[Federal Register Volume 84, Number 166 (Tuesday, August 27, 2019)]
[Notices]
[Pages 44952-44954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18381]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86722; File No. SR-LTSE-2019-01]


Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; 
Order Approving Proposed Rule Change To Adopt Rule 14.425, Which Would 
Require Companies Listed on the Exchange To Develop and Publish Certain 
Long-Term Policies

August 21, 2019.

I. Introduction

    On June 25, 2019, the Long-Term Stock Exchange, Inc. (``LTSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt new Rule 14.425 (Long-Term Policies), 
which would require companies listed on the Exchange to develop and 
publish certain policies that the Exchange believes will facilitate 
long-term focus and value creation. The proposed rule change was 
published for

[[Page 44953]]

comment in the Federal Register on July 12, 2019.\3\ The Commission 
received one comment letter, which supported the proposed rule 
change.\4\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 86327 (July 8, 
2019), 84 FR 33293 (July 12, 2019) (``Notice'').
    \4\ See Letter from Joe Caputo, Council of Institutional 
Investors (``CII''), to Vanessa Countryman, Secretary, Commission, 
dated August 1, 2019 (``CII Letter'').
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II. Description of the Proposal

    On May 10, 2019, the Commission granted the Exchange's application 
for registration as a national securities exchange under Section 6 of 
the Act,\5\ including approval of rules applicable to the 
qualification, listing and delisting of companies on the Exchange.\6\ 
The Exchange is proposing to enhance its listing requirements by 
adopting proposed Rule 14.425, which would require companies listed on 
the Exchange (``LTSE-Listed Issuers'') to adopt and publish the 
following policies: A Long-Term Stakeholder Policy, a Long-Term 
Strategy Policy, a Long-Term Compensation Policy, a Long-Term Board 
Policy and a Long-Term Investor Policy, as described further below 
(collectively, the ``Policies'').\7\ These Policies must be consistent 
with the set of principles articulated in proposed Rule 14.425(b), as 
described further below.
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    \5\ 15 U.S.C. 78f.
    \6\ See Securities Exchange Act Release No. 85828 (May 10, 
2019), 84 FR 21841 (May 15, 2019).
    \7\ See proposed Rule 14.425(a).
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Long-Term Principles

    The Exchange proposes that LTSE-Listed Issuers will have 
flexibility in developing what they believe to be appropriate Policies 
for their businesses; however, each of the Policies would be required 
to be consistent with the following long-term principles (collectively, 
the ``Principles''):
     Long-term focused companies should consider a broader 
group of stakeholders and the critical role they play in one another's 
success;
     Long-term focused companies should measure success in 
years and decades and prioritize long-term decision-making;
     Long-term focused companies should align executive 
compensation and board compensation with long-term performance;
     Boards of directors of long-term focused companies should 
be engaged in and have explicit oversight of long-term strategy; and
     Long-term focused companies should engage with their long-
term shareholders.

Long-Term Policies

    In addition to requiring the Policies to be consistent with the 
Principles, the Exchange would require each of the required Policies to 
include certain minimum elements, as described further below.
(A) Long-Term Stakeholder Policy
    Proposed Rule 14.425(a)(1) would require that each LTSE-Listed 
Issuer adopt and publish a Long-Term Stakeholder policy explaining how 
the issuer operates its business to consider all of the stakeholders 
critical to its long-term success. At a minimum, this policy would be 
required to include a discussion of (i) the stakeholder groups the 
LTSE-Listed Issuer considers critical to long-term success, (ii) the 
LTSE-Listed Issuer's impact on the environment and its community, (iii) 
the LTSE-Listed Issuer's approach to diversity and inclusion, (iv) the 
LTSE-Listed Issuer's approach to investing in its employees, and (v) 
the LTSE-Listed Issuer's approach to rewarding its employees and other 
stakeholders for contributing to the LTSE-Listed Issuer's long-term 
success.
(B) Long-Term Strategy Policy
    Proposed Rule 14.425(a)(2) would require that each LTSE-Listed 
Issuer adopt and publish a Long-Term Strategy Policy explaining how the 
LTSE-Listed Issuer prioritizes long-term strategic decision-making and 
long-term success. The Long-Term Strategy Policy would be required to 
define the LTSE-Listed Issuer's long-term time horizon and include a 
discussion of how this time horizon relates to the LTSE-Listed Issuer's 
strategic plans, how the LTSE-Listed Issuer aligns success metrics with 
that horizon, and how it implements long-term prioritization throughout 
the organization. According to the Exchange, the disclosure of this 
policy is designed to increase transparency for shareholders on the 
strategic goals of the company's managers and to provide for greater 
alignment and accountability between a company's long-term vision and 
investor expectations.
(C) Long-Term Compensation Policy
    Proposed 14.425(a)(3) would require that each LTSE-Listed Issuer 
adopt and publish a policy explaining the LTSE-Listed Issuer's 
alignment of executive financial and non-financial compensation and of 
board compensation with the LTSE-Listed Issuer's long-term success and 
long-term success metrics. According to the Exchange, long-term focused 
companies seek to align the compensation of their executive officers 
with the long-term performance of the company. In addition, the 
Exchange believes that since the boards of such companies play an 
active role in long-term strategy, such companies seek to align the 
compensation of their boards to long-term performance as well. The 
Exchange notes that much of the information that the company would need 
to disclose under proposed Rule 14.425(a)(3) also would be required by 
Rule 402 of the Commission's Regulation S-K.\8\ Nonetheless, the 
Exchange believes that requiring LTSE-Listed Issuers to publish a Long-
Term Compensation Policy would still be helpful to long-term investors.
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    \8\ 17 CFR 229.
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(D) Long-Term Board Policy
    Proposed 14.425(a)(4) would require that each LTSE-Listed Issuer 
adopt and publish a policy explaining the engagement of the LTSE-Listed 
Issuer's board of directors in the LTSE-Listed Issuer's long-term 
focus, including discussion of whether the board and/or which board 
committee(s), if any, have explicit oversight of and responsibility for 
long-term strategy and success metrics. The Exchange believes that the 
board of directors should be engaged with the LTSE-Listed Issuer's 
forward-looking long-term strategy and that investors would find this 
information useful.
(E) Long-Term Investor Policy
    Proposed 14.425(a)(5) would require that each LTSE-Listed Issuer 
adopt and publish a policy explaining how the LTSE-Listed Issuer 
engages with long-term investors. The Exchange believes that forward-
thinking companies value long-term investor input and consider their 
perspective on company governance as important to the development of 
the company's long-term strategy.

Disclosure of Policies and Enforcement

    Proposed Rule 14.425(c) would require that each LTSE-Listed Issuer 
review the policies required by proposed Rule 14.425(a) at least 
annually and make such policies available publicly and free of charge 
on or through its website. In addition, each LTSE-Listed Issuer would 
be required to disclose in its annual proxy statement or, if it does 
not file an annual proxy statement, in its annual report on Form 10-K 
(or if a foreign private issuer, Form 20-F) filed with the Commission, 
that these policies are available on or through its website, and to 
provide the website address. According to the Exchange, these 
requirements are

[[Page 44954]]

intended to ensure that investors are aware of and have access to the 
Policies required by the proposed rule.
    The Exchange has represented that it will enforce the provisions of 
proposed Rule 14.425 by ensuring that each LTSE-Listed Issuer has 
addressed all of the elements enumerated in each of the Policies, 
consistent with the Principles, and has made the Policies publicly 
available without cost.
    As noted above, the Commission received one comment letter received 
regarding the proposal.\9\ The commenter supported the Exchange's focus 
on a long-term vision for its listed companies and stated that ``. . . 
the long-term policies described in the filing are thoughtful, well-
structured, and generally aligned with CII's membership approved 
corporate governance policies.''\10\
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    \9\ See note 4, supra.
    \10\ See CII Letter at 2.
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III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act \11\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\12\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\13\ which 
requires, among other things, that rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest, and that those rules are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers. The 
Commission notes that the Exchange's proposal would impose additional 
requirements for its listed issuers, beyond those contained in its 
existing listing rules. Specifically, the proposal would require 
issuers to adopt and publish certain Policies that are consistent with 
the Principles articulated in the proposed rule. The Exchange has 
represented that it will enforce the provisions of the proposed rule by 
ensuring that each LTSE-Listed Issuer has addressed all of the elements 
enumerated in each of the Policies, consistent with the Principles, and 
has made the Policies publicly available without cost.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b). In approving this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    Based on the foregoing, the Commission finds that the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-LTSE-2019-01) is approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-18381 Filed 8-26-19; 8:45 am]
 BILLING CODE 8011-01-P


