Document ID: SEC-2018-1055-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2018-07-06T04:00Z

[Federal Register Volume 83, Number 130 (Friday, July 6, 2018)]
[Notices]
[Pages 31614-31628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14461]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83558; File No. SR-IEX-2018-06]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Establish a 
New Optional Listing Category on the Exchange, ``LTSE Listings on IEX''

June 29, 2018.

I. Introduction

    On March 15, 2018, Investors Exchange LLC (the ``Exchange'' or 
``IEX'') filed with the Securities and Exchange Commission (``SEC'' or 
``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 establish a new optional listing category on 
the Exchange, referred to as the ``LTSE Listings on IEX'' or ``LTSE 
Listings.'' The proposed rule change was published for comment in the 
Federal Register on April 2, 2018.\3\ The Commission received 23 
comment letters on the proposed rule change.\4\ On

[[Page 31615]]

April 26, 2018, the Commission received a response letter from the 
Exchange.\5\ On June 27, 2018, the Exchange submitted Amendment No. 1 
to the proposed rule change.\6\ The Commission is publishing this 
notice to solicit comments on 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. 82948 (March 27, 
2018), 83 FR 14074 (``Notice'').
    \4\ See letters to Brent J. Fields, Secretary, Commission, from 
Tony Davis, CEO, Inherent Group, dated April 19, 2018 (``Inherent 
Group Letter''); Morgan Housel, Partner, The Collaborative Fund, 
dated April 20, 2018 (``Collaborative Fund Letter''); Chris Brummer, 
Professor of Law, Faculty Director, Institute of International 
Economic Law, Georgetown University Law Center, dated April 22, 2018 
(``Brummer Letter''); Dick Costolo, dated April 23, 2018 (``Costolo 
Letter''); James Anderson, Partner and Head of Global Equities, 
Baillie Gifford & Co, dated April 23, 2018 (``Baillie Gifford 
Letter''); Marcie Frost, Chief Executive Officer, California Public 
Employees' Retirement System Investment Office, dated April 23, 2018 
(``CalPERS Letter''); Evan Williams, Co-Founder and James Joaquin, 
Co-Founder & Managing Director, Obvious Ventures, dated April 23, 
2018 (``Obvious Ventures Letter''); Douglas K. Chia, Executive 
Director, Governance Center, The Conference Board, Inc., dated April 
23, 2018 (``Conference Board Letter''); Steve Case, Chairman and 
CEO, Revolution, dated April 23, 2018 (``Revolution Letter''); Marc 
Andreessen, Cofounder and General Partner, Andreessen Horowitz, 
dated April 23, 2018 (``Andreessen Horowitz Letter''); John Buhl, 
dated April 23, 2018 (``Buhl Letter''); Sam Altman, President, Y 
Combinator, dated April 23, 2018 (``Y Combinator Letter''); Andrew 
Mason, CEO, Descript, dated April 23, 2018 (``Descript Letter''); 
Judith Samuelson, Vice President, Founder & Director, The Business & 
Society Program, and Alastair Fitzpayne, Executive Director, The 
Future of Work Initiative, The Aspen Institute, dated April 23, 2018 
(``Aspen Institute Letter''); Brian Singerman, Partner, Founders 
Fund, dated April 23, 2018 (``Founders Fund Letter''); David Brown 
and David Cohen, Founders and Co-CEOs, Techstars, dated April 23, 
2018 (``Techstars Letter''); Tony Hsieh, Founder, Downtown Project, 
dated April 23, 2018 (``Downtown Project Letter''); Aaron 
Bertinetti, SVP, Research & Engagement, Glass, Lewis & Co., LLC, 
dated April 23, 2018 (``Glass, Lewis Letter''); Jeff Weiner, CEO, 
LinkedIn, dated April 23, 2018 (``LinkedIn Letter''); Chris 
Concannon, President and COO, Cboe Global Markets, Inc. (``Cboe 
Letter'); Reid Hoffman, Partner, Greylock Partners, dated April 23, 
2018 (``Greylock Partners Letter''); Aneesh Chopra, President, 
CareJourney, dated April 23, 2018 (``CareJourney Letter''); and 
Alexis Ohanian, General Partner/Cofounder, and Garry Tan, Managing 
Partner/Cofounder, Initialized Capital, dated April 23, 2018 
(``Initialized Capital Letter''). All comments received by the 
Commission on the proposed rule change are available at: https://www.sec.gov/comments/sr-iex-2018-06/iex201806.htm.
    \5\ See letter to Brent J. Fields, Secretary, Commission, from 
Claudia Crowley, Chief Regulatory Officer, Investors Exchange LLC, 
dated April 26, 2018 (``IEX Response Letter''). The Exchange's 
response letter is available at: https://www.sec.gov/comments/sr-iex-2018-06/iex201806-3520149-162294.pdf.
    \6\ In Amendment No. 1, the Exchange proposes to amend: (1) 
Proposed Rule 14A.001(a) to clarify that an LTSE Listings Issuer 
must qualify for listing under Chapter 14 of the IEX Rules and the 
LTSE Listings Rules, except as otherwise provided in the LTSE 
Listings Rules; (2) proposed Rule 14A.200(c)(2) to specify that when 
a company lists on LTSE Listings, in addition to the requirement 
that the company must not have any security listed for trading on 
the Exchange or any other national securities exchange, the company 
also must be listing in connection with its initial public offering; 
(3) proposed Rule 14A.210 to indicate that when the LTSE Listings 
Issuer is dually-listed on the Exchange and on another national 
securities exchange that is the Primary Listing Market and that 
requires a minimum number of market makers, IEX Rules 14.310 and 
14.320 requiring a minimum number of market makers for IEX listed 
companies would not apply; and (4) proposed Rule 14A.413 by adding 
paragraph (c) to require an LTSE Listings Issuer to post prominently 
on its website a plain English explanatory statement regarding 
shareholders' rights under the long-term voting provisions included 
in its governance documents, including how the shareholder's voting 
power may increase over time and the administrative steps the 
shareholder must take to allow the shares' voting power to increase 
over time. To promote the transparency of its proposed amendment, 
when IEX filed Amendment No. 1 with the Commission, it also 
submitted Amendment No. 1 as a comment letter to the file, which the 
Commission posted on its website and placed in the public comment 
file for SR-IEX-2018-06 (available at https://www.sec.gov/comments/sr-iex-2018-06/iex201806.htm).
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II. Background of the Proposed Rule Change

    The Exchange proposes to adopt rules to create a new optional 
listing category on the Exchange for common equity securities, referred 
to as the ``LTSE Listings on IEX'' or ``LTSE Listings.'' According to 
the Exchange, the new optional listing category would provide a 
differentiated choice for issuers and investors that prefer listing 
standards that are expressly designed to promote long-term value 
creation.\7\ Specifically, the Exchange believes that LTSE Listings 
would promote the interests of companies that seek to focus on long-
term value creation, as well as to respond to the transparency and 
governance concerns of long-term focused investors.\8\
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    \7\ See Notice, supra note 3, at 14074.
    \8\ See id. at 14077.
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    The Exchange believes that the proposed LTSE Listings Rules could 
encourage greater participation in the public markets by companies and 
potentially increase the number of companies willing to undertake an 
initial public offering (``IPO'').\9\ According to the Exchange, the 
total number of listed companies in the United States and the number of 
IPOs have declined in the past few decades, and the Exchange states 
that many academics, market participants, and other commenters believe 
that these declines are the result of short-term pressures placed on 
public companies.\10\
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    \9\ See id. at 14076-77.
    \10\ See id. at 14075-76.
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III. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The proposed rules for LTSE Listings would be located in new 
Chapter 14A of the Exchange's rules (``LTSE Listings Rules'' or 
``Rules''). Companies choosing to list on the Exchange (``LTSE Listings 
Issuers'') could elect to be subject to the LTSE Listings Rules, and 
such companies also would be subject to the listing and applicable 
requirements set forth in current Chapter 14 of the IEX Rulebook (``IEX 
Rules'') for IEX listed companies, except as those rules may be 
modified by the LTSE Listings Rules.\11\
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    \11\ See Notice, supra note 3, at 14074-75; see also proposed 
Rules 14A.001(a) and 14A.200, and Amendment No. 1, supra note 6.
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    The LTSE Listings Rules would include the following features: (i) 
Rules relating to the board of directors and committee requirements; 
(ii) rules requiring supplemental long-term disclosures; (iii) rules 
requiring long-term alignment of executive compensation; (iv) rules 
requiring a long-term shareholder voting structure; and (v) certain 
other rules that the Exchange believes would encourage LTSE Listings 
Issuers to focus on long-term value creation.\12\ In addition, the 
Exchange is proposing rules that would clarify the application of 
certain existing Exchange rules to LTSE Listings Issuers.\13\ The 
Exchange would limit the availability of LTSE Listings to companies 
seeking to list on LTSE Listings concurrently with their IPO (whether 
listing on LTSE Listings only or dually listing on LTSE Listings and 
another national securities exchange) \14\ and would not permit issuers 
already listed on another national securities exchange to transfer to 
LTSE Listings.\15\ LTSE Listings Issuers may list only common equity 
securities on LTSE Listings.\16\
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    \12\ See Notice, supra note 3, at 14077.
    \13\ Id.
    \14\ See Amendment No. 1, supra note 6.
    \15\ See Notice, supra note 3, at 14075; see also proposed Rule 
14A.200(c)(2). In connection with an initial public offering on the 
Exchange, the proposed LTSE Listings Rules would permit the dual-
listing of companies seeking to list concurrently on LTSE Listings 
and another national securities exchange. See infra Section III.F.2. 
and proposed Rule 14A.210.
    \16\ See proposed Rule 14A.001(b).
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A. The Exchange's Arrangement With LTSE Holdings, Inc.

    The Exchange notes that the LTSE Listings Rules initially were 
developed by LTSE Holdings, Inc. (together, with its affiliates, 
``LTSE''), and that the Exchange has entered into an arrangement with 
LTSE to authorize the Exchange to make the LTSE Listings Rules 
available to interested companies as a listing category of the 
Exchange.\17\ The Exchange states that, although the LTSE Listings 
Rules were developed by LTSE, the Exchange would retain full self-
regulatory responsibility for determining initial and continuing 
compliance with the Exchange's listing standards, including for those 
companies that elect to be subject to the LTSE Listings Rules.\18\
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    \17\ See Notice, supra note 3, at 14074. The Exchange states 
that it understands that LTSE anticipates separately registering a 
subsidiary as a national securities exchange in the future. See id.
    \18\ See id. at 14077.
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    The Exchange further states that it would retain, as its agents, a 
small number of staff that also are employed by LTSE (``LTSE Listings 
Agents'') solely to provide IEX with expertise in interpreting the LTSE 
Listings Rules and assistance in conducting the LTSE Listings business, 
and that the Exchange would not receive regulatory services from LTSE 
itself.\19\ Specifically, the

[[Page 31616]]

Exchange notes that the LTSE Listings Agents would provide certain 
advisory, marketing, public communications, and sales services to IEX 
in connection with LTSE Listings.\20\ The Exchange, however, represents 
that the LTSE Listings Agents would be subject to the Exchange's 
oversight and regulatory authority as the responsible self-regulatory 
organization.\21\ The Exchange states that it has an arrangement with 
the LTSE Listings Agents that includes restrictions designed to protect 
the Exchange's responsibilities as a self-regulatory organization and 
the confidentiality of its books and records.\22\ Separately, the 
Exchange states that it would permit LTSE to use and redistribute 
written marketing, public communications, and sales materials 
concerning the LTSE Listings business, subject to the Exchange's 
consent.\23\
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    \19\ See id. The Exchange represents that the LTSE Listing 
Agents' involvement would not extend to other matters within the 
Exchange's jurisdiction and that IEX would retain full self-
regulatory responsibility for determining initial and continuing 
compliance with the Exchange's listing standards, including for 
those companies that elect to be subject to the LTSE Listings Rules. 
See id.
    \20\ See id. at 14077 n.34. The Exchange states that, for 
example, LTSE Listings Agents would evaluate issuers seeking to list 
on the Exchange under the LTSE Listings Rules and would assist in 
monitoring LTSE Listings Issuers for compliance with the LTSE 
Listings Rules. See id.
    \21\ See id. at 14077. The Exchange notes that, at all times, 
LTSE Listings Agents would be subject to the satisfaction and the 
oversight of the Exchange's Chief Regulatory Officer, with all 
actions proposed by LTSE Listings Agents subject to the Exchange's 
regulatory authority. See id. at 14077 n.34. The Exchange represents 
that, notwithstanding the services provided by the LTSE Listings 
Agents to the Exchange, all actions taken by the Exchange ultimately 
would be based on the Exchange's determination that the action is 
appropriate and consistent with the Act, the Commission's rules 
thereunder, and the Exchange's rules. See id.
    \22\ See id. at 14077 n.34. According to the Exchange, each LTSE 
Listings Agent would be considered to be an agent of the Exchange in 
connection with the performance of services under the Exchange's 
arrangement with LTSE, pursuant to Article XI, Section 4 of the 
Exchange's Amended and Restated Operating Agreement. Among other 
things, the Exchange represents that, pursuant to the Exchange's 
arrangement with LTSE, the Exchange would not share confidential 
regulatory information with LTSE (other than with LTSE regulatory 
personnel that are LTSE Listings Agents and that do not have direct 
involvement in LTSE's commercial operations). In addition, the 
Exchange represents that LTSE has agreed that each LTSE Listings 
Agent would be required to consent in writing to the application to 
such agent of the following provisions, which are consistent with 
Article VII of the Bylaws of IEX Group, Inc.: non-interference with, 
and due regard for, the Exchange's self-regulatory function; 
confidentiality of the Exchange's books and records pertaining to 
its self-regulatory function; maintenance of books and records 
related to services under the Exchange's arrangement with LTSE and 
services provided to the Exchange by LTSE Listings Agents at a 
location within the United States; compliance with the federal 
securities laws and the rules and regulations promulgated thereunder 
and cooperation with the SEC in respect of the SEC's oversight 
responsibilities regarding the Exchange and the self-regulatory 
functions and responsibilities of the Exchange; and consent to 
jurisdiction of the United States federal courts, the SEC, and the 
Exchange for purposes of any suit, action, or proceeding arising out 
of or relating to services provided to the Exchange and the 
Exchange's arrangement with LTSE. See id.
    \23\ See id.
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B. Board of Directors and Committee Requirements

    As more fully described below, the LTSE Listings Rules would create 
new requirements for the boards of directors and board committees of 
LTSE Listings Issuers, which are intended to align the boards with the 
objectives of the LTSE Listings Rules. The LTSE Listings Rules would 
require each LTSE Listings Issuer to establish board committees 
dedicated to overseeing the issuer's strategies for creating and 
sustaining long-term growth and for selecting or recommending qualified 
director nominees. The LTSE Listings Rules also would impose additional 
obligations on audit committees and compensation committees with the 
aim of increasing oversight and transparency.\24\
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    \24\ See id.
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1. Long-Term Strategy and Product Committee
    Proposed Rule 14A.405(c)(1) would require that each LTSE Listings 
Issuer's board of directors maintain a committee specifically dedicated 
to overseeing the LTSE Listings Issuer's strategic plans for long-term 
growth, the Long Term Strategy and Product Committee (``LTSP 
Committee''). The LTSP Committee must include a minimum of three 
members of the board, a majority of whom must be independent 
directors.\25\ The LTSP Committee cannot assume any roles or 
responsibilities that are required to be undertaken by the LTSE 
Listings Issuer's board committees comprised solely of independent 
directors.\26\
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    \25\ See proposed Rule 14A.405(c)(4).
    \26\ See proposed Rule 14A.405(c)(1).
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    Pursuant to proposed Rule 14A.405(c)(3)(A), each LTSE Listings 
Issuer must certify that it has adopted a formal written LTSP Committee 
charter and that the LTSP Committee would review and reassess the 
adequacy of the formal written charter on an annual basis. The charter 
must specify, among other things, the scope of the LTSP Committee's 
responsibilities, and how it would carry out those responsibilities, 
including structure, processes, and membership requirements, and that 
the LTSP Committee must report regularly to the board of directors.\27\
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    \27\ See proposed Rule 14A.405(c)(3)(B)(i)-(v). Proposed Rule 
14A.405(c)(3)(C) would require that the LTSP Committee's charter be 
made available on or through the LTSE Listings Issuer's website.
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2. Nominating/Corporate Governance Committee
    Pursuant to proposed Rule 14A.405(d)(1), the director nominees of 
an LTSE Listings Issuer must be either selected, or recommended for the 
board's selection, by a nominating/corporate governance committee that 
is comprised solely of independent directors. Director nominees of an 
LTSE Listings Issuer may not be selected, or recommended for the 
board's selection, by the independent directors constituting a majority 
of the board's independent directors, as provided in IEX Rule 
14.405(e)(1)(A), subject to an exception for exceptional and limited 
circumstances.\28\ Independent Director oversight of director 
nominations would not apply in cases where the right to nominate a 
director legally belongs to a third party.\29\
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    \28\ If the nominating/corporate governance committee is 
comprised of at least three members, one director, who is not an 
``Independent Director'' as defined in IEX Rule 14.405(a)(2) and is 
not currently an Executive Officer or employee or a Family Member of 
an Executive Officer, may be appointed to the nominating/corporate 
governance committee if the board, under exceptional and limited 
circumstances, determines that such individual's membership on the 
committee is required by the best interests of the LTSE Listings 
Issuer and its shareholders. See proposed Rule 14A.405(d)(2). An 
LTSE Listings Issuer that relies on this exception must disclose the 
nature of the relationship and the reasons for the determination, as 
well as provide any disclosure required by Instruction 1 to Item 
407(a) of Regulation S-K regarding its reliance on this exception. 
See id. In addition, a member appointed under this exception may not 
serve longer than two years. See id.
    \29\ See proposed Rule 14A.405(d)(3).
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    Proposed Rule 14A.405(d)(6)(A) would require that each LTSE 
Listings Issuer adopt a formal written nominating/corporate governance 
committee charter and to review and reassess the adequacy of the formal 
written charter on an annual basis. Among other things, the charter 
would need to specify the scope of the nominating/corporate governance 
committee's responsibilities, and how the committee would carry out 
those responsibilities, including structure, processes, and membership 
requirements. The charter also would be required to specify that the 
nominating/corporate governance committee must report regularly to the 
board of directors.\30\
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    \30\ This charter must be made available on or through the LTSE 
Listings Issuer's website. See proposed Rule 14A.405(d)(6)(B).
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3. Audit Committee and Compensation Committees
    Proposed Rule 14A.405 imposes requirements on the audit committee 
and compensation committee in addition to the requirements imposed

[[Page 31617]]

by current IEX Rules 14.405(c) and 14.405(d), respectively. Under 
proposed Rules 14A.405(a)(1) and 14A.405(b)(2)(A)(i), an LTSE Listings 
Issuer's audit committee and compensation committee charters must 
specify that the committees must report regularly to the board of 
directors. In addition, the compensation committee charter must specify 
that the compensation committee must adopt executive compensation 
guidelines in accordance with proposed Rule 14A.405(b)(3) (Executive 
Compensation Guidelines).\31\ An LTSE Listings Issuer would be required 
to make both the audit committee charter and compensation committee 
charter available on or through its website.\32\
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    \31\ See proposed Rule 14A.405(b)(2)(A)(ii). Proposed Rule 
14A.405(b)(4) clarifies that ``Smaller Reporting Companies,'' as 
defined in Rule 12b-2 under the Act, 17 CFR 240.12b-2, are not 
exempt from these additional compensation committee requirements.
    \32\ See proposed Rules 14A.405(a)(2) and 14A.405(b)(2)(B).
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4. Committee Delegations and Third-Party Nominations
    The proposed rules would allow the responsibilities of certain 
committees to be delegated to other committees. Specifically, the 
proposed rules would permit the board of directors to allocate the 
responsibilities of the LTSP Committee, the nominating/corporate 
governance committee, and compensation committee to committees of their 
own denomination, provided that, in each case the committee with the 
allocated committee responsibilities must satisfy the same 
compositional requirements of the original committee and must be 
subject to a formal written charter that satisfies the same committee 
charter requirements of the original committee.\33\ Furthermore, if any 
function of the LTSP Committee, the nominating/corporate governance 
committee, or compensation committee has been delegated to another 
committee, the charter of the committee receiving such delegation must 
also be made available on or through the LTSE Listings Issuer's 
website.\34\
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    \33\ See proposed Rules 14A.405(c)(2), 14A.405(d)(5), and 
14A.405(b)(2)(B).
    \34\ See proposed Rules 14A.405(c)(3)(C), 14A.405(d)(6)(B), and 
14A.405(b)(2)(B).
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    Under the proposal, the charters of each committee of LTSE Listings 
Issuers also would be permitted to address the authority of the 
committee to delegate its responsibilities to subcommittees of the 
committee, provided that any such subcommittee must meet the applicable 
committee composition requirements with respect to independence.\35\ 
However, this LTSE Listings Rule would not apply in cases where the 
right to nominate a director legally belongs to a third party, because 
the right to nominate directors in such a case does not reside with the 
LTSE Listings Issuer.\36\
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    \35\ See Supplementary Material .01 to proposed Rule 14A.405, 
which would apply to LTSE Listings Issuers in lieu of existing 
Supplementary Material .08 to IEX Rule 14.405 (Independent Director 
Oversight of Director Nominations).
    \36\ See proposed Rule 14A.405, Supplementary Material .01.
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5. Corporate Governance Guidelines
    Proposed Rule 14A.409 would require each LTSE Listings Issuer to 
adopt and disclose certain corporate governance guidelines that address 
director qualification standards, director responsibilities, director 
access to management, director compensation, director orientation and 
continuing education, management succession, and annual performance 
evaluations of the board.\37\ Among other things, these corporate 
governance guidelines must specify that no less than 40% of director 
compensation must be paid in stock-based compensation tied to long-term 
periods.\38\ In addition, LTSE Listings Issuers must adopt director 
stock ownership guidelines, which must include minimum ownership 
requirements that can be met over the length of board service.\39\
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    \37\ An LTSE Listings Issuer would be required to make its 
corporate governance guidelines available on or through its website. 
See proposed Rule 14A.409(b).
    \38\ See proposed Rule 14A.409(a)(4). An LTSE Listings Issuer 
would be required to disclose in its corporate governance guidelines 
what it considers to be ``long-term'' for this purpose. See id.
    \39\ See id.
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C. Long-Term Strategy and Other Disclosure Requirements

    The Exchange notes that, in addition to and separate from all 
disclosures required under applicable securities laws, the Commission's 
rules, and the Exchange's other rules, proposed Rule 14A.207 would 
require LTSE Listings Issuers to provide certain supplemental 
disclosures (``LTSP Disclosures'').\40\ The LTSP Disclosures would be 
made publicly available pursuant to a supplement to the LTSE Listings 
Issuer's Annual Report (``Annual Report Supplement'') that must be 
distributed to shareholders along with, and in the same manner as, the 
LTSE Listings Issuer's Annual Report.\41\ In addition, LTSE Listings 
Issuers must make the Annual Report Supplement available on or through 
the LTSE Listings Issuer's website.\42\ The LTSP Disclosures also must 
be reviewed and approved by the LTSP Committee on at least an annual 
basis.\43\
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    \40\ See Notice, supra note 3, at 14080. Proposed Rule 
14A.207(a) specifies that nothing in the rule shall affect the 
obligation of an LTSE Listings Issuer to comply with applicable 
securities laws. In addition, proposed Rule 14A.207(b) states that 
all disclosures must comply with applicable securities laws, 
including rules and regulations pertaining to the use and 
reconciliation of non-GAAP financial measures and any securities law 
obligations regarding updating or correcting prior public statements 
or disclosures.
    \41\ See proposed Rule 14A.207(b). Proposed Rule 14A.002(a)(1) 
states that ``Annual Report'' means ``consistent with IEX Rule 
14.207(d), the annual report made available to Shareholders 
containing audited financial statements of the LTSE Listings Issuer 
and its subsidiaries (which, for example, may be on Form 10-K, 20-F, 
40-F or N-CSR) within a reasonable period of time following the 
filing of the annual report with the Commission.''
    \42\ See id. In addition, ``[e]ach LTSE Listings Issuer must 
include a statement in its Annual Report that the LTSP Disclosures 
are available in the Annual Report Supplement and provide the 
website address,'' as well as ``notify IEX Regulation once its 
Annual Report Supplement has been made publicly available on its 
website.'' Id.
    \43\ Id. The LTSP Committee must determine whether to recommend 
to the board of directors that the LTSP Disclosures be included in 
the Annual Report Supplement, and any board and committee approvals 
should be reflected in board resolutions as appropriate. See id.
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1. Long-Term Growth Strategy
    Proposed Rule 14A.207(c)(1) would require each LTSE Listings Issuer 
to disclose its ``Long-Term Growth Strategy.'' Long-Term Growth 
Strategy is defined as ``the strategy, as determined by management and 
the board of directors and approved by the LTSP Committee, that is 
focused on achieving long-term growth.'' \44\ The Exchange states that 
this proposed requirement is designed to increase transparency for 
shareholders on the strategic goals of the company's managers and 
provide for greater alignment and accountability between a company's 
long-term vision and investor expectations. An LTSE Listings Issuer 
must include how it defines ``long-term'' for purposes of its Long-Term 
Growth Strategy, including a discussion of how it made this 
determination.\45\
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    \44\ See proposed Rule 14A.002(a)(11).
    \45\ See proposed Rule 14A.207(c)(1)(A).
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    Proposed Rule 14A.207(c) outlines other required aspects of the 
Long-Term Growth Strategy disclosure. This disclosure must include a 
discussion of the LTSE Listings Issuer's ``Leading Indicators,'' \46\ 
as well as key milestones

[[Page 31618]]

that the LTSE Listings Issuer aims to achieve with respect to the 
Leading Indicators.\47\ The LTSE Listings Issuer also must report on 
the progress that the LTSE Listings Issuer has made in achieving these 
key milestones.\48\ In addition, the Long-Term Growth Strategy must 
include details relating to different businesses of the LTSE Listings 
Issuer if the information is material to the overall strategy.\49\ 
Lastly, LTSE Listings Issuers must include a discussion of any changes 
to the LTSE Listings Issuer's Long-Term Growth Strategy, Leading 
Indicators, and/or key milestones since the publication of the LTSE 
Listings Issuer's previous Long-Term Growth Strategy.\50\
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    \46\ Proposed Rule 14A.002(a)(10) defines ``Leading Indicators'' 
as ``quantitative metrics (financial or non-financial) that an LTSE 
Listings Issuer's management uses to help forecast revenue, profit 
or other common after-the-event measures of long-term success. These 
current and predictive metrics [would be] used by management to 
focus on day-to-day results as they work towards achieving the LTSE 
Listings Issuer's Long-Term Growth Strategy, and provide useful 
information for timely decision-making in the shorter term.''
    \47\ See proposed Rule 14A.207(c)(1)(B).
    \48\ See id.
    \49\ See proposed Rule 14A.207(c)(2).
    \50\ See proposed Rule 14A.207(c)(1)(C).
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    Proposed Rule 14A.207(c)(3) would provide an exception from the 
requirement to disclose aspects of an LTSE Listings Issuer's Long-Term 
Growth Strategy. Specifically, if the LTSE Listings Issuer's LTSP 
Committee makes a determination that disclosure of any aspect of the 
LTSE Listings Issuer's Long-Term Growth Strategy would be ``reasonably 
likely to result in material harm'' to the LTSE Listing Issuer's 
competitive position, the LTSE Listings Issuer could exclude such 
information from its LTSP Disclosures. A process for making this 
determination would be required to be disclosed in the issuer's LTSP 
Committee Charter pursuant to proposed Rule 14A.405(c)(3)(B)(iv) and 
any such determination must be documented by the LTSP Committee and be 
made in accordance with its fiduciary duties.\51\ In addition, the LTSE 
Listings Issuer must disclose in its LTSP Disclosures that it is 
withholding certain aspects of its Long-Term Growth Strategy as a 
result of competitive concerns.\52\ Upon the time that any withheld 
information is no longer competitively sensitive, the LTSE Listings 
Issuer would be required to disclose that information in its LTSP 
Disclosures, even though this information may no longer be relevant to 
its current Long-Term Growth Strategy.\53\
---------------------------------------------------------------------------

    \51\ See Notice, supra note 3, at 14081.
    \52\ See proposed Rule 14A.207(c)(3).
    \53\ Id.
---------------------------------------------------------------------------

2. Other Supplemental Disclosure Requirements
    In addition to the Long-Term Growth Strategy disclosure, proposed 
Rule 14A.207 would require issuers to make disclosures relating to 
buybacks, human capital investment, and research and development, as 
described below:
    Buybacks: Each LTSE Issuer must disclose its EPS Net of Buybacks, 
defined as the quotient calculated by dividing (i) net income (as 
reported in the LTSE Listings Issuer's financial statements in its most 
recent Annual Report) by (ii) the sum of outstanding shares and shares 
that were subject to a Buyback during the prior fiscal year.\54\
---------------------------------------------------------------------------

    \54\ See proposed Rules 14A.002(a)(6) and 14A.207(d). Pursuant 
to proposed Rule 14A.002(a)(3), ``Buybacks'' means issuer 
repurchases that are required to be disclosed pursuant to Item 703 
of Regulation S-K.
---------------------------------------------------------------------------

    Human Capital Investment: Each LTSE Listings Issuer must disclose 
the extent to which the LTSE Listings Issuer's selling, general, and 
administrative expenses (as reported in the LTSE Listings Issuer's most 
recent Annual Report) consisted of ``Human Capital Investment.'' \55\
---------------------------------------------------------------------------

    \55\ See proposed Rules 14A.002(a)(7) and 14A.207(e). Proposed 
Rule 14A.207(e) defines ``Human Capital Investment'' as the 
aggregate amount an LTSE Listings Issuer spends on formal training 
of workers in new skills to improve job performance, including, 
among other things, amounts spent on fees or expenses related to 
personnel hired or retained to train employees, training materials, 
tuition assistance, and continuing education or similar programs. 
Each LTSE Listings Issuer must also disclose the amount spent on 
Human Capital Investment per full-time equivalent employee. Id.
---------------------------------------------------------------------------

    Research and Development: Each LTSE Listings Issuer must disclose 
the amount of research and development spending that is short-term 
focused and the amount of such spending that is long-term focused.\56\
---------------------------------------------------------------------------

    \56\ See proposed Rule 14A.207(f). Each LTSE Listings Issuer 
must also disclose how it defines ``short-term'' and ``long-term'' 
for these purposes and how it determined such definitions. Id.
---------------------------------------------------------------------------

3. Timing for Supplemental Disclosures
    Proposed Rule 14A.207(g) describes when these supplemental 
disclosures must be made. An LTSE Listings Issuer must disclose its 
Long-Term Growth Strategy on its website no later than at the time of 
its initial listing, and it must remain on the LTSE Listings Issuer's 
website until the LTSE Listings Issuer is required to make the 
disclosure annually in its Annual Report Supplement.\57\ After initial 
listing, an LTSE Listings Issuer must make the disclosures relating to 
buybacks, human capital investment, and research and development 
publicly available on its website by the earlier of when the LTSE 
Listings Issuer files its Form 10-K or distributes its Annual Report 
Supplement.\58\ Thereafter, the LTSE Listings Issuer must make this 
disclosure annually in its Annual Report Supplement, as set forth in 
proposed Rule 14A.207(b).\59\
---------------------------------------------------------------------------

    \57\ See proposed Rule 14A.207(g)(1). The initial disclosure 
must be made in compliance with the rules and regulations relating 
to the dissemination of free writing prospectuses, if applicable. 
Id.
    \58\ See proposed Rule 14A.207(g)(2).
    \59\ See id.
---------------------------------------------------------------------------

D. Executive Compensation Requirements

    Proposed Rule 14A.405(b)(3) requires an LTSE Listings Issuer's 
compensation committee to adopt a set of executive compensation 
guidelines applicable to Executive Officers,\60\ which the Exchange 
states are designed to link executive compensation to the long-term 
value of the LTSE Listings Issuer. These guidelines must include 
general principles for determining the form and amount of Executive 
Officer compensation, and for reviewing those principles, as 
appropriate. Specifically, the compensation committee must ensure that 
the time periods and performance metrics used to determine Incentive-
Based Compensation \61\ for Executive Officers are consistent with the 
LTSE Listings Issuer's Long-Term Growth Strategy, and may consult with 
the LTSP Committee in assessing whether such time periods and 
performance metrics are consistent with the LTSE Listings Issuer's 
Long-Term Growth Strategy.\62\
---------------------------------------------------------------------------

    \60\ IEX Rule 14.405(a)(1) defines ``Executive Officer'' as 
persons meeting the definition of ``officer'' in Rule 16a-1(f) under 
the Act, 17 CFR 240.16a-1(f).
    \61\ Proposed Rule 14A.002(a)(8) defines ``Incentive-Based 
Compensation'' as any variable compensation, fees, or benefits that 
serve as an incentive or reward for performance.
    \62\ See proposed Rule 14A.405(b)(3)(A)(i). In addition, the 
LTSE Listings Issuer must disclose in its proxy statement, or Annual 
Report Supplement if no proxy statement is filed, whether or not the 
compensation committee has determined that such time periods and 
performance metrics are consistent with the LTSE Listings Issuer's 
Long-Term Growth Strategy. See id.
---------------------------------------------------------------------------

    Proposed Rule 14A.405(b)(3)(B) imposes additional requirements 
related to the compensation of Executive Officers. An LTSE Listings 
Issuer may not provide Executive Officers with any Incentive-Based 
Compensation that is tied to a financial or performance metric that is 
measured over a time period of less than one year or grant any time-
based equity compensation that has any portion that vests in less than 
a year from the grant date (or from the hire date, in the case of new 
hire grants).\63\ In addition, equity compensation awarded to Executive 
Officers must be subject to a period of vesting over at least five 
years.\64\
---------------------------------------------------------------------------

    \63\ See proposed Rule 14A.405(b)(3)(B)(i).
    \64\ See proposed Rule 14A.405(b)(3)(B)(ii). The vesting 
scheduling must reflect the long-term focus of the equity grant and 
could allow for accelerated vesting only upon the death of the 
Executive Officer or the occurrence of a disability that renders the 
Executive Officer permanently unable to remain employed at the LTSE 
Listings Issuer in any capacity. Id. The compensation committee must 
determine appropriate Vesting Periods and amounts, as well as 
holding periods, for equity compensation awarded to Executive 
Officers that apply following an Executive Officer's retirement or 
resignation. See proposed Rule 14A.405(b)(3)(B)(iv).

---------------------------------------------------------------------------

[[Page 31619]]

    The proposed LTSE Listings Rules provide for two exceptions to the 
executive compensation requirements discussed above. First, the 
compensation committee may provide alternative time periods for 
incentive and equity compensation if there is a ``business necessity,'' 
and the LTSE Listings Issuer discloses and explains such business 
necessity.\65\ Second, any executive compensation that is subject to an 
existing written agreement entered into at least one year prior to the 
initial listing of an LTSE Listings Issuer on the Exchange need not 
comply with the requirements, but usage of this exemption must be 
disclosed in the Annual Report Supplement.\66\
---------------------------------------------------------------------------

    \65\ See proposed Rule 14A.405(b)(3)(B)(iii). However, the 
amount of equity awards granted in the aggregate that vests before 
the first anniversary of the grant date, or that does not meet the 
minimum five-year vesting schedule, cannot exceed 5% of the total 
number of shares authorized for grant in any fiscal year. See id.
    \66\ See proposed Rule 14A.405(b)(3)(C). Proposed Rule 
14A.405(b)(4) clarifies that ``Smaller Reporting Companies,'' as 
defined in Rule 12b-2 under the Act, 17 CFR 240.12b-2, are not 
exempt from the executive compensation guidelines described in 
proposed Rule 14A.405(b)(3).
---------------------------------------------------------------------------

E. Long-Term Shareholder Voting Structure

    According to the Exchange, it is consistent with the focus of the 
LTSE Listings category to provide a differentiated choice for issuers 
and investors that prefer listing standards that are explicitly 
designed to promote long-term value creation.\67\ Thus, the Exchange 
proposes Rule 14A.413(b) to require that LTSE Listings Issuers maintain 
certain voting rights provisions in their corporate organizational 
documents that would provide shareholders with the ability, according 
to the shareholder's option, to accrue additional voting power over 
time.\68\ LTSE Listings Issuers would be required to comply with the 
obligations set forth in IEX Rule 14.413 and in proposed Rule14A.413, 
both of which relate to voting rights. Under proposed Rule 14A.413, 
LTSE Listings Issuers would be required to include certain voting 
rights provisions in their corporate organizational documents that 
provide shareholders the ability to accrue additional voting power over 
time.\69\ Under proposed Rule 14A.413(b)(2), all securities listed on 
LTSE Listings, including securities issued by Foreign Private 
Issuers,\70\ must be eligible for a Direct Registration Program 
(``DRP'') operated by a clearing agency registered under Section 17A of 
the Act.\71\
---------------------------------------------------------------------------

    \67\ See Notice, supra note 3, at 14083.
    \68\ Id.
    \69\ See proposed Rule 14A.413(b).
    \70\ Pursuant to IEX Rule 14.002(a)(15), the term ``Foreign 
Private Issuer'' as used in the Exchange's rules has the same 
meaning as in Rule 3b-4 under the Act, 17 CFR 240.3b-4.
    \71\ 15 U.S.C. 78q-1. See also proposed Rules 14A.200(c)(1) and 
14A.208.
---------------------------------------------------------------------------

    Voting power would accrue only to shareholders who are beneficial 
owners; register such shares in their name as ``record holders'' on the 
books of the LTSE Listings Issuer (including through the use of a DRP); 
and continue to hold such shares as record holders over a period of 
time.\72\ Shares held in ``street name,'' that is, shares registered on 
the books of an issuer's transfer agent in the name of a nominee 
selected by the Depository Trust Company, would not accrue additional 
voting power over time.\73\
---------------------------------------------------------------------------

    \72\ See proposed Rule 14A.413(b)(2). For these purposes, record 
owners of shares listed on LTSE Listings include those shareholders 
holding a physical paper certificate of such shares and shareholders 
holding shares through a DRP. See proposed Rule 14A.413(b)(3).
    \73\ See Notice, supra note 3, at 14084.
---------------------------------------------------------------------------

    As of the date of the company's initial listing on LTSE Listings, 
each holder of equity securities listed on LTSE Listings must be 
entitled to an equal number of votes per share (the ``Initial Voting 
Power'') on a per class basis.\74\ For each full calendar month 
following the date of the LTSE Listings Issuer's listing on the 
Exchange during which a shareholder maintains continuous record 
ownership of shares, the voting power of such shares for so long as 
they are held of record by such shareholder would be required to 
increase by at least one twelfth (1/12th) over the shares' Initial 
Voting Power on the last business day of the month, up to an amount 
that is ten times their Initial Voting Power.\75\ If, at any time, a 
shareholder transfers shares out of record ownership, then on the date 
of such transfer, such shares would revert to entitling the shareholder 
to the Initial Voting Power of such shares.\76\
---------------------------------------------------------------------------

    \74\ See proposed Rule 14A.413(b)(1).
    \75\ See proposed Rule 14A.413(b)(3). Pursuant to proposed Rule 
14A.413, Supplementary Material .01(b), an LTSE Listings Issuer 
would be permitted to provide that the voting rights of shareholders 
holding in record name increase at a rate greater than one twelfth 
(1/12th) per month, provided that the voting power of such shares 
may not increase to a level that exceeds ten times their Initial 
Voting Power.
    \76\ Proposed Rule 14A.413(b)(4). Proposed Rule 14A.413(b)(5) 
requires that, prior to listing securities on LTSE Listings, a 
prospective LTSE Listings Issuer must obtain from its transfer agent 
a certification confirming that the transfer agent has software or 
other systems or processes available to the LTSE Listings Issuer 
that would enable the transfer agent and LTSE Listings Issuer to 
determine, as of a particular record date, the LTSE Listings 
Issuer's shareholder's voting rights calculated in accordance with 
proposed Rule 14A.413(b) (Long-Term Voting).
---------------------------------------------------------------------------

    In addition, although the requirements of proposed Rule 14A.413(b) 
could be viewed as similar to time-phased voting plans, the Exchange 
believes that proposed Rule 14A.413(b) is consistent with IEX Rule 
14.413, which is the Exchange's Voting Rights Policy.\77\ IEX Rule 
14.413 bars a company already listed on the Exchange from undertaking 
any of the prohibited corporate actions specified therein, including 
the adoption of time-phased voting plans.\78\ The Exchange notes that, 
because LTSE Listings Issuers would be required as a pre-condition to 
listing on LTSE Listings to have in place a voting rights structure as 
of the date of its initial listing that complies with proposed Rule 
14A.413(b), no new corporate action that disparately reduces voting 
rights would be permitted to be taken subsequent to the LTSE Listings 
Issuer's listing on the Exchange.\79\
---------------------------------------------------------------------------

    \77\ See IEX Rule 14.413.
    \78\ See id. Proposed Rule 14A.413, Supplementary Material 
.01(a) states that, so long as not inconsistent with IEX Rule 
14.413, an LTSE Listings Issuer could (i) maintain multiple classes 
of securities, including shares that have voting power per share in 
excess of the Initial Voting Power of the securities listed on the 
Exchange, and/or (ii) establish or maintain classes of shares not 
listed on the Exchange that do not comply with proposed Rule 
14A.413(b).
    \79\ See Notice, supra note 3, at 14085-86.
---------------------------------------------------------------------------

    The proposed LTSE Listings Rules also contain various provisions 
relating to the determination of record ownership for purposes of 
accreting voting power:
    Accreting Voting and the Exchange's Voting Rights Policy: The 
proposed rules describe how to determine what is considered ``super-
voting'' stock for purposes of IEX Rule 14.413, which provides that 
voting rights of existing shareholders of publicly traded common stock 
registered under Section 12 of the Act cannot be disparately reduced or 
restricted through any corporate action or issuance.\80\ Proposed Rule 
14A.413, Supplementary Material .01(f) would prohibit an issuer from 
disparately reducing or restricting the voting rights of existing 
shareholders by issuing a

[[Page 31620]]

new class of super-voting stock.\81\ For purposes of LTSE Listings, a 
class of securities shall be considered super-voting stock if (i) the 
Initial Voting Power of such class of securities exceeds the Initial 
Voting Power of any of the LTSE Listings Issuer's existing classes of 
common stock listed on LTSE Listings or (ii) the rate at which the 
voting power of such class may increase over time is greater than the 
corresponding rate for any of the LTSE Listings Issuer's existing 
classes of common stock listed on LTSE Listings.\82\
---------------------------------------------------------------------------

    \80\ See IEX Rule 14.413. IEX Rule 14.413 notes that examples of 
such corporate action or issuance include, but are not limited to, 
the adoption of time-phased voting plans, the adopting of capped 
voting rights, the issuance of super-voting stock, or the issuance 
of stock with voting rights less than the per share voting rights of 
the existing common stock through an exchange offer. Id.
    \81\ See proposed Rule 14A.413, Supplementary Material .01(f).
    \82\ See id.
---------------------------------------------------------------------------

    Potential Evasion of Loss of Long-Term Voting Power: An LTSE 
Listings Issuer may provide in its governance documents that if its 
board of directors adopts a resolution reasonably determining that, 
notwithstanding technical compliance with the provisions of the LTSE 
Listings Issuer's governance documents relating to the increasing 
voting power of long-term shareholders and continuity of record 
ownership, there has in fact been a change in beneficial ownership with 
respect to shares held of record that would evade the purposes of this 
LTSE Listings Rule 14A.413(b), such shares may be treated as being 
entitled only to their Initial Voting Power.\83\
---------------------------------------------------------------------------

    \83\ See proposed Rule 14A.413, Supplementary Material .01(c). 
Any LTSE Listings Issuer that provides in its governance documents 
that the board of directors may make such a determination must also 
adopt in its governance documents a process for any shareholders 
directly affected by such determination to challenge such 
determination. This process must provide the affected shareholders 
with an opportunity to present additional information demonstrating 
that a change of beneficial ownership has not occurred. See id.
---------------------------------------------------------------------------

    Technical Changes in Ownership: An LTSE Listings Issuer may adopt a 
process by which a shareholder may demonstrate that, notwithstanding a 
technical change in record ownership, a change in beneficial ownership 
has not occurred.\84\
---------------------------------------------------------------------------

    \84\ See proposed Rule 14A.413, Supplementary Material .01(d). 
The proposed rule further states that an example of this could be 
where a shareholder changes its legal name, or where ownership of 
shares by an individual is re-titled to reflect joint ownership with 
a spouse. See id.
---------------------------------------------------------------------------

    Shareholders Holding Through Custodians: In the case of a 
shareholder that holds its shares in an LTSE Listings Issuer through a 
custodian consistent with applicable regulatory requirements, an LTSE 
Listings Issuer may recognize such shareholder as a holder of record 
solely for purposes of proposed Rule 14A.413(b), so long as the 
custodian becomes the shareholder of record in a manner that indicates 
the name of the ultimate beneficial owner.\85\
---------------------------------------------------------------------------

    \85\ See proposed Rule 14A.413, Supplementary Material .01(e). 
The proposed rule further states that an example could be if 
Investment Fund ABC maintains custody of its assets through Bank 
XYZ, Investment Fund ABC may be recognized as the record holder of 
the shares of an LTSE-Listed company solely for purposes of this 
rule if Bank XYZ registers the shares on the books of the LTSE-
Listed Issuer as being owned by ``Bank XYZ, as custodian for 
Investment Fund ABC.'' See id.
---------------------------------------------------------------------------

F. Proposed Rules Concerning the Application of Certain Existing 
Exchange Rules

    Certain of the proposed LTSE Listings Rules clarify the application 
of existing Exchange listings rules to LTSE Listings Issuers, as 
described further below.
1. General Procedures for Initial and Continued Listing on LTSE 
Listings
    A company seeking the initial listing of one or more classes of 
securities on LTSE Listings must comply with the requirements and 
procedures set forth in the IEX Rule Series 14.200, as well as the 
supplemental requirements set forth in proposed Rule 14A.200.\86\ The 
Exchange must first determine that a company is eligible for listing 
under the LTSE Listings Rules and meets the Exchange's other listing 
criteria before it would provide a clearance letter, as defined in IEX 
Rule 14.201.\87\ After receiving a clearance letter pursuant to IEX 
Rule 14.201, a company choosing to list as an LTSE Listings Issuer must 
file an original listing application.\88\ To apply for listing on LTSE 
Listings, a company must execute a Listing Agreement and a Listing 
Application on the forms designated by the Exchange for an LTSE 
Listings Issuer, which would provide the information required by 
Section 12(b) of the Act.\89\ At the time of listing, the company may 
not already have any security listed for trading on the Exchange or any 
other national securities exchange and the company must be listing on 
LTSE Listings in connection with its initial public offering.\90\
---------------------------------------------------------------------------

    \86\ See proposed Rule 14A.200 and Amendment No. 1, supra note 
6.
    \87\ See proposed Rule 14A.200(a).
    \88\ See proposed Rule 14A.200(b).
    \89\ 15 U.S.C.781(b). See also proposed Rule 14A.200(b).
    \90\ See proposed Rule 14A.200(c)(2) and Amendment No. 1, supra 
note 6.
---------------------------------------------------------------------------

2. Dually-Listed Securities
    The Exchange proposes to permit LTSE Listings Issuers to list a 
class of securities that, in connection with its IPO, has been approved 
for listing on another national securities exchange.\91\ The Exchange 
would make an independent determination of whether any such companies 
satisfy all applicable listing requirements and shall require companies 
to enter into a dual-listing agreement with the Exchange.\92\ In the 
event that an issuer chooses to dually list on both LTSE Listings and 
another national securities exchange in connection with its IPO, the 
Exchange would expect such other national securities exchange to be the 
LTSE Listings Issuer's ``Primary Listing Market.'' \93\ The Exchange 
states that when an LTSE Listings Issuer is dually-listed on another 
national securities exchange, the initial trading of such issuer's 
securities on the Exchange would not occur until after the completion 
of the opening auction for such securities on the first day of listing 
on the ``Primary Listing Market.'' \94\ The Exchange further states 
that it would monitor the dually-listed LTSE Listings Issuer for 
compliance with all applicable IEX Rules on an ongoing basis, as it 
would for any other LTSE Listings Issuer.\95\ Proposed Supplementary 
Material .01 to Rule 14A.210 would clarify the application of certain 
IEX Rules, such as rules governing trading halts, for dually-listed 
LTSE Listings Issuers.
---------------------------------------------------------------------------

    \91\ See proposed Rule 14A.210(a).
    \92\ See proposed Rule 14A.210, Supplementary Material .01.
    \93\ See Notice, supra note 3, at 14087.
    \94\ See id. at 14087 n.74. ``Primary Listing Market'' is 
defined in proposed Rule 14A.002(a)(14) as having the same meaning 
as that term is defined in the Nasdaq Unlisted Trading Privileges 
national market system plan and consistent with the use of the term 
``listing market'' in the Consolidated Quotation Service and 
Consolidated Tape Association national market system plans.
    \95\ See id. at 14087 n.73. In addition, proposed Rule 
14A.210(b) imposes notification requirements on a dually-listed LTSE 
Listings Issuer if its securities have fallen below the continued 
listing requirements of LTSE Listings or the other market. Proposed 
Rule 14A.210(c) also provides that, for an LTSE Listings Issuer with 
a dually-listed security, if IEX is not the Primary Listing Market 
and the Primary Listing Market requires a minimum number of market 
makers, the minimum market maker requirements of IEX Rules 14.310 
and 14.320 that require a company listed on the Exchange to maintain 
a particular minimum number of registered and active Market Makers 
would not be applicable to the LTSE Listings Issuer's dually-listed 
security. See Amendment No. 1, supra note 6.
---------------------------------------------------------------------------

    Proposed Rule 14A.435 would require LTSE Listings Issuers to 
certify, at or before the time of listing, that all applicable listing 
criteria have been satisfied, as set forth in IEX Rule 14.202(b).\96\ 
In addition, the Chief Executive Officer of each LTSE Listings

[[Page 31621]]

Issuer must annually certify to the Exchange that: (i) The LTSE 
Listings Issuer is in compliance with the proposed Rule Series 14A.400, 
qualifying the certification to the extent necessary, and (ii) the LTSE 
Listings Issuer has designated an employee responsible for ensuring 
that the voting power of the LTSE Listings Issuer's securities is 
determined in accordance with proposed Rule 14A.413(b) (Long-Term 
Voting).\97\
---------------------------------------------------------------------------

    \96\ Proposed Rule 14A.401(b) provides that LTSE Listings 
Issuers may request from IEX a written interpretation of the LTSE 
Listings Rules, and a response to such request generally would be 
provided within one week following receipt by IEX Regulation of all 
information necessary to respond to the request.
    \97\ See proposed Rule 14A.435(b). In addition, an LTSE Listings 
Issuer must provide the Exchange with prompt notification after an 
Executive Officer of the LTSE Listings Issuer becomes aware of any 
noncompliance by the LTSE Listings Issuer with the requirements of 
the proposed Rule Series 14A.400. See proposed Rule 14A.410.
---------------------------------------------------------------------------

    LTSE Listings Issuers would not be required to pay the fees 
described in IEX Rule Series 14.600.\98\ The Exchange represents that 
it intends to file a separate proposed rule change that would address 
listing fees applicable to LTSE Listings Issuers.\99\
---------------------------------------------------------------------------

    \98\ See proposed Rule 14A.200(c)(3).
    \99\ See Notice, supra note 3, at 14092.
---------------------------------------------------------------------------

3. Shareholder Approval Calculation
    Proposed Rule 14A.412 describes the circumstances in which an 
Exchange-listed company is required to obtain shareholder approval 
prior to the issuance of securities in connection with certain 
transactions. Under IEX Rule 14.412, an Exchange-listed company is 
required to obtain shareholder approval in connection with: (1) The 
acquisition of the stock or assets of another company; (2) a change of 
control; (3) equity-based compensation of officers, directors, 
employees, or consultants; and (4) private placements.\100\ Among the 
potential triggers that would require shareholder approval, shareholder 
approval is required if the common stock being issued ``has or will 
have upon issuance voting power equal to or in excess of 20% of the 
voting power outstanding before the issuance.'' \101\ In light of the 
potential increased future voting power of new shares to be issued, the 
Exchange believes that it is appropriate in calculating the shareholder 
approval threshold to require that LTSE Listings Issuers assign a 
greater level of voting power to the newly issued shares than the 
Initial Voting Power of those shares, on the presumption that the 
ultimate voting power of those shares would increase over time.\102\ 
Proposed Rule 14A.412 would implement a special calculation to 
determine whether or not the issuance of new shares by an LTSE Listings 
Issuer would surpass the 20% threshold.
---------------------------------------------------------------------------

    \100\ See id. at 14090.
    \101\ See id.; see also IEX Rule 14.412(a)(1)(A).
    \102\ See Notice, supra note 3, at 14090.
---------------------------------------------------------------------------

    Under current IEX Rule 14.412, determining whether an issuance 
equals or exceeds this shareholder approval threshold is generally 
calculated by multiplying the number of shares to be issued by the 
voting power of such shares and dividing this number by the voting 
power of the shares outstanding before the issuance.\103\ However, 
because the shares of LTSE Listings Issuers would have accruing voting 
power, the Exchange is proposing Rule 14A.412 to provide a different 
means of calculating the numerator and denominator that would be 
applied to LTSE Listings Issuers.\104\
---------------------------------------------------------------------------

    \103\ See id. This general formula is subject to certain 
exceptions. See IEX Rule 14.412.
    \104\ See Notice, supra note 3, at 14090-91.
---------------------------------------------------------------------------

    Pursuant to proposed Rule 14A.412(a)(1), for LTSE Listings Issuers 
that have been listed on LTSE Listings for at least five years, the 
numerator of the shareholder approval calculation would be the number 
of shares to be issued multiplied by the product of the Initial Voting 
Power of such shares and the Long-Term Voting Factor.\105\ For LTSE 
Listings Issuers that have been listed on LTSE Listings for fewer than 
five years, the numerator would be the greater of (i) the number of 
shares to be issued multiplied by the product of the Initial Voting 
Power of such shares and the Long-Term Voting Factor and (ii) the 
number of shares to be issued multiplied by twice the Initial Voting 
Power of such shares.\106\
---------------------------------------------------------------------------

    \105\ See id. at 14091. Proposed Rule 14A.412(c)(1) defines 
``Long-Term Voting Factor'' as the quotient calculated by dividing 
(i) the voting power outstanding as of the Shareholder Approval 
Calculation Date by (ii) the number of shares outstanding as of the 
Shareholder Approval Calculation Date multiplied by the Initial 
Voting Power of those outstanding shares.
    \106\ See proposed Rule 14A.412(a)(2).
---------------------------------------------------------------------------

    Instead of applying the existing rule for determining the 
denominator of the calculation--the voting power of shares outstanding 
at issuance as described in IEX Rule 14.412(e)(2)--proposed Rule 
14A.412(b) states that the following provision shall apply, ``[v]oting 
power outstanding refers to the aggregate number of votes which may be 
cast by holders of those shares outstanding which entitle the holders 
thereof to vote generally on all matters submitted to the company's 
shareholders for a vote, as of the Shareholder Approval Calculation 
Date.'' \107\ All other provisions of IEX Rule 14.412 would continue to 
apply.\108\
---------------------------------------------------------------------------

    \107\ Proposed 14A.412(c)(2) defines ``Shareholder Approval 
Calculation Date'' as the date on which an LTSE Listings Issuer 
enters into a binding agreement to conduct a transaction that may 
require shareholder approval under IEX Rule 14.412 (Shareholder 
Approval).
    \108\ See Notice, supra note 3, at 14092.
---------------------------------------------------------------------------

    The Exchange believes that the provisions of proposed Rule 14A.412 
for calculating when shareholder approval would be required in 
connection with certain transactions would be a reasonable and balanced 
approach, while taking into account the potential increased future 
voting power of new shares to be issued.\109\
---------------------------------------------------------------------------

    \109\ See id.
---------------------------------------------------------------------------

4. Change of Control Transactions and Reverse Mergers
    The proposed LTSE Listings Rules set forth procedures for change of 
control transactions, which would operate in conjunction with existing 
IEX Rule 14.102(a). Proposed Rule 14A.102(a)(1) would require an LTSE 
Listings Issuer to apply for initial listing in connection with a 
transaction whereby the LTSE Listings Issuer combines with, or into, an 
entity that is not listed on LTSE Listings, resulting in a change of 
control of the LTSE Listings Issuer and potentially allowing the non-
LTSE Listings entity to obtain a listing on LTSE Listings.\110\ 
Proposed Rule 14A.102(a)(2) describes the impact of a change of control 
transaction on the proposed long-term voting provisions of LTSE 
Listings and voting power of such shares.\111\ Proposed Rule 14A.102(b) 
states that an entity formed by a Reverse Merger \112\ would not be 
eligible to

[[Page 31622]]

apply for initial listing on LTSE Listings.
---------------------------------------------------------------------------

    \110\ ``The Exchange shall consider the factors enumerated in 
IEX Rule 14.102(a) for determining whether a change of control has 
occurred.'' See proposed Rule 14A.102(a)(1). Any combined entity 
applying for initial listing must agree to comply with all 
applicable requirements of Chapter 14A, including requirements 
relating to long-term voting set forth in proposed Rule 14A.413, to 
apply to list as permitted by proposed Rule 14A.102. See id.
    \111\ If an initial listing following a change of control meets 
applicable listing requirements and the LTSE Listings Issuer is the 
surviving entity following the business combination, any shares of 
the LTSE Listings Issuer that have accrued additional voting power 
pursuant to proposed Rule 14A.413(b) prior to the business 
combination would retain such additional voting power following the 
business combination. See proposed Rule 14A.102(a)(2). Conversely, 
if the non-LTSE Listings Issuer is the surviving entity or a new 
entity is formed following the business combination, all shares of 
the class or classes of securities to be listed on LTSE Listings 
would have voting power equal to their Initial Voting Power at the 
time of such listing. See id.
    \112\ A ``Reverse Merger'' is generally defined as ``any 
transaction whereby an operating company becomes an Exchange Act 
reporting company by combining, either directly or indirectly, with 
a shell company which is an Exchange Act reporting company, whether 
through a reverse merger, exchange offer, or otherwise.'' See IEX 
Rule 14.002(a)(27).
---------------------------------------------------------------------------

5. Exemptions From Certain Corporate Governance Requirements
    Proposed Rule 14A.407 modifies the exemptions from certain 
governance requirements for LTSE Listings Issuers.
    Applicability of Exemptions to Corporate Governance Requirements: 
Proposed Rule 14A.407(a) would provide that an LTSE Listings Issuer may 
not rely on the exemptions set forth in IEX Rule 14.407(a) with respect 
to the requirements of Chapter 14A.\113\ Proposed Rule 14A.407(a) 
clarifies that a Foreign Private Issuer who meets the requirements of 
Chapter 14A, including the requirement to distribute an Annual Report 
Supplement, may list on LTSE Listings.
---------------------------------------------------------------------------

    \113\ See Notice, supra note 3, at 14089. IEX Rule 14.407(a) 
provides exemptions to certain of the Exchange's corporate 
governance requirements for asset-backed issuers and other passive 
issuers, cooperatives, Foreign Private Issuers, limited partnerships 
and management investment companies.
---------------------------------------------------------------------------

    Phase-in of Compliance With LTSP Committee Composition 
Requirements: In addition to the phase-in schedules provided in 
existing IEX Rule 14.407(b),\114\ an LTSE Listings Issuer that is 
listing in connection with its IPO or that is emerging from bankruptcy 
would be permitted to phase-in its compliance with the LTSP Committee 
composition requirements.\115\
---------------------------------------------------------------------------

    \114\ IEX Rule 14.407(b) allows a company listed on the Exchange 
to phase-in its compliance with certain Exchange rules over a period 
of time in certain situations, for example, for a company emerging 
from bankruptcy. See id.
    \115\ See proposed Rule 14A.407(b). Specifically, that LTSE 
Listings Issuer would be permitted to phase in its compliance with 
the committee composition requirements set forth in proposed Rule 
14A.405(c)(4) as follows: (1) At least one member of the LTSP 
Committee must be an Independent Director at the time of listing, 
and (2) a majority of the members of the LTSP Committee must be 
Independent Directors within 90 days of listing. See id.
---------------------------------------------------------------------------

    Controlled Companies: Proposed Rule 14A.407(c)(1) states that an 
LTSE Listings Issuer that is a Controlled Company \116\ would be exempt 
from the additional compensation committee requirements of proposed 
Rule 14A.405(b) and the nominating/corporate governance committee 
requirements of proposed Rule 14A.405(d).\117\
---------------------------------------------------------------------------

    \116\ The term ``Controlled Company'' is defined in IEX Rule 
14.407(c)(1) as an Exchange-listed company of which more than 50% of 
the voting power for the election of directors is held by an 
individual, a group or another company.
    \117\ However, Controlled Companies would not be exempt from the 
executive compensation requirements of proposed Rule 14A.405(b)(3). 
See proposed Rule 14A.407(c)(1). If a Controlled Company does not 
have a compensation committee, the Independent Directors on the LTSP 
Committee, or the Independent Directors of the board, would be 
responsible for compliance with the executive compensation 
requirements. See proposed Rule 14A.407(c)(2).
---------------------------------------------------------------------------

G. Other Requirements for LTSE Listings Issuers

    Earnings Guidance: Proposed Rule 14A.420 prohibits LTSE Listings 
Issuers from providing Earnings Guidance more frequently than annually, 
unless such disclosure would be required by IEX Rule 14.207(b)(1) 
(Disclosure of Material Information), other applicable law or to make 
the previously issued Earnings Guidance not misleading.\118\
---------------------------------------------------------------------------

    \118\ Pursuant to proposed Rule 14A.002(a)(5), ``Earnings 
Guidance'' means any public disclosure made to Shareholders 
containing a projection of the LTSE Listings Issuer's revenues, 
income (including income loss), or earnings (including earnings 
loss) per share. Any Earnings Guidance, including updates and 
supplementary disclosure related to Earnings Guidance, must also 
comply with the disclosure and notification requirements of IEX Rule 
14.207(b)(1). See proposed Rule 14A.420(b).
---------------------------------------------------------------------------

    Long-Term Stakeholder Policies: Proposed Rule 14A.425 requires LTSE 
Listings Issuers to develop and publish: (i) A policy regarding the 
LTSE Listings Issuer's impact on the environment and community; and 
(ii) a policy explaining the LTSE Listings Issuer's approach to 
diversity throughout the LTSE Listings Issuer.\119\ The LTSE Listings 
Issuer must review the policies required by proposed Rule 14A.425 at 
least annually and make such policies available on or through its 
website.
---------------------------------------------------------------------------

    \119\ See Notice, supra note 3, at 14086.
---------------------------------------------------------------------------

    Website Requirements: Several of the proposed LTSE Listings rules 
require LTSE Listings Issuers to make certain disclosures or documents 
publicly available on the LTSE Listings Issuer's website, and proposed 
Rule 14A.430 would explicitly require LTSE Listings Issuers to have and 
maintain a public available website.\120\ In addition, proposed Rule 
14A.413 would require each LTSE Listings Issuer to prepare and maintain 
an explanatory statement that must be written in plain English and 
posted prominently on the LTSE Listings Issuer's website and that must 
explain how a shareholder's voting power in the LTSE Listings Issuer's 
securities may increase over time, and explain the particular 
conditions that must be satisfied and the administrative steps that the 
shareholder must take to hold shares in a manner that would allow such 
voting power to increase over time.\121\
---------------------------------------------------------------------------

    \120\ For documents available on or through an LTSE Listings 
Issuer's website, such website must be accessible from the United 
States, must clearly indicate in the English language the location 
of such documents on the website and such documents must be 
available in a printable version in the English language. See 
proposed Rule 14A.430.
    \121\ See Amendment No. 1, supra note 6.
---------------------------------------------------------------------------

H. Failure To Meet LTSE Listings Standards

    Pursuant to IEX Rule 14.500(a), a failure to meet the listing 
standards set forth in the LTSE Listings Rules would be treated as a 
failure to meet the listing standards set forth in Chapter 14 of the 
IEX Rules, for purposes of the IEX Rule Series 14.500. As a result, the 
procedures for the independent review, suspension, and delisting of 
companies that fail to satisfy one or more standards for continued 
listing would apply to any LTSE Listings Issuer that fails to comply 
with listing standards in the LTSE Listings Rules as well as in Chapter 
14 of the IEX Rules.
    Proposed Rule 14A.500(b) would provide that a failure to satisfy 
one or more of the LTSE Listings Rules would be treated as a deficiency 
for which a company may submit a plan to regain compliance in 
accordance with IEX Rule 14.501(d)(2). Absent an extension, such a plan 
must be provided within 45 calendar days of IEX Staff's notification of 
deficiency in accordance with IEX Rule 14.501(d)(2)(C) (Timeline for 
Submission of Compliance Plans).
    Proposed Rule 14A.500 would permit an issuer to remain listed on 
the Exchange as a standard IEX listed company should the LTSE Listings 
Issuer become subject to delisting for failure to satisfy one or more 
LTSE Listings Rules, but remains in compliance with all other 
applicable listing rules of the Exchange.

IV. Summary of Comments and IEX's Response Letter

    As noted above, the Commission received twenty-three comment 
letters regarding the proposed rule change \122\ and one response 
letter from the Exchange.\123\ All commenters expressed their support 
for the proposed rule change, although two commenters indicated that 
they generally preferred single class voting structures.\124\ Several 
commenters suggested that IEX's proposed rule change may encourage 
additional companies to pursue an initial public offering with an 
increased focus on long-term objectives.\125\ Many

[[Page 31623]]

commenters expressed a related view that the current market structure 
disproportionately encourages short-term outlooks.\126\ One commenter 
suggested that the proposal would encourage additional new listings by 
increasing competition and providing an alternative model in the 
exchange market for listings.\127\ Another commenter commended IEX more 
broadly for its proposal's innovation in areas such as increasing 
transparency in reporting and disclosure of long-term strategy, 
aligning board incentives with the interests of long-term shareholders, 
aligning executive compensation with long-term performance, and 
recognizing environmental, social, and governance priorities.\128\ Yet 
another commenter remarked that founders today feel the need to grow 
large in the private markets in order to sustain and protect their 
cultures, thinking, and values when they enter the public markets.\129\
---------------------------------------------------------------------------

    \122\ See supra note 4.
    \123\ See supra note 5.
    \124\ See Inherent Group Letter and Glass, Lewis Letter.
    \125\ See Collaborative Fund Letter at 1; Costolo Letter; Case 
Letter; Conference Board Letter at 2; Andreessen Horowitz Letter; 
Obvious Ventures Letter; Founders Fund Letter; Descript Letter; 
LinkedIn Letter; Y Combinator Letter at 1-2; Techstars Letter at 1; 
Downtown Project Letter; CareJourney Letter; Brummer Letter at 3. 
See also Greylock Partners Letter (expressing support for ``a new 
option that aims to build an ecosystem that enables opportunity and 
connects long-term visionaries from all sides of the economy''). Two 
commenters supporting the proposal discussed the benefits of a new 
exchange designed to promote long-term objectives. See Collaborative 
Fund Letter at 1; Baillie Gifford Letter at 1-2. The Commission 
notes that IEX's proposed rule change would simply provide an 
additional listings tier on IEX, and that IEX is not proposing an 
application for registration as a separate national securities 
exchange.
    \126\ See, e.g., Inherent Group Letter at 1; Buhl Letter; 
Conference Board Letter at 1-2; Andreessen Horowitz Letter; Obvious 
Ventures Letter; Greylock Partners Letter; Aspen Institute Letter; 
Descript Letter; LinkedIn Letter; Techstars Letter at 1; Downtown 
Project Letter; CareJourney Letter; Revolution Letter.
    \127\ See Cboe Letter at 1.
    \128\ See Glass, Lewis Letter at 1-2.
    \129\ See Initialized Capital Letter.
---------------------------------------------------------------------------

    Five commenters specifically supported providing longer-tenured 
investors in a company with greater input in corporate governance.\130\ 
In addition to the proposed long-term voting system, two of these 
commenters also highlighted the benefits of the additional disclosure 
requirements that are focused on long-term growth.\131\ Three 
commenters stated that the proposed listing standards would increase 
transparency to investors, such as with respect to long-term goals, 
metrics, and performance, and would help align executive compensation 
with these long-term measures.\132\ One of these commenters suggested 
that IEX's proposal to require a board committee focused on long-term 
growth strategies and the disclosure of such strategies could better 
encourage long-term relationships between issuers and their 
shareholders through the increased transparency that the proposal would 
promote.\133\ This commenter also highlighted the proposal's required 
disclosure of human capital expenses and short-term vs. long-term 
research and development spending as features that could provide 
valuable insight into how issuers are effectively investing in their 
long-term growth and thereby mitigate concerns about short-term 
fluctuations in earnings.\134\ This commenter further noted that the 
proposed executive compensation requirements would better tie 
management's incentives to the listed company's disclosed long-term 
growth strategy.\135\
---------------------------------------------------------------------------

    \130\ See Revolution Letter; Inherent Group Letter at 1; 
CareJourney Letter; Brummer Letter at 4-5; CalPERS Letter at 2.
    \131\ See CalPERS Letter at 2; Brummer Letter at 3-4.
    \132\ See Inherent Group Letter at 1; Andreessen Horowitz 
Letter; Brummer Letter at 3-4.
    \133\ See Brummer Letter at 4.
    \134\ See id.
    \135\ See id.
---------------------------------------------------------------------------

    One commenter, while generally supporting IEX's proposal, expressed 
concern about the proposed increasing voting rights that are based on 
the length of time that the shares are held.\136\ This commenter noted 
that dual-class voting structures ``are generally not in the best 
interests of common shareholders; this includes any equity structures 
providing unequal voting rights, regardless of the number of share 
classes issued.'' \137\ This commenter acknowledged, however, that the 
long-term shareholder voting feature of the IEX proposal may be 
preferable to some investors compared to other existing unequal voting 
structures.\138\ Another commenter, while not expressing a concern 
specific to IEX's proposal, noted that it ``generally prefer[s] single-
class share structures,'' but ``support[s] mechanisms that reward long-
term shareholders with a greater say in corporate governance issues 
than short-term shareholders.'' \139\ This commenter cautioned that any 
such mechanisms ``must maintain management accountability, preserve 
adequate liquidity in the public markets, and balance the interests of 
small and large--and short-term and long-term--shareholders.'' \140\
---------------------------------------------------------------------------

    \136\ See Glass, Lewis Letter at 2.
    \137\ See id.
    \138\ See id.
    \139\ See Inherent Group Letter at 1.
    \140\ See id.
---------------------------------------------------------------------------

    In its response to the commenters, IEX stated that its proposed 
long-term voting provisions differ from existing dual-class and uneven 
voting structures because its proposed voting structure treats all 
common shareholders equally in their ability to gain additional voting 
power based on the length of time that their shares are held.\141\ 
According to the Exchange, this proposed structure is designed to more 
directly align voting rights with long-term engagement with the 
issuer.\142\ The Exchange further noted that the proposed voting 
structure should not be mandated for any issuer but is an important 
alternative that would be available to issuers that elect to list on 
the proposed new IEX listings tier.\143\
---------------------------------------------------------------------------

    \141\ See IEX Response Letter at 1.
    \142\ See id. at 1-2.
    \143\ See id. at 2.
---------------------------------------------------------------------------

V. Discussion and Commission Findings

    After careful review and consideration of the comments received, 
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.\144\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act.\145\ Section 6(b)(5) of the Act\146\ 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 foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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 not be 
designed to permit unfair discrimination between customers, issuers, 
brokers or dealers.
---------------------------------------------------------------------------

    \144\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \145\ 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5).
    \146\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As noted above, the Commission received 23 comment letters on the 
proposed rule change, as well as a response letter from the Exchange. 
The commenters generally expressed support for the Exchange's proposal, 
although two commenters indicated that they preferred single-class 
voting structures, but acknowledged that they otherwise supported the 
aim of the Exchange's proposal to favor long-term shareholder 
value.\147\
---------------------------------------------------------------------------

    \147\ See Section IV., supra.
---------------------------------------------------------------------------

    The Exchange proposes to adopt listing rules for a new tier of 
listings on its market, LTSE Listings. The Exchange states that it 
believes that companies

[[Page 31624]]

should be able to maintain a public listing on an exchange that 
provides a differentiated choice for issuers and investors that prefer 
listing standards that the Exchange explicitly has designed with the 
aim of promoting long-term value creation. Although companies today 
could list on the Exchange and voluntarily choose to focus on long-term 
value creation, the Exchange believes that providing a listing category 
with listing rules that the Exchange has designed to address some of 
the concerns regarding ``short-termism'' could encourage greater 
participation in the public markets by long-term focused companies and 
investors
    In support of its proposal, the Exchange notes that many academics, 
commentators, market participants, and others have expressed concerns 
regarding ``short termism'' and the potential impact on issuers when 
some investors' focus on short-term results. The Exchange points to 
data indicating that the average number of IPOs per year from 2001 
through 2016 was approximately one-third of the average number of IPOs 
between 1998 and 2000, and that the number of listed companies fell by 
nearly 50% from 1996 through 2016.
    An analysis of IPO data,\148\ prepared by the Commission's Division 
of Economic Research and Analysis, similarly points to a decline in the 
number of IPOs and public companies compared to the nineties. For 
example, the number of IPOs declined by approximately 77% from 1997 to 
2017, while the average number of IPOs per year declined by 
approximately 73% from 1990-1998 to 2001-2017.\149\ The number of 
listed companies decreased by approximately 45% from 1997 to 2017 and 
the average number of listed companies decreased by approximately 34% 
from 1990-1998 to 2001-2017.\150\
---------------------------------------------------------------------------

    \148\ See Ritter, J., Initial Public Offerings: Updated 
Statistics, January 2018, https://site.warrington.ufl.edu/ritter/files/2018/01/IPOs2017Statistics_January17_2018.pdf (retrieved Jun. 
20, 2018). The sample excludes IPOs with offers prices below $5, 
ADRs, units, closed-end funds, REITs, natural resource limited 
partnerships, small best efforts offers, banks and thrifts, and 
stocks not listed on Amex, NYSE, and NASDAQ.
    \149\ Id. Peak technology bubble years (1999 and 2000) are 
excluded. If 2008 and 2009 are excluded, the decrease in the average 
number of IPOs per year from 1990-1998 to 2001-2017 is estimated to 
be approximately 70%.
    The decline is smaller but still considerable when an earlier 
time period is used for comparison. The average number of IPOs per 
year decreased by approximately 47% from 1980-1989 to 2001-2017 
(approximately 42%, excluding 2008-2009).
    \150\ The estimate is based on Staff calculations based on World 
Bank's World Development Indicators data on the number of domestic 
listed companies in the US (retrieved April 23, 2018). The average 
number of listed companies is estimated to have decreased by 
approximately 23% from 1980-1989 to 2001-2017.
---------------------------------------------------------------------------

    Academic studies have similarly demonstrated a decline in the 
number of U.S. IPOs and listed companies in recent years and have cited 
various potential reasons for this decline, including a high cost of 
going public and being a reporting company,\151\ the advantages of 
being acquired by a larger firm,\152\ and the expanding role of private 
markets.\153\ Other studies generally note the cyclical nature of 
offering activity.\154\
---------------------------------------------------------------------------

    \151\ See, e.g., Engel, E., Hayes, R., Wang, X., 2007, The 
Sarbanes-Oxley Act and Firms' Going-Private Decisions, Journal of 
Accounting and Economics 44(1-2), 116-145; Kamar, E., Karaca-Mandic, 
P., Talley, E., 2009, Going-Private Decisions and the Sarbanes-Oxley 
Act of 2002: A Cross-Country Analysis, Journal of Law, Economics, & 
Organization 25(1), 107-133; Bova, F., Minutti-Meza, M., Richardson, 
G., Vyas, D., 2014, The Impact of SOX on the Exit Strategies of 
Private Firms, Contemporary Accounting Research 31(3), 818-850.
    \152\ See, e.g., Gao, X., Ritter, J., Zhu, Z., 2013, Where have 
all the IPOs gone? Journal of Financial and Quantitative Analysis 
48(6), 1663-1692.
    \153\ See, e.g., Ewens, M., Farre-Mensa, J., 2018, The 
deregulation of the private equity markets and the decline in IPOs, 
Working paper, https://ssrn.com/abstract_id=3017610 (retrieved Jun. 
20, 2018); Doidge, C., Kahle, K., Karolyi, A., Stulz, R., 2018, 
Eclipse of the Public Corporation or Eclipse of the Public Markets? 
Journal of Applied Corporate Finance 30(1), 8-16.
    \154\ See, e.g., Lowry, M., 2003, Why does IPO volume fluctuate 
so much? Journal of Financial Economics 67(1), 3-40; Alti, A., 2005, 
IPO Market Timing, Review of Financial Studies 18(3), 1105-1138; 
Yung, C., Colak, G., Wang, W., 2008, Cycles in the IPO market, 
Journal of Financial Economics 89(1), 192-208.
---------------------------------------------------------------------------

    Other observers have offered various reasons for the IPO decline, 
including high costs of an IPO and of being a public company\155\ and 
the attractiveness of private placements and of being acquired.\156\
---------------------------------------------------------------------------

    \155\ See, e.g., IPO taskforce, Rebuilding the IPO On-Ramp: 
Putting Emerging Companies and the Job Market Back on the Road to 
Growth, October 20, 2011, https://www.sec.gov/info/smallbus/acsec/rebuilding_the_ipo_on-ramp.pdf (retrieved Jun. 27, 2018); Committee 
on Capital Markets Regulation, U.S. Public Markets are Stagnating, 
April 2017, http://www.capmktsreg.org/wp-content/uploads/2017/06/US-Public-Equity-Markets-are-Stagnating.pdf (retrieved Jun. 27, 2018). 
Besides ongoing costs of periodic reporting, observers have pointed 
to other considerations, such as the costs of the IPO, disclosure 
requirements, audits, litigation, investor relations, shareholder 
activism, etc.
    \156\ See, e.g., Eule, A., Are Unicorns Killing the 2016 IPO 
Market? June 4, 2016, Barron's, http://www.barrons.com/articles/are-unicorns-killing-the-2016-ipo-market-1465018470 (retrieved Jun. 27, 
2018); Zanki, T., 4 Reasons Cos. Are Staying Private Longer, March 
14, 2017, Law360, New York, https://www.law360.com/articles/901768?scroll=1 (retrieved Jun. 27, 2018); Hutchinson, J., Why Are 
More Companies Staying Private? February 15, 2017, https://www.sec.gov/info/smallbus/acsec/hutchinson-goodwin-presentation-acsec-021517.pdf (retrieved Jun. 27, 2018). See also Notice, supra 
note 3, at 14075 n.10.
---------------------------------------------------------------------------

    Issuers that list on the LTSE Listings tier would be subject to the 
listing standards in proposed Chapter 14A of IEX's rules, as well as 
Chapter 14 of IEX's rules relating to its standard listing tier. 
Significant features of proposed Chapter 14A, which are discussed in 
more detail below, pertain to: (1) The opportunity for shareholders to 
receive accreting voting rights; (2) an alternative calculation for 
determining shareholder approval requirements; (3) additional corporate 
governance and other requirements for LTSE Listings Issuers; and (4) 
provisions pertaining to dually-listed securities.

A. Mandatory Accreting Voting Rights

    A key feature of the Exchange's proposal is the requirement that 
companies electing to list their common equity securities on the 
Exchange's LTSE Listings tier must comply with the voting rights 
requirements set forth in proposed Rule 14A.413 with respect to those 
listed securities. In the Exchange's view, the proposed voting rights 
structure is designed to more directly align shareholders' voting 
rights with long-term issuer engagement.\157\ Specifically, proposed 
Rule 14A.413(b) would require an LTSE Listings Issuer to establish an 
Initial Voting Power\158\ associated with its listed securities, and 
that Initial Voting Power would be required to increase at a rate of at 
least 1/12th per month for each eligible shareholder \159\ that owns 
the issuer's shares continuously as of the date that the shareholder 
appears as the record owner on the LTSE Listings Issuer's books or 
through DRP. Under Rule 14A.413(b), the voting power of the shares 
would be required to accrete up to an amount that is ten times their 
Initial Voting Power. However, if at any time, the shareholder ceases 
to hold the LTSE Listing Issuer's shares in record form or transfers 
those shares out of record ownership (whether for purposes of sale or 
otherwise), then on the date of such transfer the increased voting 
power of the shares would revert to their Initial Voting Power. The 
Exchange states that the voting rights provisions are designed to align 
with the long-term focus of the LTSE Listings category by providing 
long-term investors in an LTSE Listings Issuer with a greater role in 
corporate

[[Page 31625]]

governance than short-term shareholders.\160\
---------------------------------------------------------------------------

    \157\ See supra notes 67-68 and accompanying text.
    \158\ See supra note 74 and accompanying text.
    \159\ Only shareholders of an LTSE Listings Issuer who register 
such shares in their name as record holders on the books of the LTSE 
Listings Issuer, including through the use of a DRP, would be 
eligible for these accreting voting rights. See supra note 72 and 
accompanying text.
    \160\ See Notice, supra note 3, at 14083. The Exchange believes 
that long-term investors in a public company are more likely than 
short-term shareholders to exercise their voting rights in a manner 
that prioritizes long-term growth over short-term results. See id.
---------------------------------------------------------------------------

    Although the commenters generally supported the Exchange's 
proposal, two commenters expressed a concern about the proposed voting 
rights structure.\161\ Specifically, one commenter noted a concern that 
dual-class voting structures generally are not in the best interests of 
shareholders, and that skewing the alignment of ownership and voting 
rights presents agency risks.\162\ The other commenter stated that 
mechanisms that reward long-term shareholders with a greater say in 
corporate governance nonetheless should balance the interests of small 
and large, and short-term and long-term, shareholders.\163\ The 
Exchange responded by noting that its proposal differs from existing 
dual-class and uneven voting structures because its proposed voting 
structure would treat the LTSE Listings Issuer's common shareholders 
equally in their ability to gain additional voting power based on their 
ownership tenure.\164\ The Exchange further noted that its proposed 
voting structure would provide an alternative available to issuers that 
elect to list on the proposed LTSE Listings tier.\165\ In its proposal, 
the Exchange also stated that because LTSE Listings Issuers would be 
required, as a pre-condition to listing on LTSE Listings, to already 
have in place a voting rights structure as of the date of its initial 
listing that complies with LTSE Listings Rule 14A.413(b), no new 
corporate action that disparately reduces voting rights would be taken 
subsequent to listing on the Exchange.\166\
---------------------------------------------------------------------------

    \161\ See Inherent Group Letter and Glass, Lewis Letter at 2.
    \162\ See Glass, Lewis Letter at 2.
    \163\ See Inherent Group Letter.
    \164\ See IEX Response Letter at 1.
    \165\ See id. at 2.
    \166\ See supra note 79 and accompanying text.
---------------------------------------------------------------------------

    Section 6(b)(5) of the Exchange Act requires that an exchange's 
rules be designed to promote just and equitable principles of trade and 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers and, in general, to protect investors and 
the public interest. The proposed voting rights structure rule would 
require an LTSE Listings Issuer to differentiate in the allocation of 
voting rights based on the manner in which its shareholders hold their 
shares (whether in DRP or record name or whether in street name) and 
for the length of time that they hold their shares. The proposed voting 
rights rule is intended to allow shareholders of an LTSE Listings 
Issuer to increase the voting power of their shares as long as they 
continue to hold such shares as record holders on the books of the LTSE 
Listings Issuer, including through DRP. The proposal does not make any 
other distinction in voting rights among the LTSE Listings Issuer's 
shareholders, and any shareholders that continuously hold their shares 
in record form would be eligible to increase their voting power up to 
the maximum allowable voting power consistent with proposed Rule 
14A.413(b). LTSE Listings Issuers also would be required to comply with 
IEX's existing voting rights policy, which provides that the voting 
rights of existing shareholders of listed stock cannot be disparately 
reduced or restricted through any corporate action or issuance, 
including, but not limited to, the adoption of time-phased voting 
plans, the adoption of capped voting rights plans, the issuance of 
super-voting stock, or the issuance of stock with voting rights less 
than the per share voting rights of the existing common stock through 
an exchange offer.\167\ To address the restrictions in this voting 
rights policy, the proposal prohibits an LTSE Listings Issuer from 
issuing additional classes of common stock that exceeds the Initial 
Voting Power of any of the LTSE Listings Issuer's existing classes of 
common stock listed on LTSE Listings. In addition, the proposal 
prohibits issuances where the rate at which the voting power of such 
class may increase over time at a rate greater than the corresponding 
rate for any of the LTSE Listings Issuer's existing classes of common 
stock listed on LTSE Listings.\168\
---------------------------------------------------------------------------

    \167\ See IEX Rule 14.413.
    \168\ See supra note 81 and accompanying text; proposed Rule 
14A.413, Supplementary Material .01(f).
---------------------------------------------------------------------------

    The Commission also notes that, pursuant to proposed Rule 
14A.200(c)(2), at the time that a company initially lists on the LTSE 
Listings tier, that company may not have any securities listed for 
trading on IEX or any other national securities exchange, and that a 
company would be permitted to list on LTSE Listings only in connection 
with its initial public offering.\169\ The proposal also would require 
an LTSE Listings Issuer to prepare and maintain an explanatory 
statement, written in plain-English, and posted prominently on its 
website, which provides information regarding the rights of 
shareholders under the issuer's long-term voting provisions, including, 
at a minimum, explanations of how a shareholder's voting power may 
increase over time, the particular conditions that must be satisfied in 
order for such additional voting power to increase, and the 
administrative steps that a shareholder must take to hold shares in a 
manner that will allow their voting power to increase over time.\170\ 
In light of the foregoing, the Commission finds that the Exchange's 
voting rights proposal is consistent with Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \169\ See Amendment No. 1, supra note 6.
    \170\ See id.
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B. Alternative Calculation for Requiring Shareholder Approval

    The Exchange proposes a modified shareholder approval calculation 
formula for LTSE Listings Issuers to be used for determining when 
shareholder approval is required for additional issuances of 
securities. While the calculation for shareholder approval ordinarily 
would be based on the legal maximum potential voting power of the 
shares to be issued (which in the case of the proposed rules would 
multiply the Initial Voting Power by ten), the Exchange asserts that 
this approach would not be appropriate because it believes that it 
would be extremely unlikely that all shares of a new issuance would be 
held in record name by the same shareholder uninterrupted for a period 
of 10 years.\171\ The Exchange also states that it would be even more 
unlikely for all shares of a new issuance to accrue votes up to the 
maximum amount while the shares outstanding remain static and do not 
accrue any additional voting rights. The Exchange therefore argues that 
requiring issuers to make these particular assumptions would result in 
LTSE Listings Issuers having to obtain shareholder approval for 
transactions that would not be materially dilutive to existing 
shareholders. The Exchange further contends that imposing the burden of 
obtaining shareholder approval (including the monetary costs, as well 
as the time involved and uncertainty of outcome) would not be justified 
for transactions that, in the Exchange's view, are unlikely to be 
materially dilutive to the voting power of existing shareholders.\172\
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    \171\ See Notice, supra note 3, at 14090. Under the proposal, 
transferring shares out of record form or transferring ownership to 
another person would revert the voting rights associated with the 
shares to their Initial Voting Power.
    \172\ See id. at 14090-91.
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    The Exchange notes that, because shareholders may or may not elect 
to hold their shares in record ownership,

[[Page 31626]]

and may hold them in such manner for varying lengths of time, it is not 
possible to determine with precision how many shares issued in any 
transaction would accumulate additional voting power or the extent of 
voting power that those shares eventually would attain.\173\ The 
Exchange proposes two alternative means for calculating the maximum 
potential voting power of the new shares: (i) for issuers that have 
been listed on LTSE Listings for at least five years, this value would 
be the number of shares to be issued multiplied by both the Initial 
Voting Power and Long-Term Voting Factor,\174\ and (ii) for issuers 
that have been listed on LTSE Listings for fewer than five years, this 
value would be the greater of (x) the number of shares to be issued 
multiplied by both the Initial Voting Power and Long-Term Voting Factor 
or (y) the number of shares to be issued multiplied by the Initial 
Voting Power, multiplied by two.
---------------------------------------------------------------------------

    \173\ See id. at 14090.
    \174\ See supra note 105 and accompanying text, for a 
description of the Long-Term Voting Factor.
---------------------------------------------------------------------------

    The Exchange states that the Long-Term Voting Factor is intended to 
estimate the extent of the increase in voting power that the new shares 
to be issued are likely to obtain based on the percentage of increased 
voting power that existing issued shares have already obtained. The 
Exchange also believes that, for companies that have been listed for a 
shorter period of time, a minimum multiple of two is appropriate 
because the actual Long-Term Voting Factor that these companies would 
have experienced is likely to be lower than that of longer-listed 
companies and may not be representative of the longer-term growth in 
voting power that the new shares may ultimately attain.\175\
---------------------------------------------------------------------------

    \175\ See Notice, supra note 3, at 14091.
---------------------------------------------------------------------------

    The Commission notes that the rationale for the Exchange's proposed 
modification to the shareholder approval calculation is based on the 
unique features of the proposed voting rights structure. The 
traditional shareholder approval calculation assumes that the maximum 
voting rights of any newly issued shares definitely would be reached. 
However, because of the way the Exchange's proposal would work (i.e., 
with the voting rights reverting to their Initial Voting Power upon any 
trade, and accreting voting rights available only for record holders), 
it is difficult to predict what the maximum voting rights of the newly-
issued shares would be. While the proposed formula for modifying the 
calculation of the maximum potential voting power of the newly-issued 
shares may appear reasonable, it is difficult to assess whether it is 
in fact appropriate because there is no available data on the behavior 
of securities subject to the proposed voting structure. The Commission 
notes that the Exchange has represented that, if approved, it would 
periodically assess whether a five year cut-off for applying a minimum 
Long-Term Voting Factor and the minimum Long-Term Voting Factor of two 
continue to be appropriate, or whether either element should be 
modified based on the Exchange's experience with LTSE Listings Issuers. 
For example, the Exchange would consider when the rate of growth of the 
voting power of an LTSE Listings Issuer's shares typically becomes 
relatively stable and at what level.\176\ The Commission believes that 
that these representations by the Exchange are important for ensuring 
that the calculation for shareholder approval is appropriately 
established for LTSE Listings Issuers and that the requirement for 
shareholder approval for required transactions remains robust. In 
addition, the Commission notes that LTSE Listings Issuers would have to 
comply with all the other provisions of the shareholder approval rules 
that require a shareholder vote. For example, an issuance that results 
in a change of control would need to have shareholder approval 
irrespective of whether the issuance exceeded the 20% provision as 
calculated under the LTSE Listings rules.
---------------------------------------------------------------------------

    \176\ See id. at 14091 n.87.
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission finds that the Exchange's 
proposal with regard to the proposed shareholder approval calculation 
is consistent with the Act, particularly Section 6(b)(5) thereunder. 
The Commission notes, however, that in the case of an LTSE Listings 
Issuer whose securities are dually-listed under proposed Rule 14A.210, 
such issuers would be required to comply with the stricter listing 
standard for calculating the requirement for shareholder approval, 
which could be the rule of the other listing exchange.

C. Additional Corporate Governance and Other Requirements

    The Exchange's proposal contains a number of additional corporate 
governance requirements for LTSE Listings issuers, which would be in 
addition to or in lieu of the corporate governance requirements 
contained in Chapter 14 of IEX's rules. The proposed new requirements 
for boards of directors and board committees are designed to align the 
board with the objectives of the LTSE Listings rules.\177\ The proposal 
would require the boards of an LTSE Listings issuer to establish an 
LTSP Committee, which would be dedicated to overseeing the issuer's 
strategies for creating and sustaining long-term growth, and a 
nominating/corporate governance committee. The proposal also would 
require committees, including the audit and compensation committees, to 
report to the board and to make their charters available on the 
issuer's website, and would retain the composition and transparency 
requirements of those committees, if their functions were transferred 
to another committee. LTSE Listings Issuers would be required to 
provide more transparency about their operations, and in particular 
their long-term goals, strategies, and performance, in the form of 
additional disclosures, i.e., the LTSP Disclosures, in an Annual Report 
Supplement. The proposal also would require LTSE Listings Issuers to 
adopt corporate governance guidelines and executive compensation 
guidelines, which would impose certain requirements and restrictions on 
executive compensation that the Exchange believes are measures intended 
to capture the long-term performance of the issuer.
---------------------------------------------------------------------------

    \177\ See id. at 14077.
---------------------------------------------------------------------------

    These additional corporate governance requirements were supported 
by the commenters. Commenters particularly supported the proposed 
increased transparency for investors and the proposed requirements that 
the Exchange has designed with the intent of aligning executive 
compensation with long-term measures of the issuer's performance. The 
Commission finds that the proposed additional corporate governance 
requirements are consistent with the Act, particularly Section 6(b)(5) 
thereunder.

D. Dual Listings

    The Exchange proposes to allow an LTSE Listings Issuer to list a 
class of securities that, in connection with its IPO, has been approved 
for listing on another national securities exchange. The Exchange would 
make an independent determination of whether such issuer satisfies all 
the applicable listing requirements of the Exchange and would require 
such issuer to enter into a dual-listing agreement with the Exchange. 
The Exchange would expect the other national securities exchange to be 
the LTSE Listings Issuer's primary listing market. The proposed rules 
would require prompt notification by the LTSE Listings Issuer if it 
falls below

[[Page 31627]]

the listing standards of the other exchange (and vice versa), and also 
would honor the trade halt authority of Primary Listing Market, as 
designated under the CQ and CTA Plans or the UTP Plan.
    The Commission finds that the proposal to allow dual-listings of 
securities listed on LTSE Listings, which would allow such dual-
listings to occur in connection with the initial public offering of 
those securities, is consistent with the Exchange Act. The Commission 
notes that dually-listed securities of LTSE Listings issuers would need 
to satisfy the listing standards of both exchanges in order to maintain 
both listings, and could not rely on satisfying one exchange's listing 
standards to maintain its listing on the other exchange. The Commission 
also notes that in instances where one exchange has a higher or more 
stringent requirement than the other exchange, the issuer would be 
required to comply with the higher or more stringent requirement. For 
example, as noted above, if an LTSE Listings Issuer's security is also 
listed on another exchange and that other exchange has a more stringent 
requirement for applying its shareholder approval calculation 
requirement, the more stringent requirement of the other exchange would 
be applied to the LTSE Listings issuer. Similarly, if the other 
exchange has a lower requirement or no requirement with respect to a 
corporate governance requirement imposed by the Exchange for an LTSE 
Listings Issuer, such as the LTSP Disclosures requirement, the LTSE 
Listings Issuer would have to comply with the higher standard imposed 
by the Exchange.
    In light of the foregoing, the Commission finds that the Exchange's 
proposal to adopt rules relating to supplemental listing standards for 
LTSE Listings Issuers is consistent with the Act, particularly Section 
6(b)(5) thereunder. The Commission believes that the proposed rules are 
appropriate in that they aim to provide issuers that believe the LTSE 
Listings standards to be better aligned with their objectives, and 
potentially with the governance preferences of their shareholders, with 
the option to comply with certain additional listing requirements, 
which in turn would provide shareholders with the opportunity to 
increase their voting power in the issuer's listed securities.

VI. 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 Amendment No. 1 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2018-06 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-IEX-2018-06. 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 (http://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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2018-06, and should be submitted on 
or before July 27, 2018.

VII. 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. As discussed above, Amendment No. 1 revises 
the proposal to: (1) Clarify in proposed Rule 14A.001(a) that an LTSE 
Listings Issuer must qualify for listing under Chapter 14 of the IEX 
Rules and the LTSE Listings Rules, except as otherwise provided in the 
LTSE Listings Rules; (2) specify in proposed Rule 14A.200(c)(2) that 
when a company lists on LTSE Listings, in addition to the requirement 
that the company must not have any security listed for trading on the 
Exchange or any other national securities exchange, the company also 
must be listing in connection with its initial public offering; (3) add 
paragraph (c) to proposed Rule 14A.210 to provide that if dually-listed 
securities are listed on another national securities exchange that is 
the primary listing market and requires a minimum number of market 
makers, the minimum market maker requirements of IEX Rules 14.310 and 
14.320 would not be applicable to such dually-listed securities; and 
(4) add paragraph (c) to proposed Rule 14A.413 to require each LTSE 
Listings Issuer to prepare and maintain an explanatory statement that 
must be written in plain English, made publicly available, and posted 
prominently on its website and that must describe how the voting power 
of the issuer's securities may increase over time, and the conditions 
and administrative steps necessary for such voting power to increase.
    With respect to not applying the minimum market maker requirements 
of IEX Rules 14.310 and 14.320 when another national securities 
exchange is the Primary Listing Market for the LTSE Listing Issuer's 
dually-listed securities, the Exchange notes that such requirements are 
not necessary if the Primary Listing Market imposes minimum market 
maker requirements. With respect to requiring each LTSE Listings Issuer 
to make an explanatory statement publicly available and posted 
prominently on the issue's website explaining the long-term voting 
provisions, the Exchange believes that the new rule language would help 
ensure that an LTSE Listings Issuer's shareholders would be able to 
easily obtain necessary information about the LTSE Listings Issuer's 
long-term voting structure and how such shareholders, if they so 
choose, may accrue additional voting power over time. With respect to 
the amendments to proposed Rules 14A.001(a) and 14A.200(c)(2), the 
Exchange notes that these are simply conforming and clarifying changes 
to the proposed rule text.
    The Commission believes that Amendment No. 1 would help increase 
transparency by providing clear and easily accessible information to

[[Page 31628]]

shareholders and potential shareholders regarding an LTSE Listings 
Issuer's long-term voting structure and regarding how they can accrue 
additional voting power over time. The Commission also believes that it 
is appropriate for the Exchange to not apply the minimum market maker 
requirements of IEX Rules 14.310 and 14.320 when another national 
securities exchange is the Primary Listing Market for the LTSE Listings 
Issuer's dually-listed securities. The Commission believes that 
Amendment No. 1 does not raise any new or novel regulatory issues, and 
provides additional transparency to investors, further facilitating the 
Commission's ability to make the findings set forth above to approve 
the Exchange's proposed rule change. For these reasons, the Commission 
finds good cause, pursuant to Section 19(b)(2) of the Act,\178\ to 
approve the proposed rule change, as modified by Amendment No. 1, on an 
accelerated basis.
---------------------------------------------------------------------------

    \178\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VIII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\179\ that the proposed rule change (SR-IEX-2018-06), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
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    \179\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\180\
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    \180\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14461 Filed 7-5-18; 8:45 am]
 BILLING CODE 8011-01-P