Document ID: SEC-2023-0270-0003
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Chicago, Inc.
Posted Date: 2023-06-15T04:00Z

[Federal Register Volume 88, Number 115 (Thursday, June 15, 2023)]
[Notices]
[Pages 39317-39322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12761]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97691; File No. SR-NYSECHX-2023-09]

Self-Regulatory Organizations; NYSE Chicago, 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 
Chicago Rule 29 To Establish Listing Standards Related to Recovery of 
Erroneously Awarded Incentive-Based Executive Compensation

June 9, 2023.

I. Introduction

    On February 22, 2023, NYSE Chicago, Inc. (``NYSE Chicago'' 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 new Rule 29 to Article 22 of the NYSE 
Chicago Rules (``NYSE Chicago Rule 29'') 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\ 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proposed rule change, which replaced and superseded the proposed rule 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. 97052 (March 7, 
2023), 88 FR 15476 (``Notice''). No comments were received in 
response to this Notice.
    \4\ See Securities Exchange Act Release No. 97363, 88 FR 26374 
(April 28, 2023).
    \5\ Amendment No. 1 is available on the Commission's website at 
https://www.sec.gov/comments/sr-nysechx-2023-09/srnysechx202309-201319-402803.pdf. In Amendment No. 1, the Exchange (i) amends 
proposed NYSE Chicago Rule 29(b) to provide that the effective date 
of proposed NYSE Chicago Rule 29 would be October 2, 2023; and (ii) 
amends proposed NYSE Chicago Rule 29(f) (Noncompliance with Rule 29 
(Erroneously Awarded Compensation)) to provide that in the event of 
any failure by a listed issuer to comply with any requirement of 
proposed NYSE Chicago Rule 29, the Exchange may at its sole 
discretion provide such issuer with an initial six-month cure period 
and an additional six-month cure period.
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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 
Chicago Rule 29 entitled ``Erroneously Awarded Compensation.'' Proposed 
NYSE Chicago Rule 29 (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 NYSE Chicago Rule 29(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 NYSE Chicago Rule 29(b) and (c).
    \9\ See proposed NYSE Chicago Rule 29(f).
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    Specifically, proposed NYSE Chicago Rule 29(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 NYSE Chicago Rule 29(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

[[Page 39318]]

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 NYSE Chicago Rule 29(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 NYSE Chicago Rule 29(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.
     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 NYSE Chicago Rule 29(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 NYSE Chicago Rule 29(c)(1)(v).
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    Proposed NYSE Chicago Rule 29(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 NYSE Chicago Rule 29(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 NYSE Chicago Rule 29(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 NYSE Chicago Rule 29(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

[[Page 39319]]

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 NYSE Chicago Rule 29(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., NYSE Chicago Rule 29). 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 the 
Rule, as required by Rule 10D-1. See Adopting Release, supra note 7, 
and also definitions of ``incentive based compensation'' and 
``received'' in proposed NYSE Chicago Rule 29(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 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.\17\
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    \17\ See id. at 12.
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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 in the event of any failure by such 
listed issuer to comply with any requirement of the Rule, 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 the Rule 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.\18\ Specifically, the Exchange proposes to 
adopt proposed NYSE Chicago Rule 29(f) to provide that a listed issuer 
that is out of compliance with the Rule \19\ 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.\20\ Proposed NYSE Chicago Rule 
29(f)(iii) 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.\21\ 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,\22\ commence suspension and delisting 
procedures in accordance with Article 22, Rule 4 of the NYSE Chicago 
Rules.\23\ 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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    \18\ 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 the Rule. Amendment No. 1 revised 
these cure period provisions so that they are now applicable to all 
incidents of noncompliance with Rule 29 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.
    \19\ Proposed NYSE Chicago Rule 29(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 NYSE 
Chicago Rule 29(f)(ii).
    \20\ See proposed NYSE Chicago Rule 29(f)(i) and (iv). Such 
listed issuer would not be eligible to follow the procedures 
outlined in Article 22, Rules 17A and 22 of the NYSE Chicago Rules 
with respect to such a delisting determination, and any such listed 
issuer would be subject to delisting procedures as set forth in 
Article 22, Rule 4 of the NYSE Chicago Rules. Article 22, Rule 4 
(Removal of Securities) provides that an issuer subject to a 
delisting determination has a right to a hearing by a hearing 
officer, provided a written request for such a review is filed with 
the Secretary of the Exchange not later than 15 days following 
service of notice of the proposed delisting. See Article 22, Rule 
4(c) of the NYSE Chicago Rules. Thereafter, an issuer may demand a 
review by the Executive Committee. See Article 22, Rule 4(e).
    \21\ 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 NYSE Chicago Rule 
29(f)(iii).
    \22\ 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 NYSE Chicago Rule 29(f)(iv).
    \23\ An issuer would not be eligible to follow the procedures 
outlined in Article 22, Rules 17A and 22 of the NYSE Chicago Rules. 
See proposed NYSE Chicago Rule 29(f)(iii).
    \24\ See id.
    \25\ See id.
    \26\ See id.
    \27\ See proposed NYSE Chicago Rule 29(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

[[Page 39320]]

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 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\ Public 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 NYSE Chicago Rule 29 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 proposed NYSE Chicago Rule 29 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

[[Page 39321]]

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 NYSE 
Chicago Rule 29(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 Section 303A.14(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 the Rule, 
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 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 
the 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 18-26 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 the Rule, 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-NYSECHX-2023-09 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-NYSECHX-2023-09. 
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-NYSECHX-2023-09, 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 the Rule would be 
October 2, 2023; and (ii) allow the Exchange, in its sole discretion, 
to provide a listed issuer that fails to comply with any requirement of 
the Rule, an initial six-month cure period and an additional six-month 
cure period.\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 change 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

[[Page 39322]]

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 
the Rule 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-NYSECHX-2023-09), 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).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
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    \55\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12761 Filed 6-14-23; 8:45 am]
BILLING CODE 8011-01-P