[Federal Register Volume 88, Number 115 (Thursday, June 15, 2023)]
[Notices]
[Pages 39305-39310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12760]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97690; File No. SR-NYSEARCA-2023-20]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Adopt New NYSE 
Arca Rule 5.3-E(p) To Establish Listing Standards Related to Recovery 
of Erroneously Awarded Incentive-Based Executive Compensation

June 9, 2023.

I. Introduction

    On February 24, 2023, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt NYSE Arca Rule 5.3-E(p) to require 
issuers to adopt and comply with a policy providing for the recovery of 
erroneously awarded incentive-based compensation received by current or 
former executive officers as required by Rule 10D-1 under the Act 
(``Rule 10D-1''). The proposed rule change was published for comment in 
the Federal Register on March 13, 2023.\3\ On April 24, 2023, the 
Commission extended the time period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\4\

[[Page 39306]]

On June 7, 2023, the Exchange filed Amendment No. 1 to the proposed 
rule change, which replaced and superseded the proposed rule change as 
originally filed.\5\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as modified by Amendment 
No. 1, from interested persons and is approving the proposed rule 
change, as modified by Amendment No. 1, on an accelerated basis.
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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. 97053 (March 7, 
2023), 88 FR 15495 (``Notice''). No comments were received in 
response to this Notice.
    \4\ See Securities Exchange Act Release No. 97362, 88 FR 26370 
(April 28, 2023).
    \5\ Amendment No. 1 is available on the Commission's website at 
https://www.sec.gov/comments/sr-nysearca-2023-20/srnysearca202320-201299-402782.pdf. In Amendment No. 1, the Exchange (i) amends 
proposed NYSE Arca Rule 5.3-E(p)(B) to provide that the effective 
date of proposed NYSE Arca Rule 5.3-E(p) would be October 2, 2023; 
(ii) amends proposed NYSE Arca Rule 5.3-E(p)(F) (Noncompliance with 
Rule 5.3-E(p) (Erroneously Awarded Compensation)) to provide that in 
the event of any failure by a listed issuer to comply with any 
requirement of proposed NYSE Arca Rule 5.3-E(p), the Exchange may at 
its sole discretion provide such issuer with an initial six-month 
cure period and an additional six-month cure period; and (iii) makes 
additional conforming changes to the description of the proposal.
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II. Background and Description of the Proposal, as Modified by 
Amendment No. 1

    On October 26, 2022, the Commission adopted final Rule 10D-1 \6\ to 
implement section 954 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (``Dodd-Frank Act''), which added section 10D to 
the Act. Section 10D of the Act requires the Commission to adopt rules 
directing the national securities exchanges to prohibit the listing of 
any security of an issuer that is not in compliance with the 
requirements of section 10D of the Act. Rule 10D-1 requires national 
securities exchanges that list securities to establish listing 
standards that require each issuer to adopt and comply with a written 
executive compensation recovery policy and to provide the disclosures 
required by Rule 10D-1 and in the applicable Commission filings.\7\ 
Under Rule 10D-1, listed companies must recover from current and former 
executive officers incentive-based compensation received during the 
three completed fiscal years preceding the date on which the issuer is 
required to prepare an accounting restatement.
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    \6\ 17 CFR 240.10D-1.
    \7\ See Securities Exchange Act Release No. 96159, 87 FR 73076 
(November 28, 2022) (``Adopting Release''). Rule 10D-1 requires such 
exchange listing rules to be effective no later than one year after 
November 28, 2022. Rule 10D-1 further requires that each listed 
issuer: (i) adopt the required recovery policy no later than 60 days 
following the effective date of the listing standard; (ii) comply 
with the recovery policy for all incentive-based compensation 
received by executive officers on or after the effective date of the 
applicable listing standard; and (iii) provide the required 
disclosures on or after the effective date of the listing standard.
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    As required by Rule 10D-1, the Exchange proposes to adopt NYSE Arca 
Rule 5.3-E(p) entitled ``Erroneously Awarded Compensation.'' Proposed 
NYSE Arca Rule 5.3-E(p) (``Rule 5.3-E(p)'' or the ``Rule'') mirrors the 
text of Rule 10D-1. Specifically, the Rule would require Exchange 
listed issuers to adopt a recovery policy that complies with the 
requirements of the Rule (``recovery policy''), comply with their 
recovery policy, and provide the required disclosures in the applicable 
Commission filing.\8\ Proposed Rule 5.3-E(p)(F) would prohibit the 
initial or continued listing of any security of an issuer that is not 
in compliance with the requirements of any portion of the Rule.\9\
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    \8\ See proposed Rule 5.3-E(p)(B) and (C).
    \9\ See proposed Rule 5.3-E(p)(F).
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    Specifically, proposed Rule 5.3-E(p)(C)(1) would require each 
issuer, for initial and continued listing, to adopt and comply with a 
written recovery policy providing that the issuer will recover 
reasonably promptly the amount of erroneously awarded incentive-based 
compensation in the event that the issuer is required to prepare an 
accounting restatement due to the material noncompliance of the issuer 
with any financial reporting requirement under the securities laws, 
including any required accounting restatement to correct an error in 
previously issued financial statements that is material to the 
previously issued financial statements, or that would result in a 
material misstatement if the error were corrected in the current period 
or left uncorrected in the current period.
    The issuer's recovery policy must apply to all incentive-based 
compensation received by a person: (A) after beginning service as an 
executive officer; (B) who served as an executive officer at any time 
during the performance period for that incentive-based compensation; 
(C) while the issuer has a class of securities listed on a national 
securities exchange or a national securities association; and (D) 
during the three completed fiscal years immediately preceding the date 
that the issuer is required to prepare an accounting restatement as 
described in paragraph (C)(1) of the Rule.\10\ An issuer's obligation 
to recover erroneously awarded compensation is not dependent on if or 
when the restated financial statements are filed.
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    \10\ See proposed Rule 5.3-E(p)(C)(1)(i). In addition to these 
last three completed fiscal years, the recovery policy must apply to 
any transition period (that results from a change in the issuer's 
fiscal year) within or immediately following those three completed 
fiscal years. However, a transition period between the last day of 
the issuer's previous fiscal year end and the first day of its new 
fiscal year that comprises a period of nine to 12 months would be 
deemed a completed fiscal year.
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    For purposes of determining the relevant recovery period, the date 
that an issuer is required to prepare an accounting restatement as 
described in paragraph (C)(1) of the Rule is the earlier to occur of: 
(A) the date the issuer's board of directors, a committee of the board 
of directors, or the officer or officers of the issuer authorized to 
take such action if board action is not required, concludes, or 
reasonably should have concluded, that the issuer is required to 
prepare an accounting restatement as described in paragraph (C)(1) of 
the Rule; or (B) the date a court, regulator, or other legally 
authorized body directs the issuer to prepare an accounting restatement 
as described in paragraph (C)(1) of the Rule.\11\
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    \11\ See proposed Rule 5.3-E(p)(C)(1)(ii).
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    The amount of incentive-based compensation that must be subject to 
the issuer's recovery policy (``erroneously awarded compensation'') is 
the amount of incentive-based compensation received that exceeds the 
amount of incentive-based compensation that otherwise would have been 
received had it been determined based on the restated amounts, and must 
be computed without regard to any taxes paid. For incentive-based 
compensation based on stock price or total shareholder return, where 
the amount of erroneously awarded compensation is not subject to 
mathematical recalculation directly from the information in an 
accounting restatement: (A) the amount must be based on a reasonable 
estimate of the effect of the accounting restatement on the stock price 
or total shareholder return upon which the incentive-based compensation 
was received; and (B) the issuer must maintain documentation of the 
determination of that reasonable estimate and provide such 
documentation to the Exchange.\12\
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    \12\ See proposed Rule 5.3-E(p)(C)(1)(iii).
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    The issuer must recover erroneously awarded compensation in 
compliance with its recovery policy except to the extent that one of 
the conditions set forth below is met, and the issuer's committee of 
independent directors responsible for executive compensation decisions, 
or in the absence of such a committee, a majority of the independent 
directors serving on the board, has made a determination that recovery 
would be impracticable.

[[Page 39307]]

     The direct expense paid to a third party to assist in 
enforcing the policy would exceed the amount to be recovered. Before 
concluding that it would be impracticable to recover any amount of 
erroneously awarded compensation based on expense of enforcement, the 
issuer must make a reasonable attempt to recover such erroneously 
awarded compensation, document such reasonable attempt(s) to recover, 
and provide that documentation to the Exchange.
     Recovery would violate home country law where that law was 
adopted prior to November 28, 2022. Before concluding that it would be 
impracticable to recover any amount of erroneously awarded compensation 
based on violation of home country law, the issuer must obtain an 
opinion of home country counsel, acceptable to the Exchange, that 
recovery would result in such a violation, and must provide such 
opinion to the Exchange.
     Recovery would likely cause an otherwise tax-qualified 
retirement plan, under which benefits are broadly available to 
employees of the registrant, to fail to meet the requirements of 26 
U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.\13\
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    \13\ See proposed Rule 5.3-E(p)(C)(1)(iv).
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    The issuer is prohibited from indemnifying any executive officer or 
former executive officer against the loss of erroneously awarded 
compensation.\14\
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    \14\ See proposed Rule 5.3-E(p)(C)(1)(v).
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    Proposed Rule 5.3-E(p)(C)(2) would require that each issuer file 
all disclosures with respect to such recovery policy in accordance with 
the requirements of the federal securities laws, including the 
disclosure required by the applicable Commission filings.
    Proposed Rule 5.3-E(p)(D) would provide that the requirements of 
the Rule do not apply to the listing of: (1) a security futures product 
cleared by a clearing agency that is registered pursuant to section 17A 
of the Act (15 U.S.C. 78q-1) or that is exempt from the registration 
requirements of section 17A(b)(7)(A) (15 U.S.C. 78q-1(b)(7)(A)); (2) a 
standardized option, as defined in 17 CFR 240.9b-1(a)(4), issued by a 
clearing agency that is registered pursuant to section 17A of the Act 
(15 U.S.C. 78q-1); (3) any security issued by a unit investment trust, 
as defined in 15 U.S.C. 80a-4(2); and (4) any security issued by a 
management company, as defined in 15 U.S.C. 80a-4(3), that is 
registered under section 8 of the Investment Company Act of 1940 (15 
U.S.C. 80a-8), if such management company has not awarded incentive-
based compensation to any executive officer of the company in any of 
the last three fiscal years, or in the case of a company that has been 
listed for less than three fiscal years, since the listing of the 
company.
    Proposed Rule 5.3-E(p)(E) would provide that, unless the context 
otherwise requires, the following definitions apply for purposes of the 
Rule:
     Executive Officer. An executive officer is the issuer's 
president, principal financial officer, principal accounting officer 
(or if there is no such accounting officer, the controller), any vice-
president of the issuer in charge of a principal business unit, 
division, or function (such as sales, administration, or finance), any 
other officer who performs a policy-making function, or any other 
person who performs similar policy-making functions for the issuer. 
Executive officers of the issuer's parent(s) or subsidiaries are deemed 
executive officers of the issuer if they perform such policy making 
functions for the issuer. In addition, when the issuer is a limited 
partnership, officers or employees of the general partner(s) who 
perform policy-making functions for the limited partnership are deemed 
officers of the limited partnership. When the issuer is a trust, 
officers, or employees of the trustee(s) who perform policy-making 
functions for the trust are deemed officers of the trust. Policy-making 
function is not intended to include policy-making functions that are 
not significant. Identification of an executive officer for purposes of 
the Rule would include at a minimum executive officers identified 
pursuant to 17 CFR 229.401(b).
     Financial reporting measures. Financial reporting measures 
are measures that are determined and presented in accordance with the 
accounting principles used in preparing the issuer's financial 
statements, and any measures that are derived wholly or in part from 
such measures. Stock price and total shareholder return are also 
financial reporting measures. A financial reporting measure need not be 
presented within the financial statements or included in a filing with 
the Commission.
     Incentive-based compensation. Incentive-based compensation 
is any compensation that is granted, earned, or vested based wholly or 
in part upon the attainment of a financial reporting measure.
     Received. Incentive-based compensation is deemed received 
in the issuer's fiscal period during which the financial reporting 
measure specified in the incentive-based compensation award is 
attained, even if the payment or grant of the incentive-based 
compensation occurs after the end of that period.
    Proposed Rule 5.3-E(p)(B) would provide that the effective date of 
the Rule (``effective date'') is October 2, 2023 and that each listed 
issuer must (i) adopt the recovery policy no later than 60 days 
following the effective date; (ii) comply with its recovery policy for 
all incentive-based compensation received (as such term is defined in 
proposed Rule 5.3-E(p)(E)) by executive officers on or after the 
effective date; \15\ and (iii) provide the required disclosures in the 
applicable Commission filings required on or after the effective 
date.\16\
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    \15\ As described above, a listed issuer would have to comply 
with its recovery policy for all incentive-based compensation 
received by executive officers on or after the effective date of the 
applicable listing standard (i.e. Rule 5.3-E(p)). Incentive-based 
compensation that is the subject of a compensation contract or 
arrangement that existed prior to the effective date of Rule 10D-1 
would still be subject to recovery under the Exchange's rule if such 
compensation was received on or after the effective date of Rule 
5.3-E(p), as required by Rule 10D-1. See Adopting Release, supra 
note 7, and also definitions of ``incentive based compensation'' and 
``received'' in proposed Rule 5.3-E(p)(E).
    \16\ See Amendment No. 1, supra note 5, at 5-6. In support of 
proposing an effective date of October 2, 2023, the Exchange states 
it believes this is consistent with section 10D ``and the goal of 
implementing the proposed rule promptly while also being consistent 
with the expectations of listed issuer that the proposed rules would 
take effect a year after the adoption of Rule 10D-1 based on the 
issuers' understanding of a statement made . . . in the Rule 10D-1 
Adopting Release.'' See id.
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    The Exchange also proposes additional clarifying changes to Rule 
5.3-E to make clear, consistent with the language of proposed Rule 5.3-
E(p), that every listed issuer would be subject to proposed Rule 5.3-
E(p) unless such issuer is eligible for an exemption set forth in that 
rule.\17\
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    \17\ See id. at 12.
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    The Exchange states that the proposed new requirements described 
above are consistent with the protection of investors and the public 
interest because they further the goal of ensuring the accuracy of the 
financial disclosure of listed issuers and may improve the overall 
quality and reliability of financial reporting as well as provide 
clarification by conforming the text of Rule 5.3-E to the requirements 
of proposed Rule 5.3-E(p).\18\
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    \18\ See id. at 12-13.
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    As described above, Rule 10D-1 requires national securities 
exchanges to prohibit the initial or continued listing of any security 
of an issuer not in compliance with its rules adopted to comply with 
Rule 10D-1. The Exchange proposes therefore to require that a listed 
issuer will be subject to delisting

[[Page 39308]]

in the event of any failure by such listed issuer to comply with any 
requirement of Rule 5.3-E(p), including the requirement to adopt a 
recovery policy that complies with the applicable listing standard, 
disclose the policy in accordance with Commission rules or comply with 
its recovery policy. The Exchange states that the proposed delisting 
process that sets forth procedures that would apply if an issuer failed 
to comply with Rule 5.3-E(p) is closely modeled on the compliance 
process for listed issuers delayed in submitting periodic reports to 
the Commission as set forth in section 802.01E of the NYSE Listed 
Company Manual and Section 1007 of the NYSE American Company Guide.\19\ 
Specifically, the Exchange proposes to adopt proposed Rule 5.3-
E(p)(F)(ii) to provide that a listed issuer that is out of compliance 
with the Rule \20\ and fails to regain compliance within any cure 
period provided by the Exchange (as further described below) would have 
its listed securities immediately suspended and the Exchange would 
immediately commence delisting procedures with respect to all such 
listed securities.\21\ Proposed Section Rule 5.3-E(p)(F)(ii) would 
provide that the Exchange may afford a listed issuer that fails to 
comply with any of the requirements of the Rule an initial six-month 
period to cure the deficiency.\22\ If the issuer fails to cure the 
delinquency within the initial cure period, the Exchange may either 
afford the issuer up to an additional six months to cure the deficiency 
or, if the Exchange determines that an additional cure period is not 
appropriate,\23\ commence suspension and delisting procedures in 
accordance with Rule 5.5-E(a). Notwithstanding the foregoing, the 
Exchange may in its sole discretion decide (i) not to afford a listed 
issuer any initial cure period or additional cure period, or (ii) at 
any time during such cure period, to truncate the cure period and 
immediately commence suspension and delisting procedures if the listed 
issuer is subject to delisting pursuant to any other provision of the 
Exchange rules, including if the Exchange believes, in the Exchange's 
sole discretion, that continued listing and trading of a listed 
issuer's securities on the Exchange is inadvisable or unwarranted.\24\ 
In determining whether an initial or additional cure period is 
appropriate, or whether either such period should be truncated, the 
Exchange will consider the likelihood that the delinquency can be cured 
during such period.\25\ The Exchange may also commence suspension and 
delisting procedures without affording any cure period at all or at any 
time during the initial or additional cure period if the Exchange 
believes, in the Exchange's sole discretion, that it is advisable to do 
so on the basis of an analysis of all relevant factors.\26\ In no event 
would the Exchange continue to trade a listed issuer's securities if 
that listed issuer has failed to cure its delinquency with the Rule on 
the date that is twelve months after the date the Exchange notified the 
issuer of the delinquency.\27\
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    \19\ See id. at 10. The Exchange's original filing included 
provisions establishing cure periods to be applied in the event of a 
listed issuer's failure to adopt a recovery policy within the 
required time period but did not establish cure periods for other 
incidents of noncompliance with Rule 5.3-E(p). Amendment No. 1 
revised these cure period provisions so that they are now applicable 
to all incidents of noncompliance with Rule 5.3-E(p) and not just 
delayed adoption of recovery policies. See id. at 4 n.4. The 
Exchange states that it believes the compliance procedures, as 
amended, ``are appropriately rigorous and are consistent with the 
public interest and the interests of investors.'' See id. at 13.
    \20\ Proposed Rule 5.3-E(p)(F)(ii) provides that a listed issuer 
will be deemed to be below standards in the event of any failure by 
such listed issuer to comply with any requirement of the Rule. The 
listed issuer would be required to notify the Exchange in writing 
within five days of any type of delinquency. When the Exchange 
determines that a delinquency has occurred, it will promptly send 
written notification to a listed issuer of the procedures set forth 
in the Rule and, within five days of the date of receipt of such 
notification, the listed issuer will be required to (i) contact the 
Exchange to discuss the status of resolution of the delinquency and 
(ii) issue a press release disclosing the occurrence of the 
delinquency, the reason for the delinquency and, if known, the 
anticipated date the delinquency will be cured. If the listed issuer 
has not issued the required press release within five days of the 
date of the delinquency notification, the Exchange will issue a 
press release stating that the issuer has incurred a delinquency and 
providing a description thereof. See proposed Rule 5.3-E(p)(F)(ii).
    \21\ See proposed Rule 5.3-E(p)(F)(i) and (iv). A listed issuer 
will be subject to the procedures outlined in NYSE Arca Rule 5.5-
E(a) (Maintenance Requirements and Delisting Procedures) with 
respect to such a delisting determination. In addition, NYSE Arca 
Rule 5.5-E(m) provides that an issuer subject to a delisting 
determination generally has a right to an appeal hearing, subject to 
certain procedures.
    \22\ During such six-month period, the Exchange would monitor 
the listed issuer and the status of resolution of the delinquency 
until the delinquency is cured. See proposed Rule 5.3-E(p)(F)(iii).
    \23\ In determining whether an additional cure period is 
appropriate, the Exchange will consider the likelihood that the 
delinquency can be cured during the additional cure period. See 
proposed Rule 5.3-E(p)(F)(iv).
    \24\ See proposed Rule 5.3-E(p)(F)(iii).
    \25\ See proposed Rule 5.3-E(p)(F)(ii) and (iii).
    \26\ See proposed Rule 5.3-E(p)(F)(iii).
    \27\ See proposed Rule 5.3-E(p)(F)(iv).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\28\ In particular, the 
Commission finds that the proposed rule change is consistent with the 
requirements of section 6(b) of the Act.\29\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act,\30\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest, and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. In addition, the Commission finds that the 
proposed rule change is consistent with section 6(b)(7) of the Act,\31\ 
which requires, among other things, that the rules of a national 
securities exchange provide a fair procedure for the prohibition or 
limitation by the exchange of any person with respect to access to 
services offered by the exchange. The proposed rule change, as modified 
by Amendment No. 1, is also consistent with section 10D of the Act \32\ 
and Rule 10D-1 thereunder, as further described below.\33\
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    \28\ 15 U.S.C. 78f(b). In approving this proposed rule change, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
    \31\ 15 U.S.C. 78(b)(7).
    \32\ 15 U.S.C. 78j-4.
    \33\ 17 CFR 240.10D-1.
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    The development and enforcement of meaningful listing standards for 
a national securities exchange is of substantial importance to 
financial markets and the investing public. Meaningful listing 
standards are especially important given investor expectations 
regarding the nature of companies that have achieved an exchange 
listing for their securities, and the role of an exchange in overseeing 
its market and assuring compliance with its listing standards.\34\ The 
corporate governance standards embodied in the listing rules of 
national securities

[[Page 39309]]

exchanges, in particular, play an important role in assuring that 
companies listed for trading on the exchanges' markets observe good 
governance practices, including a fair approach and greater 
accountability for the recovery of erroneously awarded 
compensation.\35\
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    \34\ See, e.g., Securities Exchange Release Nos. 65708 (November 
8, 2011), 76 FR 70799 70802 (November 15, 2011) (SR-NASDAQ-2011-
073); 63607 (December 23, 2010), 75 FR 82420, 82422 (December 30, 
2010) (SR-NASDAQ-2010-137); 57785 (May 6, 2008), 73 FR 27597, 27599 
(May 13, 2008) (SR-NYSE-2008-17); and 93256 (October 4, 2021), 86 FR 
56338 (October 8, 2021) (SR-NASDAQ-2021-007).
    \35\ See, e.g., Securities Exchange Release No. 68639 (January 
11, 2013), 78 FR 4570, 4579 (January 22, 2013) (SR-NYSE-2012-49) 
(stating, in connection with the modification of exchange rules for 
compensation committees of listed issuers to comply with Rule 10C-1 
of the Act, that corporate governance listing standards ``play an 
important role in assuring that companies listed for trading on the 
exchanges' markets observe good governance practices, including a 
reasoned, fair, and impartial approach for determining the 
compensation of corporate executives'' and stating that the proposal 
would foster ``greater transparency, accountability and 
objectivity'' in oversight of compensation practices.).
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    In enacting section 10D of the Act,\36\ Congress resolved to 
require national securities exchanges to establish listing standards to 
require listed issuers to develop and comply with a policy to recover 
incentive-based compensation erroneously awarded on the basis of 
financial information that requires an accounting restatement.\37\ In 
October 2022, as required by this legislation, the Commission adopted 
Rule 10D-1 under the Act, which directs the national securities 
exchanges to establish listing standards that require issuers to: (i) 
develop and comply with written policies for recovery of incentive-
based compensation based on financial information required to be 
reported under the securities laws, applicable to the issuers' 
executive officers, during the three completed fiscal years immediately 
preceding the date that the issuer is required to prepare an accounting 
restatement; and (ii) disclose those compensation recovery policies in 
accordance with Commission rules. In response, the Exchange has filed 
the proposed rule change, which includes rules intended to comply with 
the requirements of Rule 10D-1.
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    \36\ Publish Law 111-203, 954, 124 Stat. 1376, 1904 (2010) 
(codified at 15 U.S.C. 78j-4).
    \37\ As a part of the Dodd-Frank Act legislative process, in a 
2010 report, the Senate Committee on Banking, Housing and Urban 
Affairs stated that it is ``unfair to shareholders for corporations 
to allow executive officers to retain compensation that they were 
awarded erroneously.'' See Report of the Senate Committee on 
Banking, Housing, and Urban Affairs, S.3217, Report No. 111-176 at 
135-36 (Apr. 30, 2010) (``Senate Report'') at 135. See also Adopting 
Release, supra note 7, 87 FR at 73077 (citing to the Senate Report) 
(``The language and legislative history of the Dodd-Frank Act make 
clear that section 10D is premised on the notion that an executive 
officer should not retain incentive-based compensation that, had the 
issuer's accounting been correct in the first instance, would not 
have been received by the executive officer, regardless of any fault 
of the executive officer for the accounting errors. The Senate 
Report also indicates that shareholders should not `have to embark 
on costly legal expenses to recoup their losses' and that 
`executives must return monies that should belong to the 
shareholders.' '').
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    The Exchange's proposed Rule 5.3-E(p) incorporates the requirements 
of Rule 10D-1. The Commission believes that the Exchange's proposal 
will foster greater fairness, accountability, and transparency to 
shareholders of listed issuers by advancing the recovery of incentive-
based compensation that was erroneously awarded on the basis of 
financial information that requires an accounting restatement, 
consistent with section 10D of the Act \38\ and Rule 10D-1 
thereunder,\39\ and will therefore further the protection of investors 
consistent with section 6(b)(5) of the Act.\40\ In addition, as the 
Commission stated in the Adopting Release, the recovery requirements 
may provide executive officers with an increased incentive to take 
steps to reduce the likelihood of inadvertent misreporting and will 
reduce the financial benefits to executive officers who choose to 
pursue impermissible accounting methods, which can further discourage 
such behavior.\41\ The Commission believes that these benefits of the 
Exchange's new rules on the recovery of erroneously awarded 
compensation will protect investors and the public interest as required 
under section 6(b)(5) of the Act.
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    \38\ 15 U.S.C. 78j-4.
    \39\ 17 CFR 240.10D-1.
    \40\ 15 U.S.C. 78f(b)(5).
    \41\ See Adopting Release, supra note 7, 87 FR at 73077. See 
also Amendment No. 1, supra note 5, at 12, agreeing with the 
Commission's statement on the benefits of the recovery policy.
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    Rule 10D-1 and the proposed Rule require that a listed issuer 
recover the amount of erroneously awarded incentive-based compensation 
``reasonably promptly.'' The Adopting Release stated that whether an 
issuer is acting reasonably promptly ``will depend on the particular 
facts and circumstances applicable to that issuer'' and ``the final 
rules do not restrict exchanges from adopting more prescriptive 
approaches to the timing and method of recovery under their rules in 
compliance with section 19(b) of the Exchange Act . . .'' \42\ Rule 
10D-1 also does not compel the exchanges to adopt a more prescriptive 
approach to the timing and method of recovery. In its proposal, the 
Exchange stated that ``the issuer's obligation to recover erroneously 
awarded incentive-based compensation reasonably promptly will be 
assessed on a holistic basis with respect to each such accounting 
restatement prepared by the issuer'' and that ``[i]n evaluating whether 
an issuer is recovering erroneously awarded incentive-based 
compensation reasonably promptly, the Exchange will consider whether 
the issuer is pursuing an appropriate balance of cost and speed in 
determining the appropriate means to seek recovery, and whether the 
issuer is securing recovery through means that are appropriate based on 
the particular facts and circumstances of each executive officer that 
owes a recoverable amount.'' \43\ The Commission believes this guidance 
provided by the Exchange is consistent with the Commission's statements 
regarding when an issuer is acting ``reasonably promptly'' as expressed 
in the Adopting Release, with Rule 10D-1 and with the Act.\44\
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    \42\ See Adopting Release, supra note 7, 87 FR at 73104. For 
example, the Commission stated that after the exchanges have 
observed issuer performance they can use any resulting data to 
assess the need for further guidelines to ensure prompt and 
effective recovery. See id.
    \43\ See Amendment No. 1, supra note 5, at 5.
    \44\ See Adopting Release, supra note 7, 87 FR 73104.
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    Rule 10D-1 requires issuers subject to the listing standards to 
adopt a recovery policy no later than 60 days following the date on 
which the applicable listing standards become effective and to comply 
with their recovery policy, and provide the required disclosures, on or 
after the effective date. The Exchange, in Amendment No. 1, is 
proposing that the effective date of the Rule be October 2, 2023.\45\ 
The Exchange believes that setting this date as the effective date will 
ensure that issuers have more than a year from the date Rule 10D-1 was 
published in the Federal Register to adopt recovery policies.\46\ This 
is consistent with language in Rule 10D-1 and the Adopting Release, 
while also ensuring prompt implementation of this proposed rule.
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    \45\ See Amendment No. 1, supra note 5, amending proposed Rule 
5.3-E(p)(B).
    \46\ Listed issuers will need to have their recovery policy in 
place no later than 60 days following the effective date of October 
2, 2023, which would be more than a year after publication of Rule 
10D-1 in the Federal Register. Listed issuers will also have to 
comply with their recovery policy for all incentive-based 
compensation received by executive officers on or after the 
effective date of October 2, 2023, and provide the required 
disclosures in the applicable Commission filings on or after the 
effective date of October 2, 2023. See Adopting Release, supra note 
7, and also definitions of ``incentive based compensation'' and 
``received'' in proposed Rule 5.3-E(p)(E). See also supra notes 15-
16 and accompanying text.
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    With respect to a listed issuer that fails to comply with proposed 
Rule 5.3-E(p), the Exchange has proposed delisting procedures that are 
closely modeled on the compliance process for listed issuers delayed in 
submitting periodic reports to the Commission as set forth in Section 
802.01E of the NYSE

[[Page 39310]]

Listed Company Manual and Section 1007 of the NYSE American Company 
Guide.\47\ The Commission believes that these procedures, as modified 
by Amendment No. 1, for listed issuers out of compliance with proposed 
Rule, which are consistent with the procedures for filing delinquencies 
as set forth in the NYSE Listed Company Manual and the NYSE American 
Company Guide, adequately meet the mandate of Rule 10D-1 and are 
consistent with investor protection and the public interest, since they 
give a listed issuer a reasonable time period to cure non-compliance 
with these important requirements before they will be delisted while 
helping to ensure that listed issuers that are non-compliant will not 
remain listed for an inappropriate amount of time.\48\ Additionally, 
the proposed delisting process, including the cure period and the right 
to a review of a delisting determination by a committee of the Board of 
Directors of the Exchange, is consistent with section 6(b)(7) of the 
Act in that it provides a fair procedure for the review of delisting 
determinations based on violations of the Exchange's rules for 
recovering erroneous compensation.
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    \47\ See supra notes 19-27 and accompanying text.
    \48\ The Exchange originally proposed that if an issuer was non-
compliant with any of the provisions of the Rule (except for a 
delayed adoption of a recovery policy), the Exchange would 
immediately suspend and commence delisting procedures with respect 
to such issuer's listed securities. See Notice, supra note 3, 88 FR 
at 15478-79. As discussed above, Amendment No. 1 amended the 
Exchange's proposed delisting provisions to provide to that in the 
event of any failure by a listed issuer to comply with any 
requirement of Rule 5.3-E(p), the Exchange may provide such issuer 
with an initial six-month cure period and an additional six-month 
cure period. See Amendment No. 1, supra note 5.
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether the proposed rule change, as modified by 
Amendment No. 1, is consistent with the Exchange Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2023-20 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-NYSEARCA-2023-20. 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-2023-20, and should 
be submitted on or before July 6, 2023.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. In Amendment No. 1, the Exchange amended the 
proposal to (i) propose that the effective date of proposed Rule 5.3-
E(p) be October 2, 2023; (ii) allow the Exchange, in its sole 
discretion, to provide a listed issuer that fails to comply with any 
requirement of proposed Rule 5.3-E(p), an initial six-month cure period 
and an additional six-month cure period; and (iii) make additional 
conforming changes to the description of the proposal.\49\ The changes 
in Amendment No. 1 provide greater clarity to the proposal. The change 
to the effective date of the listing standards is consistent with Rule 
10D-1 and language in the Adopting Release. The changes to the 
delisting procedures and the cure periods for non-compliance being 
proposed by the Exchange are similar to those that exist under the 
rules of other national securities exchanges for the late filing of 
annual and quarterly reports that the Commission has previously 
approved as consistent with the Act.\50\ The amended proposal also 
provides for a cure period for any violations of Rule 5.3-E(p) similar 
to the approach taken by Nasdaq in its proposal to adopt rules to 
comply with Rule 10D-1.\51\ Nasdaq's proposal has also been approved by 
the Commission as consistent the Act.\52\ Accordingly, the Commission 
finds good cause, pursuant to section 19(b)(2) of the Exchange Act,\53\ 
to approve the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
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    \49\ See Amendment No. 1, supra note 5.
    \50\ See Section 802.01E of the NYSE Listed Company Manual and 
Section 1007 of the NYSE American Company Guide.
    \51\ See Securities Exchange Act Release No. 97060 (March 7, 
2023), 88 FR 15500 (March 13, 2023) (SR-Nasdaq-2023-005).
    \52\ See Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change to Establish Listing 
Standards Related to Recovery of Erroneously Awarded Executive 
Compensation (June 9, 2023) (SR-Nasdaq-2023-005).
    \53\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\54\ that the proposed rule change (SR-NYSEARCA-2023-20), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \54\ 15 U.S.C. 78s(b)(2).
    \55\ 17 CFR 200.30-3(a)(12).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12760 Filed 6-14-23; 8:45 am]
BILLING CODE 8011-01-P


