[Federal Register Volume 88, Number 115 (Thursday, June 15, 2023)]
[Notices]
[Pages 39290-39295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12763]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97693; File No. SR-LTSE-2023-01]


Self-Regulatory Organizations; Long-Term Stock Exchange, Inc.; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 
2, To Establish Listing Standards Related to Recovery of Erroneously 
Awarded Incentive-Based Executive Compensation

June 9, 2023.

I. Introduction

    On February 27, 2023, Long-Term Stock Exchange, Inc. (``LTSE'' 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 amend LTSE Rule 14.207(f) to establish listing 
standards for the recovery of erroneously awarded compensation, as 
required by Rule 10D-1 under the Act (``Rule 10D-1''). On March 10, 
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which replaced and superseded the proposed rule change as originally 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 17, 2023.\3\ On 
April 24, 2023, the Commission extended the time period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to approve or disapprove 
the proposed rule change.\4\ On June 8, 2023, the Exchange filed 
partial Amendment No. 2 to the proposed rule change.\5\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as modified by Amendment Nos. 1 and 2, from interested persons 
and is approving the proposed rule change, as modified by Amendment 
Nos. 1 and 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. 97123 (March 13, 
2023), 88 FR 16487 (``Notice''). No comments were received in 
response to this Notice.
    \4\ See Securities Exchange Act Release No. 97365, 88 FR 26349 
(April 28, 2023).
    \5\ Amendment No. 2 is available on the Commission's website at 
https://www.sec.gov/comments/sr-ltse-2023-01/srltse202301-202019-404742.pdf. In Amendment No. 2, the Exchange amends proposed LTSE 
Rule 14.207(f)(10) to (i) provide that the effective date of LTSE 
Rule 14.207(f) would be October 2, 2023; (ii) clarify, consistent 
with the requirements of Rule 10D-1 and the rule language as 
originally proposed, that each listed issuer is required to comply 
with its recovery policy for all incentive-based compensation 
received (as such term is defined in proposed LTSE Rule14.207(f)(1)) 
by executive officers on or after October 2, 2023; and (iii) 
clarify, consistent with the language of Rule 10D-1, that 
notwithstanding the look-back requirements in LTSE Rule 14.207(f), a 
company is only required to apply the recovery policy to incentive-
based executive compensation received on or after the effective 
date.
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II. Background and Description of the Proposal, as Modified by 
Amendment Nos. 1 and 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

[[Page 39291]]

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 amend LTSE Rule 
14.207, Obligations for Companies Listed on the Exchange, paragraph 
(f), to establish listing standards for the recovery of erroneously 
awarded compensation. Proposed LTSE Rule 14.207(f), entitled ``Recovery 
of Erroneously Awarded Compensation to Executive Officers'' (the 
``Rule''), incorporates the requirements of Rule 10D-1. Specifically, 
the Rule 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., LTSE Rule 14.002(a)(5).
    \9\ The Exchange proposes to reposition the current text of 
paragraph (f) of LTSE Rule 14.207 (Obligation to Pay Fees) into new 
paragraph (g) of Rule 14.207.
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    Proposed LTSE Rule 14.207(f)(2) sets forth the requirements for 
companies to adopt, implement and disclose a recovery policy for 
incentive-based execution compensation. Specifically, Proposed LTSE 
Rule 14.207(f)(2)(A) would require that each company that lists its 
securities on the Exchange must adopt and comply with a written policy 
providing that the company will recover reasonably promptly the amount 
of erroneously awarded incentive-based compensation to any executive 
officer in the event that the company is required to prepare an 
accounting restatement due to material non-compliance 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.
    Proposed LTSE Rule 14.207(f)(2)(B) would require that each company 
listed on the Exchange disclose its written recovery policy related to 
the recovery of erroneously awarded compensation as part of its 
reporting obligations to the Commission, as an exhibit to its Annual 
Report, and to the Exchange. A company applying for initial listing 
must include its written recovery policy as part of its listing 
application.
    Proposed LTSE Rule 14.207(f)(3) would provide that the company's 
recovery policy must apply to all incentive-based compensation received 
by a person: (A) after beginning service as an executive officer of the 
company; (B) who served as an executive officer at any time during the 
performance period for that incentive-based compensation; (C) while the 
company had a class of securities listed on a national securities 
exchange or a national securities association; and (D) during the three 
completed fiscal years immediately preceding the date that the company 
is required to prepare an accounting restatement as described in 
paragraph (f) 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\ In addition to the 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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    Proposed 14.207(f)(4) would provide that, for purposes of 
determining the relevant recovery period, the date that a company is 
required to prepare an accounting restatement as described in the Rule 
is the earlier to occur of: (A) the date the company's board of 
directors, a committee of the board of directors, or the officer or 
officers of the company authorized to take such action if board action 
is not required, concludes, or reasonably should have concluded, that 
the company is required to prepare an accounting restatement as 
described in the Rule; or (B) the date a court, regulator, or other 
legally authorized body directs the company to prepare an accounting 
restatement as described in the Rule.
    Proposed LTSE Rule 14.207(f)(5) sets forth requirements for 
determining the amount of incentive-based compensation subject to the 
company's recover policy. Subparagraph (A) states that 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. Subparagraph (B) states 
that, 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.
    Proposed LTSE Rule 14.207(f)(6) sets forth certain exceptions to 
the requirement to recover erroneously awarded compensation. Proposed 
LTSE Rule 14.207(f)(6) would provide that companies must recover 
erroneously awarded compensation in compliance with its recovery policy 
except to the extent that one of the conditions set forth below is met 
and the company's Compensation Committee, or in the absence of such a 
committee, a majority of the independent directors serving on the 
board, has made a determination that recovery would be impracticable.
     The direct expense paid to a third party to assist in 
enforcing the policy would exceed the amount to be recovered. Before 
concluding that it would be impracticable to recover any amount of 
erroneously awarded compensation based on expense of enforcement, the 
company must make a reasonable attempt to recover such erroneously 
awarded compensation, document such reasonable attempt(s) to recover, 
and provide that documentation to the Exchange.
     Recovery would violate home country law where that law was 
adopted

[[Page 39292]]

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.
    Proposed LTSE Rule 14.207(f)(7) would provide that a company is 
prohibited from indemnifying any executive officer or former executive 
officer against the loss of erroneously awarded compensation.
    Proposed LTSE Rule 14.207(f)(8) would provide that companies are 
required to file all disclosures with respect to their recovery policy 
in accordance with the requirements of the federal securities laws, 
including the disclosure required by applicable Commission filings, and 
the rules of the Exchange.
    Proposed LTSE Rule 14.207(f)(9) would provide that the requirements 
of the Rule do not apply to the listing of any security issued by a 
unit investment trust as defined in 15 U.S.C 80a-4(2) and any security 
issued by a management company as defined in 15 U.S.C. 80(a)-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 less than three fiscal years, since the listing of the company.
    Proposed LTSE Rule 14.207(f)(1) would provide that, unless the 
context otherwise requires, the following definitions apply for 
purposes of the Rule (and only for purposes of LTSE Rule 14.207(f)):
     Executive Officer: An executive officer is the company's 
president, principal financial officer, principal accounting officer 
(or if there is no such accounting officer, the controller), any vice-
president of the company in charge of a principal business unit, 
division, or function (such as sales, administration, or finance), any 
other officer who performs a policy-making function, or any other 
person who performs similar policy-making functions for the company. 
Executive officers of the company's parent(s) or subsidiaries are 
deemed executive officers of the company if they perform such policy 
making functions for the company. In addition, when the company is a 
limited partnership, officers or employees of the general partner(s) 
who perform policy-making functions for the limited partnership are 
deemed officers of the limited partnership. When the company is a 
trust, officers, or employees of the trustee(s) who perform policy-
making functions for the trust are deemed officers of the trust. 
Policy-making function is not intended to include policy-making 
functions that are not significant. Identification of an executive 
officer for purposes of the Rule would include at a minimum executive 
officers identified pursuant to 17 CFR 229.401(b).
     Financial reporting measures: Financial reporting measures 
are those that are determined and presented in accordance with the 
accounting principles used in preparing the company's financial 
statements, and any measures that are derived wholly or in part from 
such measures. Stock price and total shareholder return are also 
financial reporting measures. A financial reporting measure need not be 
presented within the financial statements or included in a filing with 
the Commission.
     Incentive-based compensation: Incentive-based compensation 
is any compensation that is granted, earned, or vested based wholly or 
in part upon the attainment of a financial reporting measure.
     Received: Incentive-based compensation is deemed received 
in the company's fiscal period during which the financial reporting 
measure specified in the incentive-based compensation award is 
attained, even if the payment or grant of the incentive-based 
compensation occurs after the end of that period.
    Proposed LTSE Rule 14.207(f)(10) would provide that the effective 
date of the Rule (``effective date'') is October 2, 2023, and that each 
company is required to (i) adopt a policy governing the recovery of 
erroneously awarded compensation as required by the Rule no later than 
60 days following October 2, 2023; (ii) comply with its recovery policy 
for all incentive-based compensation received (as such term is defined 
in Rule 14.207(f)(1)) by executive officers on or after October 2, 
2023; and (iii) provide the disclosures required by the Rule and in the 
applicable Commission filings on or after October 2, 2023.\11\ Proposed 
LTSE Rule 14.701(f)(10) also states that notwithstanding the look-back 
requirement in proposed Rule 14.207(f), a company is only required to 
apply the recovery policy to incentive-based compensation received on 
or after October 2, 2023.\12\
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    \11\ See Amendment No. 2, supra note 5. In support of proposing 
an effective date of October 2, 2023, the Exchange states it 
believes this is consistent with section 10D ``and the goal of 
implementing the proposed rule promptly while also being consistent 
with the expectations of listed issuers that the proposed rules 
would take effect a year after the adoption of SEC Rule 10D-1 based 
on the issuers' understanding of a statement made . . . in the 
Adopting Release.'' See id.
    \12\ See Amendment No. 2, supra note 5. As described above, a 
LTSE 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., LTSE Rule 14.207(f)). 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 
after the effective date of the Rule, as required by Rule 10D-1. See 
Adopting Release, supra note 6, and also definitions of ``incentive 
based compensation'' and ``received'' in proposed LTSE Rule 
14.207(f)(1).
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    LTSE also proposes an additional clarifying change to LTSE Rule 
14.203 (Prerequisites for Applying to List on the Exchange) to make 
clear that any company applying to list on LTSE must comply with the 
requirements of proposed LTSE Rule 14.207(f).\13\
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    \13\ See proposed LTSE Rule 14.203(j). See also Notice, supra 
note 3, 88 FR at 16487.
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    LTSE states that the new requirements described above will help 
foster effective oversight of executive compensation and provide 
increased accountability and transparency to investors by not allowing 
executive officers to retain compensation that they were awarded 
erroneously.\14\
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    \14\ See Notice, supra note 3, 88 FR at 16490.
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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. LTSE 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. LTSE states that the process for a company that fails to comply 
with proposed LTSE Rule 14.207(f) will follow the established pattern 
used for similar corporate governance deficiencies.\15\ Specifically, 
LTSE proposes to amend LTSE Rule 14.501(d)(2)(A)(iii) to provide that a 
company that fails to comply with proposed LTSE Rule 14.207(f) may

[[Page 39293]]

submit to LTSE Regulation \16\ a plan to regain compliance and, 
consistent with its process for similar corporate governance 
deficiencies, LTSE Staff \17\ may, after review of the compliance plan, 
provide the issuer up to 180 days to cure the deficiency.\18\ LTSE Rule 
14.501(d)(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, LTSE proposes to 
amend LTSE Rules 14.501(a)(4), 14.501(d)(4), and 14.502(b)(1)(C) to 
provide that a Public Reprimand Letter may not be issued for violations 
of proposed LTSE Rule 14.207(f) or of a listing standard required by 
Rule 10D-1 or upon appeal of such violations.\19\ If LTSE Staff 
provides the issuer with a period to cure the deficiency, and if the 
issuer does not regain compliance within the time period provided, LTSE 
Staff would be required to issue a Staff Delisting Determination,\20\ 
which the issuer could appeal to the Listings Review Committee, as 
provided in LTSE Rule 14.502. The Listings Review Committee could allow 
the issuer up to an additional 180 days to cure the deficiency.\21\
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    \15\ See id.
    \16\ LTSE Rule 1.160(u) defines the term ``LTSE Regulation'' as 
``the department of LTSE or designated employees of LTSE that 
supervise, administer, or perform the regulatory functions of LTSE, 
including the administration of any regulatory services agreements 
with another self-regulatory organization to which LTSE is a 
party.''
    \17\ LTSE Rule 14.500(b)(6) defines the term ``Staff'' as 
employees of LTSE Regulation.
    \18\ See LTSE Rule 14.501(d)(2)(B).
    \19\ LTSE also proposes to amend the definition of ``Public 
Reprimand Letter'' in Rule 14.500(b)(5) 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 
LTSE Rule 14.500(b)(5), Public Reprimand Letters can be issued for 
violations of LTSE corporate governance or notification listing 
standards except for violations of a listing standard required by 
Rule 10A-3 of the Act.
    \20\ See LTSE Rule 14.501(d)(2)(E).
    \21\ See LTSE Rule 14.502(b).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment Nos. 1 and 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\22\ In particular, the 
Commission finds that the proposed rule change is consistent with the 
requirements of section 6(b) of the Act.\23\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act,\24\ 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,\25\ 
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 Nos. 1 and 2, is also consistent with section 10D of the 
Act \26\ and Rule 10D-1 thereunder, as further described below.\27\
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    \22\ 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).
    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
    \25\ 15 U.S.C. 78(b)(7).
    \26\ 15 U.S.C. 78j-4.
    \27\ 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.\28\ 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.\29\
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    \28\ 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).
    \29\ 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,\30\ 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.\31\ 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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    \30\ Public Law 111-203, 954, 124 Stat. 1376, 1904 (2010) 
(codified at 15 U.S.C. 78j-4).
    \31\ 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 LTSE Rule 14.207(f) incorporates the 
requirements of Rule 10D-1. The Commission

[[Page 39294]]

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 \32\ 
and Rule 10D-1 thereunder,\33\ and will therefore further the 
protection of investors consistent with section 6(b)(5) of the Act.\34\ 
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.\35\ 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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    \32\ 15 U.S.C. 78j-4.
    \33\ 17 CFR 240.10D-1.
    \34\ 15 U.S.C. 78f(b)(5).
    \35\ See Adopting Release, supra note 7. See also Notice, supra 
note 3, 88 FR at 16490, agreeing with the Commission's statement on 
the benefits of the recovery policy.
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    Rule 10D-1 and proposed LTSE Rule 14.207(f) 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 . . . 
.'' \36\ Rule 10D-1 also does not compel the exchanges to adopt a more 
prescriptive approach to the timing and method of recovery. In its 
Notice, LTSE stated that ``the [c]ompany'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 [c]ompany'' and that ``[i]n 
evaluating whether the [c]ompany is recovering erroneously-awarded 
executive compensation reasonably promptly, the Exchange will consider 
whether the [c]ompany is pursuing the 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.'' \37\ 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.\38\
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    \36\ 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.
    \37\ See Notice, supra note 3, 88 FR at 16489.
    \38\ 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 14.207(f) be October 2, 
2023.\39\ 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.\40\ 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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    \39\ See proposed LTSE Rule 14.207(f)(10). See also Amendment 
No. 2, supra note 5.
    \40\ Listed issuers will need to have their recovery policy in 
place no later than 60 days following the effective date of October 
2, 2023, which would be more than a year after publication of Rule 
10D-1 in the Federal Register. Listed issuers will also have to 
comply with their recovery policy for all incentive-based 
compensation received by executive officers on or after the 
effective date of October 2, 2023, and provide the required 
disclosures in the applicable Commission filings on or after the 
effective date of October 2, 2023. See Adopting Release, supra note 
6, and also definitions of ``incentive-based compensation'' and 
``received'' in proposed Rule 14.201(f)(1). See also supra notes 11-
12 and accompanying text.
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    With respect to a listed issuer that fails to comply with proposed 
LTSE Rule 14.207(f), 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.\41\ 
The Commission believes that these procedures for listed issuers out of 
compliance with proposed LTSE Rule 14.207(f), 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 Listings Review 
Committee, 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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    \41\ See supra notes 15-21 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 
arguments concerning whether the proposed rule change, as modified by 
Amendment Nos. 1 and 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-LTSE-2023-01 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-LTSE-2023-01. 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

[[Page 39295]]

those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-LTSE-2023-01, and should be 
submitted on or before July 6, 2023.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1 and 2, prior to the thirtieth 
day after the date of publication of notice of the filing of Amendment 
No. 2 in the Federal Register. In Amendment No. 2, the Exchange amended 
the proposal to (i) propose that the effective date of LTSE Rule 
14.207(f) be October 2, 2023; (ii) clarify, consistent with the 
requirements of Rule 10D-1 and the rule language as originally 
proposed, that each listed issuer is required to comply with its 
recovery policy for all incentive-based compensation received (as such 
term is defined in proposed 14.207(f)(1)) by executive officers on or 
after October 2, 2023; and (iii) clarify, consistent with the language 
of Rule 10D-1, that notwithstanding the look-back requirements in LTSE 
Rule 14.207(f), a company is only required to apply the recovery policy 
to incentive-based executive compensation received on or after the 
effective date.\42\ The changes in Amendment No. 2 provide greater 
clarity to the proposal. In addition, the change to the effective date 
of the listing standards is consistent with Rule 10D-1 and language in 
the Adopting Release. The additional clarifications to Rule 
14.207(f)(10) will ensure that the requirements of that Rule conform to 
the requirements of Rule 10D-1. Accordingly, the Commission finds good 
cause, pursuant to section 19(b)(2) of the Exchange Act,\43\ to approve 
the proposed rule change, as modified by Amendment Nos. 1 and 2, on an 
accelerated basis.
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    \42\ See Amendment No. 2, supra note 5.
    \43\ 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,\44\ that the proposed rule change (SR-LTSE-2023-01), as modified 
by Amendment Nos. 1 and 2, be, and hereby is, approved on an 
accelerated basis.
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    \44\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12763 Filed 6-14-23; 8:45 am]
BILLING CODE 8011-01-P


