[Federal Register Volume 88, Number 115 (Thursday, June 15, 2023)]
[Notices]
[Pages 39285-39290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12762]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97692; File No. SR-CboeBZX-2023-013]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; 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 Listing 
Rules To Require Companies Listed on the Exchange To Develop, 
Implement, and Disclose a Written Compensation Recovery Policy To 
Comply With Rule 10D-1 Under the Exchange Act and Make Other Related 
Changes

June 9, 2023.

I. Introduction

    On February 24, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') 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 BZX Rule 14.10(k) to require 
companies listed on the Exchange to develop, implement, and disclose a 
written compensation recovery policy to comply with Rule 10D-1 under 
the Act (``Rule 10D-1''). On March 3, 2023, the Exchange filed 
Amendment No. 1 to the proposed rule change, which replaced and 
superseded the proposed rule change as originally filed. The proposed 
rule change, as modified by Amendment No. 1, was published for comment 
in the Federal Register on March 15, 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 39286]]

On June 7, 2023, the Exchange filed Amendment No. 2 to the proposed 
rule change, which replaced and superseded the proposed rule change, as 
modified by Amendment No. 1.\5\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as modified by 
Amendment No. 2, from interested persons and is approving the proposed 
rule change, as modified by Amendment No. 2, 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. 97099 (March 9, 
2023), 88 FR 16051 (``Notice''). No comments were received in 
response to this Notice.
    \4\ See Securities Exchange Act Release No. 97364, 88 FR 26369 
(April 28, 2023).
    \5\ Amendment No. 2 is available on the Commission's website at 
https://www.sec.gov/comments/sr-cboebzx-2023-013/srcboebzx2023013-201119-402402.pdf. In Amendment No. 2, the Exchange proposes to 
amend proposed Rule 14.10(k) to (i) provide that the effective date 
of proposed Rule 14.10(k) would be October 2, 2023; (ii) clarify, 
consistent with the requirements of Rule 10D-1, that each company 
must adopt and comply with its recovery policy required by proposed 
Rule 14.10(k); and (iii) make other non-substantive, clarifying 
changes.
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II. Background and Description of the Proposal, as Modified by 
Amendment No. 2

    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 proposed to adopt BZX Rule 
14.10(k) (the ``Rule'') and Interpretations and Policies .21 to BZX 
Rule 14.10, both entitled ``Compensation Recovery Policy,'' to amend 
BZX Rule 14.1(a) (Definitions), and to amend BZX 14.10(e) (Exemptions 
from Certain Corporate Governance Requirements). These proposed 
amendments to the Exchange's rules incorporate the requirements of Rule 
10D-1. Specifically, proposed BZX Rule 14.10(k) would require companies 
\8\ to adopt a compensation recovery policy, comply with that policy, 
and provide the compensation recovery policy disclosures required by 
the Rule and in the applicable Commission filings.\9\
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    \8\ For purposes of this order, ``companies'' or ``company'' 
refers to the issuer of a security listed or an issuer who is 
applying to list on the Exchange. See, e.g., BZX Rule 14.1(a)(3).
    \9\ See proposed BZX Rule 14.10(k).
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    Proposed BZX Rule 14.10(k)(1) would require that each company adopt 
and comply with a written recovery policy providing that the company 
will recover reasonably promptly the amount of erroneously awarded 
incentive-based compensation in the event that the company is required 
to prepare an accounting restatement due to the material noncompliance 
of the company with any financial reporting requirement under the 
securities laws, including any required accounting restatement to 
correct an error in previously issued financial statements that is 
material to the previously issued financial statements, or that would 
result in a material misstatement if the error were corrected in the 
current period or left uncorrected in the current period, as required 
by section 10D-1 under the Act.
    The company's recovery policy must apply to all incentive-based 
compensation received by a person: (i) after beginning service as an 
executive officer; (ii) who served as an executive officer at any time 
during the performance period for that incentive-based compensation; 
(iii) while the company has a class of securities listed on a national 
securities exchange or national securities association; and (iv) during 
the three completed fiscal years immediately preceding the date that 
the company is required to prepare an accounting restatement as 
described in paragraph (k)(1) of the Rule.\10\ A company'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 BZX Rule 14.10(k)(1)(A). In addition to these 
last three completed fiscal years, the recovery policy must apply to 
any transition period (that results from a change in the company's 
fiscal year) within or immediately following those three completed 
fiscal years. However, a transition period between the last day of 
the company's previous fiscal year end and the first day of its new 
fiscal year that comprises a period of nine to 12 months would be 
deemed a completed fiscal year.
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    For purposes of determining the relevant recovery period, the date 
that a company is required to prepare an accounting restatement as 
described in paragraph (k)(1) of the Rule is the earlier to occur of: 
(i) the date the company's board of directors, a committee of the board 
of directors, or the officer or officers of the company authorized to 
take such action if board action is not required, concludes, or 
reasonably should have concluded, that the company is required to 
prepare an accounting restatement as described in paragraph (k)(1) of 
the Rule; or (ii) the date a court, regulator, or other legally 
authorized body directs the company to prepare an accounting 
restatement as described in paragraph (k)(1) of the Rule.\11\
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    \11\ See proposed BZX Rule 14.10(k)(1)(B).
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    The amount of incentive-based compensation that must be subject to 
the company's recovery policy (``erroneously awarded compensation'') is 
the amount of incentive-based compensation received that exceeds the 
amount of incentive-based compensation that otherwise would have been 
received had it been determined based on the restated amounts, and must 
be computed without regard to any taxes paid. For incentive-based 
compensation based on stock price or total shareholder return, where 
the amount of erroneously awarded compensation is not subject to 
mathematical recalculation directly from the information in an 
accounting restatement: (i) 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 (ii) the company 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 BZX Rule 14.10(k)(1)(C).
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    A company must recover erroneously awarded compensation in 
compliance with its recovery policy except to the extent that one of 
the conditions set forth below is met, and the company's committee of 
independent directors \13\ 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.
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    \13\ The term ``independent director'' is defined in BZX Rule 
14.10(c)(1)(B).

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[[Page 39287]]

     The direct expense paid to a third party to assist in 
enforcing the policy would exceed the amount to be recovered. Before 
concluding that it would be impracticable to recover any amount of 
erroneously awarded compensation based on expense of enforcement, the 
company must make a reasonable attempt to recover such erroneously 
awarded compensation, document such reasonable attempt(s) to recover, 
and provide that documentation to 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 company 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.\14\
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    \14\ See proposed BZX Rule 14.10(k)(1)(D).
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    A company is prohibited from indemnifying any executive officer or 
former executive officer against the loss of erroneously awarded 
compensation.\15\
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    \15\ See proposed BZX Rule 14.10(k)(1)(E).
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    Proposed BZX Rule 14.10(k)(2) would require that each company must 
file all disclosures with respect to the recovery policy in accordance 
with the requirements of the federal securities laws, including the 
disclosure required by the applicable Commission filings.
    BZX proposes to amend BZX Rule 14.10(e)(1) (Exemptions to the 
Corporate Governance Requirements) to provide that the following are 
exempt from the compensation recovery policy requirements under the 
Rule: (i) any security issued by a unit investment trust, as defined in 
15 U.S.C. 80a-4(2); \16\ and (ii) 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.\17\
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    \16\ See proposed BZX Rule 14.10(e)(1)(A)(iii).
    \17\ See proposed BZX Rule 14.10(e)(1)(E)(iv).
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    The Exchange proposes to adopt a definition of ``executive 
officer'' applicable only to the Rule.\18\ Proposed Interpretations and 
Policies .21 to BZX Rule 14.10 would provide that, for the purposes of 
the Rule, an ``executive officer'' is a company's president, principal 
financial officer, principal accounting officer (or if there is no such 
accounting officer, the controller), any vice-president of the company 
in charge of a principal business unit, division, or function (such as 
sales, administration, or finance), any other officer who performs a 
policy-making function, or any other person who performs similar 
policy-making functions for the company. Executive officers of the 
company's parent(s) or subsidiaries are deemed executive officers of 
the company if they perform such policy making functions for the 
company. In addition, when the company is a limited partnership, 
officers or employees of the general partner(s) who perform policy-
making functions for the limited partnership are deemed officers of the 
limited partnership. When the company is a trust, officers, or 
employees of the trustee(s) who perform policy-making functions for the 
trust are deemed officers of the trust. Policy-making function is not 
intended to include policy-making functions that are not significant. 
Identification of an executive officer for purposes of the Rule would 
include at minimum executive officers identified pursuant to 17 CFR 
229.401(b).
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    \18\ According to the Exchange, the term ``executive officer'' 
is already defined under Rule 14.1(a); therefore, the Exchange 
proposes to adopt a separate definition under proposed 
Interpretation and Policy .21 of Rule 14.10. See Amendment No. 2, 
supra note 5, at 6.
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    The Exchange also proposes to adopt a definition of ``received'' 
applicable only to the Rule. Proposed Interpretations and Policies .21 
to BZX Rule 14.10 would provide that, for purposes of the Rule, 
incentive-based compensation is deemed ``received'' in the company's 
fiscal period during which the financial reporting measure specified in 
the incentive-based compensation award is attained, even if the payment 
or grant of the incentive-based compensation occurs after the end of 
that period.
    The Exchange also proposes to adopt the following definitions in 
BZX Rule 14.1(a) that would be applicable to the entirety of Chapter 14 
(CBOE BZX Exchange Listing Rules) of the BZX Rules and that would apply 
to the Rule: \19\
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    \19\ Proposed Interpretations and Policies .21 to BZX Rule 14.10 
would provide that, for purposes of the Rule, the terms ``financial 
reporting measures'' and ``incentive-based compensation'' will have 
the definitions set forth in Rule 14.1(a). See Amendment No. 2, 
supra note 5.
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     ``Financial reporting measures'' means measures that are 
determined and presented in accordance with the accounting principles 
used in preparing the company's financial statements, and any measures 
that are derived wholly or in part from such measures. Stock price and 
total shareholder return are also financial reporting measures. A 
financial reporting measure need not be presented within the financial 
statements or included in a filing with the Commission.\20\
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    \20\ See proposed BZX Rule 14.1(a)(14).
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     ``Incentive-based compensation'' means any compensation 
that is granted, earned, or vested based wholly or in part upon the 
attainment of a financial reporting measure.\21\
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    \21\ See proposed BZX Rule 14.1(a)(16). Based on these proposed 
amendments, the Exchange also proposes to renumber the existing 
definitions in BZX Rule 14.1(a).
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    Proposed BZX Rule 14.10(k) would provide that the effective date of 
the Rule (``effective date'') is October 2, 2023, and that, in 
accordance with Rule 10D-1, each company must: (i) adopt the 
compensation recovery policy required by the Rule no later than 60 days 
following the effective date; (ii) comply with that recovery policy for 
all incentive-based compensation received (as such term is defined in 
Interpretation and Policy .21 to Rule 14.10) by executive officers on 
or after the effective date; \22\ and (iii) provide the disclosures 
required by the Rule and in the applicable Commission filings required 
on or after the effective date.\23\
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    \22\ As described above, a BZX listed company would have to 
comply with its recovery policy for all incentive-based compensation 
received by executive officers on or after the effective date of the 
applicable listing standard (i.e., proposed BZX Rule 14.10(k)). 
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 14.10(k), as required by Rule 10D-1. See Adopting 
Release, supra note 6, and also definitions of ``incentive-based 
compensation'' in proposed BZX Rule 14.1(a)(16) and ``received'' in 
proposed Interpretations and Policies .21 to BZX Rule 14.10.
    \23\ See Amendment No. 2, supra note 5, at 8. 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 an additional clarifying change to BZX 
Rule 14.10(a) to make clear that companies applying to list and listed 
on the Exchange must comply with the

[[Page 39288]]

compensation recovery policy requirements outlined in the Rule.\24\
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    \24\ See BZX Rule 14.10(a) as proposed to be amended.
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    BZX states that it believes the proposed rule change, which it is 
proposing in order to carry out the requirements of Rule 10D-1, is 
consistent with the Act, and particularly with respect to the 
protection of investors and the public interest and may provide 
incentives to executive officers to improve the quality and reliability 
of financial reporting, further benefiting investors.\25\
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    \25\ See Amendment No. 2, supra note 5, at 16-17.
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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. BZX proposes therefore to require that a company will be 
subject to delisting if it does not adopt a compensation recovery 
policy that complies with the applicable listing standard, disclose the 
policy in accordance with Commission rules or comply with its recovery 
policy. BZX states that the administrative process for a company that 
fails to comply with proposed BZX Rule 14.10(k) will follow the 
established pattern used for similar corporate governance 
deficiencies.\26\ Specifically, the Exchange proposes to amend BZX Rule 
14.12(f)(2)(A)(iii) to provide that a company that fails to comply with 
proposed BZX Rule 14.10(k) may submit to the Listing Qualifications 
Department \27\ a plan to regain compliance and, consistent with its 
process for similar corporate governance deficiencies, BZX Staff \28\ 
may provide the issuer up to 180 days to cure the deficiency.\29\ BZX 
Rule 14.12(f)(2)(B) further provides that notifications of deficiencies 
that allow for submission of a compliance plan may also result, after 
review of the compliance plan, in issuance of a Staff Delisting 
Determination or a Public Reprimand Letter. However, BZX proposes to 
amend BZX Rules 14.12(f)(4), 14.12(h)(3)(A)(iii), 14.12(i)(4)(A) and 
14.12(j)(4) to provide that a Public Reprimand Letter may not be issued 
for violations of a listing standard required by Rule 10D-1 or upon 
appeal of such violations.\30\ If BZX Staff provides the issuer with a 
period to cure the deficiency, and if the company does not regain 
compliance within the time period provided, BZX Staff would be required 
to issue a Staff Delisting Determination,\31\ which the issuer could 
appeal to the Hearings Panel, as provided in BZX Rule 14.12(h). The 
Hearings Panel could allow the issuer up to an additional 180 days to 
cure the deficiency.\32\
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    \26\ See id. at 14. See also BZX Rule 14.12(f)(2)(B).
    \27\ BZX Rule 14.12(b)(6) defines the term ``Listing 
Qualifications Department'' as the department of the Exchange 
responsible for evaluating company compliance with quantitative and 
qualitative listing standards and determining eligibility for 
initial and continued listing of a company's securities.
    \28\ BZX Rule 14.12(b)(10) defines ``Staff'' as ``employees of 
the Listing Qualifications Department.''
    \29\ See Amendment No. 2, supra note 5, at 14. See also BZX Rule 
14.12(f)(2)(B).
    \30\ BZX also proposes to amend the definition of ``Public 
Reprimand Letter'' in BZX Rule 14.12(b)(9) to provide that a Public 
Reprimand Letter may not be issued for violations of a listing 
standard required by Rule 10D-1. Under the existing definition in 
Rule 14.12(b)(9), Public Reprimand Letters can be issued for 
violations of BZX corporate governance or notification listing 
standards except for violations of a listing standard required by 
Rule 10A-3 of the Act.
    \31\ See BZX Rule 14.12(f)(2)(E).
    \32\ See BZX Rule 14.12(h)(3)(A)(i).
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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. 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\33\ In particular, the 
Commission finds that the proposed rule change is consistent with the 
requirements of section 6(b) of the Act.\34\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act,\35\ 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,\36\ 
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. 2, is also consistent with section 10D of the Act \37\ 
and Rule 10D-1 thereunder, as further described below.\38\
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    \33\ 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).
    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78f(b)(5).
    \36\ 15 U.S.C. 78(b)(7).
    \37\ 15 U.S.C. 78j-4.
    \38\ 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.\39\ The 
corporate governance standards embodied in the listing rules of 
national securities exchanges, in particular, play an important role in 
assuring that companies listed for trading on the exchanges' markets 
observe good governance practices, including a fair approach and 
greater accountability for the recovery of erroneously awarded 
compensation.\40\
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    \39\ 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).
    \40\ 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,\41\ 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.\42\ In 
October

[[Page 39289]]

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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    \41\ Public Law 111-203, 954, 124 Stat. 1376, 1904 (2010) 
(codified at 15 U.S.C. 78j-4).
    \42\ 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 amendments to BZX Rules 14.1, 14.10, and 
14.12 incorporate 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 \43\ 
and Rule 10D-1 thereunder,\44\ and will therefore further the 
protection of investors consistent with section 6(b)(5) of the Act.\45\ 
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.\46\ 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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    \43\ 15 U.S.C. 78j-4.
    \44\ 17 CFR 240.10D-1.
    \45\ 15 U.S.C. 78f(b)(5).
    \46\ See Adopting Release, supra note 7, 87 FR at 73077. See 
also Amendment No. 2, supra note 5, at 17, agreeing with the 
Commission's statement on the benefits of the recovery policy.
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    Rule 10D-1 and proposed BZX Rule 14.10(k) 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 . . 
.'' \47\ Rule 10D-1 also does not compel the exchanges to adopt a more 
prescriptive approach to the timing and method of recovery. In its 
filing, BZX stated that ``the [c]ompany's obligation to recover 
erroneously awarded [i]ncentive-based [c]ompensation reasonably 
promptly will be assessed on a holistic basis with respect to each 
accounting restatement prepared by the [c]ompany'' and that ``[i]n 
evaluating whether a [c]ompany is recovering erroneously-awarded 
[i]ncentive-based [c]ompensation reasonably promptly, the Exchange will 
consider whether the [c]ompany is pursuing an appropriate balance of 
cost and speed in determining the appropriate means to seek recovery 
and whether the [c]ompany is securing recovery through means that are 
appropriate based on the particular facts and circumstances of each 
executive officer that owes a recoverable amount.'' \48\ 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.\49\
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    \47\ 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.
    \48\ See Amendment No. 2, supra note 5, at 15-16.
    \49\ 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. 2, is 
proposing that the effective date of Rule 14.10(k) be October 2, 
2023.\50\ The Exchange believes that setting this date as the effective 
date will ensure that issuers have more than a year from the date Rule 
10D-1 was published in the Federal Register to adopt recovery 
policies.\51\ This is consistent with language in Rule 10D-1 and the 
Adopting Release, while also ensuring prompt implementation of this 
proposed rule.
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    \50\ See Amendment No. 2, supra note 5, amending proposed BZX 
Rule 14.10.
    \51\ Listed issuers will need to have their recovery policy in 
place no later than 60 days following the effective date of October 
2, 2023, which would be more than a year after publication of Rule 
10D-1 in the Federal Register. Listed issuers will also have to 
comply with their recovery policy for all incentive-based 
compensation received by executive officers on or after the 
effective date of October 2, 2023, and provide the required 
disclosures in the applicable Commission filings on or after the 
effective date of October 2, 2023. See Adopting Release, supra note 
6, and also definitions of ``incentive-based compensation'' in 
proposed BZX Rule 14.1(a)(16) and ``received'' in proposed 
Interpretations and Policies .21 to BZX Rule 14.10. See also supra 
notes 22-23 and accompanying text.
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    With respect to a listed issuer that fails to comply with proposed 
BZX Rule 14.10(k), the Exchange has proposed to apply its current 
procedures applicable to companies with similar corporate governance 
deficiencies in addition to prohibiting the use of a Public Reprimand 
Letter for violations of a listing standard required by Rule 10D-1.\52\ 
The Commission believes that these procedures for listed issuers out of 
compliance with proposed BZX Rule 14.10(k), which are consistent with 
the procedures for similar corporate governance deficiencies, 
adequately meet the mandate of Rule 10D-1 and are consistent with 
investor protection and the public interest, since they give a listed 
issuer a reasonable time period to cure non-compliance with these 
important requirements before the listed issuer will be delisted while 
helping to ensure that listed issuers that are non-compliant will not 
remain listed for an inappropriate amount of time. Additionally, the 
proposed delisting process, including the cure period and the right to 
appeal a delisting determination to the Exchange's Hearing Panel, is 
consistent with section 6(b)(7) of the Act in that it provides a fair 
procedure for the review of delisting determinations based on 
violations of the Exchange's rules for recovering erroneous 
compensation.
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    \52\ See supra notes 26-32 and accompanying text.
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IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and

[[Page 39290]]

arguments concerning whether the proposed rule change, as modified by 
Amendment No. 2, 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-CboeBZX-2023-013 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-2023-013. 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-2023-013, and should 
be submitted on or before July 6, 2023.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. In Amendment No. 2, the Exchange amended the 
proposal to: (i) provide that the effective date of Rule 14.10(k) would 
be October 2, 2023; (ii) clarify, consistent with the requirements of 
Rule 10D-1, that each company must adopt and comply with its recovery 
policy required by proposed Rule 14.10(k); and (iii) make other non-
substantive, clarifying changes.\53\ The changes in Amendment No. 2 
provide greater clarity to the proposal. The proposed clarifying 
changes will ensure that the proposal conforms to the requirements of 
Rule 10D-1. The change to the effective date of the listing standards 
is consistent with Rule 10D-1 and language in the Adopting Release. 
Accordingly, the Commission finds good cause, pursuant to section 
19(b)(2) of the Exchange Act,\54\ to approve the proposed rule change, 
as modified by Amendment No. 2, on an accelerated basis.
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    \53\ See Amendment No. 2, supra note 5.
    \54\ 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,\55\ that the proposed rule change (SR-CboeBZX-2023-013), as 
modified by Amendment No. 2, be, and hereby is, approved on an 
accelerated basis.
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    \55\ 15 U.S.C. 78s(b)(2).
    \56\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12762 Filed 6-14-23; 8:45 am]
BILLING CODE 8011-01-P


