Document ID: SEC-2018-0530-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2018-04-02T04:00Z

[Federal Register Volume 83, Number 63 (Monday, April 2, 2018)]
[Notices]
[Pages 14074-14096]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-06568]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82948; File No. SR-IEX-2018-06]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Establish a New Optional Listing 
Category on the Exchange, ``LTSE Listings on IEX''

March 27, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on March 15, 2018, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``SEC'' or ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act of 
1934,\4\ and Rule 19b-4 thereunder,\5\ IEX is filing with the 
Commission a proposed rule change to establish a new optional listing 
category on the Exchange, which provides a differentiated choice for 
issuers and investors that prefer listing standards explicitly designed 
to promote long-term value creation. The text of the proposed rule 
change is available at the Exchange's website at www.iextrading.com, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
(1) Overview
    On June 17, 2016, the Commission granted the Exchange's application 
for registration as a national securities exchange under Section 6 of 
the Act,\6\ including approval of rules applicable to the 
qualification, listing and delisting of companies on the Exchange. The 
Exchange has since adopted additional rules to create a listing venue 
to provide a new alternative for companies seeking to list their 
securities for trading on a registered national securities exchange.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ See, e.g., Securities Exchange Act Release No. 80453 (April 
13, 2017), 82 FR 18507 (April 19, 2017); Securities Exchange Act 
Release No. 81316 (August 4, 2017), 82 FR 37474 (August 10, 2017); 
Securities Exchange Act Release No. 80905 (June 12, 2017), 82 FR 
27748 (June 16, 2017).
---------------------------------------------------------------------------

    The Exchange is proposing to adopt rules to facilitate the creation 
of a new optional listing category on the Exchange for common equity 
securities, referred to as the ``LTSE Listings on IEX'' or ``LTSE 
Listings.'' The proposed rules for LTSE Listings, to be contained in 
new Chapter 14A of the Exchange's rules (the ``LTSE Listings Rules''), 
were initially developed by LTSE Holdings, Inc. (together with its 
affiliates, ``LTSE''), and provide a differentiated choice for issuers 
and investors that prefer listing standards explicitly designed to 
promote long-term value creation. The Exchange understands that LTSE 
anticipates separately registering a subsidiary as a national 
securities exchange in the future, but has entered into an arrangement 
with the Exchange in order to make the LTSE Listings Rules available to 
potential interested companies in advance of its own subsidiary's 
registration as a national securities exchange.
    Becoming subject to the LTSE Listings Rules would be an optional 
election. Companies listed on the Exchange that do not elect to be 
subject to the LTSE Listings Rules would not be required to comply with 
Chapter 14A. However, companies that list on LTSE Listings (``LTSE 
Listings Issuers'') would be subject to the LTSE Listings Rules, as 
well as the quantitative listing requirements set forth in IEX Rule 
Series 14.300, and all other applicable listing rules of the Exchange 
set forth in Chapter 14 of the IEX Rulebook, except

[[Page 14075]]

as they may be specifically modified for LTSE Listings Issuers.
    At this time, the Exchange is limiting the availability of LTSE 
Listings to companies seeking to list on LTSE Listings concurrently 
with their initial public offering (whether listing on LTSE Listings 
only or dually listing on LTSE Listings and another national securities 
exchange). The Exchange would not permit issuers already listed on 
another national securities exchange to transfer to LTSE Listings.
    The Exchange believes that the new LTSE Listings category will 
introduce a differentiated choice for issuers and investors that prefer 
listing standards explicitly designed to promote long-term value 
creation, potentially enhancing opportunities for capital formation, as 
well as contributing to greater competition for listings among national 
securities exchanges. At the same time, as LTSE Listings will be an 
entirely optional listing category, the introduction of LTSE Listings 
will not impact companies that elect to list on the Exchange under its 
existing listing rules.
(2) Background
(A) Concerns about Short-Termism in the Markets
    Many academics, commentators, market participants,\8\ as well as 
certain current and former members of the Commission \9\ have voiced 
concerns regarding so-called ``short-termism'' and the risk that some 
investors' focus on short-term results could put pressure on companies 
to sacrifice long-term value creation in order to reach quarterly or 
other short-term expectations.
---------------------------------------------------------------------------

    \8\ See, e.g., McKinsey & Company, McKinsey Global Institute, 
Measuring the Economic Impact of Short-Termism (February 2017), 
available at http://www.mckinsey.com/~/media/mckinsey/
global%20themes/long%20term%20capitalism/
where%20companies%20with%20a%20long%20term%20view%20outperform%20thei
r%20peers/measuring-the-economic-impact-of-short-termism.ashx (``Our 
findings show that companies we classify as `long term' outperform 
their shorter-term peers on a range of key economic and financial 
metrics.''); Aspen Institute, American Prosperity Project (December 
2016), available at https://assets.aspeninstitute.org/content/uploads/2017/01/American-Prosperity-Project_Policy-Framework_FINAL-1.3.17.pdf (``Perverse incentives in our corporate governance system 
undermine the health of capitalism itself. Short-termism is baked 
into our tax system and is evident in the decisions, regulations and 
rules that govern corporations and capital markets. Changes to the 
rules of the game are a necessary step to rebuild the public's trust 
in our economic system.''); Martin Lipton, The New Paradigm (January 
11, 2017), available at http://www.wlrk.com/docs/thenewparadigm.pdf 
(``The economic impact of a short-term myopic approach to managing 
and investing in businesses has become abundantly clear and has been 
generating rising levels of concern across a broad spectrum of 
stakeholders, including corporations, investors, policymakers and 
academics. The proposition that short-term financial activists and 
reactive corporate behavior spur sustainable improvements in 
corporate performance, and thereby systemically increase rather than 
undermine long-term economic prosperity and social welfare, has been 
overwhelmingly disproved by the real world experience of corporate 
decision-makers as well as a growing body of academic research.''); 
Chief Justice Leo Strine, Who Bleeds When the Wolves Bite? A Flesh-
and-Blood Perspective on Hedge Fund Activism and Our Strange 
Corporate Governance System (April 2017), available at https://ssrn.com/abstract=2921901 (``Rather, human investors would see great 
benefit from reforms encouraging the agents responsible for their 
money to adopt the long-term horizon held by their principals, i.e., 
human investors.''); Travis Baratko, A Times-Mirror Conversation 
With Sen. Mark Warner, The Loudoun Times-Mirror (July 27, 2015), 
available at http://www.loudountimes.com/news/article/a_loudoun_times_mirror_conversation_with_sen._mark_warner432 
(quoting Senator Mark Warner as noting that ``[P]eople being 
investors who are only focused on short-termism, too often you can 
squeeze a quarterly profit out at the expense of a long-term value 
proposition.'').
    \9\ See, e.g., Jay Clayton, Hearing before the Senate Banking 
Committee on the Nomination of Jay Clayton, of New York, to be a 
Member of the Securities and Exchange Commission (March 23, 2017), 
available at https://www.gpo.gov/fdsys/pkg/CHRG-115shrg24998/html/CHRG-115shrg24998.htm (``In my experience, certain companies view 
the operational and other pressures inherent in quarterly earnings 
as costly, including because they detract from long-term planning 
and strategic initiatives''); Commissioner Daniel M. Gallagher, 
Activism, Short-Termism, and the SEC: Remarks at the 21st Annual 
Stanford Directors' College (June 23, 2015), available at https://www.sec.gov/news/speech/activism-short-termism-and-the-sec.html 
(``[T]here seems to be a predominance of short-term thinking at the 
expense of long-term investing. Some activists are swooping in, 
making a lot of noise, and demanding one of a number of ways to 
drive a short-term pop in value: spinning off a profitable division, 
beginning a share buy-back program, or slashing capital expenditures 
or research and development expenses.''); Commissioner Kara M. 
Stein, Toward Healthy Companies and a Stronger Economy: Remarks to 
the U.S. Treasury Department's Corporate Women in Finance Symposium 
(April 30, 2015), available at https://www.sec.gov/news/speech/stein-toward-healthy-companies.html (``The heart of the argument is 
that short-term pressures from certain investors, and markets in 
general, compel companies to look narrowly at the short-term. As a 
result, companies become overly focused on meeting quarterly 
earnings targets. . .To meet these demands, companies have to cut 
back on capital expenditures, research and development, workforce 
training, and other investments that lead to new innovation, higher 
productivity, and future growth.'').
---------------------------------------------------------------------------

    Commenters have pointed to the dramatically declining average 
amount of time that an investor holds a stock as evidence of a greater 
short-term focus.\10\ Share turnover data suggests that investors held 
stocks for an average of about eight years in 1960, compared with about 
eight months in 2015.\11\ While a great deal of this turnover may be 
attributable to the growth of high-frequency trading strategies (which 
accounted for about 50% of all U.S. trade volume in 2016),\12\ more 
traditional institutional investors have shown reduced holding periods 
as well. A 2013 survey showed that 96% of institutional investors 
executed round-trip trades that lasted less than one month, with 23% of 
their trading volume relating to trades that are held for less than 
three months.\13\
---------------------------------------------------------------------------

    \10\ See, e.g., Dominic Barton, Capitalism for the Long Term, 
Harvard Business Review (March 2011), available at https://hbr.org/2011/03/capitalism-for-the-long-term; Tragedy of the Horizon 
Project, The Long and Winding Road: How Long-Only Equity Managers 
Turn Over Their Portfolios Every 1.7 Years (February 2017), 
available at http://www.tragedyofthehorizon.com/The-Long-And-Winding-Road.pdf; Martin Cremers, Ankur Pareek and Zacharias 
Sautner, Short-Term Investors, Long-Term Investments, and Firm Value 
(March 14, 2017), available at https://ssrn.com/abstract=2720248; 
Alana Semuels, How to Stop Short-Term Thinking at America's 
Companies, The Atlantic (December 30, 2016), available at https://www.theatlantic.com/business/archive/2016/12/short-term-thinking/511874; Roger L. Martin, Yes, Short-Termism Really is a Problem, 
Harvard Business Review (October 9, 2015), available at https://hbr.org/2015/10/yes-short-termism-really-is-a-problem.
    \11\ New York Stock Exchange, Annual Reported Volume, Turnover 
Rate, Reported Trades (2004), available at http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=table&key=2206&category=4; World Bank, 
Stocks Traded, Turnover Ratio of Domestic Shares (2015), available 
at https://data.worldbank.org/indicator/CM.MKT.TRNR?end=2015&locations=US&start=1975 (hereinafter ``Turnover 
Ratio of Domestic Shares'').
    \12\ Ana Avramovic, Credit Suisse Market Commentary: We're All 
High-Frequency Traders Now (March 15, 2017), available at https://edge.credit-suisse.com/edge/Public/Bulletin/Servefile.aspx?FileID=28410&m=-1290757752.
    \13\ Bidisha Chakrabarty, Pamela C. Moulton and Charles 
Trzcinka, Institutional Holding Periods (April 29, 2013), available 
at https://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=1001&context=conf.
---------------------------------------------------------------------------

    Some commenters believe that current public market dynamics subject 
public companies to intense pressure to meet quarterly performance 
targets, resulting in negative consequences for long-term value 
creation.\14\ One study found that 80% of chief financial officers of 
public companies acknowledge that they would forego long-term value 
creation initiatives like research and development in order to avoid 
missing quarterly targets.\15\ Further, a 2013

[[Page 14076]]

study found that companies projected to just miss their earnings per 
share (``EPS'') forecasts by a few cents are significantly more likely 
to repurchase shares than companies that beat their EPS forecasts by a 
few cents, suggesting efforts to increase EPS through financial 
engineering rather than growth.\16\ At the same time, this study found 
that in the calendar year following repurchases, these same companies 
decreased their number of employees, investment in research and 
development, and capital expenditures, which the study authors found 
suggests that these companies may have been willing to forego 
investment in long-term growth in order to meet short-term financial 
targets.\17\
---------------------------------------------------------------------------

    \14\ McKinsey Global Institute, Measuring the Economic Impact of 
Short-Termism (February 2017), available at http://www.mckinsey.com/
~/media/mckinsey/global%20themes/long%20term%20capitalism/
where%20companies%20with%20a%20long%20term%20view%20outperform%20thei
r%20peers/measuring-the-economic-impact-of-short-termism.ashx. C.f. 
James B. Stewart, Amazon Says Long Term And Means It, N.Y. Times 
(December 16, 2011) (noting Amazon.com's willingness to invest in 
long-term initiatives notwithstanding the impact on its short-term 
quarterly earnings).
    \15\ John R. Graham, Campbell R. Harvey, Shiva Rajgopal, Value 
Destruction and Financial Reporting Decisions (September 6, 2006), 
available at https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/12924/Rajgopal_value.pdf (``80% of survey participants 
report that they would decrease discretionary spending on R&D, 
advertising and maintenance to meet an earnings target'').
    \16\ Heitor Almeida, Vyacheslav Fos, Mathias Kronlund, The Real 
Effects of Share Repurchases (June 8, 2015), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2276156.
    \17\ Id.
---------------------------------------------------------------------------

    The greater focus on short-term financial performance noted by 
these commenters also coincides with a reduction in the number of 
private companies seeking to undertake initial public offerings 
(``IPOs'') and list their shares on the U.S. public markets. From 2001 
through 2016, the U.S. averaged approximately one-third of the IPOs per 
year than it did each year between 1998 and 2000.\18\ Calendar year 
2016 had the fewest number of IPOs since the financial crisis years of 
2008 and 2009,\19\ although there was a relative increase in 2017.\20\ 
The total number of listed companies in the United States also fell by 
almost 50% in the twenty year period from 1996 through 2016, down from 
over 8,000 companies listed on U.S. exchanges in 1996 to 4,333 in June 
of 2016.\21\
---------------------------------------------------------------------------

    \18\ Jay R. Ritter, Initial Public Offerings: Updated Statistics 
(August 8, 2017), available at https://site.warrington.ufl.edu/ritter/files/2017/08/IPOs2016Statistics.pdf.
    \19\ Id.
    \20\ Ernst & Young, Global IPO Trends: Q3 2017 (2017), available 
at http://www.ey.com/Publication/vwLUAssets/ey-global-ipo-trends-q3-
2017/$FILE/ey-global-ipo-trends-q3-2017.pdf (noting 111 IPOs in the 
U.S. through the third quarter of 2017, a 35% increase year-over-
year).
    \21\ See U.S. Dept. of the Treasury, A Financial System that 
Creates Economic Opportunities: Capital Markets at p. 21 (October 
2017), available at https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf.
---------------------------------------------------------------------------

    This decline is driven by fewer companies going public, existing 
public companies going private or merging with other public companies, 
and those companies that undertake an IPO doing so at a much later 
stage. Between 1980 and 2000, companies that went public typically did 
so about 7.6 years after founding.\22\ Since then, that timespan has 
grown longer; between 2001 and 2016, the average age of a company at 
its IPO was nearly 12 years.\23\
---------------------------------------------------------------------------

    \22\ Ritter, supra note 18.
    \23\ Id.
---------------------------------------------------------------------------

    The Exchange believes that these trends have significant 
consequences for companies, investors, and the economy as a whole. A 
2011 report by the IPO Task Force reported that ``up to 22 million jobs 
may have been lost'' as a result of the decline in IPOs.\24\ The trend 
toward companies staying private also limits the investment 
opportunities for ordinary investors,\25\ as most retail investors are 
not ``accredited investors'' eligible to invest in private placements 
pursuant to Rule 506 of Regulation D \26\ under the Securities Act of 
1933.\27\ Although institutional investors may provide the investment 
capital that these companies need, some have voiced concerns that 
private markets lack the transparency, liquidity, price discovery, and 
protections of the public marketplace.\28\
---------------------------------------------------------------------------

    \24\ IPO Task Force, Rebuilding the IPO On-Ramp (October 20, 
2011), available at https://www.sec.gov/info/smallbus/acsec/rebuilding_the_ipo_on-ramp.pdf.
    \25\ See U.S. Dept. of the Treasury, A Financial System that 
Creates Economic Opportunities: Capital Markets at p. 27 (October 
2017), available at https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf (``If a company decides not to go public and instead 
raises capital in the private market or as an exempt offering, it 
could be subject to investor qualification requirements and/or 
offering limitations. This could result in the average investor 
being deprived of an opportunity to consider investing in that 
enterprise.'').
    \26\ 17 CFR 230.506.
    \27\ 15 U.S.C. 77a et seq.
    \28\ Commissioner Kara M. Stein, Lighting our Capital Markets 
(July 11, 2017), available at https://www.sec.gov/news/speech/stein-lighting-our-capital-markets-071117.
---------------------------------------------------------------------------

    Although there are a number of potential causes for the decline in 
the number of IPOs and the number of public companies,\29\ some 
commenters believe that the short-term pressures placed on public 
companies have discouraged some newer companies from conducting initial 
public offerings,\30\ and have led others to go private.\31\ Indeed, 
even when newer companies do undertake an IPO, in recent years many 
have sought to do so in a way that limits the public market's short-
term pressures, by retaining for the founders much of the voting 
control.\32\
---------------------------------------------------------------------------

    \29\ Jay R. Ritter, Xiaohui Gao Bakshi, Zhu, Zhongyan, Where 
Have All the IPOs Gone? (August 26, 2013), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1954788 (hypothesizing 
that economies of scope make it more attractive for companies to 
sell themselves to a larger organization than remain independent); 
Elisabeth de Fontenay, The Deregulation of Private Capital and the 
Decline of the Public Company, Duke Law School Public Law & Legal 
Theory Series No. 2017-33 (April 11, 2017), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2951158 (suggesting that 
the easing of regulation on private securities offerings and 
transactions have decreased the incentive for firms to become 
public); PwC, Considering an IPO? The costs of going and being 
public may surprise you (September 2012), available at http://www.pwc.com/us/en/deals/publications/assets/pwc-cost-of-ipo.pdf 
(discussing cost of initial IPO and remaining public); Michael J. 
Mauboussin, The Incredible Shrinking Universe of Stocks, Credit 
Suisse Global Financial Strategies (March 22, 2017), available at 
https://research-doc.credit-suisse.com/docView?language=ENG&format=PDF&sourceid=em&document_id=1072753661&serialid=h%2B%2FwLdU%2FTIaitAx1rnamfYsPRAuTFRGdTSF4HZIvTkA%3D 
(suggesting causes including regulatory compliance costs, increased 
merger and acquisition activity, and availability of late-stage 
venture capital).
    \30\ Avi Steinlauf, The Case for Staying Private (and Why IPOs 
Are Overrated), Inc., available at https://www.inc.com/avi-steinlauf/why-we-are-staying-private.html (arguing that public 
companies are subject to ``short-term market players [that] have no 
vested long-term interest'' in the company, while ``private 
organizations can preserve their focus on what is truly best for the 
organization's overall success''); Maureen Farrell, America's Roster 
of Public Companies Is Shrinking Before Our Eyes, Wall Street 
Journal (January 6, 2017), available at https://www.wsj.com/articles/americas-roster-of-public-companies-is-shrinking-before-our-eyes-1483545879 (citing University of Michigan Ross School of 
Business professor Jerry Davis, who believes that ``[t]he dangers of 
being a public company are really evident,'' among them, ``having an 
investor base that clamors for short-term stock gains''); Jonathan 
Macey, As IPOs Decline, the Market is Becoming More Elitist, L.A. 
Times (January 10, 2017), available at http://www.latimes.com/opinion/op-ed/la-oe-macey-ipo-democracy-20170110-story.html (Op-Ed 
by professor Macey noting, among other things, that ``[o]ne drawback 
to going public is shareholders' sometimes excessive focus on short-
term stock price fluctuations'').
    \31\ See, e.g., Michael Dell, Going Private is Paying Off for 
Dell, Wall Street Journal (November 24, 2014) (``As a private 
company, Dell now has the freedom to take a long-term view. No more 
pulling R&D and growth investments to make in-quarter numbers . . . 
No more trade-offs between what's best for a short-term return and 
what's best for the long-term success of our customers'').
    \32\ Wall Street Journal Business Blog, The Big Number (August 
17, 2015), available at https://www.wsj.com/articles/the-big-number-1439865699; Ken Bertsch, Snap and the Rise of No-Vote Common Shares, 
Harvard Law School Forum on Corporate Governance and Financial 
Regulation (May 26, 2017), available at https://corpgov.law.harvard.edu/2017/05/26/snap-and-the-rise-of-no-vote-common-shares.
---------------------------------------------------------------------------

(B) Listing Standards for Long-Term Focused Companies and Investors
    The Exchange believes that companies should be able to maintain a 
public listing on an exchange that provides a differentiated choice for 
issuers and investors that prefer listing standards explicitly designed 
to promote long-term value creation. While all companies that may list 
on the Exchange can focus on long-term value creation, providing a 
listing category with listing rules that address some of

[[Page 14077]]

the concerns regarding short-termism could encourage greater 
participation in the public markets by long-term focused companies and 
investors, potentially increasing the number of companies willing to 
become public.
    The Exchange understands that LTSE engaged in a multiyear effort to 
develop the LTSE Listings Rules based on its analysis of academic 
research, market experience, and input from a wide variety of long-term 
focused stakeholders. The LTSE Listings Rules are designed to promote 
the interests of companies that seek to focus on long-term value 
creation as well as the transparency and governance concerns of long-
term focused investors. LTSE's analysis found that, although individual 
stakeholders may favor or disfavor particular LTSE Listings Rules, 
long-term focused companies and investors' concerns with particular 
LTSE Listings Rules were offset by the benefits they saw from the 
package of the LTSE Listings Rules as a whole.
    The Exchange acknowledges that many, if not all, of the proposed 
requirements contained in the LTSE Listings Rules could be undertaken 
voluntarily by any company even in the absence of the LTSE Listings 
category. However, the Exchange understands that many long-term focused 
investors indicated to LTSE that they would view a company that 
affirmatively chose to list on an exchange (or listing category 
thereof) that required compliance with these rules, therefore 
subjecting itself to compliance as a regulatory condition to continued 
listing, as demonstrating a greater commitment to long-term focus than 
one that voluntarily undertook to abide by similar practices, but could 
readily choose to change its practices thereafter. In addition, because 
an exchange, as a self-regulatory organization, is required to monitor 
and enforce compliance with its rules,\33\ the Exchange believes that 
long-term focused investors appreciate and have confidence in the 
oversight that a national securities exchange provides to ensure that a 
company complies with its exchange listing obligations. Similarly, the 
Exchange understands that many long-term focused companies believe that 
they would be better able to withstand short-term pressures if they 
were subject to rules that explicitly required them to disclose actions 
promoting a long-term focus. Further, rather than each company acting 
independently, requiring investors to analyze each company's governance 
separately, investors familiar with LTSE Listings would quickly know 
the rules that apply to an LTSE Listings Issuer.
---------------------------------------------------------------------------

    \33\ See 15 U.S.C. 78s(g)(1)(A).
---------------------------------------------------------------------------

    The Exchange has entered into an arrangement with LTSE to authorize 
the Exchange to make the LTSE Listings Rules available as a listing 
category of the Exchange. Through extensive discussions, LTSE has 
provided the Exchange with background information on the purpose of 
each of the LTSE Listings Rules, with which the Exchange agrees. As a 
result, statements herein that describe the Exchange's belief are 
informed by information provided by LTSE. Although the LTSE Listings 
Rules were developed by LTSE, the Exchange will 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. In 
conducting its LTSE Listings business, IEX will retain, as its agents, 
a small number of staff that also are employed by LTSE (the ``LTSE 
Listings Agents''), but will not receive regulatory services from LTSE 
itself. The sole responsibility of LTSE Listings Agents will be to 
provide IEX with expertise in interpreting the LTSE Listings Rules and 
assistance in conducting the LTSE Listings business, and their 
involvement will not extend to other matters within the Exchange's 
jurisdiction. The LTSE Listings Agents will be subject to the 
Exchange's oversight and regulatory authority as the responsible self-
regulatory organization.\34\
---------------------------------------------------------------------------

    \34\ Notwithstanding the services provided by the LTSE Listings 
Agents to the Exchange, all actions taken by the Exchange will 
ultimately 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. Pursuant to the Exchange's 
retention of LTSE Listings Agents, the LTSE Listings Agents will 
provide certain advisory, marketing, public communications, and 
sales services to IEX in connection with LTSE Listings. For example, 
LTSE Listings Agents will evaluate issuers seeking to list on the 
Exchange under the LTSE Listings Rules and will assist in monitoring 
LTSE Listings Issuers for compliance with the LTSE Listing Rules. 
The Exchange expects that the LTSE Chief Regulatory Officer will be 
a LTSE Listings Agent (and other LTSE regulatory personnel that do 
not have direct involvement in LTSE's commercial operations may also 
be retained by the Exchange to serve as LTSE Listings Agents). At 
all times, LTSE Listings Agents will 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. Separately, the Exchange will 
permit LTSE to use and redistribute written marketing, public 
communications, and sales materials concerning the LTSE Listings 
business, subject to the Exchange's consent (not to be unreasonably 
withheld). Further, the Exchange's arrangement with LTSE Listings 
Agents is subject to important restrictions designed to protect the 
Exchange's responsibilities as a self-regulatory organization and 
the confidentiality of its books and records pertaining thereto. 
First, each LTSE Listings Agent is considered to be an agent of the 
Exchange in connection with performance of services under the 
Exchange's arrangement with LTSE, pursuant to Article XI, Section 4 
of the Amended and Restated Operating Agreement of Investors' 
Exchange LLC. Thus, as appropriate, information pertaining to the 
self-regulatory function of the Exchange may be made available to a 
LTSE Listings Agent to the extent necessary or appropriate to 
properly discharge the self-regulatory responsibilities of the 
Exchange. However, pursuant to the Exchange's arrangement with LTSE, 
the Exchange will 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). Additionally, LTSE has agreed that each LTSE 
Listings Agent will be required to consent in writing to the 
application to them 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.
---------------------------------------------------------------------------

(3) Proposed LTSE Listings Rules
    The proposed LTSE Listings Rules that would apply to LTSE Listings 
Issuers fall into five general categories: (i) 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 long-term shareholder voting 
structure, and (v) certain other rules that further encourage LTSE 
Listings Issuers to focus on long-term value creation. In addition, the 
Exchange is proposing rules that would clarify the application of 
certain existing Exchange rules to LTSE Listings Issuers.
(A) Board of Directors and Committee Requirements
    The proposed LTSE Listings Rules would create new requirements for 
the boards of directors and board committees of LTSE Listings Issuers 
designed to align the board with the objectives of the LTSE Listings 
Rules. Specifically, the LTSE Listings Rules would require each LTSE 
Listings Issuer to establish a board committee dedicated to overseeing 
the issuer's strategies for creating and sustaining long-term growth 
and a committee dedicated to selecting or recommending qualified 
director nominees. The LTSE Listings Rules would also impose

[[Page 14078]]

additional obligations on audit committees and compensation committees 
designed to increase oversight and transparency, among other things. 
These corporate governance requirements are discussed further below.
(i) 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 ``LTSP Committee''). Proposed Rule 14A.405(c)(3) would 
require that an LTSE Listings Issuer adopt a formal written LTSP 
Committee charter (and that the LTSP Committee will review and reassess 
the adequacy of the charter on an annual basis) specifying, among other 
things, the scope of the LTSP Committee's responsibilities, and how it 
will carry out those responsibilities, including structure, processes 
and membership requirements, and that the LTSP Committee must report 
regularly to the board of directors. The requirement to report 
regularly is intended to ensure that the board of directors has insight 
into the LTSP Committee's work and input into the LTSE Listings 
Issuer's strategic objectives.
    Although LTSE Listings Issuers would have some flexibility in 
designing their LTSP Committee, in order to ensure that adequate board 
focus is placed on long-term strategy, proposed Rule 14A.405(c)(4) 
would require that the LTSP Committee include a minimum of three 
members of the board and that a majority of the LTSP Committee members 
be independent. This majority independence requirement is intended to 
mitigate potential conflicts of interest and ensure that outside 
perspectives are brought into discussions and decisions regarding the 
company's long-term strategy.
    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. The Exchange believes that increased transparency 
about the LTSP Committee's functions and policies is in the best 
interest of investors, and companies that hold themselves to a set of 
long-term standards should make such information available. The 
Exchange notes that Item 407 of Regulation S-K \35\ requires that a 
public company's audit, nominating and compensation committee charters 
be either available to security holders on the company's website or as 
an appendix to its proxy or information statement provided to security 
holders at least once every three fiscal years, or if the charter has 
been materially amended since the beginning of the company's last 
fiscal year. The Exchange understands that many long-term focused 
investors expect to be able to readily access corporate governance 
information, such as board committee charters, on a company's website 
rather than by searching through a company's SEC filings, and 
accordingly the Exchange believes that it is appropriate to explicitly 
impose this requirement.
---------------------------------------------------------------------------

    \35\ 17 CFR 229.407.
---------------------------------------------------------------------------

    Proposed Rule 14A.405(c)(2) would provide LTSE Listings Issuers 
with additional flexibility by permitting the board of directors to 
allocate the LTSP Committee's responsibilities to committees of their 
own denomination, provided that the committee (i) is subject to a 
formal written charter that satisfies the requirements of proposed Rule 
14A.405(c)(3), including that such committee report regularly to the 
board of directors, and (ii) complies with the committee composition 
requirements set forth in proposed Rule 14A.405(c)(4). However, 
proposed Rule 14A.405(c)(1) would prohibit the LTSP Committee from 
assuming any roles or responsibilities that are required to be 
undertaken by an LTSE Listings Issuer's independent board committees, 
since the LTSP Committee is not required to be composed of all 
independent directors.
(ii) Nominating/Corporate Governance Committee
    IEX Rule 14.405(e)(1)(A) requires that director nominees may be 
selected (or recommended for selection by the board of directors) by 
either independent directors constituting a majority of the board's 
independent directors or a nominations committee compromised solely of 
independent directors. With respect to LTSE Listings Issuers, proposed 
Rule 14A.405(d)(1) would require that director nominees must be 
selected (or recommended for selection by the board of directors) by a 
nominating/corporate governance committee comprised solely of 
independent directors, rather than independent directors constituting a 
majority of the board's independent directors. The Exchange believes 
that, in view of the differentiated focus of the LTSE Listings 
category, requiring LTSE Listings Issuers to maintain a separate, 
independent nominating/corporate governance committee would better 
facilitate selection of directors that are aligned with such focus. In 
addition, another national securities exchange has a substantially 
similar requirement, requiring that listed companies select director 
nominees through a separate nominating committee composed entirely of 
independent directors.\36\
---------------------------------------------------------------------------

    \36\ See NYSE Listed Company Manual, Rule 303A.04.
---------------------------------------------------------------------------

    Notwithstanding the requirement that the nominating/corporate 
governance committee be comprised solely of independent directors, 
proposed Rule 14A.405(d)(2) would provide that the nominating/corporate 
governance committee may include a non-independent director if the 
board, under exceptional and limited circumstances, determines that 
such individual's membership on the committee is required by the best 
interests of an LTSE Listings Issuer and its shareholders and certain 
other conditions are satisfied. In addition, proposed Rule 
14A.405(d)(3) would provide that exclusively independent director 
oversight of director nominations shall not be required in cases where 
the right to nominate a director legally belongs to a third party; 
provided that an LTSE Listings Issuer would still be obligated to 
comply with all committee composition requirements. These limited 
exceptions are consistent with exceptions contained in the Exchange's 
corresponding rules for companies other than LTSE Listings Issuers.\37\
---------------------------------------------------------------------------

    \37\ See IEX Rules 14.405(e)(3) and (4).
---------------------------------------------------------------------------

    IEX Rule 14.405(e)(5) provides that the requirements regarding 
director nominations set forth in IEX Rule 14.405 do not apply if the 
issuer is subject to a binding obligation that requires a director 
nomination structure inconsistent with IEX Rule 14.405 and such 
obligation pre-dates the approval of IEX Rule 14.405. Proposed Rule 
14A.405(d)(4), however, would provide that LTSE Listings Issuers may 
not rely on this exception. The Exchange believes that this provision, 
which would permit a nomination process and board composition based on 
a pre-existing obligation that pre-dates when the IEX rules were 
approved, is inconsistent with the goal of allowing longer-term 
shareholders to gain voting rights over time and the flexibility is 
unnecessary given that the required timing for the pre-existing 
obligation is so limited.
    Proposed Rule 14A.405(d)(6)(A) would require that each LTSE 
Listings Issuer adopt a formal written nominating/corporate governance 
committee charter (and that the nominating/corporate governance 
committee review and reassess the adequacy of the formal written 
charter

[[Page 14079]]

on an annual basis) specifying, among other things, the scope of the 
nominating/corporate governance committee's responsibilities, and how 
it will carry out those responsibilities, including structure, 
processes and membership requirements, and that the nominating/
corporate governance committee must report regularly to the board of 
directors. The explicit requirement to report regularly is intended to 
ensure that the board of directors has insight into the nominating/
corporate governance committee's work.
    Proposed Rule 14A.405(d)(6)(B) would require that the nominating/
corporate governance committee's charter be made available on or 
through an LTSE Listings Issuer's website. The Exchange believes that 
increased transparency about the nominating/corporate governance 
committee's functions and policies is in the best interest of long-term 
investors, and companies that hold themselves to a set of long-term 
standards should make such information available. The Exchange notes 
that Item 407 of Regulation S-K \38\ requires that a public company's 
nominating committee charter be either available to security holders on 
the company's website or as an appendix to its proxy or information 
statement provided to security holders at least once every three fiscal 
years, or if the charter has been materially amended since the 
beginning of the company's last fiscal year. The Exchange understands 
that many long-term focused investors expect to be able to readily 
access corporate governance information, such as board committee 
charters, on a company's website rather than by searching through a 
company's SEC filings, and accordingly the Exchange believes that it is 
appropriate to explicitly impose this requirement.
---------------------------------------------------------------------------

    \38\ 17 CFR 229.407.
---------------------------------------------------------------------------

    Proposed Rule 14A.405(d)(5) would provide LTSE Listings Issuers 
additional flexibility by permitting the board of directors to allocate 
the nominating/corporate governance committee's responsibilities to 
committees of their own denomination, provided that the committee is 
comprised entirely of independent directors and that such committee is 
subject to a formal written charter that satisfies the requirements of 
proposed Rule 14A.405(d)(6), including that such committee report 
regularly to the board of directors.
(iii) Additional Audit Committee and Compensation Committee 
Requirements
    As is the case with all issuers listed on the Exchange, LTSE 
Listings Issuers are required to comply with the audit committee and 
compensation committee requirements set forth in IEX Rules 14.405(c) 
and (d). LTSE Listings Issuers, however, would additionally be required 
to comply with audit committee and compensation committee requirements 
set forth in proposed Rule 14A.405.
    Specifically, under proposed Rules 14A.405(a) and 14A.405(b)(2), 
the audit committee and compensation committee charters must specify 
that each committee will report regularly to the board of directors. 
While the Exchange believes that it is inherent in any public company's 
board and committee organizational structure that board committees 
report regularly to the board, in view of the focus of the LTSE 
Listings category, the Exchange also believes it is appropriate to make 
this requirement explicit for LTSE Listings Issuers. In addition, the 
charters of each of the audit committee and compensation committee must 
be made available on or through an LTSE Listings Issuer's website. The 
Exchange notes that Item 407 of Regulation S-K \39\ under the 
Securities Act of 1933 \40\ requires that a public company's audit and 
compensation committee charters be either available to security holders 
on the company's website or as an appendix to its proxy or information 
statement provided to security holders at least once every three fiscal 
years, or if the charter has been materially amended since the 
beginning of the company's last fiscal year. The Exchange understands 
that many long-term focused investors expect to be able to readily 
access corporate governance information, such as board committee 
charters, on a company's website rather than by searching through a 
company's SEC filings, and accordingly the Exchange believes that it is 
appropriate to explicitly impose this requirement. The Exchange further 
notes that another national securities exchange requires companies 
listed on their exchange to meet similar requirements with respect to 
their audit committee and compensation committee.\41\
---------------------------------------------------------------------------

    \39\ 17 CFR 229.407.
    \40\ 15 U.S.C. 77a et seq.
    \41\ See NYSE Listed Company Manual, Rules 303A.05(b) and 
303A.07(b).
---------------------------------------------------------------------------

    In addition to the foregoing charter requirements, proposed Rule 
14A.405(b)(2)(A)(ii) would require that the compensation committee 
charter specify that the compensation committee must adopt executive 
compensation guidelines. Proposed requirements with respect to 
executive compensation guidelines are described under ``Long-Term 
Alignment of Executive Compensation'' below. Proposed Rule 
14A.405(b)(1) would provide LTSE Listings Issuers additional 
flexibility by permitting the board of directors to allocate the 
compensation committee's responsibilities to committees of their own 
denomination, provided that the committee is comprised entirely of 
independent directors and that such committee is subject to a formal 
written charter that satisfies the requirements of IEX Rule 
14.405(d)(1) and proposed Rule 14A.405(b)(2), including that such 
committee report regularly to the board of directors.
(iv) Corporate Governance Guidelines
    Pursuant to proposed Rule 14A.409, each LTSE Listings Issuer would 
be required to adopt and disclose corporate governance guidelines. 
These corporate governance guidelines would be required to address 
director qualification standards, director responsibilities, director 
access to management, and director orientation and continuing 
education, among other things. In view of the differentiated focus of 
the LTSE Listings category, the Exchange believes that increased 
disclosure about the company's approach to corporate governance through 
the adoption and disclosure of corporate governance guidelines is 
appropriate for LTSE Listings Issuers. In addition, the Exchange notes 
that the proposed corporate governance guideline requirements are 
similar to the requirements imposed by the listing rules of another 
national securities exchange.\42\
---------------------------------------------------------------------------

    \42\ See NYSE Listed Company Manual, Rule 303A.09.
---------------------------------------------------------------------------

    Although proposed Rule 14A.409 would generally track the New York 
Stock Exchange's (``NYSE'') corporate governance guidelines 
requirements, the LTSE Listings Rules would deviate from these 
requirements in certain respects. Specifically, proposed Rule 
14A.409(a)(4) would require that a significant portion--no less than 
40%--of director compensation be paid in stock-based compensation tied 
to long-term periods. An LTSE Listings Issuer would be required to 
disclose in its corporate governance guidelines what it considers to be 
``long-term'' for this purpose. In addition, this proposed rule would 
require that LTSE Listings Issuers adopt director stock ownership 
guidelines, which must include minimum ownership requirements that can 
be met over the length of board service. These provisions are designed 
to ensure that LTSE Listings Issuers

[[Page 14080]]

incentivize directors to focus on the long-term, but also provide LTSE 
Listings Issuers with flexibility to design their own plans for 
director compensation. In addition, the Exchange does not believe that 
these requirements would impose a significant burden on LTSE Listings 
Issuers, as the Exchange believes that issuers have already trended 
toward having equity represent a large portion of director 
compensation.\43\ Proposed Rule 14A.409(a)(4) would also provide that 
LTSE Listings Issuers consider other means of aligning director 
compensation with long-term strategies, including deferred share 
delivery, vesting periods or similar measures.
---------------------------------------------------------------------------

    \43\ See Yaron Nili, Trends in Board of Director Compensation, 
HLS Forum on Corporate Governance and Financial Regulation (April 
13, 2015), available at https://corpgov.law.harvard.edu/2015/04/13/trends-in-board-of-director-compensation.
---------------------------------------------------------------------------

(B) Long-Term Strategy and Product Disclosures
    The Exchange understands that LTSE's analysis indicated that long-
term investors generally value information regarding a company's long-
term plans and objectives, that may not otherwise be required to be 
disclosed. In particular, this information could (i) provide long-term 
investors with greater information upon which to evaluate a company's 
progress toward long-term goals and (ii) allow companies to be 
evaluated based on whether they are making prudent management and 
strategic decisions that investors believe enhance long-term growth. 
The proposed LTSE Listings Rules would therefore require--in addition 
to and separate from all disclosures required under applicable 
securities laws, the Commission's rules and the Exchange's other 
rules--that LTSE Listings Issuers provide certain supplemental 
disclosures regarding an LTSE Listings Issuer's long-term strategy and 
products (the ``LTSP Disclosures'').\44\ The LTSP Disclosure 
requirements are supplemental to and would not supersede or impact 
other disclosure obligations. The LTSP Disclosures would be subject to 
all securities law requirements just as other public company 
disclosures. Proposed Rule 14A.207(a) would remind LTSE Listings 
Issuers that all disclosures must comply with applicable law and 
Commission rules and regulations, 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.
---------------------------------------------------------------------------

    \44\ An LTSE Listings Issuer would be required to include its 
LTSP Disclosures in its Annual Report Supplement. See infra Section 
II.A.1.(3)(B)(v) (Location and Manner of LTSP Disclosures).
---------------------------------------------------------------------------

(i) Disclosure of Long-Term Growth Strategy
    Proposed Rule 14A.207(c) would require each LTSE Listings Issuer to 
include in its LTSP Disclosures a discussion of the company's ``Long-
Term Growth Strategy.'' Long-Term Growth Strategy would be defined for 
these purposes 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.'' \45\ This 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. By 
disclosing a Long-Term Growth Strategy, managers have the opportunity 
to explain to shareholders the long-term goals and objectives specific 
to their company, and then be held responsible for achieving those 
objectives. While the disclosure of the Long-Term Growth Strategy must 
include the information described below, an LTSE Listings Issuer is 
otherwise free to design its Long-Term Growth Strategy with the 
explicit oversight and approval of its LTSP Committee.
---------------------------------------------------------------------------

    \45\ See proposed Rule 14A.002(a)(11).
---------------------------------------------------------------------------

    Proposed Rule 14A.207(c)(1)(A) would require that each Long-Term 
Growth Strategy disclosure describe how the LTSE Listings Issuer 
defines ``long-term'' for purposes of its Long-Term Growth Strategy and 
how it made this determination.\46\ Under proposed Rule 
14A.207(c)(1)(B), LTSE Listings Issuers would be required to include in 
the Long-Term Growth Strategy disclosure a discussion of the ``Leading 
Indicators'' that the company uses to measure its progress toward its 
long-term goals. ``Leading Indicators'' are defined as those 
quantitative metrics, either financial or non-financial, that an LTSE 
Listings Issuer's management uses to help it forecast revenue, profit, 
or other common after-the-event measures of long-term success.\47\ By 
way of example, a biotech company may use as a Leading Indicator the 
number of patents it has obtained. A media company, on the other hand, 
may prefer to use as a Leading Indicator the number of page views or ad 
clicks its website has received.
---------------------------------------------------------------------------

    \46\ The Exchange understands that LTSE Listings Issuers in 
different industries may have different definitions of ``long-
term.'' For example, a pharmaceutical company that must spend years 
researching and testing the efficacy of a proposed new drug may have 
a much longer definition of ``long-term'' than a clothing retailer.
    \47\ See proposed Rule 14A.002(a)(10).
---------------------------------------------------------------------------

    LTSE Listings Issuers must also discuss key milestones that the 
LTSE Listings Issuer aims to achieve with respect to its Leading 
Indicators and must report on the progress the LTSE Listings Issuer has 
made in achieving these key milestones. The LTSP Disclosures require 
use of Leading Indicators and key milestones so that companies may 
define and share with investors those long-term metrics that the 
company itself views as critical to measuring its success, providing 
investors insight into the company's internal analysis and allowing 
investors to consider the company's progress towards these long-term 
goals.
    Proposed Rule 14A.207(c)(1)(C) would require that each Long-Term 
Growth Strategy disclosure include a discussion of any changes to an 
LTSE Listings Issuer's Long-Term Growth Strategy since its last 
publication, including changes to Leading Indicators and/or key 
milestones. An LTSE Listings Issuer's Long-Term Growth Strategy may 
evolve as its business develops and new goals are created or changed. 
This disclosure requirement would provide greater transparency by 
ensuring that long-term investors are made aware of any such changes to 
the issuer's Long-Term Growth Strategy and are able to measure an LTSE 
Listings Issuer's progress toward these goals.
    Pursuant to proposed Rule 14A.207(c)(2), 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. The purpose of this proposed rule is to account for the fact 
that issuers may have diverse businesses with different strategic 
objectives. For example, a company may operate in multiple industries 
or have products tailored to different markets. This rule requires LTSE 
Listings Issuers to provide information relating to different 
strategies if such information is material to the broader long-term 
strategy.
    While transparency into long-term strategy is an important goal and 
critical for long-term focused investors, in certain situations the 
Exchange understands that public disclosure of this information could 
risk competitive harm to the company. In these limited situations, 
proposed Rule 14A.207(c)(3) would provide an exemption. Specifically, 
if an LTSE Listings Issuer's LTSP Committee makes a determination that 
disclosure of any aspect of the LTSE Listings Issuer's Long-Term

[[Page 14081]]

Growth Strategy would be ``reasonably likely to result in material 
harm'' to the company's competitive position, the LTSE Listings Issuer 
could exclude such information from its LTSP Disclosures, so long as 
the LTSE Listings Issuer complies with all applicable securities 
laws.\48\ Any such determination would be required to be documented by 
the LTSP Committee and made in accordance with its fiduciary duties. In 
addition, proposed Rule 14A.405(c)(3)(B)(iv) would require that an LTSE 
Listings Issuer's LTSP Committee develop and disclose in its charter a 
process for making this determination and for determining that 
withholding the disclosure would not contravene any applicable 
securities laws. In order to ensure that investors are aware that the 
LTSP Disclosures of an LTSE Listings Issuer relying on this exemption 
are incomplete, proposed Rule 14A.207(c)(3) would require that such an 
LTSE Listings Issuer disclose in its LTSP Disclosures that it is 
withholding certain information as a result of competitive concerns. To 
ensure that investors have the opportunity to assess the judgment of 
the LTSP Committee regarding the withholding of competitive 
information, upon the time that any withheld information is no longer 
competitively sensitive, proposed Rule 14A.207(c)(3) would require that 
an LTSE Listings Issuer disclose that information in its LTSP 
Disclosures, even though this information may no longer be relevant to 
its current Long-Term Growth Strategy.
---------------------------------------------------------------------------

    \48\ This proposed requirement has the same objective as 
Instruction 4 of Item 402(b) of Regulation S-K, which provides that 
an SEC reporting company is not required to disclose in SEC filings 
certain information regarding compensation ``involving confidential 
trade secrets or confidential commercial or financial information, 
the disclosure of which would result in competitive harm for the 
registrant.'' See also Question 118.04 of Regulation S-K Questions 
and Answers of General Applicability (September 21, 2017), available 
at https://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm.
---------------------------------------------------------------------------

(ii) Disclosure Related to Buybacks
    As noted above,\49\ particular concern has been raised regarding 
the risk that some companies pressured to meet short-term goals may 
spend cash to repurchase their own shares rather than on making long-
term investments. As a result, the Exchange believes that some long-
term investors are particularly interested in enhanced disclosure 
regarding companies' share repurchase activity. Proposed Rule 
14A.207(d) would therefore require that each LTSE Listings Issuer 
disclose certain information relating to ``Buybacks'' or issuer 
repurchases in addition to those required to be disclosed pursuant to 
Item 703 of Regulation S-K \50\ under the Securities Act of 1933.\51\ 
Specifically, under proposed Rule 14A.207(d) each LTSE Listings Issuer 
would be required to disclose in its LTSP Disclosures its ``EPS Net of 
Buybacks,'' defined in proposed LTSE Listings Rule 14A.002(a)(6) 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. This disclosure 
requirement is designed to provide investors with transparency into the 
impact of Buybacks on a company earnings per share for any particular 
period, i.e., by indicating what the company's earnings-per-share would 
have been had the company not engaged in repurchases.
---------------------------------------------------------------------------

    \49\ See supra notes 16-17 and accompanying text.
    \50\ 17 CFR 229.703.
    \51\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------

(iii) Disclosure Related to Human Capital Investment
    Proposed Rule 14A.207(e) would require that each LTSE Listings 
Issuer disclose in its LTSP Disclosures the extent to which the LTSE 
Listings Issuer's selling, general and administrative expenses 
(``SG&A'') (as reported in the LTSE Listings Issuer's most recent 
Annual Report) \52\ consisted of ``Human Capital Investment.'' For 
these purposes, ``Human Capital Investment'' refers to the aggregate 
amount an LTSE Listings Issuer spends on formal training of workers in 
new skills to improve job performance, including, among other things, 
fees or expenses related to personnel hired or retained to train 
employees, training materials, tuition assistance and continuing 
education or similar programs.
---------------------------------------------------------------------------

    \52\ ``Annual Report'' is defined in Proposed Rule 14A.002(a)(1) 
as ``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.''
---------------------------------------------------------------------------

    Each LTSE Listings Issuer must also disclose the amount spent on 
Human Capital Investment per full-time equivalent employee. The 
Exchange understands that long-term investors generally are interested 
in this metric, and the disclosure requirement is thus designed to 
enable long-term investors to conduct a comparative analysis of Human 
Capital Investment per employee across LTSE Listings Issuers of 
different sizes.
    The costs related to Human Capital Investment are generally 
accounted for within SG&A, and therefore considered an expense rather 
than an investment. The Exchange understands that long-term focused 
investors and companies believe that it is in the long-term interest of 
companies to make investments in their workforce to retain them and 
improve their skills. Although, as an accounting matter, these may be 
viewed as a short-term costs, the Exchange believes that long-term 
focused investors value information regarding the extent to which 
companies are making investments in the long-term development and 
success of its employees.
(iv) Disclosure Related to Research and Development
    The Exchange understands that investments in research and 
development (``R&D'') are generally considered long-term investments 
for companies. LTSE's analysis indicated that additional data on R&D 
investment is particularly sought after by long-term focused investors. 
Therefore, proposed Rule 14A.207(f) would require that each LTSE 
Listings Issuer disclose in its LTSP Disclosures the amount of R&D 
spending that is short-term focused and the amount that is long-term 
focused. This requirement is intended to provide investors with greater 
transparency into an LTSE Listings Issuer's planning and goals around 
R&D programs, particularly in light of the risk that a company may 
under-invest in R&D in order to meet shorter-term financial metrics. 
Because each company and industry differs in its definition of long-
term and short-term time horizons, proposed Rule 14A.207(f) provides 
flexibility by allowing LTSE Listings Issuers to determine their own 
definitions of short-term and long-term R&D programs, provided that an 
LTSE Listings Issuer disclose the definitions used and the process by 
which they determined them.
(v) Location and Manner of LTSP Disclosures
    Proposed Rule 14A.207(b) would require an LTSE Listings Issuer to 
make its LTSP Disclosures publicly available pursuant to a supplement 
to the LTSE Listings Issuer's Annual Report (an ``Annual Report 
Supplement''). The Annual Report Supplement must be distributed to 
shareholders along with, and in the same manner as, the LTSE Listings 
Issuer's Annual Report. In addition, an LTSE Listings Issuer would

[[Page 14082]]

be required to make the Annual Report Supplement available on or 
through its website and include a statement in its Annual Report that 
the LTSP Disclosures are available in the Annual Report Supplement and 
provide the website address. These requirements are designed to 
facilitate transparency and ensure that shareholders are aware of and 
able to access an LTSE Listings Issuer's LTSP Disclosures. LTSE 
Listings Issuers would also be required to notify IEX Regulation \53\ 
once its Annual Report Supplement has been made publicly available on 
its website. This requirement is designed to help the Exchange monitor 
for compliance with the LTSP Disclosure requirements.
---------------------------------------------------------------------------

    \53\ IEX Regulation is the department of the Exchange or 
designated employees of the Exchange that supervise, administer, or 
perform the regulatory functions of the Exchange, including the 
administration of any regulatory services agreements with another 
self-regulatory organization to which the Exchange is a party. See 
IEX Rule 1.160(q).
---------------------------------------------------------------------------

(vi) Review by LTSP Committee
    Pursuant to proposed Rule 14A.207(b), the LTSP Disclosures would be 
required to be reviewed and approved by the LTSP Committee on at least 
an annual basis. Based on its review, the LTSP Committee must determine 
whether to recommend to the board of directors that the LTSP 
Disclosures be included in the Annual Report Supplement.\54\ Any board 
and committee approvals should be reflected in board resolutions as 
appropriate. This requirement is intended to increase alignment between 
board members and company managers on the company's long-term focus and 
helps to ensure that adequate board focus is placed on long-term 
strategy.
---------------------------------------------------------------------------

    \54\ This proposed requirement is modeled after the audit 
committee paradigm in Regulation S-K, which requires the audit 
committee to state whether it recommends to the board of directors 
that the audited financial statements be included in the annual 
report on Form 10-K. See 17 CFR 229.407(d)(3)(i)(D).
---------------------------------------------------------------------------

(vii) Disclosures Upon Initial Listing
    As described above, an LTSE Listings Issuer would be required to 
include its LTSP Disclosures in its Annual Report Supplement. However, 
a newly public LTSE Listings Issuer may not provide its Annual Report 
Supplement to shareholders until months after its initial public 
offering. Therefore, to ensure that shareholders obtain information on 
a timely basis, the LTSE Listings Rules would include transitional 
disclosure provisions for newly listed issuers. Specifically, proposed 
Rule 14A.207(g)(1) would provide that, no later than at the time of its 
initial listing, an LTSE Listings Issuer must make the disclosure 
required by proposed Rule 14A.207(c)(1) (Disclosure of Long-Term Growth 
Strategy) publicly available on its website. Such disclosure must be 
made in compliance with applicable rules and regulations relating to 
the dissemination of free writing prospectuses. After its initial 
listing, an LTSE Listings Issuer would provide this disclosure in its 
Annual Report Supplement, as described above. Similarly, proposed Rule 
14A.207(g)(2) would provide that, after initial listing, an LTSE 
Listings Issuer must make the disclosures required by proposed Rule 
14A.207(d) (Disclosure Related to Buybacks), Rule 14A.207(e) 
(Disclosure Related to Human Capital Investment) and Rule 14A.207(f) 
(Disclosure Related to Research and Development) publicly available on 
its website by the earlier of when the company files its next Form 10-K 
or Annual Report Supplement.\55\ After its initial listing, an LTSE 
Listings Issuer would provide this disclosure in its Annual Report 
Supplement, as described above.
---------------------------------------------------------------------------

    \55\ The disclosures are required to be made the ``earlier of'' 
when a company files a Form 10-K or Annual Report Supplement to 
account for the fact that, for an IPO company, a 10-K filing may 
significantly precede the first annual meeting.
---------------------------------------------------------------------------

(C) Long-Term Alignment of Executive Compensation
    The Exchange believes that long-term focused companies seek to 
align the compensation of their Executive Officers \56\ with the long-
term performance of the company, while excessively short-term 
compensation instruments could promote incentives that are not aligned 
with long-term performance. Proposed Rule 14A.405(b)(3) would therefore 
require that an LTSE Listings Issuer's compensation committee adopt a 
set of executive compensation guidelines applicable to Executive 
Officers that are designed to link executive compensation to the long-
term value of the LTSE Listings Issuer. The compensation committee 
would be required to include in the executive compensation guidelines 
general principles for determining the form and amount of Executive 
Officer compensation (and for reviewing those principles, as 
appropriate). In addition, the executive compensation guidelines would 
be required to be consistent with certain minimum standards described 
below. These requirements are intended to ensure that LTSE Listings 
Issuers design their executive compensation plans in accordance with 
specified long-term parameters, but also provide sufficient flexibility 
to allow such issuers to remain competitive in crafting individual 
compensation packages.
---------------------------------------------------------------------------

    \56\ IEX Rule 14.405(a)(1) defines ``Executive Officer'' for 
these purposes as persons meeting the definition of ``officer'' 
under Rule 16a-1(f) under the Act.
---------------------------------------------------------------------------

(i) Consistency With Long-Term Growth Strategy
    Proposed Rule 14A.405(b)(3)(A) would require that the compensation 
committee ensure that the time periods and performance metrics used to 
determine Incentive-Based Compensation \57\ for Executive Officers are 
consistent with an LTSE Listings Issuer's Long-Term Growth Strategy. 
Since the members of the LTSP Committee would be the directors with the 
greatest involvement in the LTSE Listings Issuer's Long-Term Growth 
Strategy, the compensation committee 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.
---------------------------------------------------------------------------

    \57\ Pursuant to proposed Rule 14A.002(a)(8), Incentive-Based 
Compensation would be defined as ``any variable compensation, fees, 
or benefits that serve as an incentive or reward for performance.''
---------------------------------------------------------------------------

    In addition, an LTSE Listings Issuer would be required to disclose 
in its proxy statement or, if no proxy statement is filed, its Annual 
Report Supplement, whether or not the compensation committee has 
determined that the time periods and performance metrics used to 
determine Incentive-Based Compensation for Executive Officers are 
consistent with LTSE Listings Issuer's Long-Term Growth Strategy.
(ii) Long-Term Compensation and Vesting Periods
    Proposed Rule 14A.405(b)(3)(B)(i) would prohibit an LTSE Listings 
Issuer from providing 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). By requiring Incentive-Based Compensation and time-based 
equity compensation to be tied to time periods of at least one year, 
the LTSE Listings Rules are designed to require that LTSE Listings 
Issuers avoid creating potential incentives to manage for short-term 
results, encouraging management to focus on longer-term time horizons.
    Proposed Rule 14A.405(b)(3)(B)(ii) would require that equity 
compensation awarded to Executive Officers vest over a period (the 
``Vesting Period'') of at

[[Page 14083]]

least five years. This minimum five-year Vesting Period is intended to 
ensure that executive compensation is tied to long-term company 
performance. In addition, while LTSE Listings Issuers would have 
flexibility in determining the specific vesting schedule within the 
Vesting Period (i.e., the percentage of total equity compensation 
vested per year), the vesting schedule would be required to reflect the 
long-term focus of the equity grant. For example, a ten-year vesting 
schedule that vested 90% of the total equity compensation in the first 
year would not be consistent with a long-term focus.
    The Exchange understands, however, that there may be certain 
situations in which accelerated vesting would be appropriate and would 
not undermine the underlying purpose of this provision. As a result, 
proposed Rule 14A.405(b)(3)(B)(ii) would allow for accelerated vesting 
upon the death of an Executive Officer or the occurrence of a 
disability that renders an Executive Officer permanently unable to 
remain employed at the LTSE Listings Issuer in any capacity. Whether to 
adopt exceptions of this type would be left to the discretion of the 
LTSE Listings Issuer and would be required to be outlined in the 
agreement providing the equity grant.
    While the LTSE Listings Rules seek to maintain a long-term focus in 
compensation, there may be exceptional circumstances in which the 
payment of shorter-term Incentive-Based Compensation or shorter-term 
Vesting Periods are consistent with this focus and may be required for 
specific business purposes. Therefore, proposed Rule 
14A.405(b)(3)(B)(iii) would provide that 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 in the LTSE Listings Issuer's 
proxy statement, or if the LTSE Listings Issuer does not file a proxy 
statement, in the LTSE Listings Issuer's Annual Report Supplement. To 
ensure that this exception remains limited, the rule would also 
prohibit 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, from exceeding 5% of the 
total number of shares authorized for grant in any fiscal year.
    Proposed Rule 14A.405(b)(3)(B)(iv) would provide that 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. Such Vesting Periods and amounts would also 
be required to be consistent with the requirements set forth in 
proposed Rule 14A.405(b)(3)(B)(ii) described above. The compensation 
provisions of the LTSE Listings Rules are premised on the idea that 
Executive Officers having financial interests in the long-term 
performance of the company--even after their departure from the 
company--will have a greater incentive to conduct business with long-
term performance in mind and to undertake efforts for effective 
succession and departure planning. The Exchange understands that 
business needs and market practice may vary for different companies in 
different industries and sectors. Therefore, the specific schedule for 
vesting and holding is left for determination by the individual LTSE 
Listings Issuer, but each LTSE Listings Issuer is required to provide 
such a schedule to promote these underlying purposes.
(iii) Exemption for Existing Agreements Prior to Listing
    The Exchange appreciates that an issuer may have entered into 
compensation arrangements prior to deciding whether to list on LTSE 
Listings and recognizes that it may impose an undue burden on such 
companies if they were required to unwind executive compensation plans 
that have been in effect for an extended period of time in order to 
list on LTSE Listings. Therefore, proposed Rule 14A.405(b)(3)(C) would 
provide an exemption from the executive compensation requirements 
contained in the LTSE Listings Rules for 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. The proposed exemption for preexisting compensation 
arrangements contains a one-year look-back period that is designed to 
assure that the exempted compensation arrangements were bona fide 
preexisting arrangements, and not entered into shortly before applying 
for listing on LTSE Listings in order to avoid the restrictions 
contained in the LTSE Listings Rules. In addition, the use of this 
exemption must be disclosed in the Annual Report Supplement.
(iv) Smaller Reporting Companies
    IEX Rule 14.405(d)(5) exempts ``Smaller Reporting Companies,'' as 
defined in Rule 12b-2 under the Act,\58\ from certain compensation 
committee requirements. Notwithstanding these exemptions that otherwise 
apply to companies listed on the Exchange, proposed Rule 14A.405(b)(4) 
would provide that an LTSE Listings Issuer that is a Smaller Reporting 
Company must adopt the executive compensation guidelines described 
above. In addition, such an issuer would be required to certify that it 
has adopted a formal written compensation committee charter or board 
resolution that specifies the additional compensation committee charter 
requirements for LTSE Listings Issuers--that the compensation committee 
must report regularly to the board of directors and adopt executive 
compensation guidelines in accordance with proposed Rule 14A.405(b)(2). 
The Exchange believes that, notwithstanding that Smaller Reporting 
Companies may have less resources than other issuers, these 
compensation committee requirements are an important feature of the 
LTSE Listings Rules and are a key part of the differentiated choice 
provided by the LTSE Listings category that long-term focused investors 
find important, and that accordingly, Smaller Reporting Companies 
electing to list on LTSE Listings should be required to comply with 
such compensation committee requirements.
---------------------------------------------------------------------------

    \58\ See 17 CFR 240.12b-2.
---------------------------------------------------------------------------

(D) Long-Term Shareholder Voting Structure
    Consistent with the focus of the LTSE Listings category to provide 
a differentiated choice for issuers and investors that prefer listing 
standards explicitly designed to promote long-term value creation, 
proposed Rule 14A.413(b) would require that LTSE Listings Issuers 
maintain certain voting rights provisions in their corporate 
organizational documents that provide all shareholders with the 
ability, at the shareholders' option, to accrue additional voting power 
over time. As described more fully below, these 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 governance than short-term shareholders. 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.
    Specifically, as of the date of the company's initial listing on 
LTSE

[[Page 14084]]

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.\59\ For each full calendar month in 
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 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.\60\ If, at any time, a shareholder transfers its shares out of 
record ownership (whether for purposes of sale or otherwise), then on 
the date of such transfer, such shares will revert to entitling the 
shareholder to the Initial Voting Power of such shares. Because each 
holder of a class of equity securities listed on LTSE Listings would 
have an equal number of votes per share on the date of initial listing, 
each investor would have an equal opportunity to obtain increased 
voting rights over time and no shareholders would receive a preference 
over others.
---------------------------------------------------------------------------

    \59\ The Exchange notes that all shares listed on LTSE Listings 
must have a minimum level of Initial Voting Power and conform to the 
voting rights set forth in proposed Rule 14A.413. However, proposed 
Supplementary Material .01(a) to proposed Rule 14A.413 clarifies 
that proposed Rule 14A.413(b) would not prevent an LTSE Listings 
Issuer, so long as not inconsistent with IEX Rule 14.413, from (i) 
maintaining 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) establishing or 
maintaining classes of shares not listed on the Exchange that do not 
meet the requirements of proposed Rule 14A.413(b).
    \60\ Pursuant to proposed Supplementary Material .01(b) to 
proposed Rule 14A.413, an LTSE Listings Issuer would be permitted to 
provide that the voting rights of shareholders holding of record 
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.
---------------------------------------------------------------------------

(i) Mechanism for Tracking Holding Periods
    The Exchange notes that tracking the ultimate beneficial ownership 
and length of continued ownership may be difficult or impossible for 
shares held through the common ``street name'' ownership system. Shares 
held in street name are registered on the books of an issuer's transfer 
agent in the name of a nominee selected by the Depository Trust 
Company's (``DTC''), with DTC maintaining records of the number of 
shares held for its various brokerage firm participants, and those 
brokerage firms each maintaining records of the number of shares held 
for its particular customers.\61\ As a result, an issuer reviewing its 
own books and records maintained by its transfer agent may be unable to 
definitively determine who its ultimate ``street name'' shareholders 
are, or for how long they have held their shares.
---------------------------------------------------------------------------

    \61\ See generally Securities Exchange Act Release No. 76743 
(December 22, 2015), 80 FR 81947 (December 31, 2015).
---------------------------------------------------------------------------

    In order to track ownership for purposes of those shareholders 
opting to accrue additional voting power, the LTSE Listings Rules 
require that LTSE Listings Issuers look to whether a beneficial owner 
is also the holder of the shares in the LTSE Listings Issuer's records, 
i.e., as a holder of record. A shareholder that purchases its shares 
through a brokerage firm may initially receive shares held on its 
behalf in street name through the brokerage firm. However, through a 
Direct Registration Program (``DRP''),\62\ a shareholder maintaining 
its shares in street name may request that its shares (or some portion 
of its shares) be transferred to instead be held in record ownership on 
the books of the issuer's transfer agent, or transferred back to its 
brokerage account.\63\ For these purposes, a shareholder will be deemed 
to have record ownership as of the date the shareholder appears as the 
record owner on the books of the LTSE Listings Issuer directly, or 
through a third-party transfer agent. In addition, for these purposes, 
record owners of shares listed on LTSE Listings would include those 
holding a physical paper certificate of such shares and those holding 
such shares through a DRP.
---------------------------------------------------------------------------

    \62\ The Exchange's rules already require that any issuer listed 
on the Exchange, including on the LTSE Listings, be eligible for a 
DRP. See IEX Rule 14.208. Because the ability to transfer shares to 
and from record ownership through a DRP is critical to tracking of 
long-term shareholders' voting rights for LTSE Listings Issuers, the 
exception contained in Rule 14.208(c) that allows certain foreign 
issuers to list securities on the Exchange that are not eligible for 
a DRP would not be available to LTSE Listings Issuers. See proposed 
Rule 14A.208.
    \63\ See Securities Exchange Act Release No. 76743 (December 22, 
2015), 80 FR 81947 (December 31, 2015) at text accompanying n.92-93.
---------------------------------------------------------------------------

    Although requiring that shares be held in record ownership in order 
to accrue additional voting rights may raise administrative burdens on 
shareholders, the Exchange believes the ability for LTSE Listings 
Issuers to verify and track the ownership of these shareholders for 
purposes of calculating voting rights outweighs these burdens. In 
addition, because only those shareholders that expect to hold their 
shares for the long-term would opt to do so, the Exchange does not 
believe that electronically transferring the shares through a DRP would 
present a significant burden.
    Calculating voting rights in accordance with the provisions of 
proposed Rule 14A.413(b) will be novel to LTSE Listings Issuers and 
their shareholders and may present challenges. However, the Exchange 
understands that several transfer agents have indicated to LTSE that 
they are able to develop software or systems to assist LTSE Listings 
Issuers with tracking their shareholder voting rights as calculated in 
accordance with proposed Rule 14A.413(b). In order to ensure that LTSE 
Listings Issuers have such tools available to them and facilitate 
accurate calculation of their shareholders' voting rights, proposed 
Rule 14A.413(b)(5) would require 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 will enable the transfer agent and the LTSE Listings Issuer 
to determine, as of a particular record date, the LTSE Listings 
Issuer's shareholders' voting rights calculated in accordance with LTSE 
Listings Rule 14A.413(b).
(ii) Shareholders Holdings Through Custodians
    As noted above, in order to track ownership for purposes of those 
shareholders opting to accrue additional voting power, the LTSE 
Listings Rules require that LTSE Listings Issuers look to whether a 
beneficial owner is also the holder of the shares in the LTSE Listings 
Issuer's records, i.e., as a holder of record. The Exchange 
understands, however, that for various reasons, including regulatory 
requirements applicable to registered investment advisers and 
registered investment companies,\64\ there may be shareholders that 
maintain ownership of securities through a third-party custodian, 
rather than in their own name. To accommodate such investors, proposed 
Supplementary Material .01(e) to proposed Rule 14A.413 would permit an 
LTSE Listings Issuer to recognize a shareholder as a holder of record 
solely for purposes of proposed Rule 14A.413(b), therefore entitled to 
increase its voting power over time, so long as the custodian for such 
shareholder becomes the shareholder of record and maintains its record

[[Page 14085]]

ownership in a manner that indicates the name of the ultimate 
beneficial owner. By way of example, if Investment Fund ABC maintains 
custody of its assets through Bank XYZ, an LTSE Listings Issuer may 
recognize Investment Fund ABC as the record holder of the shares of an 
LTSE Listings Issuer 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.'' The 
Exchange believes that maintaining record ownership in this manner 
would allow an LTSE Listings Issuer to track that [sic] the period of 
time during which the shares have been held by the underlying investor, 
even if held through the custodian, while meeting the needs of those 
shareholders that wish to maintain custody of their assets through a 
separate custodian.
---------------------------------------------------------------------------

    \64\ See, e.g., 17 CFR 275.206(4)-2 (with respect to registered 
investment advisers) and 15 U.S.C. 80a-17(f) and 17 CFR 270.17f-1-f-
7 (with respect to registered investment companies).
---------------------------------------------------------------------------

(iii) Technical Changes in Record Ownership
    Because of the mechanics of tracking long-term ownership, the term 
of ownership for purposes of LTSE Listings Issuers calculating a 
shareholder's increased voting rights is tied not to the actual date of 
a shareholder's acquisition or disposition of beneficial ownership, but 
the date the shares are transferred into or out of record ownership, 
i.e., the date that the name of the owner on the LTSE Listings Issuer's 
books is changed. The Exchange acknowledges that this may result in 
situations where technical changes to ownership structure could cause a 
shareholder to lose any accrued long-term voting. As a general matter, 
the Exchange believes that a bright-line rule that can be clearly and 
consistently applied is preferable to the need to analyze the 
surrounding circumstances regarding particular changes to record 
ownership. Nonetheless, the Exchange recognizes that particular LTSE 
Listings Issuers may wish to allow a shareholder to maintain any 
accrued long-term voting that would otherwise be lost as a result of 
technical changes. As a result, proposed Supplementary Material .01(d) 
to proposed Rule 14A.413 would permit (but not require) an LTSE 
Listings Issuer to adopt a process by which a shareholder may 
demonstrate that, notwithstanding a technical change in record 
ownership, a change in beneficial ownership for purposes of this rule 
has not occurred. LTSE Listings Issuers choosing to do so may develop 
their own list of changes for which such waivers may be granted, so 
long as they are of a purely technical nature that clearly did not 
involve a change of beneficial ownership (such as re-titling ownership 
of shares due to a name change or a change from sole ownership to joint 
ownership with a spouse) rather than an actual change of the person 
holding voting and investment discretion.
(iv) Potential Evasion of Loss of Long-Term Voting Upon Sale
    The ability to accrue long-term voting is intended to incentivize 
those beneficial owners with voting and investment discretion over an 
LTSE Listings Issuer's shares to become long-term shareholders, provide 
a mechanism by which such long-term shareholders can evidence their 
long-term ownership (i.e., by becoming record holders), and increase 
the relative role of such long-term shareholders in the governance of 
an LTSE Listings Issuer. There may be situations where it becomes 
apparent to an LTSE Listings Issuer that, notwithstanding the record 
holder of its shares remaining the same, the beneficial ownership has 
changed, in an effort to evade the purposes of long-term voting. For 
example, the Exchange recognized the risk that a person may create a 
special-purpose entity (an ``SPE'') to hold shares of an LTSE Listings 
Issuer and register the SPE as the owner of the shares on the books of 
the LTSE Listings Issuer. Over time, the shares held by the SPE would 
accrue additional voting rights. Ordinarily, once those shares are 
transferred, they would lose any accrued long-term voting and revert to 
their Initial Voting Power. However, if the person were to instead 
transfer the ownership of the SPE to a third party, that transfer may 
not result in a change of ownership of the underlying shares of the 
LTSE Listings Issuer on the books and records of the LTSE Listings 
Issuer's transfer agent.
    To address this situation, proposed Supplementary Material .01(c) 
to proposed Rule 14A.413 would permit (but not require) an LTSE 
Listings Issuer to include provisions in its governance documents such 
that if its board of directors adopted a resolution reasonably 
determining that, notwithstanding technical compliance with the 
provisions of an 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 LTSE Listings Rule 14A.413(b), such shares may be treated 
as being entitled only to their Initial Voting Power. Any LTSE Listings 
Issuer that provides for such a process in its governance documents 
must also provide a process through which a shareholder directly 
affected by such a determination may challenge it. The Exchange 
believes that, together, this should protect LTSE Listings Issuers from 
an attempt by shareholders to improperly sell increased voting rights 
to new shareholders, while affording affected shareholders with an 
opportunity to present additional information demonstrating that a 
change of beneficial ownership has not occurred.
(v) Consistency With the Exchange's Voting Rights Policy
    The Exchange believes that LTSE Listings Rule 14A.413(b) is fully 
consistent with IEX Rule 14.413 (the Exchange's ``Voting Rights 
Policy''). The Voting Rights Policy provides that the voting rights of 
existing shareholders of publicly traded common stock registered under 
Section 12 of the Act may not be disparately reduced or restricted 
through any corporate action or issuance. The Voting Rights Policy 
provides examples of corporate actions or issuances that could violate 
this policy, including the adoption of time-phased voting plans, which 
could encompass structures whereby investors gain additional voting 
rights over time.\65\ While the requirements of LTSE Listing Rule 
14A.413(b) could be viewed as similar to time-phased voting plans, the 
Exchange does not believe that complying with LTSE Listing Rule 
14A.413(b) would be inconsistent with the Voting Rights Policy, which 
bars a company already listed on the Exchange from undertaking the 
prohibited corporate actions. 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 its 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

[[Page 14086]]

subsequent to listing on the Exchange. In addition, pursuant to LTSE 
Listings Rule 14A.413(b), all shareholders of the same class of LTSE 
Listings Issuer's common stock listed on LTSE Listings will have the 
same voting rights in that any shareholder is eligible to accrue 
additional voting rights. To the extent that the effect of LTSE 
Listings Rule 14A.413(b) is that those shareholders that elect not to 
accrue additional voting power have their relative voting rights 
reduced relative to those that elect to accrue additional voting power, 
this impact is the result of a corporate action taken prior to listing 
on LTSE Listings, known to investors prior to their determining to 
purchase shares of an LTSE Listings Issuer, and the actions or 
inactions of shareholders subsequent to listing. Thus, the Exchange 
believes that compliance with LTSE Listings Rule 14A.413(b) will not 
cause existing shareholders' voting rights to be disparately reduced or 
restricted through any corporate action or issuance within the meaning 
of IEX Rule 14.413.
---------------------------------------------------------------------------

    \65\ Another example of such a corporate action enumerated in 
the Voting Rights Policy is the issuance of a new class of super-
voting stock. Proposed Supplementary Material .01(f) to proposed 
Rule 14A.413 would provide that 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. 
An LTSE Listings Issuer would not be prohibited by proposed Rule 
14.413 from issuing additional shares of a class of stock that is 
listed on LTSE Listings or from issuing shares of a new class of 
stock that does not constitute super-voting stock as described 
above.
---------------------------------------------------------------------------

    In addition to the fact that the voting rights structure required 
under LTSE Listings Rule 14A.413(b) must be in place prior to listing 
on the Exchange, Supplementary Material .01 to IEX Rule 14.413 provides 
that the Exchange's ``interpretations under the policy will be 
flexible, recognizing that both the capital markets and the 
circumstances and needs of the Exchange Companies change over time.'' 
Accordingly, the Exchange will interpret the policy flexibly with 
regard to its consistency with an LTSE Listings Issuer's voting 
structures designed to meet LTSE Listings Rule 14A.413(b). As the 
Commission recognized in approving the voting rights policies of other 
self-regulatory organizations that are substantively identical to IEX 
Rule 14.413, ``there may be valid business or economic reasons for 
corporations'' for companies to provide different voting rights to 
different shareholders, and that the voting rights policies ``provide 
issuers with a certain degree of flexibility in adopting corporate 
structures, so long as there is a reasonable business justification to 
so doing, and such transaction is not taken or proposed primarily with 
the intent to disenfranchise.'' \66\ The Exchange believes that 
providing long-term investors with an opportunity for a greater voice 
in corporate governance is a reasonable business justification for an 
issuer to adopt the long-term voting structure required by proposed 
LTSE Listings Rule 14A.413(b) and that, because every shareholder has 
the opportunity to elect to accrue additional voting power, the 
structure would not be implemented with a primary purpose or intent to 
disenfranchise particular shareholders.
---------------------------------------------------------------------------

    \66\ See Securities Exchange Act Release No. 35121 (December 19, 
1994), 59 FR 66570 (December 27, 1994) (approving rule changes 
adopting voting rights policies of the New York Stock Exchange, 
American Stock Exchange, and National Association of Securities 
Dealers).
---------------------------------------------------------------------------

(E) Other Long-Term Requirements
    The Exchange is proposing to include in the LTSE Listings Rules 
certain other rules also designed to encourage LTSE Listings Issuers to 
focus on long-term value creation. These proposed rules are described 
further below.
(i) Earnings Guidance
    Proposed Rule 14A.420(a) would provide that LTSE Listings Issuers 
are generally prohibited from providing earnings guidance more 
frequently than annually. For these purposes, ``Earnings Guidance'' 
would be defined as 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.\67\ As noted above, LTSE's research indicates that pressure to 
meet quarterly earnings guidance can cause managers to sacrifice long-
term growth for short-term performance.\68\ Proposed Rule 14A.420(a) is 
intended to help companies alleviate the pressures surrounding the 
quarterly earnings process with respect to guidance, with a goal to 
ultimately shift the focus of both companies and investors toward 
longer-term milestones.
---------------------------------------------------------------------------

    \67\ See proposed Rule 14A.002(a)(6).
    \68\ See Graham, supra note 15; Yongtae Kim, Lixin (Nancy) Su, 
Xindong (Kevin) Zhu, Does the Cessation of Quarterly Earnings 
Guidance Reduce Investors' Short-Termism? (December 12, 2016), 
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2885624. See also Chairman Jay Clayton, 
Hearing before the Senate Banking Committee on the Nomination of Jay 
Clayton, of New York, to be a Member of the Securities and Exchange 
Commission (March 23, 2017), available at https://www.gpo.gov/fdsys/pkg/CHRG-115shrg24998/html/CHRG-115shrg24998.htm (``In my 
experience, certain companies view the operational and other 
pressures inherent in quarterly earnings as costly, including 
because they detract from long-term planning and strategic 
initiatives.'').
---------------------------------------------------------------------------

    Notwithstanding the general prohibition on providing Earnings 
Guidance more frequently than annually, proposed Rule 14A.420(a) would 
permit an LTSE Listings Issuer to update previously issued Earnings 
Guidance at any time if it believes that such disclosure would be 
required (i) by IEX Rule 14.207(b)(1), which requires an issuer to 
promptly disclose to the public any material information that would 
reasonably be expected to affect the value of the issuer's securities 
or influence investors' decisions; (ii) by other applicable law 
(including any of the Commission reporting rules); or (iii) to make the 
previously issued Earnings Guidance not misleading.
    Proposed Rule 14A.420(b) would clarify that any Earnings Guidance 
provided by an LTSE Listings Issuer, including updates and 
supplementary disclosure related to Earnings Guidance, shall be 
considered material information for purposes of IEX Rule 14.207(b)(1). 
As a result, LTSE Listings Issuers would be required to comply with the 
disclosure and notification requirements set forth therein when 
disseminating such information.
(ii) Long-Term Stakeholder Policies
    Proposed Rule 14A.425(a) would require that each LTSE Listings 
Issuer develop and publish a policy regarding the LTSE Listings 
Issuer's impact on the environment and community, and a policy 
explaining the LTSE Listings Issuer's approach to diversity. The 
Exchange believes that effective long-term planning is enhanced when 
companies consider their impact on various stakeholders and the 
sustainability of their business, and that long-term investors 
generally value such information. Each LTSE Listings Issuer may have 
different stakeholders and different views on these issues. The LTSE 
Listings Rules would not impose any requirements on the content of 
these policies. Rather, proposed Rule 14A.425(a) would only require 
that LTSE Listings Issuers adopt and publish a policy, providing LTSE 
Listings Issuers with flexibility in developing what they believe to be 
appropriate policies for their business, and providing investors with 
insight into an LTSE Listings Issuer's management of these issues.
    Proposed Rule 14A.425(b) would require that each LTSE Listings 
Issuer review the policies required by proposed Rule 14A.425(a) at 
least annually and make such policies available on or through its 
website. In addition, each LTSE Listings Issuer would be required to 
disclose in its annual proxy statement or, if it does not file an 
annual proxy statement, in its Annual Report Supplement, that these 
policies are available on or through its website and provide the 
website address. These requirements are intended to ensure that 
investors are aware of and have access to an LTSE Listings Issuer's 
stakeholder policies. Although these policies must be made publicly 
available, proposed

[[Page 14087]]

Supplementary Material .01 to proposed Rule 14A.425 would provide that 
the required stakeholder policies need not be stand-alone documents and 
may be included as part of other LTSE Listings Issuer policies or 
reports.
(iii) Website Requirements
    Proposed Rule 14A.430 would require LTSE Listings Issuers to have 
and maintain a publicly accessible website. In addition, to the extent 
that an LTSE Listings Issuer would be required under any applicable 
provision of the LTSE Listings Rules to make documents available on or 
through its website, an LTSE Listings Issuer would be required to 
ensure that the website is accessible from the United States, the 
website clearly indicates in the English language the location of such 
documents on the website and that such documents are available in a 
printable version in the English language. The Exchange understands 
that many long-term focused investors expect to be able to access 
corporate governance and other information regarding companies in which 
they have invested through the company's website, and accordingly the 
Exchange believes that it is appropriate to explicitly impose this 
website requirement. For transparency purposes, various proposed LTSE 
Listings Rules, as discussed above, would require that materials be 
made available on an LTSE Listings Issuer's website.\69\
---------------------------------------------------------------------------

    \69\ See proposed Rules 14A.207(a), 14A.207(f), 14A.405(a)(2), 
14A.405(b)(1)(B), 14A.405(c)(2)(C), 14A.405(d)(2), 14A.405(d)(5)(B), 
14A.407(a)(2)(B), 14A.409(b) and 14A.425(b).
---------------------------------------------------------------------------

    Proposed Rule 14A.430 is intended to specify in further detail the 
manner in which LTSE Listings Issuers may satisfy these website posting 
requirements. The Exchange notes that the foregoing website 
requirements are substantially similar to the requirements imposed by 
the listing rules of another national securities exchange.\70\
---------------------------------------------------------------------------

    \70\ See NYSE Listed Company Manual, Rule 307.00.
---------------------------------------------------------------------------

(iv) Certification Requirements
    Proposed Rule 14A.435 would require that LTSE Listings Issuers make 
certain certifications to the Exchange. Specifically, proposed Rule 
14A.435(a) would require LTSE Listings Issuers certify [sic], at or 
before the time of listing, that all applicable listing criteria have 
been satisfied. This requirement is substantively identical to IEX Rule 
14.202(b), which requires all issuers listed on the Exchange to submit 
such a certification. The Exchange proposes to repeat this requirement 
in the LTSE Listings Rules to clarify that the certification must 
include compliance with the LTSE Listings Rules, in addition to the 
Exchange's other listing rules.
    Proposed Rule 14A.435(b) would require that the CEO of each LTSE 
Listings Issuer certify annually to the Exchange that the LTSE Listings 
Issuer is in compliance with proposed Rule Series 14A.400, which 
contain the corporate governance requirements of the LTSE Listings 
Rules, qualifying the certification to the extent necessary. Various 
IEX listing rules impose certification requirements,\71\ and IEX Rule 
14.207 requires that a listed company must provide the Exchange with 
prompt notification after an Executive Officer of the company becomes 
aware of any noncompliance by the company with the corporate governance 
requirements set forth in IEX Rule 14.400. However, given the unique 
nature of the LTSE Listings Rules, the Exchange believes that adding an 
annual certification requirement for LTSE Listings Issuers will assist 
the CEO and senior management of such issuers in overseeing and 
assuring compliance with LTSE Listings corporate governance 
requirements on an ongoing basis. In addition, the Exchange notes that 
another national securities exchange similarly requires that the CEO of 
a company listed on that exchange certify annually that he or she is 
not aware of any violation by the company of that exchange's corporate 
governance listing standards.\72\ Proposed Rule 14A.435(b) would also 
require each LTSE Listings Issuer CEO certify [sic] annually to the 
Exchange that 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). The Exchange believes that such an 
annual certification requirement would help ensure that LTSE Listings 
Issuers establish internal systems reasonably designed to assure 
compliance with LTSE Listing's long-term voting provisions.
---------------------------------------------------------------------------

    \71\ See, e.g., IEX Rule 14.202(b) (requiring a company listing 
on the Exchange to certify, at or before the time of listing, that 
all applicable listing criteria have been satisfied); IEX Rule 
14.405(c)(1) (requiring each company listed on the Exchange to 
certify that it has adopted a formal written audit committee charter 
and that the audit committee will review and reassess the adequacy 
of the formal written charter on an annual basis); IEX Rule 
14.405(d)(1) (requiring each company listed on the Exchange to 
certify that it has adopted a formal written compensation committee 
charter and that the compensation committee will review and reassess 
the adequacy of the formal written charter on an annual basis).
    \72\ See NYSE Listed Company Manual, Rule 303A.12(a).
---------------------------------------------------------------------------

(v) Issuer Designation Requirements and Dually-Listed Securities
    The Exchange proposes to permit an LTSE Listings Issuer to list a 
class of securities that, in connection with its initial public 
offering, has been approved for listing on another national securities 
exchange (``Dually-Listed Securities''). The Exchange expects that this 
would foster competition among markets and further the development of 
the national market system. The Exchange would make an independent 
determination of whether such companies satisfy applicable listing 
standards and would require such companies to enter into a dual-listing 
agreement with the Exchange.\73\ In the event that a company 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.'' \74\ The Exchange is proposing certain 
additional rules to facilitate dual-listings.
---------------------------------------------------------------------------

    \73\ The Exchange would also 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.
    \74\ Pursuant to proposed Rule 14A.002(a)(14), ``Primary Listing 
Market'' would have the same meaning as that term is defined in the 
Nasdaq Unlisted Trading Privileges national market system plan and 
consistent with use of the term ``listing market'' in the 
Consolidated Quotation Service and Consolidated Tape Association 
national market system plans. Where 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.
---------------------------------------------------------------------------

    Pursuant to proposed Rule 14A.210(b), an LTSE Listings Issuer that 
has Dually-Listed Securities would be required to notify the Exchange 
promptly if it receives oral or written notification from the other 
national securities exchange on which the LTSE Listings Issuer's 
Dually-Listed Securities are listed that such class of listed 
securities has fallen below the continued listing requirements of such 
other market. In addition, such an LTSE Listings Issuer would also be 
required to notify the other national securities exchange on which its 
Dually-Listed Securities are listed if it receives oral or written 
notification that such class of listed securities has fallen below the 
continued listing requirements of Chapter 14 of the IEX Rules or the 
LTSE Listings Rules contained in Chapter 14A of the IEX Rules.

[[Page 14088]]

    Proposed Supplementary Material .01 to proposed Rule 14A.210 would 
clarify the application of certain IEX Rules, such as rules governing 
trading halts, for Dually-Listed Securities, given the fact that the 
Exchange would not be the Primary Listing Market. These proposed rules 
are designed to avoid creating potential confusion for investors and 
market participants with respect to Dually-Listed Securities. The 
Exchange notes that these provisions are substantially consistent with 
the rules of other national securities exchanges.\75\
---------------------------------------------------------------------------

    \75\ See Nasdaq Stock Market Equity Rules 5220 and IM-5220; CBOE 
BZX Exchange, Inc. Rule 14.3(d) and Rule 14.3 Interpretation and 
Policy .01.
---------------------------------------------------------------------------

(F) Proposed Rules Clarifying Application of Existing Exchange Rules
    In addition to proposed rules that would encourage LTSE Listings 
Issuers to focus on long-term value creation, the Exchange is also 
proposing rules that would clarify the application of certain existing 
Exchange rules to LTSE Listings Issuers. These proposed rules are 
described further below.
(i) Supplemental Nature of LTSE Listings Rules
    Proposed Rule 14A.001(a) would provide that the LTSE Listings Rules 
are supplemental listing standards applicable to LTSE Listings Issuers 
and that LTSE Listings Issuers must also fully qualify for listing 
under Chapter 14 of the Exchange's rules and the LTSE Listings Rules on 
an initial and ongoing basis. This provision is intended to clarify 
that LTSE Listings Issuers would be subject to the LTSE Listings Rules, 
as well as all other applicable listing rules of the Exchange, except 
as they may be specifically modified for LTSE Listings Issuers.
    Proposed Rule 14A.001(b) would provide that LTSE Listings Issuers 
may only list common equity securities on LTSE Listings. Although the 
Exchange maintains listing rules relevant for other types of 
securities, such as American Depositary Receipts, preferred stock, 
rights and warrants, among others, such securities would not be 
eligible for listing on LTSE Listings. The Exchange is proposing to 
establish an LTSE Listings category to provide a differentiated choice 
for issuers and investors that prefer listing standards explicitly 
designed to promote long-term value creation. At this time, the 
Exchange believes that, given that corporate governance and voting 
rights are more typically associated with common equity than other 
securities, it is most appropriate for a company electing to become 
subject to the LTSE Listings Rules to list its common equity on LTSE 
Listings.
(ii) Change of Control and Reverse Mergers
    IEX Rule 14.102(a) provides that an Exchange-listed company must 
apply for initial listing in connection with a transaction whereby the 
Exchange-listed company combines with, or into, an entity that is not 
listed on the Exchange, resulting in a change of control of the company 
and potentially allowing such entity to obtain an Exchange listing. The 
rule enumerates certain factors that the Exchange will consider in 
determining whether a change of control has occurred, including, but 
not limited to, changes in management, board of directors, voting 
power, ownership and financial structure. Proposed Rule 14A.102(a)(1) 
would impose an analogous requirement on LTSE Listings Issuers 
combining with, or into, an entity that is not listed on LTSE Listings, 
including an entity that is a not an LTSE Listings Issuer that is 
otherwise listed on the Exchange. The Exchange would consider the same 
factors enumerated in IEX Rule 14.102(a) when determining whether a 
change of control has occurred for purposes of proposed Rule 
14A.201(a)(1). Proposed Rule 14A.102(a)(1) would also require that any 
combined entity applying for initial listing as permitted by this rule 
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.
    Proposed Rule 14A.102(a)(2) would clarify the impact of a change of 
control transaction on the proposed long-term voting provisions of LTSE 
Listings. Specifically, proposed Rule 14A.102(a)(2) would provide that 
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. On the 
other hand, 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 
will have voting power equal to their Initial Voting Power at the time 
of such listing. Any additional voting power accrued pursuant to Rule 
14A.413(b) by the shareholders of the non-surviving LTSE Listings 
Issuer prior to the business combination would not be retained.
    IEX Rule 14.102(c) provides that a company that is formed by a 
Reverse Merger \76\ is eligible to submit an application for initial 
listing only if the combined entity has satisfied certain conditions. 
Proposed Rule 14A.102(b) would clarify that such an entity would not be 
eligible to apply for initial listing on LTSE Listings. The Exchange 
does not believe a reverse merger company would be able to satisfy the 
requirements of the LTSE Listings Rules.
---------------------------------------------------------------------------

    \76\ 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).
---------------------------------------------------------------------------

(iii) General Procedures and Prerequisites for Initial and Continued 
Listing on LTSE Listings
    Proposed Rule 14A.200 would establish general procedures and 
prerequisites for initial and continued listing on LTSE Listings. This 
rule series is intended to supplement and clarify the application of 
the general procedures and prerequisites set forth in the IEX Rule 
Series 14.200.
    IEX Rule 14.200(a) requires a company seeking the initial listing 
of one or more classes of securities on the Exchange to participate in 
a free confidential pre-application eligibility review by the Exchange 
in order to determine whether it meets the Exchange's listing criteria. 
If, upon completion of this review, the Exchange determines that a 
company is eligible for listing, the Exchange will provide the company 
with a clearance letter, notifying the company that it has been cleared 
to submit an original listing application. Proposed Rule 14A.200(a) 
would clarify that if a company is seeking a listing on LTSE Listings, 
prior to providing a clearance letter, the Exchange must determine that 
the company is eligible for listing under the LTSE Listings Rules, in 
addition to the Exchange's other listing criteria.\77\
---------------------------------------------------------------------------

    \77\ As is the case with other companies applying for listing on 
the Exchange, if the Exchange determines that a company is 
ineligible for listing on LTSE Listings, the company may request a 
review of IEX's determination pursuant to the process set forth in 
IEX Rule 9.555.
---------------------------------------------------------------------------

    IEX Rule 14.200(b) outlines the applications and qualifications 
process for companies that have received a clearance letter. A company 
seeking to list on LTSE Listings would be required to follow this 
process, including executing a listing agreement and listing

[[Page 14089]]

application, as required by IEX Rule 14.202(a). However, proposed Rule 
14A.200(b) would clarify that a company seeking to list on LTSE 
Listings would execute a listing agreement and listing application on 
the forms designated by the Exchange for LTSE Listings Issuers. These 
forms and applications would be available from IEX Regulation.
    IEX Rule 14.200(c) provides prerequisites for applying to list on 
the Exchange. A company seeking to list on LTSE Listings would be 
required to satisfy these prerequisites, except as otherwise provided 
by proposed Rule 14A.200(c). For example, IEX Rule 14.203(c) provides 
that all securities initially listed on the Exchange, but for 
securities which are in any event book-entry only, must be eligible for 
a DRP, except that a foreign issuer is not subject to this requirement 
if it submits to the Exchange a written statement from an independent 
counsel in such company's home country certifying that a law or 
regulation in the home country prohibits compliance with this 
requirement. Because eligibility for a DRP is essential to the proper 
functioning of LTSE Listings' long-term shareholder voting provisions, 
proposed Rule 14A.200(c)(1) would provide that foreign issuers may not 
rely on the exception in IEX Rule 14.203(c) from the DRP eligibility 
requirement.
    IEX Rule 14.203(d) provides that a company applying to list on the 
Exchange must pay all applicable fees as described in Rule Series 
14.600. Proposed Rule 14A.200(c)(3) would provide that in lieu of 
paying all applicable fees as described in IEX Rule Series 14.600, a 
company seeking the initial listing of one or more classes of 
securities on LTSE Listings would be required to pay all applicable 
fees as described in LTSE Listings Rule Series 14A.600. This provision 
is intended to clarify that companies seeking to list on LTSE Listings 
are not required to pay two separate listing fees.
    Proposed Rule 14A.200(c)(2) would provide that at the time that a 
company initially lists on LTSE Listings, the company may not already 
have any security listed for trading either on the Exchange (i.e., 
listed on IEX pursuant to IEX listing rules other than Chapter 14A) or 
on any other national securities exchange (unless dually listing on the 
other national securities exchange concurrently). The Exchange is 
initially limiting the availability of LTSE Listings to companies 
seeking to list on LTSE Listings concurrently with their initial public 
offering (whether listing on LTSE Listings only or dually-listing on 
LTSE Listings and another national securities exchange concurrently). 
The Exchange may in the future seek to expand the availability of LTSE 
Listings to other companies seeking to list on LTSE Listings that are 
otherwise already listed on a national securities exchange.
(iv) Exemptions From Certain Corporate Governance Requirements
    IEX Rule 14.407 provides exemptions from the Exchange's corporate 
governance rules for certain types of companies, sets forth phase-in 
schedules for, among other things, initial public offerings and 
companies emerging from bankruptcy and describes the applicability of 
the corporate governance rules to Controlled Companies.\78\ Proposed 
Rule 14A.407 would clarify the application of these rules with respect 
to the LTSE Listings Rules, as described below.
---------------------------------------------------------------------------

    \78\ The term ``Controlled Company'' is defined in 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.
---------------------------------------------------------------------------

    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,\79\ limited 
partnerships and management investment companies. Proposed Rule 
14A.407(a) would provide that an LTSE Listings Issuer may not rely on 
these exemptions with respect to the LTSE Listings Rules. The Exchange 
believes that exemptions for these entities is either (i) not necessary 
because LTSE Listings is only available for common equity or (ii) not 
appropriate given that LTSE Listings is designed to require particular 
minimum corporate governance. However, proposed Rule 14A.407(a) would 
clarify that a Foreign Private Issuer that is able to meet all 
applicable requirements of Chapter 14A, including the requirement to 
distribute an Annual Report Supplement, would be permitted to list on 
LTSE Listings.
---------------------------------------------------------------------------

    \79\ 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 under Exchange Act Rule 3b-4.
---------------------------------------------------------------------------

    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, including for initial public offerings, 
companies emerging from bankruptcy, transfers from other markets, and 
companies ceasing to be a Smaller Reporting Company. These phase-in 
schedules would apply to LTSE Listings Issuers in the same manner as 
they would apply to other companies listed on the Exchange. In addition 
to these phase-in schedules, proposed Rule 14A.407(b) would provide 
that an LTSE Listings Issuer that is listing in connection with its 
initial public offering or that is emerging from bankruptcy is 
permitted to phase-in its compliance with the requirement that the LTSP 
Committee be comprised of a majority of independent directors. 
Specifically, this rule would provide that at least one member of the 
LTSP Committee must be an independent director at the time of listing 
and a majority of the members of the LTSP Committee must be independent 
within 90 days of listing. This phase-in schedule is substantially 
similar to the corresponding phase-in schedules applicable to other 
board committees.\80\
---------------------------------------------------------------------------

    \80\ See IEX Rule 14.407(b)(1).
---------------------------------------------------------------------------

    IEX Rule 14.407(c) outlines how the Exchange's listing rules apply 
to a Controlled Company. This rule provides that a Controlled Company 
is generally exempt from requirements to establish a compensation 
committee and requirements relating to independent director oversight 
of director nominations. These exemptions would apply to LTSE Listings 
Issuers in the same manner as they would apply to other companies 
listed on the Exchange. In addition to these exemptions, proposed Rule 
14A.407(c)(1) would provide that a Controlled Company is exempt from 
the additional compensation committee and nominating/corporate 
governance committee requirements under proposed LTSE Listings Rules 
14A.405(b) and 14A.405(d), except for the requirement to adopt 
executive compensation guidelines under proposed Rule 14A.405(b)(3). 
Proposed Rule 14A.407(c)(2) would provide that to the extent that a 
Controlled Company does not have a compensation committee, the 
independent directors on the LTSP Committee or the independent 
directors of the board of directors must be responsible for adopting 
the executive compensation guidelines.
(v) Notification of Noncompliance
    IEX Rule 14.410 provides that a company listed on the Exchange must 
provide the Exchange with prompt notification after an Executive 
Officer of the company becomes aware of any noncompliance by the 
company with the requirements of Rule Series 14.400, which outlines the 
general corporate governance requirements for companies listed on the 
Exchange. Proposed Rule 14A.410 would supplement this requirement by 
requiring an LTSE Listings Issuer to provide the Exchange

[[Page 14090]]

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 LTSE Listings Rule Series 14A.400, 
which contains the supplemental corporate governance requirements for 
LTSE Listings Issuers.
(vi) Shareholder Approval Calculation
    IEX Rule 14.412 sets forth the circumstances in which an Exchange-
listed company is required to obtain shareholder approval prior to the 
issuance of securities in connection with the (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. In some cases, such approval 
is required, among other potential triggers, 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 . . 
.'' (the ``Shareholder Approval Threshold'').\81\ The Exchange believes 
that the purpose of this aspect of the rule is to ensure that existing 
shareholders have a voice in transactions that would materially dilute 
the voting power of their shares.
---------------------------------------------------------------------------

    \81\ IEX Rule 14.412(a)(1)(A). Shareholder approval may also be 
required if the number of shares of common stock to be issued is or 
will be equal to or in excess of 20% of the number of shares of 
common stock outstanding before the issuance of the stock or 
securities. See IEX Rule 14.412(a)(1)(B).
---------------------------------------------------------------------------

    Ordinarily, determining whether an issuance equals or exceeds the 
Shareholder Approval Threshold would be a simple calculation: The 
issuer would multiply the number of shares to be issued by the voting 
power of such shares and divide by the voting power of the shares 
outstanding before the issuance. If this number equals or exceeds the 
Shareholder Approval Threshold, shareholder approval would be required. 
However, shares listed on LTSE Listings (or that are of the same class 
of securities that are listed on LTSE Listings) may accrue voting power 
over time. As a result, even if the voting power of newly issued shares 
of an LTSE Listings Issuer is less than the Shareholder Approval 
Threshold at the time of the issuance, it may potentially be greater 
than the Shareholder Approval Threshold after a certain period of time, 
depending on how many of the new shares are registered in record name 
and accrue additional voting power over time, relative to the number of 
existing shareholders that do so.
    IEX Rule 14.412 requires that a company listed on the Exchange 
receive shareholder approval in advance of the ``potential issuance of 
common stock'' where the ``common stock has or will have upon issuance 
voting power'' that would exceed the Shareholder Approval Threshold. 
The Exchange notes that, by its terms, IEX Rule 14.412 therefore could 
be read to look only to the voting power of the shares upon issuance, 
rather than the potential voting power of those shares after some 
period of time.\82\ However, certain interpretations and supplementary 
material relating to other aspects of IEX Rule 14.412 do look to the 
potential for changes to the securities being issued, even past the 
initial issuance.\83\ As a result, 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 will increase over time.
---------------------------------------------------------------------------

    \82\ See, e.g., IEX Rule 14.412(a)(1)(A).
    \83\ Specifically, for the purposes of determining the number of 
shares to be issued in an offering of future-priced securities, the 
Exchange staff will ``look to the maximum potential issuance of 
common shares.'' See Supplementary Material .04 to IEX Rule 14.412. 
Future-priced securities are securities that are convertible into 
common stock at a conversion price that is linked to the market 
price of the underlying common stock at the time of conversion. In 
such cases, the lower the price of the company's common stock at the 
time of conversion, the more shares of common stock the holder of 
the future-priced security would receive.
---------------------------------------------------------------------------

    The Exchange notes, however, that because shareholders that obtain 
shares in a transaction may or may not elect to hold their shares in 
record ownership, 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 those shares will eventually attain. One 
potential approach would be to assume that all of the new shares in a 
proposed issuance will be registered in record name and held in that 
form for ten years, thereby accruing the maximum additional voting 
power (i.e., ten times the Initial Voting Power).\84\ Under that 
approach, when conducting the shareholder approval calculation, the 
issuer would multiply the voting power of the shares to be issued (the 
numerator of this calculation) by ten and would then divide that number 
by the existing voting power of the shares outstanding (the denominator 
of this calculation). The Exchange believes that issuers would then be 
required to obtain shareholder approval frequently, because they would 
be required to assume a much higher voting power for the shares to be 
issued (to account for potential future voting power), but would also 
be required to assume that the voting power of the outstanding shares 
remains the same. The Exchange believes that this approach would not be 
appropriate because the Exchange believes that it would be extremely 
unlikely that all shares of a new issuance will be held in record name 
by the same shareholder uninterrupted for ten years.\85\ In addition, 
the Exchange believes 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 
votes. Given what the Exchange believes is the extremely low 
probability of this occurrence, the Exchange believes that requiring 
issuers to make these particular assumptions will result in LTSE 
Listings Issuers needing to obtain shareholder approval for 
transactions that would not be materially dilutive to existing 
shareholders nor would it be consistent with the objective of the rule, 
as it would effectively impose a Shareholder Approval Threshold of 2% 
instead of the 20% (if one were to calculate based solely on the 
Initial Voting Power of the shares at the time of their issuance). The 
Exchange does not believe that imposing the burden of obtaining 
shareholder approval (including the

[[Page 14091]]

monetary costs as well as time and uncertainty) would be justified for 
transactions that the Exchange believes are unlikely to be materially 
dilutive to the voting power of existing shareholders.
---------------------------------------------------------------------------

    \84\ This approach would be similar to the approach required for 
calculating the number of shares that may be issued pursuant to an 
offering of future-priced securities, as discussed supra note 83. 
However, the Exchange believes that this approach would not be 
appropriate for determining whether the voting power of an issuance 
by an LTSE Listings Issuer would exceed the Shareholder Approval 
Threshold. In addition to the reasons described below, the Exchange 
believes purchasers of convertible securities have a strong economic 
incentive to exercise their conversion rights and acquire common 
stock at some point in time. If the price of the underlying common 
stock has declined at the time of conversion, the number of shares 
of common stock that will be issued (and thus the dilution of 
existing shareholders) could increase significantly. While the 
Exchange believes that LTSE Listings Issuers will attract more long-
term focused shareholders, not all shareholders will be long-term or 
have the incentive, economic or otherwise, to register their shares 
in record name and accrue additional voting power, and the Exchange 
therefore believes that, for a variety of reasons, many shareholders 
will never elect to do so.
    \85\ As discussed above, supra note 11, the average holding 
period in 2015 was approximately eight months. Although the Exchange 
expects a longer average holding period for LTSE Listings Issuers, 
the Exchange believes that assuming a full ten-year holding period 
for all shareholders of LTSE Listings Issuers would not be 
reasonable.
---------------------------------------------------------------------------

    Proposed Rule 14A.412 would take what the Exchange believes to be a 
more reasonable and balanced approach that is aligned with the purpose 
of this requirement, while still taking into account the potential 
increased future voting power of new shares to be issued.\86\ 
Specifically, 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 determined by multiplying the number of 
shares to be issued by the product of the Initial Voting Power for such 
shares and a ``Long-Term Voting Factor,'' rather than just the Initial 
Voting Power of such shares. 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. This 
percentage would be applied to the new shares to be issued, thus 
estimating the likely voting power that the new shares would obtain 
over time.
---------------------------------------------------------------------------

    \86\ The Exchange has included examples demonstrating how an 
LTSE Listings Issuer would conduct the shareholder approval 
calculations under proposed Rule 14A.412, as compared to alternative 
approaches considered, in Exhibit 3.
---------------------------------------------------------------------------

    The Long-Term Voting Factor would be calculated by dividing, as of 
the Shareholder Approval Calculation Date (defined below), the voting 
power outstanding attributable to the LTSE-Listings Issuer's shares 
listed on LTSE Listings by the combined Initial Voting Power of those 
shares. This number will be equal to one if none of the LTSE Listings 
Issuer's shareholders have accrued additional voting power and will 
increase beyond one at a rate proportional to the number of additional 
votes attributable to LTSE Listings' long-term voting mechanics. In 
other words, the Long-Term Voting Factor represents the effect of long-
term voting on the LTSE Listings Issuer's outstanding voting power as 
of the Shareholder Approval Calculation Date. For example, if an LTSE 
Listings Issuer has 1,000,000 shares outstanding on the Shareholder 
Approval Calculation Date, each with an Initial Voting Power of one 
vote per share, and as a result of increases in voting power over time, 
those shares have a total of 3,000,000 votes, the Long-Term Voting 
Factor would be 3.0. The formula would then assume that new shares to 
be issued would similarly achieve three votes per share over some 
period of time in the future. Given that the Exchange is unable to 
predict how many shareholders will actually elect to hold their shares 
in record ownership and thereby accrue additional voting power, or how 
long such shareholders would hold their shares, the Exchange believes 
that it is reasonable to look to the LTSE Listings Issuer's prior 
experience and apply that same experience to the new shares to be 
issued.
    For LTSE Listings Issuers that have been listed on LTSE Listings 
for fewer than five years, the numerator in the shareholder approval 
calculation would be the greater of (i) the number of shares to be 
issued multiplied by the product of the Initial Voting Power for such 
shares and the Long-Term Voting Factor or (ii) the number of shares to 
be issued multiplied by the Initial Voting Power of such shares further 
multiplied by two. This effectively applies a minimum Long-Term Voting 
Factor of two to LTSE Listings Issuers that have been listed on LTSE 
for fewer than five years, even where the LTSE Listings Issuer has an 
actual Long-Term Voting Factor of less than two. The Exchange believes 
that imposing this minimum multiple of two is appropriate because the 
actual Long-Term Voting Factor that these companies would have 
experienced during their short period of time of being public companies 
is likely to be lower than longer-listed issuers and may not be 
representative of the longer-term growth in voting power that the new 
shares may ultimately attain.\87\
---------------------------------------------------------------------------

    \87\ If the LTSE Listings category is approved, the Exchange 
will 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 should 
be modified based on its experience with LTSE Listings Issuers. For 
example, the Exchange will 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. The Exchange notes that any 
such modification would be subject to the provisions of Section 
19(b)(1) under the Act and Rule 19b-4 thereunder. See 15 U.S.C. 
78s(b)(1) and 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    As stated above, it is difficult to predict with any level of 
certainty how many shareholders will register their shares in record 
name and accrue additional voting power; however, the Exchange believes 
that applying a minimum multiple of two for companies that have been 
listed on LTSE for less than five years is reasonable and 
conservatively estimates the relative potential voting power of the new 
shares to be issued. This belief is informed by the Exchange's 
understanding of current shareholder turnover data, such as that in 
2015 (albeit for non-LTSE Listings Issuers), investors held a stock for 
an average of about eight months.\88\ A minimum Long-Term Voting Factor 
of two, however, the Exchange believes conservatively assumes a much 
longer average holding period. By way of example, an LTSE Listings 
Issuer would only have actually achieved a Long-Term Voting Factor of 
two, even after five years, if 20% of its outstanding shares were 
registered in the name of their shareholders on the books of the 
company in the first month following the issuer's IPO and such shares 
remained registered to those same investors without any interim 
transfers throughout the five-year period, and no other shares were 
added during that period.\89\ Both the factor of two and the five-year 
threshold are being imposed on the basis of the Exchange's best 
judgment, which the Exchange believes balances the need to recognize 
that the shares' voting power can increase with the burden faced by 
companies seeking shareholder approval.
---------------------------------------------------------------------------

    \88\ See Turnover Ratio of Domestic Shares, supra note 11.
    \89\ If the LTSE Listings category is approved, the Exchange 
will periodically assess whether the minimum Long-Term Voting Factor 
of two for LTSE Listings Issuers listed for less than five years 
should be modified based on its experience with LTSE Listings 
Issuers. The Exchange notes that any such modification would be 
subject to the provisions of Section 19(b)(1) under the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    Proposed Rule 14A.412(b) would also clarify how to calculate the 
denominator in the shareholder approval calculation. IEX Rule 
14.412(e)(2) currently provides that the denominator (voting power 
outstanding) refers to the ``aggregate number of votes which may be 
cast by holders of those securities outstanding which entitle the 
holders thereof to vote generally on all matters submitted to the 
Company's security holders for a vote.'' The calculation would be the 
same for LTSE Listings Issuers, except that proposed Rule 14A.412(b) 
would provide that this calculation must be made as of the Shareholder 
Approval Calculation Date, which would be 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 
(i.e., the acquisition of stock of assets of another company or a 
private placement). The Exchange already expects Exchange-listed 
issuers to conduct this calculation as of this date; \90\ however, 
because the shares of

[[Page 14092]]

an LTSE Listings Issuer may accrue voting power over time, unlike the 
shares of other Exchange-listed companies, the Exchange believes it is 
important to explicitly specify in the LTSE Listings Rules the date on 
which this calculation must be performed.
---------------------------------------------------------------------------

    \90\ The Exchange understands that other national securities 
exchanges similarly expect their listed issuers to conduct the 
shareholder approval calculation under those exchanges' 
substantially similar rules as of this date.
---------------------------------------------------------------------------

    The provisions described above are designed to clarify how the 
shareholder approval calculation under IEX Rule 14.412 would be 
conducted by an LTSE Listings Issuer. All other provisions of IEX Rule 
14.412 would continue to apply, including, for example, the financial 
viability exception in IEX Rule 14.412(f).
(vii) Failure To Meet LTSE Listings Standards
    Pursuant to IEX Rule 14.500(a), securities of an Exchange-listed 
company that do not meet the listing standards set forth in Chapters 14 
and 16 of the Exchange's rulebook are subject to potential delisting 
from the Exchange. IEX Rule Series 14.500 sets forth procedures for the 
independent review, suspension and delisting of companies that fail to 
satisfy such standards. Proposed Rule 14A.500(a) would provide that 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 Exchange's rulebook for purposes of IEX Rule 
Series 14.500. As a result, the procedures set forth in the IEX Rule 
Series 14.500 would apply to any LTSE Listings Issuer that fails to 
comply with the listing standards in the LTSE Listings Rules, in 
addition to other applicable listing standards in the Exchange's 
rulebook.
    IEX Rule 14.501(d) provides that if a company fails to satisfy the 
Exchange's listing standards, the type of deficiency at issue will 
determine whether the company will be immediately suspended or 
delisted, whether the company will have an opportunity to submit a plan 
to regain compliance or whether the company is entitled to an automatic 
cure or compliance period before a delisting determination is issued. 
Proposed Rule 14A.500(b) would provide that a failure to satisfy one or 
more of the LTSE Listings Rules will be treated as a deficiency for 
which a company may submit a plan to regain compliance in accordance 
with the Exchange's rules. Like all companies listed on the Exchange, 
LTSE Listings Issuers will be fully subject to IEX rules related to 
noncompliance and delisting, as set forth in Chapter 14 of the 
Exchange's rules.
    Proposed Rule 14A.500(c) would provide that in the event that an 
LTSE Listings Issuer becomes subject to delisting from LTSE Listings 
for failure to satisfy one or more LTSE Listings Rules but is otherwise 
in compliance with all other applicable listing rules of the Exchange, 
the Exchange may permit such issuer to remain listed on the Exchange, 
provided that such issuer will cease to be listed on LTSE Listings and 
will cease to be an LTSE Listings Issuer.\91\ In such cases, the 
Exchange would assess whether the issuer is in compliance with the 
Exchange's continued listing criteria (other than continued listing 
criteria applicable solely to LTSE Listings Issuers); however, the 
issuer would not need to resubmit a listing application to remain 
listed on the Exchange.
---------------------------------------------------------------------------

    \91\ Regardless of whether or not the Exchange permits an LTSE 
Listings Issuer to remain listed on the Exchange in such 
circumstances, the Exchange would expect the issuer to comply with 
any disclosure obligations relating to the receipt of a notification 
of deficiency or delisting determination as set forth in IEX Rule 
14.501(c) and Item 3.01 of Form 8-K with respect to the termination 
of its listing on LTSE Listings.
---------------------------------------------------------------------------

(viii) Listing Fees for LTSE Listings Issuers
    Proposed Rule Series 14A.600 is currently marked ``Reserved.'' The 
Exchange intends to file a separate proposed rule change with the 
Commission under Section 19 of the Act that would addresses [sic] 
listing fees applicable to LTSE Listings Issuers.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general,\92\ and further the objectives 
of Section 6(b)(5) of the Act,\93\ in particular, in that it is 
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 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.
---------------------------------------------------------------------------

    \92\ 15 U.S.C. 78f.
    \93\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As discussed in detail in the Purpose section above, the Exchange 
believes that there is growing concern among market observers that 
pressures to meet short-term expectations have resulted in negative 
consequences for companies, investors and the economy as a whole. The 
Exchange believes that the LTSE Listings Rules would remove impediments 
to a free and open market and protect investors and the public interest 
by providing the marketplace with a differentiated listing venue choice 
that seeks to encourage greater focus by companies and investors on the 
long-term. Specifically, the LTSE Listings Rules are intended to better 
enable companies to focus on long-term value creation, potentially 
enhancing opportunities for capital formation, and are also intended to 
foster transparency and effective corporate governance, which would 
benefit all investors, particularly those with a long-term focus. In 
addition, because listing on LTSE Listings and becoming subject to the 
LTSE Listings Rules is a voluntary election, the LTSE Listings Rules 
are not designed to permit unfair discrimination among issuers.
    The following subsections provide additional detail on how the LTSE 
Listings Rules are designed to further the objectives of Section 6(b) 
of the Act.
(1) Board of Directors and Committee Requirements
    As described in the Purpose section under ``Board of Directors and 
Committee Requirements,'' the proposed LTSE Listings Rules would impose 
additional obligations on the boards of directors and board committees 
of LTSE Listings Issuers. For example, the LTSE Listings Rules would 
require each LTSE Listings Issuer to establish a board committee 
dedicated to overseeing the issuer's strategies for creating and 
sustaining long-term growth (i.e., an LTSP Committee). Among other 
things, the LTSP Committee would be required to review and approve an 
LTSE Listings Issuer's LTSP Disclosures, including the disclosure of 
its Long-Term Growth Strategy, on at least an annual basis. The 
Exchange believes that these requirements would protect investors and 
the public interest because it would help LTSE Listings Issuers focus 
on long-term goals. The LTSE Listings Rules would also require LTSE 
Listings Issuers to establish an independent committee dedicated to 
selecting or recommending qualified director nominees (i.e., a 
nominating/corporate governance committee). In addition, the LTSE 
Listings Rules would require the LTSP Committee, the nominating/
corporate governance committee, the compensation committee and the 
audit committee to report regularly to the board of directors and would 
require that the charters of such committees be made available on or 
through the LTSE Listings Issuer's website. The Exchange believes that 
these requirements are consistent with the protection of investors and 
the public interest

[[Page 14093]]

because they are designed to support the governance structure 
objectives of LTSE Listings.
(2) Long-Term Strategy and Product Disclosures
    As described in the Purpose section under ``Long-Term Strategy and 
Product Disclosures,'' the proposed LTSE Listings Rules would require 
LTSE Listings Issuers to provide investors with LTSP Disclosures, which 
are supplemental disclosures regarding an LTSE Listings Issuer's long-
term strategy and products. Specifically, the LTSP Disclosures would 
include disclosures relating to an LTSE Listings Issuer's Long-Term 
Growth Strategy, Buybacks, Human Capital Investment and research and 
development. These disclosures would be in addition to the disclosures 
required under the Act, the Commission's rules thereunder and the 
Exchange's other rules. The Exchange believes that the LTSP Disclosures 
would be consistent with the aims of the existing disclosure 
requirements of the Act--to ensure that investors receive full and 
accurate information so that they can make informed investment 
decisions--and are thereby consistent with the protection of investors 
and the public interest. Specifically, the Exchange believes that the 
LTSP Disclosure requirements would ensure that investors receive 
sufficient information to evaluate a company's progress toward meeting 
long-term goals. Although only LTSE Listings Issuers would be subject 
to these requirements, these requirements would not unfairly 
discriminate among issuers as only those companies electing to be 
subject to the LTSE Listings Rules would be subject to these 
requirements.
(3) Long-Term Alignment of Executive Compensation
    As described in the Purpose section under ``Long-Term Alignment of 
Executive Compensation,'' the LTSE Listings Rules would require that an 
LTSE Listings Issuer's compensation committee adopt a set of executive 
compensation guidelines applicable to Executive Officers that are 
designed to link executive compensation to the long-term value of the 
LTSE Listings Issuer. The Exchange believes that these requirements are 
consistent with the protection of investors and the public interest, 
consistent with Section 6(b)(5) of the Act, because they would help 
ensure that Executive Officers are incentivized to take actions that 
would enhance the long-term growth of an LTSE Listings Issuer, rather 
than short-term results. In addition, the Exchange believes that 
requiring a stronger link between a company's long-term performance and 
its executive compensation is designed to prevent fraudulent and 
manipulative acts and practices, by incentivizing executives to act in 
the long-term interest of LTSE Listings Issuers and limiting the extent 
to which executives could personally profit from efforts to effect 
short-term performance.
(4) Long-Term Shareholder Voting Structure
    As described in the Purpose section under ``Long-Term Shareholder 
Voting Structure,'' the LTSE Listings Rules would require that LTSE 
Listings Issuers maintain voting rights provisions in their corporate 
organizational documents that provide shareholders with the ability, at 
the shareholders' option, to accrue additional voting power over time. 
The Exchange believes that these requirements are consistent with the 
protection of investors and the public interest because they would 
provide a mechanism by which long-term shareholders can have greater 
influence in corporate governance. The Exchange believes that long-term 
shareholders are more likely than short-term investors to exercise 
their governance rights in a manner that prioritizes long-term growth 
over short-term results, and thus it is in the public interest and 
furthers the protection of investors for longer-term investors to have 
a greater role in corporate governance. In this regard, the Commission 
has noted that, ``when the interests of long-term investors and short-
term traders conflict . . . its clear responsibility is to uphold the 
interests of long-term investors.'' \94\ Further, the Exchange believes 
that, consistent with Section 6(b)(5) of the Act, the long-term voting 
rights provisions would not be unfairly discriminatory, as any 
shareholder of an LTSE Listings Issuer would have equal opportunity to 
elect to move their shares into registered form and accrue additional 
voting rights. Further, by requiring that the length of a shareholder's 
ownership be consistently measured through the shareholder's record 
ownership on an LTSE Listings Issuer's books, transferred to and from 
``street name'' through a DRP, the Exchange believes that the system 
will foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, and processing information with respect 
to, and facilitating transactions in securities, consistent with 
Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \94\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495, 37500 (June 29, 2005).
---------------------------------------------------------------------------

(5) Other Long-Term Requirements
    As described in the Purpose section under ``Other Long-Term 
Requirements,'' the LTSE Listings Rules would include certain other 
rules designed to encourage LTSE Listings Issuers to focus on long-term 
value creation. For example, the LTSE Listings Rules would provide that 
LTSE Listings Issuers are generally prohibited from providing Earnings 
Guidance more frequently than annually. The Exchange believes that this 
requirement is consistent with the protection of investors and the 
public interest by enhancing the ability of companies to withstand 
short-term pressures and focus on long-term growth, and is designed to 
prevent fraudulent and manipulative acts and practices, such as the 
risk that a company could take actions to artificially meet prior 
Earnings Guidance.
    The LTSE Listings Rules would also require that each LTSE Listings 
Issuer develop and publish a policy regarding an LTSE Listings Issuer's 
impact on the environment and community, and a policy explaining an 
LTSE Listings Issuer's approach to diversity. The Exchange believes 
that this requirement is consistent with the protection of investors 
and the public interest by ensuring that companies consider their 
impact on various stakeholders and the sustainability of their 
business.
    The LTSE Listings Rules would require LTSE Listings Issuers to have 
and maintain a publicly accessible website. Documents required to be 
posted on this website under the LTSE Listings Rules would be required 
to be made available in a printable version in the English language. 
The Exchange believes that these requirements are consistent with the 
protection of investors and the public interest by ensuring that 
investors and the public have access to the disclosures and other 
documents required by the LTSE Listings Rules.
    The LTSE Listings Rules would require LTSE Listings Issuers to make 
certain certifications to the Exchange. Specifically, LTSE Listings 
Issuers would be required to certify, at or before the time of listing, 
that all applicable listing criteria, including listing criteria under 
the LTSE Listings Rules, have been satisfied. In addition, the LTSE 
Listings Rules would require the CEO of each LTSE Listings Issuer to 
certify annually to the Exchange that the LTSE Listings Issuer is in 
compliance with proposed Rule Series 14A.400, which would contain the 
corporate governance

[[Page 14094]]

requirements of the LTSE Listings Rules, qualifying the certification 
to the extent necessary. The Exchange believes that these certification 
requirements are consistent with the protection of investors and the 
public interest and are designed to prevent fraudulent and manipulative 
acts and practices. As discussed in the Purpose section, given the 
unique nature of the LTSE Listings Rules, the Exchange believes that 
adding an annual certification requirement for LTSE Listings Issuers 
will assist the CEO and senior management of such issuers in ensuring 
compliance with LTSE Listings corporate governance requirements on an 
ongoing basis.
(6) Proposed Rules Clarifying Application of Existing Exchange Rules
    As described in the Purpose section under ``Proposed Rules 
Clarifying Application of Existing Exchange Rules,'' the LTSE Listings 
Rules would include a number of rules that would clarify the 
application of existing Exchange rules to LTSE Listings Issuers. In 
general, these rules would provide that LTSE Listings Issuers must 
comply with both the LTSE Listings Rules as well as all other 
applicable rules of the Exchange. However, these rules would also 
explain any deviations from this general principle. For example, 
although the Exchange maintains listing rules relevant for various 
types of securities, including American Depositary Receipts, preferred 
stock, rights and warrants, among others, the LTSE Listings Rules would 
clarify that only common equity securities would be eligible for 
listing on LTSE Listings. Similarly, although the Exchange maintains a 
number of exemptions from certain corporate governance requirements for 
certain types of issuers (e.g., Foreign Private Issuers), certain 
exemptions would not be available for LTSE Listings Issuers. The 
Exchange believes that these rules are consistent with protecting 
investors and the public interest because they would provide 
transparency to issuers and investors on how the Exchange's existing 
rules would apply to an LTSE Listings Issuer. Although these rules 
discriminate between issuers listed on LTSE Listings and other issuers 
listed on the Exchange, as well as between the type of security listed, 
the Exchange believes that the rules are not unfairly discriminatory, 
as companies are free to elect whether to list on LTSE Listings and be 
subject to its additional requirements.
    Another example of a proposed rule that would clarify the 
application of existing Exchange rules to LTSE Listings Issuers is 
proposed Rule 14A.412, which would clarify how an LTSE Listings Issuer 
would conduct the shareholder approval calculation in IEX Rule 14.412. 
The Exchange believes that this proposed Rule would further the 
objectives of Section 6(b)(5) of the Act because it would ensure that 
the long-term voting mechanics of the LTSE Listings Rules are taken 
into account when conducting this calculation. As discussed in the 
Purpose section, the Exchange believes that the proposed approach 
appropriately balances the reasonably likely potential dilution to 
existing shareholders without imposing a disparately burdensome 
shareholder approval requirement on LTSE Listings Issuers. The fact 
that shares may accrue voting power over time means that shares may be 
issued that have voting power that is less than the Shareholder 
Approval Threshold at the time of issuance, but potentially greater 
than the Shareholder Approval Threshold after a certain period of time. 
This would increase the dilution to the shareholders that held shares 
prior to that issuance. Although such existing shareholders would also 
have the ability to accrue additional voting power, to protect such 
shareholders and promote just and equitable principles of trade, 
proposed Rule 14A.412 would require LTSE Listings Issuers to take into 
account the likely voting power growth that the potential new shares 
would obtain over time (i.e., the Long-Term Voting Factor) when 
determining whether an issuance covered by IEX Rule 14.412 would 
require shareholder approval.
    For purposes of proposed Rule 14A.412, the assumed growth in voting 
power for the potential new shares is equal to the actual growth in 
voting power that the existing shares have obtained; however, shares of 
relatively new LTSE Listings Issuers may not have had time to accrue 
additional voting power. In other words, the Long-Term Voting Factor 
may be lower than what it would otherwise be for an LTSE-Listings 
Issuer that has been listed on LTSE Listings for a longer period of 
time. As a result, proposed Rule 14A.412 provides that LTSE Listings 
Issuers that have been listed for fewer than five years must assume a 
minimum Long-Term Voting Factor of two.\95\ The Exchange believes that 
this provision further protects investors and helps ensure that the 
shareholder approval calculation in IEX Rule 14.412 appropriately 
balances the interests of existing shareholders in having a vote on 
potentially dilutive share issuances with the burden of holding a 
shareholder meeting under circumstances when material dilution is 
unlikely. The Exchange believes that this approach is consistent with 
the policy objectives of IEX Rule 14.412 as discussed in the Purpose 
section.
---------------------------------------------------------------------------

    \95\ As noted in the Purpose section, if the LTSE Listings 
category is approved, the Exchange will periodically assess whether 
the minimum Long-Term Voting Factor of two should be modified based 
on its experience with LTSE Listings Issuers. The Exchange notes 
that any such modification would be subject to the provisions of 
Section 19(b)(1) under the Act and Rule 19b-4 thereunder. See 15 
U.S.C. 78s(b)(1) and 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    Proposed Rule 14A.500(c) would provide that in the event that an 
LTSE Listings Issuer becomes subject to delisting from LTSE Listings 
for failure to satisfy one or more LTSE Listings Rules but is otherwise 
in compliance with all other applicable listing rules of the Exchange, 
the Exchange may permit such issuer to remain listed on the Exchange, 
provided that such issuer will cease to be listed on LTSE Listings and 
will cease to be an LTSE Listings Issuer.\96\ The Exchange would assess 
whether such an issuer is in compliance with the Exchange's continued 
listing criteria (other than continued listing criteria applicable 
solely to LTSE Listings Issuers), and this provision would allow such 
an issuer to remain listed on the Exchange without going through the 
process of reapplying for an Exchange listing, which the Exchange 
believes would be disruptive to the issuer and its investors. As a 
result, the Exchange believes that this proposed rule would further the 
objectives of Section 6(b)(5) of the Act by, among other things, 
helping to remove impediments to and perfect the mechanism of a free 
and open market.
---------------------------------------------------------------------------

    \96\ The Exchange believes that this provision is similar to 
rules of other national securities exchanges that permit an issuer 
receiving a delisting determination to transfer to a separate 
segment of such exchange, subject to compliance with the continued 
listing standards of the separate segment. See Nasdaq FAQ 
Identification No. 474 (7/31/2012). Accordingly, the Exchange does 
not believe that this aspect of the LTSE Listings Rules raises any 
new or novel issues and is consistent with requirements of Section 
6(b)(5) of the Act.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. To the contrary, 
the Exchange believes that the proposed rule change will enhance 
competition between exchange listing markets in furtherance of Section 
11A(a)(1)(C)(ii) of the Act \97\ and consistent with Section 6(b)(8) of 
the

[[Page 14095]]

Act \98\ because it will provide issuers with an alternative with a 
differentiated offering as compared to the other listing rules existing 
on other national securities exchanges and the Exchange itself. 
Moreover, as a new listing venue, the Exchange expects to face intense 
competition from existing exchanges. Consequently, the degree to which 
a new listing category on the Exchange could impose any burden on 
intermarket competition is extremely limited, and the Exchange does not 
believe that such listing category would impose any burden on competing 
venues that is not necessary or appropriate in furtherance of the 
purposes of the Act. In addition, there is no barrier to other 
exchanges adopting similar listing standards. To the extent LTSE 
Listings is successful in attracting issuers to the list on the 
Exchange, other exchanges or potential new entrants could respond by 
adopting their own rules that are designed to foster long-term value 
creation.
---------------------------------------------------------------------------

    \97\ 15 U.S.C. 78k-1(a)(1)(C)(ii).
    \98\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Exchange also does not believe that the proposed rule change 
will result in any burden on intramarket competition since becoming 
subject to the supplemental standards in the LTSE Listings Rules is 
completely voluntary. Issuers can elect to list on the Exchange without 
listing on LTSE Listings, or can elect to become subject to the 
heightened standards of the LTSE Listings Rules. The Commission and 
Congress have in other contexts recognized that companies may elect to 
be subject to greater compliance obligations than strictly required, or 
elect not to rely on exemptions that may otherwise be available. For 
example, in adopting the Jumpstart Our Business Startups Act,\99\ 
Congress provided that emerging growth companies could, but were not 
required to, elect to rely on exemptions from various securities law 
requirements.\100\ Similarly, the Commission provides that classes of 
companies, such as Smaller Reporting Companies, may but are not 
required to provide particular disclosures.\101\ Similarly, other 
national securities exchanges have adopted categories for listed 
companies that elect to become subject to higher standards than other 
companies listed on such national securities exchange.\102\
---------------------------------------------------------------------------

    \99\ Public Law 112-106, 126 Stat. 306 (2012).
    \100\ For example, emerging growth companies may, but ``need not 
present more than 2 years of audited financial statements in order 
for the registration statement of such emerging growth company with 
respect to an initial public offering of its common equity 
securities to be effective . . .'' See Securities Act Section 
7(a)(2)(A); 15 U.S.C. 77g(a)(2)(A).
    \101\ See, e.g., Regulation S-K, Item 10(f); 17 CFR 229.10(f) 
(``[a] smaller reporting company may comply with either the 
requirements applicable to smaller reporting companies or the 
requirements applicable to other companies for each item, unless the 
requirements for smaller reporting companies specify that smaller 
reporting companies must comply with the smaller reporting company 
requirements'').
    \102\ See generally Nasdaq Rule 5000 series (containing more 
stringent listing standards for issuers listed on the ``Nasdaq 
Global Select Market'' as compared to those listed on the ``Nasdaq 
Global Market'' or the ``Nasdaq Capital Market'').
---------------------------------------------------------------------------

    The Exchange also does not believe that the proposal will impose 
any burden on competition between LTSE Listings Issuers that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because all companies electing to list on LTSE Listings will be subject 
to the same standards. Furthermore, where appropriate, the LTSE 
Listings Rules are designed to provide LTSE Listings Issuers with 
flexibility to implement the minimum standards contained in the LTSE 
Listings Rules in ways that are best suited for that issuer's business.
    Finally, the Exchange does not believe that the transfer agent 
certification requirement under proposed Rule 14A.413(b)(5) will impose 
a burden on competition with respect to transfer agents. While not all 
transfer agents will be able to implement the required software or 
other systems or processes, any transfer agent can choose to invest the 
resources necessary to implement such software or other systems or 
processes. Moreover, as noted above, as a new listing venue, the 
Exchange expects to face intense competition from existing exchanges. 
Consequently, the degree to which a new listing category on the 
Exchange could impose any burden on competition among transfer agents 
is extremely limited, and the Exchange does not believe that such 
listing category would impose any burden on transfer agents that is not 
necessary or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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 Brent J. Fields, 
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 such 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

[[Page 14096]]

Number SR-IEX-2018-06 and should be submitted on or before April 23, 
2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\103\
---------------------------------------------------------------------------

    \103\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill Peterson,
Assistant Secretary.
[FR Doc. 2018-06568 Filed 3-30-18; 8:45 am]
 BILLING CODE 8011-01-P