)...............  Rule 5720..............  8.200-E.
----------------------------------------------------------------------------------------------------------------
* Index Fund Shares are generally equivalent to Investment Company Units listed pursuant to NYSE Arca Rule 5.2-
  E(j)(3).
** Tracking Fund Shares are generally equivalent to Active Proxy Portfolio Shares listed pursuant to NYSE Arca
  Rule 8.601-E and Proxy Portfolio Shares listed pursuant to Nasdaq Rule 5750.

Portfolio Depositary Receipts & Index Fund Shares
    The Exchange believes it is appropriate that Portfolio Depositary 
Receipts and Index Fund Shares are included in the Proposed Definition 
and, therefore, entitled to the exemptions proposed herein because 
these securities are currently exempt from the provisions Exchange Rule 
14.10(c)(2) (Independent Directors), Exchange Rule 14.10(c)(4) 
(Independent Director Oversight of Executive Officer Compensation), 
Exchange Rule 14.10(c)(5) (Independent Director Oversight of Director 
Nominations), Exchange Rule 14.10(d) (Code of Conduct), and Exchange 
Rule 14.10(f) (Meetings of Shareholders).\72\ Further, both Portfolio 
Depositary Receipts and Index Fund Shares are exempt from the same 
corporate governance requirements on another exchange.\73\
---------------------------------------------------------------------------

    \72\ See Exchange Rule 14.10(e)(1)(E) and Interpretation and 
Policy .15 to Rule 14.10 for the exemptions for Index Fund Shares 
and 14.10(e)(1)(A) and Interpretation and Policy .15 to Rule 14.10 
for the exemptions regarding Portfolio Depositary Receipts.
    \73\ See Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 
27816 (June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 
5615 To Allow Additional Issuers Who List Only Specific Securities 
To Be Able To Avail Themselves of Certain Exemptions Under Corporate 
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude 
Additional Categories of Issuers Listing Only Specific Securities 
From the Annual Shareholder Meeting Requirement).
---------------------------------------------------------------------------

Equity Index-Linked Securities, Commodity-Linked Securities, Fixed 
Income Index-Linked Securities, Futures-Linked Securities, Multifactor 
Index-Linked Securities, Index-Linked Exchangeable Notes, and SEEDs
    The Exchange also believes it is appropriate that Equity Index-
Linked Securities, Commodity-Linked Securities, Fixed Income Index-
Linked Securities, Futures-Linked Securities, Multifactor Index-Linked 
Securities,

[[Page 12929]]

Index-Linked Exchangeable Notes and SEEDS are included in the Proposed 
Definition and, therefore, entitled to the exemptions proposed herein 
because each are separate forms of unsecured debt of an issuer that is 
already subject to the corporate governance and annual meeting 
requirements of a national securities exchange and will continue to be 
required under such rules.\74\
---------------------------------------------------------------------------

    \74\ Exchange Rule 14.11(h)(1)(E), with which securities listed 
pursuant to Rule 14.11(d), 14.11(f), and 14.11(h) must comply, 
states, in part, the issuers of these securities must be ``listed on 
the Exchange, the NYSE or NASDAQ, or must be an affiliate of a 
Company listed on the Exchange, the NYSE or NASDAQ''.
---------------------------------------------------------------------------

    If the issuer is listed on the Exchange, it is already subject to 
the requirements of Exchange Rule 14.10. If the issuer is listed on 
Nasdaq or NYSE Arca, it is already subject to corporate governance 
standards that are substantively similar to the Exchange's corporate 
governance rules as proposed herein. In addition, the Exchange believes 
that it is appropriate to exempt these securities from the annual 
meeting requirements of Exchange Rule 14.10(f) because the holders of 
these securities have economic interests and other limited rights that 
do not include voting rights. The Exchange notes that these issuers may 
still be required to hold shareholder meetings, including special 
meetings, as required by federal or state law or their governing 
documents.
    In addition, while unlike traditional debt securities, these 
securities derive their value from the performance of an underlying 
index or reference asset, they retain many of the same characteristics 
as traditional debt securities \75\ and, therefore, the Exchange 
believes it is consistent to treat them accordingly with regard to the 
corporate governance and annual meeting requirements.
---------------------------------------------------------------------------

    \75\ Like traditional debt securities, these securities are debt 
of the issuer and have a specific date of maturity.
---------------------------------------------------------------------------

    The Exchange notes that these securities are already similarly 
exempted from the same corporate governance requirements on other 
exchanges.\76\
---------------------------------------------------------------------------

    \76\ Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See 
also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To 
Allow Additional Issuers Who List Only Specific Securities To Be 
Able To Avail Themselves of Certain Exemptions Under Corporate 
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude 
Additional Categories of Issuers Listing Only Specific Securities 
From the Annual Shareholder Meeting Requirement); Securities 
Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) 
(SR-NYSEArca-2018-31) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude 
Certain Categories of Issuers From the Exchange's Annual Meeting 
Requirement).
---------------------------------------------------------------------------

Equity Gold Shares
    Similarly, the Exchange believes it is appropriate that Equity Gold 
Shares are included in the Proposed Definition and, therefore, entitled 
to the exemptions proposed herein because like such classes of 
derivative securities, Equity Gold Shares are passive investment 
vehicles that hold a beneficial interest in a specified commodity 
trust. In addition, Equity Gold Shares are treated in a similar fashion 
to Index Fund Shares under the existing Exchange rules.\77\ Therefore, 
the Exchange believes it is appropriate that Equity Gold Shares are 
included in the Proposed Definition and, therefore, entitled to the 
exemptions proposed herein as Index Fund Shares are already exempt from 
certain provisions of Exchange Rule 14.10. The Exchange notes that 
Equity Gold Shares are already similarly exempted from the same 
corporate governance requirements on other exchanges.\78\
---------------------------------------------------------------------------

    \77\ Exchange Rule 14.11(e)(2)(A) states that ``while Equity 
Gold Shares are not technically Index Fund Shares and thus not are 
not covered by 14.11(c), all other rules that reference ``Index Fund 
Shares'' shall also apply to Equity Gold Shares.''
    \78\ Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See 
also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To 
Allow Additional Issuers Who List Only Specific Securities To Be 
Able To Avail Themselves of Certain Exemptions Under Corporate 
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude 
Additional Categories of Issuers Listing Only Specific Securities 
From the Annual Shareholder Meeting Requirement); Securities 
Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) 
(SR-NYSEArca-2018-31) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude 
Certain Categories of Issuers From the Exchange's Annual Meeting 
Requirement).
---------------------------------------------------------------------------

Trust Certificates
    The Exchange believes it is appropriate that Trust Certificates are 
included in the Proposed Definition and, therefore, entitled to the 
exemptions proposed herein because these securities represent an 
interest in a passive investment vehicle that are issued by entities 
created solely to issue securities and invest in the underlying index 
or reference assets. The trust does not have a board of directors and 
the holders of Trust Certificates have no voting rights, unless 
required under state law, with regard to corporate matters, including 
election of trustees. Therefore, the Exchange believes that Trust 
Certificates should be included in the Proposed Definition and should 
not be subject to the annual meeting requirements of Exchange Rule 
14.10(f). The Exchange notes that these issuers may still be required 
to hold shareholder meetings, including special meetings, as required 
by federal or state law or their governing documents. The Exchange 
further notes that Trust Certificates are already similarly exempted 
from the same corporate governance requirements on other exchanges.\79\
---------------------------------------------------------------------------

    \79\ Id.
---------------------------------------------------------------------------

Commodity-Based Trust Shares, Currency Trust Shares, Commodity Index 
Trust Shares, and Commodity Futures Trust Shares
    The Exchange also believes it is appropriate that Commodity-Based 
Trust Shares, Currency Trust Shares, Commodity Index Trust Shares, and 
Commodity Futures Trust Shares are included in the Proposed Definition 
and, therefore, entitled to the exemptions proposed herein because 
shares of these securities are passive investment vehicles that hold a 
beneficial interest in a specified commodity trust that is not managed 
like a corporation and does not have officers or a board of directors. 
These securities are already exempt from Exchange Rule 14.10(c)(2) 
(Independent Directors), Exchange Rule 14.10(c)(4) (Independent 
Director Oversight of Executive Officer Compensation), Exchange Rule 
14.10(c)(5) (Independent Director Oversight of Director Nominations), 
and Exchange Rule 14.10(d) (Code of Conduct). In addition, while 
shareholders may have limited voting rights in certain circumstances, 
they do not have the right to elect directors. Therefore, given the 
limited voting rights, lack of directors or officers, and the passive 
nature of the trust, the Exchange believes these securities should not 
be subject to the annual meeting requirements of Exchange Rule 
14.10(f). The Exchange notes that these issuers may still be required 
to hold shareholder meetings, including special meetings, as required 
by federal or state law or their governing documents. The Exchange also 
notes that these securities are already similarly exempted from the 
same corporate governance requirements on other exchanges.\80\
---------------------------------------------------------------------------

    \80\ Id.
---------------------------------------------------------------------------

Partnership Units
    The Exchange also believes that it is appropriate that Partnership 
Units are included in the Proposed Definition and, therefore, entitled 
to the exemptions proposed herein because Partnership Units are passive

[[Page 12930]]

investment vehicles that hold a beneficial interest in a specified 
partnership that is not managed like a corporation and does not have a 
board of directors. In addition, the Exchange believes Partnership 
Units should not be subject to the annual meeting requirements of 
Exchange Rule 14.10(f) because holders have limited voting rights and 
the general partner oversees the operation of the partnership. The 
Exchange notes that these issuers may still be required to hold 
shareholder meetings, including special meetings, as required by 
federal or state law or their governing documents. The Exchange notes 
that Partnership Units are already similarly exempted from the same 
corporate governance requirements on other exchanges.\81\
---------------------------------------------------------------------------

    \81\ Id.
---------------------------------------------------------------------------

Trust Issued Receipts
    The Exchange believes it is appropriate that Trust Issued Receipts 
are included in the Proposed Definition and, therefore, entitled to the 
exemptions proposed herein because Trust Issued Receipts are passive 
investment vehicles that hold a beneficial interest in a specified 
partnership that is not managed like a corporation and does not have a 
board of directors. In addition, the Exchange believes that Trust 
Issued Receipts should not be subject to the annual meeting 
requirements of Exchange Rule 14.10(f) because these securities are 
currently exempt from this rule.\82\ The Exchange notes that Trust 
Issued Receipts are already similarly exempted from the same corporate 
governance requirements on other exchanges.\83\
---------------------------------------------------------------------------

    \82\ See Exchange Rule 14.10 Interpretation and Policy .15.
    \83\ Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See 
also Securities Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To 
Allow Additional Issuers Who List Only Specific Securities To Be 
Able To Avail Themselves of Certain Exemptions Under Corporate 
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude 
Additional Categories of Issuers Listing Only Specific Securities 
From the Annual Shareholder Meeting Requirement); Securities 
Exchange Act No. 83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) 
(SR-NYSEArca-2018-31) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend NYSE Arca Rule 5.3-E To Exclude 
Certain Categories of Issuers From the Exchange's Annual Meeting 
Requirement).
---------------------------------------------------------------------------

Managed Fund Shares and ETF Shares
    The Exchange believes it is appropriate that Managed Fund Shares 
and ETF Shares are included in the Proposed Definition and, therefore, 
entitled to the exemptions proposed herein because they currently 
exempt from the provisions of Exchange Rule 14.10(c)(2) (Independent 
Directors), Exchange Rule 14.10(c)(4) (Independent Director Oversight 
of Executive Officer Compensation), Exchange Rule 14.10(c)(5) 
(Independent Director Oversight of Director Nominations), and Exchange 
Rule 14.10(d) (Code of Conduct).\84\ In addition, the Exchange believes 
that it is appropriate to exempt Managed Fund Shares and ETF Shares 
from the annual meeting requirements of Exchange Rule 14.10(f) because 
like Index Fund Shares (which are currently provided an exemption from 
the annual meeting) the aforementioned securities are issued by an 
open-end investment company registered under the 1940 Act that are 
available for creation and redemption on a continuous basis, and 
require dissemination of an intraday portfolio value. These 
requirements provide important investor protections and ensure that the 
net asset value and the market price remain closely tied to one another 
while maintaining a liquid market for the security. These protections, 
along with the disclosure documents regularly received by investors, 
allow shareholders of Managed Fund Shares and ETF Shares to value their 
holdings on an ongoing basis and lessen the need for shareholders to 
directly deal with management at an annual meeting. Therefore, the 
Exchange further believes it is appropriate that these be afforded the 
proposed exemptions to the annual meeting requirements. The Exchange 
notes that these issuers may still be required to hold shareholder 
meetings, including special meetings, as required by federal or state 
law or their governing documents. The Exchange notes that Managed Fund 
Shares and ETF Shares are already similarly exempted from the same 
corporate governance requirements on other exchanges.\85\
---------------------------------------------------------------------------

    \84\ See Exchange Rule 14.10(e)(1)(E).
    \85\ Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E. See 
also Securities Exchange Act Nos. 86072 (June 10, 2019) 84 FR 27816 
(June 14, 2019) (SR-NASDAQ-2019-039) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 5615 To 
Allow Additional Issuers Who List Only Specific Securities To Be 
Able To Avail Themselves of Certain Exemptions Under Corporate 
Governance Requirements and To Amend Nasdaq Rule IM-5620 To Exclude 
Additional Categories of Issuers Listing Only Specific Securities 
From the Annual Shareholder Meeting Requirement); 83324 (May 24, 
2018) 83 FR 25076 (May 31, 2018) (SR-NYSEArca-2018-31) (Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
NYSE Arca Rule 5.3-E To Exclude Certain Categories of Issuers From 
the Exchange's Annual Meeting Requirement); 88561 (April 3, 2020) 85 
FR 19984 (April 9, 2020) (SR-NASDAQ-2019-090) (Notice of Filing of 
Amendment No. 4 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 4, To Adopt 
Nasdaq Rule 5704 Governing the Listing and Trading of Exchange 
Traded Fund Shares); and 88625 (April 13, 2020) 85 FR 21479 (April 
17, 2020) (SR-NYSEArca-2019-81) (Notice of Filing of Amendment No. 2 
and Order Granting Accelerated Approval of a Proposed Rule Change, 
as Modified by Amendment No. 2, to Adopt NYSE Arca Rule 5.2-E(j)(8) 
Governing the Listing and Trading of Exchange-Traded Fund Shares).
---------------------------------------------------------------------------

Managed Portfolio Shares and Tracking Fund Shares
    The Exchange believes it is appropriate that Managed Portfolio 
Shares and Tracking Fund Shares are included in the Proposed Definition 
and, therefore, entitled to the exemptions proposed herein because it 
is currently exempt from certain provisions of Rule 14.10.\86\ In 
addition, the Exchange believes that it is appropriate to exempt 
Managed Portfolio Shares and Tracking Fund Shares from the annual 
meeting requirements of Exchange Rule 14.10(f) because like Index Fund 
Shares (which are currently provided an exemption from the annual 
meeting) the aforementioned securities are issued by an open-end 
investment company registered under the 1940 Act that are available for 
creation and redemption on a continuous basis, and require 
dissemination of an intraday portfolio value. These requirements 
provide important investor protections and ensure that the net asset 
value and the market price remain closely tied to one another while 
maintaining a liquid market for the security. These protections, along 
with the disclosure documents regularly received by investors, allow 
shareholders of Managed Portfolio Shares and Tracking Fund Shares to 
value their holdings on an ongoing basis and lessen the need for 
shareholders to directly deal with management at an annual meeting. 
Therefore, the Exchange further believes it is appropriate that these 
be afforded the proposed exemptions to the annual meeting requirements. 
The Exchange notes that these issuers may still be required to hold 
shareholder meetings, including special meetings, as required by 
federal or state law or their governing documents. The Exchange also 
notes that Managed Portfolio Shares and Tracking Fund Shares are 
already similarly exempted from the same corporate governance 
requirements on another exchange.\87\
---------------------------------------------------------------------------

    \86\ See Exchange Rule 14.10(e)(1)(E).
    \87\ See Nasdaq Rule 5615(6)(B). See also Securities Exchange 
Act No. 93467 (October 29, 2021) 86 FR 60930 (November 4, 2021) (SR-
NASDAQ-2021-083) (Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Exempt Certain Categories of Investment 
Companies Registered Under the Investment Company Act of 1940 From 
the Requirements To Obtain Shareholder Approval Prior to the 
Issuance of Securities in Connection With Acquisitions of the Stock 
or Assets of an Affiliated Registered Investment Company Under 
Certain Conditions).

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[[Page 12931]]

Managed Trust Securities
    The Exchange believes that it is appropriate to exempt Managed 
Trust Securities from the annual meeting requirements of Exchange Rule 
14.10(f) because like Index Fund Shares (which are currently provided 
an exemption from the annual meeting) the aforementioned securities are 
issued by an open-end investment company registered under the 1940 Act 
that are available for creation and redemption on a continuous basis 
and require dissemination of an intraday portfolio value. These 
requirements provide important investor protections and ensure that the 
net asset value and the market price remain closely tied to one another 
while maintaining a liquid market for the security. These protections, 
along with the disclosure documents regularly received by investors, 
allow shareholders of Managed Trust Securities to value their holdings 
on an ongoing basis and lessen the need for shareholders to directly 
deal with management at an annual meeting. Therefore, the Exchange 
further believes it is appropriate that these be afforded the proposed 
exemptions to the annual meeting requirements. The Exchange notes that 
these issuers may still be required to hold shareholder meetings, 
including special meetings, as required by federal or state law or 
their governing documents. The Exchange also notes that Managed Trust 
Securities are already similarly exempted from the same corporate 
governance requirements on other exchanges.\88\
---------------------------------------------------------------------------

    \88\ See Nasdaq Listing Rule 5615(a)(6)(B). See also Securities 
Exchange Act No. 86072 (June 10, 2019) 84 FR 27816 (June 14, 2019) 
(SR-NASDAQ-2019-039) (Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change To Amend Nasdaq Rule 5615 To Allow 
Additional Issuers Who List Only Specific Securities To Be Able To 
Avail Themselves of Certain Exemptions Under Corporate Governance 
Requirements and To Amend Nasdaq Rule IM-5620 To Exclude Additional 
Categories of Issuers Listing Only Specific Securities From the 
Annual Shareholder Meeting Requirement); Securities Exchange Act No. 
83324 (May 24, 2018) 83 FR 25076 (May 31, 2018) (SR-NYSEArca-2018-
31) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend NYSE Arca Rule 5.3-E To Exclude Certain Categories 
of Issuers From the Exchange's Annual Meeting Requirement).
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(6) Definition of ``Family Member''
    The Exchange is proposing to modify the definition of ``Family 
Member'' for purposes of director independence under Rule 
14.10(c)(1)(B) to mean a person's spouse, parents, children, siblings, 
mothers and fathers-in-law, sons and daughters-in-law, brothers and 
sisters-in-law, and anyone (other than domestic employees) who shares 
such person's home. The purpose of this rule change is to exclude 
domestic employees who share the director's home, and stepchildren who 
do not share the director's home, from the type of relationships that 
always preclude a board from finding that a director is independent, as 
described below. The proposed definition is substantively similar to a 
proposal that has been considered and approved by the Commission.\89\
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    \89\ See Nasdaq Listing Rule 5605(a)(2). See also Securities and 
Exchange Act Nos. 86095 (June 12, 2019) 84 FR 28379 (June 18, 2019) 
(SR-NASDAQ-2019-049) (Notice of Filing of Proposed Rule Change To 
Amend the Definition of Family Member in Listing Rule 5605(a)(2) for 
Purposes of the Definition of Independent Director); and 88210 
(February 13, 2020) 52 FR 9816 (February 20, 2020) (Notice of Filing 
of Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 3, To Amend the 
Definition of Family Member in Listing Rule 5605(a)(2) for Purposes 
of the Definition of Independent Director).
---------------------------------------------------------------------------

    Rule 14.10(c)(1)(B) provides a list of certain relationships that 
preclude a board from finding that a director is independent (the 
``Bright-Line Independence Test''). These objective measures provide 
transparency to investors and companies, facilitate uniform application 
of the rules, and ease administration. The Exchange's Rules preclude a 
director from being considered independent if the director has a family 
member who, among other things, (i) accepted any compensation from the 
Company in excess of $120,000 during any period of twelve consecutive 
months within the three years preceding the determination of 
independence (with certain exceptions); \90\ (ii) is, or at any time 
during the past three years was, employed by the company as an 
Executive Officer; \91\ (iii) is a partner in, or a controlling 
Shareholder or an Executive Officer of, any organization to which the 
Company made, or from which the Company received, payments for property 
or services in the current or any of the past three fiscal years that 
exceed 5% of the recipient's consolidated gross revenues for that year, 
or $200,000, whichever is more (with certain exceptions); \92\ (iv) is 
employed as an Executive Officer of another entity where at any time 
during the past three years any of the Executive Officers of the 
Company served on the compensation committee of such other entity; \93\ 
or (v) is a current partner of the Company's outside auditor, or was a 
partner or employee of the Company's outside auditor who worked on the 
Company's audit at any time during any of the past three years.\94\
---------------------------------------------------------------------------

    \90\ Rule 14.10(c)(1)(B)(ii).
    \91\ Rule 14.10(c)(1)(B)(iii).
    \92\ Rule 14.10(c)(1)(B)(iv).
    \93\ Rule 14.10(c)(1)(B)(v).
    \94\ Rule 14.10(c)(1)(B)(vi).
---------------------------------------------------------------------------

    Currently, for purposes of the Exchange's Rules, Family Member 
means a person's spouse, parents, children and siblings, whether by 
blood, marriage or adoption, or anyone residing in such person's 
home.\95\ This definition includes stepchildren, as they are ``children 
by . . . marriage.''
---------------------------------------------------------------------------

    \95\ Rule 14.10(c)(1)(B)
---------------------------------------------------------------------------

    As noted above, the Exchange proposes to define a Family Member to 
mean a person's spouse, parents, children, siblings, mothers and 
fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, 
and anyone (other than domestic employees) who shares such person's 
home. The Exchange also proposes to interpret the term ``children'' to 
exclude stepchildren except that a relationship with a stepchild who 
shares a home with the director would continue to fall under the 
Bright-line Independence Test because the definition of a Family Member 
will include anyone (other than domestic employees) who shares the 
director's home. To comply with the Exchange's rules, it will expect 
the Boards of its listed companies to continue to elicit through 
director questionnaires the information necessary to make independence 
determinations, which will need to include questions about stepchild 
relationships. As noted in the order approving a substantively similar 
rule, the Commission stated that it ``believes that this should help to 
ensure that listed companies inquire about stepchild relationships so 
that such companies can discern the essential facts and circumstances 
to be able to make the affirmative findings necessary under Nasdaq 
rules to determine a director is independent.'' \96\
---------------------------------------------------------------------------

    \96\ See Securities Exchange Act No. 88210 (February 13, 2020) 
52 FR 9816 (February 20, 2020) (Notice of Filing of Amendment No. 3 
and Order Granting Accelerated Approval of a Proposed Rule Change, 
as Modified by Amendment No. 3, To Amend the Definition of Family 
Member in Listing Rule 5605(a)(2) for Purposes of the Definition of 
Independent Director).
---------------------------------------------------------------------------

    The Exchange has concluded that inclusion of stepchildren in the 
definition of a Family Member makes the definition over-inclusive. The 
Bright-line Independence Test is intended to identify relationships 
that are likely to interfere with the exercise of independent judgment 
in carrying out the director's responsibilities. In that regard the 
Exchange believes that a director's relationship with their 
stepchildren may or may not interfere

[[Page 12932]]

with the director's exercise of independent judgment based on the 
particular facts and circumstances of the situation. If a stepchild has 
been a dependent of a director or was a part of the director's 
household since being a minor, the director's relationship with that 
stepchild is likely to be similar to that with a biological child. 
However, the Exchange believes if the director marries a person who has 
an adult child, the director never acted in any capacity as a parent of 
this stepchild, and the stepchild never shared the director's 
household, then the director and stepchild are likely to have an 
attenuated relationship that is unlike the relationship of a parent and 
child. Because the determination as to whether such relationship is 
likely to interfere with the exercise of independent judgment in 
carrying out the director's responsibilities is based on facts and 
circumstances, the Exchange believes a company's board is in the best 
position to make such a determination. Accordingly, the Exchange 
believes that a stepchild relationship should not preclude a director 
from being considered independent in all circumstances. 
Notwithstanding, if a stepchild shares a home with the director, such a 
relationship would continue to fall under the Bright-line Independence 
Test because the definition of a Family Member will include anyone 
(other than domestic employees) who shares the director's home.
    In addition, the Exchange believes that the proposed change would 
align the language in its definition of a Family Member with the 
comparable definition of a Family Member or an immediate family member 
of the Nasdaq.\97\ When each market has a different definition, it 
complicates the preparation by listed companies of director and officer 
questionnaires that the companies need in order to analyze director 
independence. In particular, this creates an added and unnecessary 
burden when a company transfers its listing from one national 
securities exchange to another. In such case, a director may have 
already filled out an annual questionnaire based on the prior listing 
exchange's definition of a family member but need to answer additional 
questions because the definition of the exchange the listing is 
transferred to is phrased differently.
---------------------------------------------------------------------------

    \97\ See Nasdaq Listing Rule 5605(a)(2).
---------------------------------------------------------------------------

    The Exchange is also proposing to modify the definition of a 
``Family Member'' for purposes of director independence under Rule 
14.10(c)(1)(B) to exclude domestic employees who share a director's 
home. The Exchange believes that the definition of a Family Member 
should not include a domestic employee who shares a director's home 
because this definition is not intended to capture commercial 
relationships.
    Accordingly, as described above the Exchange is proposing to modify 
the definition of a Family Member for purposes of director independence 
under Rule 14.10(c)(1)(B) to mean a person's spouse, parents, children, 
siblings, mothers and fathers-in-law, sons and daughters-in-law, 
brothers and sisters-in-law, and anyone (other than domestic employees) 
who shares such person's home. This definition is identical to the 
Nasdaq definition of a Family Member.\98\
---------------------------------------------------------------------------

    \98\ Id.
---------------------------------------------------------------------------

    Additionally, the Exchange notes that the proposed rule change to 
Rule 14.10(c)(1)(B) will not affect the additional independence 
criteria for audit committee members set forth in Rule 14.10(c)(3), 
which incorporate the independence requirements of SEC Rule 10A-3.\99\ 
Thus, the broader exclusion from the definition of Family Member, as it 
applies to minor stepchildren not sharing the director's home, may not 
be applied for purposes of determining the independence of audit 
committee members, where the stricter standards of Rule 10A-3, as well 
as Exchange Rule 14.10(c)(3), still apply.\100\
---------------------------------------------------------------------------

    \99\ Rule 14.10(c)(3)(B) requires that each Company must have, 
and certify that it has and will continue to have, an audit 
committee of at least three members, each of whom must, among other 
requirements, meet the criteria for independence set forth in Rule 
10A-3(b)(1) under the Act, in addition to the requirements of Rule 
14.10(c)(3)(B). See also Exchange Rule 14.10 Interpretation and 
Policy .05 (Audit Committee Composition).
    \100\ See Securities Exchange Act No. 88210 (February 13, 2020) 
52 FR 9816 (February 20, 2020) (Notice of Filing of Amendment No. 3 
and Order Granting Accelerated Approval of a Proposed Rule Change, 
as Modified by Amendment No. 3, To Amend the Definition of Family 
Member in Listing Rule 5605(a)(2) for Purposes of the Definition of 
Independent Director).
---------------------------------------------------------------------------

    Notwithstanding these changes, the Exchange notes that a company's 
board must, under 14.10(c)(3)(B) and Interpretation and Policy .05, 
affirmatively determine that no relationship exists that would 
interfere with the exercise of independent judgment in carrying out the 
director's responsibilities. To comply with the Exchange's rules, the 
Exchange will expect listed companies' boards to continue to elicit 
through director and officer questionnaires the information necessary 
for the boards to make such determinations, which will need to include 
questions about stepchild relationships. The Exchange believes that it 
is appropriate for the board to review a relationship between a 
director and a stepchild who does not share a home with the director or 
a relationship between a director and a domestic employee under such 
facts and circumstances test.
(7) Quorum Requirement
    The Exchange is proposing to modify Exchange Rules 
14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) (the ``Quorum Rules'') to allow 
the Exchange to accept a quorum less than 33\1/3\% of the outstanding 
shares of a company's common voting stock where the Company is 
incorporated outside of the U.S. and such Company's home country law 
prohibits the company from establishing a quorum that satisfies the 
Quorum Rules. The Exchange notes that these proposed rules are 
substantively similar to existing rules of another exchange.\101\
---------------------------------------------------------------------------

    \101\ See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See 
Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158 
(January 15, 2021) (SR-NASDAQ-2020-100) (Notice of Filing of 
Proposed Rule Change To Modify the Quorum Requirement for Non-U.S. 
Companies Under Certain Limited Circumstances); and 91567 (April 14, 
2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment 
No. 1 and Order Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment No. 1, To Modify the Quorum 
Requirement).
---------------------------------------------------------------------------

    Exchange Rule 14.10(f)(3) establishes quorum requirements for an 
annual meeting of shareholders for Exchange Companies listing common 
stock or voting preferred stock, and their equivalents.\102\ Under this 
rule, each company that is not a limited partnership must provide for a 
quorum as specified in its by-laws for any meeting of the holders of 
common stock; provided, however, that in no case shall such quorum be 
less than 33\1/3\% of the outstanding shares of the company's common 
voting stock (the ``Exchange Quorum Requirement''). The Exchange notes 
that domestic listed companies are subject to quorum requirements under 
the laws of their states of incorporation.\103\
---------------------------------------------------------------------------

    \102\ See Exchange Rule 14.10(f)(1).
    \103\ For example, Delaware allows companies to establish their 
own quorum requirements in their certificates of incorporation or 
bylaws, provided that the quorum must be at least one-third of the 
shares entitled to vote on the matter. In the absence of a quorum 
provision in the company's certificate of incorporation or bylaws, 
Delaware requires a quorum of 50% of the shares entitled to vote on 
the matter. See Del. Code Sec. 216.
---------------------------------------------------------------------------

    Now, the Exchange proposes to modify the Exchange Quorum 
Requirement to allow the Exchange to accept any quorum requirement for 
a non-U.S. company if such company's home country law mandates such 
quorum for the shareholders' meeting and prohibits the company from 
establishing the higher quorum required

[[Page 12933]]

by the Exchange Quorum Requirement. The Exchange proposes to require 
that a company relying on this provision shall submit to the Exchange a 
written statement from an independent counsel in such company's home 
country describing the home country law that conflicts with the 
Exchange quorum requirement. The Exchange also proposes to require such 
counsel to certify that, as the result of the conflict with the home 
country law, the company is prohibited from complying with the Exchange 
Quorum Requirement, and the company cannot obtain an exemption or 
waiver from that law. Finally, to assure appropriate disclosure, the 
Exchange proposes to require that any company relying on this exception 
from the Exchange Quorum Requirement must make a public announcement as 
promptly as possible but not more than four business days following the 
submission of the independent counsel's statement to the Exchange, as 
described above, on or through the Company's website and either by 
filing a Form 8-K, where required by SEC rules, or by issuing a press 
release explaining the Company's reliance on the exception.\104\
---------------------------------------------------------------------------

    \104\ See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See 
Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158 
(January 15, 2021) (SR-NASDAQ-2020-100) (Notice of Filing of 
Proposed Rule Change To Modify the Quorum Requirement for Non-U.S. 
Companies Under Certain Limited Circumstances); and 91567 (April 14, 
2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment 
No. 1 and Order Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment No. 1, To Modify the Quorum 
Requirement).
---------------------------------------------------------------------------

    In addition, to help assure continuous transparency, the Exchange 
proposes to require that such website disclosure is maintained for the 
period of time the company continues to rely on the exception from the 
quorum requirements. Finally, to help assure the exception remains 
appropriate, the Exchange proposes to require the company to update the 
website disclosure at least annually to indicate that the company 
continues to be prohibited under its home country law from complying 
with the Exchange's quorum requirements as of the date of such 
update.\105\
---------------------------------------------------------------------------

    \105\ Id.
---------------------------------------------------------------------------

    The Exchange also proposes to modify Exchange Rule 
14.10(e)(1)(D)(iv) governing the quorum requirements for limited 
partnerships listed on the Exchange to also reflect this change to the 
Exchange Quorum Requirement.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\106\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \107\ requirements that the 
rules of an exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. Additionally, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \108\ requirement that the rules 
of an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \106\ 15 U.S.C. 78f(b).
    \107\ 15 U.S.C. 78f(b)(5).
    \108\ Id.
---------------------------------------------------------------------------

(1) Compensation-Related Listing Rules
    The proposal first requires that the compensation of Executive 
Officers must be determined by a compensation committee and eliminates 
the existing Alternative for such compensation. Although the 
Alternative to a formal committee in the Exchange's current rules may 
be useful to a small number of prospective companies, the Exchange 
believes that the heightened importance of compensation decisions and 
oversight of executive compensation in today's environment, as well as 
the benefits that can result for investors of having a standing 
committee overseeing compensation matters, makes it appropriate and 
consistent with investor protection and the public interest under 
Section 6(b)(5) of the Act for the Exchange to raise its standards in 
this regard.\109\ In the Commission's approval order for a similar 
proposed rule change to Nasdaq rules, the Commission stated:
---------------------------------------------------------------------------

    \109\ See Securities Exchange Act Nos. 68013 (October 9, 2012) 
77 FR 62563 (October 15, 2012) (SR-NASDAQ-2012-109) (Notice of 
Filing of Proposed Rule Change To Modify the Listing Rules for 
Compensation Committees To Comply With Rule 10C-1 Under the Exchange 
Act and Make Other Related Changes) 68640 (January 11, 2013) 78 FR 
4554 (January 22, 2013) (Order Granting Accelerated Approval of 
Proposed Rule Change as Modified by Amendment Nos. 1 and 2 To Amend 
the Listing Rules for Compensation Committees To Comply With Rule 
10C-1 Under the Act and Make Other Related Changes).

    In making this determination the Commission is aware that Rule 
10C-1 does not require listed companies of national securities 
exchanges to have a committee dedicated to compensation matters. 
Nevertheless, it is consistent with Section 6(b)(5) of the Act for 
Nasdaq to require all its listed companies to have an independent 
compensation committee overseeing executive compensation matters 
because of the importance and accountability to investors that such 
a formal structure can provide. The Commission also notes that some 
of the other requirements of Rule 10C-1 apply only when a company 
has a committee overseeing compensation matters. Thus, the 
requirement to have a compensation committee will trigger the 
additional protections for shareholders created by these 
requirements.\110\
---------------------------------------------------------------------------

    \110\ Id.

    The Exchange also believes it is appropriate to raise its standards 
to require the compensation committee of each issuer to have at least 
two members, instead of permitting a sole individual to be responsible 
for compensation policy, and that this furthers investor protection and 
the public interest in accordance with Section 6(b)(5).\111\ The 
Commission agreed in its approval of a substantively similar rule on 
Nasdaq when it stated:
---------------------------------------------------------------------------

    \111\ Id.

    In light of the importance of compensation matters, the added 
thought and objectivity that is likely to result when two or more 
individuals deliberate over how much a listed company should pay its 
executives, and what form such compensation should take, is 
consistent with the goal of promoting more accountability to 
shareholders on executive compensation matters. Moreover, given the 
complexity of executive compensation packages for corporate 
executives, it is reasonable for Nasdaq to require listed companies 
to have the input of more than one committee member on such 
matters.\112\
---------------------------------------------------------------------------

    \112\ Id.

    Moreover, no Companies currently listed on the Exchange has a 
compensation committee of only one member. Therefore, the two-member 
requirement will not be an onerous burden for Companies listed on the 
Exchange and should strength their review of compensation matters.
    The Exchange's proposal to require a compensation committee to have 
a written charter detailing the committee's authority and 
responsibility is also consistent with Section 6(b)(5) of the Act and 
will provide added transparency for shareholders regarding how a 
company determines compensation and may clarify and improved the 
process itself. In an approval order for a substantively similar rule 
on Nasdaq, the Commission stated that ``the requirement that listed 
companies review and reassess the adequacy of the compensation's

[[Page 12934]]

committee charter on an annual basis will also help to ensure 
accountability and transparency on an on-going basis.'' \113\
---------------------------------------------------------------------------

    \113\ Id.
---------------------------------------------------------------------------

    The Exchange believes that the proposed ``Exceptional and Limited 
Circumstances'' provision, which allows one director who fails to meet 
the Exchange's Independent Director definition to serve on a 
compensation committee under certain conditions, is an appropriate 
means to allow Companies flexibility as to board and committee 
membership and composition in unusual circumstances, which may be 
particularly important for smaller Companies. Further, the Commission 
long ago approved as consistent with the Act the same exception and 
concept in the context of the Exchange's Independent Director under 
Exchange Rule 14.10(c)(1)(B), with respect to nominations committees 
and audit committees, and approved a substantively similar provision on 
another exchange.\114\
---------------------------------------------------------------------------

    \114\ Id.
---------------------------------------------------------------------------

    The Exchange believes the proposal to provide under proposed Rule 
14.10(c)(4)(D), that for purposes of this Rule, the compensation 
committee is not required to conduct an independence assessment for a 
compensation adviser that acts in a role limited to certain activities 
provided under Item 407(e)(3)(iii) of Regulation S-K will add clarity 
to the Exchange's rules.
    The Exchange believes its proposal to prohibit a director who 
receives compensation or fees from a listed company (other than, among 
other things, director compensation) from serving on the Company's 
compensation committee will protect investors and the public interest. 
Specifically, a director's receipt of compensatory fees from a company 
(other than compensation for board and board committee service or 
compensation under a retirement plan or prior service with the company 
as described above) could render the member unwilling or unable to 
provide a truly independent voice on executive compensation decisions. 
The Exchange believes the restriction is warranted given the heightened 
importance of executive compensation decisions in today's business 
environment. Moreover, in its approval order of a similar Nasdaq 
proposal,\115\ the Commission stated that it believes the restriction 
will ``help to ensure that compensation committee members cannot 
receive directly or indirectly fees that could potentially influence 
their decisions on compensation matters.''
---------------------------------------------------------------------------

    \115\ Id.
---------------------------------------------------------------------------

    The Exchange believes its proposal to move Rule 14.10(e)(1)(F) to 
proposed Rule 14.10(c)(4)(F) and to clarify the specific provisions 
under which a Smaller Reporting Company is exempt from the requirements 
of Rule 14.10(c) will provide additional clarity to the Exchange's 
rulebook. As discussed above, Smaller Reporting Companies will continue 
to be subject to the same requirements as all other Companies, except 
the requirements relating to compensatory fees, affiliation and the 
specific compensation committee responsibilities and authority set 
forth in proposed Exchange Rule 14.10(c)(4)(C)(iv). The Exchange 
believes that this hybrid approach does not discriminate unfairly 
between issuers because it recognizes the fact that the `` `executive 
compensation arrangements of [Smaller Reporting Companies] generally 
are so much less complex than those of other public companies that they 
do not warrant the more extensive disclosure requirements imposed on 
companies that are not [Smaller Reporting Companies] and related 
regulatory burdens that could be disproportionate for [Smaller 
Reporting Companies].' '' \116\ In addition, the Exchange notes that 
the Commission exempted Smaller Reporting Companies from Rule 10C-
1.\117\ As a result, this distinction does not discriminate unfairly 
among issuers.
---------------------------------------------------------------------------

    \116\ See Securities Exchange Act Release No. 67220 (June 20, 
2012), 77 FR 38422, 38425 (June 27, 2012), at 38438 (quoting 
Securities Exchange Act Release No. 54302A (August 29, 2006), 71 FR 
53158, 53192 (September 8, 2006)).
    \117\ See 17 CFR 240.10C-1(b)(5)(ii).
---------------------------------------------------------------------------

    Finally, the Exchange believes the proposed non-substantive 
ministerial changes to the language of Rule 14.10(c) will add clarity 
to the Exchange's rulebook.
    As noted above, all of the proposed changes to the Exchange's 
compensation committee requirements are substantively similar to 
proposed rules already considered and approved by the Commission.\118\
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    \118\ See Securities Exchange Act Nos. 68013 (October 9, 2012) 
77 FR 62563 (October 15, 2012) (SR-NASDAQ-2012-109) (Notice of 
Filing of Proposed Rule Change To Modify the Listing Rules for 
Compensation Committees To Comply With Rule 10C-1 Under the Exchange 
Act and Make Other Related Changes) 68640 (January 11, 2013) 78 FR 
4554 (January 22, 2013) (Order Granting Accelerated Approval of 
Proposed Rule Change as Modified by Amendment Nos. 1 and 2 To Amend 
the Listing Rules for Compensation Committees To Comply With Rule 
10C-1 Under the Act and Make Other Related Changes).
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(2) Direct Registration Program
    The proposed rule change as it pertains to the Exchange's DRP is 
consistent with the investor protection objectives of the Act in that 
it will provide a very limited exemption to the Exchange's DRP 
eligibility requirements for foreign issuers that provide a letter from 
home country counsel certifying that compliance with that requirement 
is prohibited by home country law or regulation. Further, the proposed 
rule change should facilitate cooperation and coordination among 
clearing agencies, transfer agents, and broker-dealers by explaining 
the basis upon which certain foreign issuers are not required to 
participate in the DRP. This, in turn, should facilitate better 
efficiency in the clearance and settlement of securities transactions 
involving the securities of these foreign issuers and should facilitate 
better efficiency in the transfer of such securities. The Exchange 
notes that its proposal is substantively similar to proposed amendments 
Nasdaq made to its Rules 5210(c) and 5255(c),\119\ and thus raises no 
novel issues.
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    \119\ See Securities and Exchange Act Release No. 68238 
(November 15, 2012) 77 FR 69911 (November 21, 2012) (SR-NASDAQ-2012-
128) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Expand the Exemption to the Direct Registration Program 
Requirement to All Foreign Issuers Rather Than Only Foreign Private 
Issuers).
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(3) Public Disclosure
    The proposal to require an additional public disclosure 
accomplishes the objectives of the Act by enhancing transparency around 
third party compensation and payments made in connection with board 
service. The Exchange believes such disclosure has several benefits. 
First, it would provide information to investors to help them make 
meaningful investing and voting decisions. It would also address 
potential concerns that undisclosed third-party compensation 
arrangements may lead to conflicts of interest among directors and call 
into question their ability to satisfy fiduciary duties. In an approval 
for a substantively similar proposed rule change on another exchange, 
the Commission stated ``to the extent that [the proposal] would, in 
certain situations, provide investors and market participants 
additional information to make informed investment and voting 
decisions, we believe it is consistent with the requirements of Section 
6(b)(5) of the Act.'' \120\
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    \120\ See Securities and Exchange Act Nos. 77481 (March 30, 
2016) 81 FR 19678 (April 5, 2016) (SR-NASDAQ-2016-013) (Notice of 
Filing of Proposed Rule Change To Require Listed Companies to 
Publicly Disclose Compensation or Other Payments by Third Parties to 
Board of Director's Members or Nominees); 78223 (July 1, 2016) 81 FR 
44400 (July 7, 2016) (Notice of Filing of Amendment No. 2 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 2, To Require Listed Companies to Publicly Disclose 
Compensation or Other Payments by Third Parties to Board of 
Director's Members or Nominees).

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[[Page 12935]]

    While there may be some overlap in the proposed disclosure 
requirement with existing Commission disclosure requirements, it is not 
unusual for a national securities exchange to adopt disclosure 
requirements in their listing rules that supplement or overlap with 
disclosure requirements otherwise imposed under federal securities 
laws. Such disclosure-related listing standards ``help to ensure that 
listed companies maintain compliance with the disclosure requirements 
under the federal securities laws and contribute to the maintenance of 
fair and orderly markets by providing investors with material and 
current information necessary for informed investment and voting 
decisions.'' \121\ Further, as the proposed public disclosure 
requirement is substantively similar to a proposal already considered 
and approved by the Commission, it raises no novel issues.\122\
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    \121\ Id.
    \122\ Id.
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(4) Market Value Definition and Shareholder Approval
    The Exchange believes that the proposal to modify the measure of 
market value for the purpose of Rule 14.10(i)(4) from the closing bid 
price to the lower of: (i) the closing price (as reflected on 
Cboe.com); or (ii) the average closing price of the common stock (as 
reflected on Cboe.com) for the five trading days immediately preceding 
the signing of the binding agreement will perfect the mechanism of a 
free and open market and protect investors and the public interest. 
Furthermore, the proposal is substantively similar to a proposed rule 
that was previously approved by the Commission.\123\
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    \123\ See Securities Exchange Act Nos. 82702 (February 13, 2018) 
83 FR 7269 (February 20, 2018) (SR-NASDAQ-2018-008) (Notice of 
Filing of Proposed Rule Change To Modify the Listing Requirements 
Contained in Listing Rule 5635(d) To Change the Definition of Market 
Value for Purposes of the Shareholder Approval Rules and Eliminate 
the Requirement for Shareholder Approval of Issuances at a Price 
Less Than Book Value but Greater Than Market Value) and 84287 
(September 26, 2018) 83 FR 49599 (October 2, 2018) (Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Modify the 
Listing Requirements Contained in Listing Rule 5635(d) To Change the 
Definition of Market Value for Purposes of the Shareholder Approval 
Rule and Eliminate the Requirement for Shareholder Approval of 
Issuances at a Price Less Than Book Value but Greater Than Market 
Value). See also Securities Exchange Act No. 88056 (January 28, 
2020) 85 FR 6003 (February 3, 2020) (SR-NASDAQ-2020-004) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change to 
Clarify the Term ``Closing Price'' in Rule 5635(d)(1)(A) Relating to 
Shareholder Approval for Transactions Other Than Public Offerings).
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    First, the Exchange believes using the proposed method for 
determining the market value has the potential to provide a better 
indication of the actual market value than the current use of closing 
bid price under certain market conditions. The Exchange also believes 
that the BZX Official Closing Price is less prone to manipulation than 
are bid prices. In addition, the Exchange believes the proposal to use 
the BZX Official Closing Price for purposes of market value should help 
to ensure transparency to investors in calculating market value for 
purposes of the proposed rule.
    Second, allowing share issuances to be priced at the five-day 
average of the closing price will further align the Exchange's 
requirements with how many transactions are structured, such as 
transactions where Exchange Rule 14.10(i) is not implicated because the 
issuance is for less than 20% of the common stock and the parties rely 
on the five-day average for pricing to smooth out unusual fluctuations 
in price. In so doing, the proposed rule change will perfect the 
mechanism of a free and open market. Further, allowing a five-day 
average price continues to protect investors and the public interest 
because it will allow companies and investors to price transactions in 
a manner designed to eliminate aberrant pricing resulting from unusual 
transactions on the day of a transaction. Maintaining the allowable 
average at just a five-day period also protects investors by ensuring 
the period is not too long, such that it would result in the price 
being distorted by ordinary past market movements and other outdated 
events. In a market that rises each day of the period, the five-day 
average will be less than the price at the end of the period, but would 
still be higher than the price at the start of such period. The 
Exchange believes that where two alternative measures of value exist 
that both reasonably approximate the value of listed securities, 
defining the Minimum Price as the lower of those values allows issuers 
the flexibility to use either measure because they can also sell 
securities at a price greater than the Minimum Price without needing 
shareholder approval. This flexibility, and the certainty that a 
transaction can be structured at either value in a manner that will not 
require shareholder approval, further perfects the mechanism of a free 
and open market without diminishing the existing investor protections 
of the 14.10(i).
    The Exchange also believes that eliminating the requirement for 
shareholder approval of issuances at a price less than book value but 
greater than market value does not diminish the existing investor 
protections of Exchange Rule 14.10(i)(4). Book value is primarily an 
accounting measure calculated based on historic cost and is generally 
perceived as an inappropriate measure of the current value of a stock. 
Because book value is not an appropriate measure of the current value 
of a stock, the elimination of the requirement for shareholder approval 
of issuances at a price less than book value but greater than market 
value will remove an impediment to, and perfect the mechanism of, a 
free and open market, which currently unfairly burdens companies in 
certain industries, without meaningfully diminishing investor 
protections of Exchange Rule 14.10(i)(4).
    The Exchange also believes that amending the title of 14.10(i)(4) 
and the preamble to replace references to ``private placements'' to 
``transactions other than public offerings'' to conform the language in 
the title of 14.10(i)(4) and the preamble to the language in the rule 
text and that of Rule 14.10 Interpretation and Policy .18, which 
provides the definition of a public offering, will perfect the 
mechanism of a free and open market by making the rule easier to 
understand and apply. Private placements would continue to be 
considered ``transactions other than public offerings'' under the 
proposed rule change, and the proposed change does not change the 
essence of the current rule.
    The Exchange believes that amending Exchange Rule 14.10 
Interpretation and Policy .18 and .19, which describe how the Exchange 
applies the shareholder approval requirements, to conform references to 
book and market value with the new definition of Minimum Price, as 
described above, and to utilize the newly defined term 20% Issuance 
will perfect the mechanism of a free and open market by eliminating 
confusion caused by references to a measure that is no longer 
applicable and by making the rule easier to understand and apply.
(5) Exemptions to Certain Corporate Governance Requirements
    The Exchange believes that the proposed amendments to modify and 
expand the exemptions available to issuers of certain securities from 
some of the Exchange's corporate governance requirements are consistent 
with the protection of investors. The Exchange believes that the 
proposed exemptions for issuers of only non-voting preferred

[[Page 12936]]

stock, debt securities and Derivative Securities are consistent with 
the protection of investors, as the holders of these securities do not 
have voting rights with respect to the election of directors, except in 
very limited circumstances, as required by state or federal law or 
their governing documents. Moreover, such securities are generally 
issued by an entity that is either (i) structured solely as vehicles 
for the issuance of non-voting or derivative securities, or (ii) issued 
by an operating company primarily listed on a national securities 
exchange and therefore subject to the full corporate governance and 
annual meeting requirements of that exchange.
    Additionally, the net asset value of Derivative Securities that the 
Exchange proposes to exclude from its annual meeting requirement is 
determined by the market price of each fund's underlying securities or 
other reference asset. Shareholders of such securities products listed 
on the Exchange receive regular disclosure documents describing the 
pricing mechanism for their securities and detailing how they can value 
their holdings. Accordingly, holders of such securities can value their 
investment on an ongoing basis. Because of these factors, the Exchange 
believes there is a reduced need for shareholders to engage with 
management of issuers of these securities and thus no need for the 
issuers of such securities to hold annual shareholder meetings absent 
the existence of other listed securities with director election voting 
rights. Further, although the Exchange proposes to exclude issuers of 
such securities from holding an annual meeting, such issuers may still 
be required to hold special meetings as required by state or federal 
law or their governing documents. The Exchange further notes that 
issuers of only non-voting preferred stock, debt securities and 
Derivative Securities are excluded from complying with substantially 
similar requirements on other national securities exchanges.\124\
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    \124\ See Nasdaq Listing Rule 5615(a)(6) and Arca Rule 5.3-E.
---------------------------------------------------------------------------

    An issuer that has non-voting preferred stock, debt securities and 
Derivative Securities listed on the Exchange that also lists the 
issuers common stock or voting preferred stock or their equivalent on 
the Exchange will be subject to all the requirements of Exchange Rule 
14.10.
(6) Definition Family Member
    The Exchange believes the proposal to modify the definition of 
Family Member as provided in Exchange Rule 14.10(c)(1)(B) will 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. In particular, the Exchange's rules currently prohibit 
a director from being deemed independent in certain circumstances by 
including director's stepchildren in the definition of a Family Member, 
as described in more detail above. The rule also includes a domestic 
employee who shares the director's home in the definition of a Family 
Member, even though the relationship between the director and such 
employee is commercial in nature.
    Independent directors over time became a linchpin in the American 
corporate governance. It is important for investors to have confidence 
that individuals serving as independent directors do not have a 
relationship with the listed company that would impair their 
independence. As the importance of independent directors for listed 
companies increased, so did the directors' workload and the risk of 
litigation. In this environment, the Exchange believes that it is 
appropriate not to prohibit directors from being considered independent 
based on the aforementioned commercial or attenuated stepchild 
relationships, but instead allow the board to review such a 
relationship and determine whether a relationship exists that would 
interfere with the exercise of independent judgment in carrying out the 
director's responsibilities.
    Additionally, the Exchange notes that the proposed rule change to 
Rule 14.10(c)(1)(B) will not affect the additional independence 
criteria for audit committee members set forth in Rule 14.10(c)(3), 
which incorporate the independence requirements of SEC Rule 10A-3.\125\
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    \125\ Rule 14.10(c)(3)(B) requires that each Company must have, 
and certify that it has and will continue to have, an audit 
committee of at least three members, each of whom must, among other 
requirements, meet the criteria for independence set forth in Rule 
10A-3(b)(1) under the Act, in addition to the requirements of Rule 
14.10(c)(3)(B). See also Exchange Rule 14.10 Interpretation and 
Policy .05 (Audit Committee Composition).
---------------------------------------------------------------------------

    Following the proposed rule change, the Exchange's definition of 
Family Member will become identical with Nasdaq definition of a Family 
Member, which the Commission has previously approved.\126\
---------------------------------------------------------------------------

    \126\ See Nasdaq Listing Rule 5605(a)(2). See also Securities 
and Exchange Act Nos. 86095 (June 12, 2019) 84 FR 28379 (June 18, 
2019) (SR-NASDAQ-2019-049) (Notice of Filing of Proposed Rule Change 
To Amend the Definition of Family Member in Listing Rule 5605(a)(2) 
for Purposes of the Definition of Independent Director); and 88210 
(February 13, 2020) 52 FR 9816 (February 20, 2020) (Notice of Filing 
of Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 3, To Amend the 
Definition of Family Member in Listing Rule 5605(a)(2) for Purposes 
of the Definition of Independent Director).
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(7) Quorum
    The Exchange believes that the proposed amendments to Exchange 
Rules 14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) are designed to protect 
interests and the public interest because the proposal would eliminate 
a conflict forcing a company to choose between following the Exchange's 
rules or the law in its home jurisdiction. Further, while the 
Exchange's Quorum Requirement would not apply, there would continue to 
be other protections for shareholders provided by the company's home 
country laws. The Exchange also believes the proposed amendments to 
Exchange Rules 14.10(e)(1)(D)(iv) and 14.10(f)(3)(ii) are designed to 
protect investors and the public interest because any company relying 
on the proposed exception from the Exchange's Quorum Requirement will 
be required to make public disclosure on or through the Company's 
website and either by filing a Form 8-K, where required by SEC rules, 
or by issuing a press release explaining the company's reliance on the 
exception.
    The Exchange believes that the proposed requirement that such 
website disclosure is maintained for the period of time the company 
continues to rely on the exception from the quorum requirements is 
designed to protect investors and the public interest because such 
website disclosure would help assure continuous transparency. The 
Exchange also believes that the proposed requirement to update the 
website disclosure at least annually to indicate that the company 
continues to be prohibited under its home country law from complying 
with the Exchange's quorum requirements as of the date of such update 
is designed to protect investors and the public interest because such 
disclosure would help the Exchange assure that the exception remains 
appropriate.
    The Exchange believes that the proposed amendments to correct 
grammatical errors or incorrect rule references will improve the 
readability and clarity of the Exchanges rulebook. The Exchange notes 
that the proposed changes to the Exchange's quorum requirements are 
substantively similar to existing rules on Nasdaq, and thus do not 
present any new or novel issues.\127\
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    \127\ See Nasdaq Listing Rules 5615(a)(4)(E) and 5620(c). See 
Securities and Exchange Act Nos. 90883 (January 11, 2021) 86 FR 4158 
(January 15, 2021) (SR-NASDAQ-2020-100) (Notice of Filing of 
Proposed Rule Change To Modify the Quorum Requirement for Non-U.S. 
Companies Under Certain Limited Circumstances); and 91567 (April 14, 
2021) 86 FR 20556 (April 20, 2021) (Notice of Filing of Amendment 
No. 1 and Order Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment No. 1, To Modify the Quorum 
Requirement).

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[[Page 12937]]

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Instead, the Exchange 
believes the proposed rule changes to conform certain applicable 
listing rules so that they are substantively similar to corresponding 
Nasdaq rules may enhance intermarket competition since the Exchange and 
Nasdaq will have substantially similar listing requirements for 
issuers.
    Moreover, none of the proposed changes will unduly burden intra-
market competition. Participants will experience no competitive impact 
from the proposed amendments as they are merely intended to the 
Exchange's corporate governance requirements so that they are 
substantively similar to those of other exchanges. Further, the 
Exchange anticipates that all issuers with Companies listed on the 
Exchange already comply with the proposed rules. Thus, the proposal 
will have no material impact to such issuers.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \128\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\129\
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    \128\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \129\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \130\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\131\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay to allow the 
Exchange to implement the proposal as soon as possible. The Exchange 
states that the proposal is substantively similar or identical to 
Nasdaq listing rules series 5200 (General Procedures and Prerequisites 
for Initial and Continued Listing on the Nasdaq Stock Market), 5600 
(Corporate Governance Requirements), and 5800 (Failure to Meeting 
Listing Standards). The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the proposal does not raise any new or novel 
issues. The proposed changes have also previously been subject to 
notice and comment.\132\ Accordingly, the Commission hereby waives the 
30-day operative delay and designates the proposal operative upon 
filing.\133\
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    \130\ 17 CFR 240.19b-4(f)(6).
    \131\ 17 CFR 240.19b-4(f)(6)(iii).
    \132\ See Section II. A, supra. As described above, some of the 
proposed changes were also previously approved by the Commission.
    \133\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-CboeBZX-2024-010 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-CboeBZX-2024-010. 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-CboeBZX-2024-010 and should 
be submitted on or before March 12, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\134\
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    \134\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-03336 Filed 2-16-24; 8:45 am]
BILLING CODE 8011-01-P

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